<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GENOVESE DRUG STORES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
GENOVESE DRUG STORES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 15, 1998
---------------------------
The Annual Meeting of Shareholders of Genovese Drug Stores, Inc. (the
'Company') will be held at the executive offices of the Company, 80 Marcus
Drive, Melville, New York, on Monday, June 15, 1998 at 11:00 A.M., local time.
The items to be considered and acted upon at the meeting will be:
1. The election of three Class III directors to serve until the 2001
Annual Meeting of Shareholders.
2. To consider a proposal to amend the 1984 Employee Stock Option and
Stock Appreciation Rights Plan (the '1984 Plan') to increase the number of
shares of Class A common stock of the Company available thereunder by
500,000 shares.
3. Such other business as may properly come before the Annual Meeting,
or any adjournments thereof.
Only shareholders of record at the close of business on April 22, 1998 are
entitled to notice of, and to vote at, the Annual Meeting.
Shareholders are invited to attend the Meeting, where they can vote in
person or by proxy. Those Shareholders who cannot attend the Meeting are
requested to vote and sign the enclosed proxy card and return it in the enclosed
self-addressed postage paid envelope. Please return the proxy card as soon as
possible to ensure that your vote is counted and to save the Company additional
expenses in soliciting proxies.
A proxy statement and proxy card are furnished herewith, along with the
Company's Fiscal 1998 Annual Report.
By Order of the Board of Directors
DONALD W. GROSS
Secretary
May 7, 1998
Melville, New York
<PAGE>
GENOVESE DRUG STORES, INC.
80 MARCUS DRIVE
MELVILLE, NEW YORK 11747
------------------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 15, 1998
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the 'Board') of Genovese Drug Stores, Inc. (the
'Company') of proxies for use at the Company's Annual Meeting of Shareholders
(the '1998 Annual Meeting') to be held at 11:00 A.M., local time, on Monday,
June 15, 1998, at the executive offices of the Company, 80 Marcus Drive,
Melville, New York and at any adjournments thereof. The Proxy Statement and
accompanying form of proxy are being mailed on or about May 7, 1998 to
shareholders of record at the close of business on April 22, 1998.
SOLICITATION AND REVOCATION OF PROXIES
The proxy is solicited on behalf of the Board of Directors of the Company.
It may be revoked at any time before its exercise by filing with the Secretary
of the Company a written revocation or a duly executed proxy bearing a later
date. It may also be revoked by attendance at the meeting and election to vote
in person.
The entire cost of soliciting proxies will be borne by the Company. Proxies
may be solicited by directors, officers and regular employees of the Company
personally or by telephone, at minimal cost to the Company, for which they will
receive no additional compensation. The Company may reimburse brokers and others
for reasonable costs incurred by them in obtaining voting instructions from
beneficial owners of common stock held by their principals.
If proxy cards in the accompanying form are properly executed and returned,
the shares of common stock represented thereby will be voted as instructed on
the proxy. If no instructions are given, such shares will be voted (i) for the
election as directors of the nominees of the Board of Directors named below,
(ii) for the proposed amendment and (iii) in the discretion of the proxies named
in the proxy card on any other proposals to properly come before the meeting or
any adjournments thereof.
VOTING SECURITIES OF THE COMPANY; REQUIRED VOTE
Only holders of record as of the close of business on April 22, 1998 are
entitled to vote at the 1998 Annual Meeting. On that date, there were
outstanding 7,325,913 shares of the Class A Common Stock of the Company, each
entitling the holder thereof to one vote per share, and 6,368,780 shares of the
Class B Common Stock of the Company, each entitling the holder thereof to ten
votes per share.
The election of each nominee for director requires a plurality of the total
votes cast. Proxies cannot be voted for a greater number of persons than the
number of nominees named. The amendment to the 1984 Employee Stock Option and
Stock Appreciation Rights Plan, as amended (the '1984 Plan'), requires the
approval of a majority of the total votes cast. Abstentions and broker non-votes
will not be considered votes cast for the foregoing purposes. Proxy ballots are
received and tabulated by the Company's transfer agent and certified by the
inspectors of election.
<PAGE>
ELECTION OF DIRECTORS
In accordance with the Certificate of Incorporation and the By-Laws of the
Company, the number of directors constituting the whole Board of Directors for
the ensuing year is nine. The Company's Board of Directors is divided into three
classes with a minimum of three directors in each class, and directors in each
class are elected for three-year terms or until their successors are duly
elected and qualified. Herbert J. Kett retired as a Class I director effective
April 3, 1998. Therefore, there are currently only two Class I directors and one
vacancy.
Under the Certificate of Incorporation and the By-Laws of the Company, only
the Class III directors (a total of three) are nominees for election at the 1998
Annual Meeting and are scheduled to serve for terms lasting for three years
until the Company's 2001 Annual Meeting of Shareholders. The Board of Directors
has no reason to believe that any of the nominees for director will not serve as
a director, but if any nominee should subsequently become unavailable to serve
as a director, the persons named as proxies may, in their discretion, vote for a
substitute nominee designated by the Board of Directors.
The following table sets forth information for each of the three Class III
director nominees for election at the 1998 Annual Meeting and for each director
continuing in office, including their age, present principal occupation and
positions held during the past five years, directorships held in any other
publicly held corporations, and the year in which each first became a director
of the Company. The information provided in connection with this table has been
obtained from the Company's records, information furnished by the directors as
of March 15, 1998, and a review of statements filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of
1934, as amended (the 'Exchange Act') and received by the Company through March
15, 1998.
CLASS III DIRECTORS TO BE ELECTED FOR A TERM WHICH EXPIRES AT THE
2001 ANNUAL MEETING
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE AND OTHER DIRECTOR
NAME AGE DIRECTORSHIPS SINCE
- ------------------ --- ------------------------------------------ --------
<S> <C> <C> <C>
ABRAHAM ALLEN 72 Self-employed health care consultant since 1986
(a) (b) (c) (d) 1986
THOMAS M. COONEY 72 President of Gibson Foundation since 1988; 1988
(a) (b) (c) (d) Director, The William Carter Company
LEONARD GENOVESE 63 Chairman of the Board since 1978 and 1961
(d) (e) President since 1974 of the Company;
Director of TR Financial Corp. since
1993; Director of Aid Auto Stores, Inc.
and Kellwood Company since 1995;
Director of The Stephan Co. since 1997
</TABLE>
CLASS I DIRECTORS WHOSE PRESENT TERMS EXPIRE AT THE 1999 ANNUAL MEETING
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE AND OTHER DIRECTOR
NAME AGE DIRECTORSHIPS SINCE
- ------------------ --- ------------------------------------------ --------
<S> <C> <C> <C>
WILLIAM J. MCKENNA 71 Chairman of the Board since 1991 of 1979
(a) (c) (d) Kellwood Company; Director of UMB
Financial Corporation since 1984
FRANCES GENOVESE 67 Director of the Company since 1975 1975
WANGBERG (d) (e)
</TABLE>
CLASS II DIRECTORS WHOSE PRESENT TERMS EXPIRE AT THE 2000 ANNUAL MEETING
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE AND OTHER DIRECTOR
NAME AGE DIRECTORSHIPS SINCE
- ------------------ --- ------------------------------------------ --------
<S> <C> <C> <C>
CHARLES HAYWARD 66 Financial services consultant since 1988 1981
(a) (b) (c) (d)
ROBERT N. HIATT 61 Retired Chairman, Maybelline, Inc. 1997
(a) (b) (c) (d)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE AND OTHER DIRECTOR
NAME AGE DIRECTORSHIPS SINCE
- ------------------ --- ------------------------------------------ --------
<S> <C> <C> <C>
ALLAN PATRICK 51 Executive Vice President of the Company 1987
since 1990
THOMAS J. MORAN 45 President and Chief Executive Officer of 1995
(a) (b) (c) (d) Mutual of America Life Insurance Company
since 1994; President and Chief
Operating Officer, 1992 to 1994;
Executive Vice President, 1989 to 1992
</TABLE>
- ------------------------
(a) Member of the Audit Committee.
(b) Member of the Compensation Committee.
(c) Member of the Finance Committee.
(d) Member of the Nominating Committee.
(e) Leonard Genovese is the brother-in-law of Frances Genovese Wangberg.
OTHER INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board, which met five times during fiscal year 1998 (ended January 30,
1998), has standing Audit, Compensation, Finance and Nominating Committees to
assist it in the discharge of its responsibilities. The Committees and their
principal functions are described below.
The Audit Committee consists of Messrs. Allen, Cooney, Hayward (Chairman),
Hiatt, McKenna and Moran. The Audit Committee met twice in fiscal year 1998.
This Committee recommends to the Board the engagement of independent auditors
for the ensuing year, reviews the scope and budget for the annual audit and
reviews with the auditors the results of their engagement, the financial
statements and management report. In addition, the Audit Committee reviews the
scope of and compliance with the Company's internal controls and reviews
recommendations made by the independent auditors with respect to changes in
accounting principles and internal controls.
The Compensation Committee consists of Messrs. Allen, Cooney, Hayward,
Hiatt and Moran (Chairman). The Compensation Committee met three times in fiscal
year 1998 and approves or recommends to the Board compensation and special
compensation for senior management in the form of bonuses and incentives, and
recommends to the Board the adoption and implementation of incentive
compensation plans, stock option plans and employee benefit plans, as well as
any modifications to existing plans.
The Finance Committee consists of Messrs. Allen (Chairman), Cooney,
Hayward, Hiatt, McKenna and Moran. The Finance Committee met once in fiscal year
1998. It reviews the financial condition and capital structure of the Company
and advises the Board with respect to acquisitions, divestitures and other
financial matters affecting the Company.
The Nominating Committee consists of Messrs. Allen, Cooney, Genovese
(Chairman), Hayward, Hiatt, McKenna and Moran and Frances Genovese Wangberg. The
Committee will consider nominees recommended by Shareholders for election to the
Board. Recommendations should be sent to the Secretary of the Company at the
Company's executive offices. The Nominating Committee met once in fiscal year
1998 and reviews and recommends criteria for Board membership.
3
<PAGE>
COMPENSATION OF DIRECTORS
The Company's present policy is to pay each director, exclusive of employee
directors, a fee of $5,000 per meeting for serving as a director. Members of the
Committees of the Board of Directors are not paid additional amounts for
attending Committee meetings. Under the terms of the 1984 Plan, each
non-employee director of the Company is eligible to receive a discretionary
grant of options to purchase shares of Class A Common Stock. The number of
shares is determined by the Board of Directors in its sole discretion. On March
12, 1997, each of the seven non-employee directors received a discretionary
grant of options to purchase 4,000 shares of Class A common stock. On June 16,
1997, each of the seven non-employee directors received 23,000 'premium-priced'
options, as follows: an option to purchase 5,000 Class A shares at an exercise
price of $19.38 per share (the fair market value of the Class A common stock on
the date of grant), an option to purchase 7,500 Class A shares at an exercise
price of $25.00 per share and an option to purchase 10,500 Class A shares at an
exercise price of $30.00 per share. After giving effect to the 10% stock
dividend paid in January 1998 and the anti-dilution provisions of the 1984 Plan,
the 4,000 options granted on March 12, 1997 have increased to 4,400 options and
the 23,000 options granted on June 16, 1997 have increased to 25,300 options as
follows: an option to purchase 5,500 Class A shares at an exercise price of
$17.62, an option to purchase 8,250 Class A shares at an exercise price of
$22.73, and an option to purchase 11,550 Class A shares at an exercise price of
$27.27. These options are immediately exercisable.
During fiscal year 1998, each director attended at least 75% of the
meetings held by the Board and the Committees of which he or she is a member.
Robert N. Hiatt was elected as a director on March 12, 1997. Herbert J. Kett
retired as a director on April 3, 1998. Certain directors may receive additional
forms of compensation, as described elsewhere in this Proxy Statement.
OWNERSHIP OF SECURITIES BY PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
Class A Common Stock and Class B Common Stock owned beneficially as of March 15,
1998, or as otherwise noted, by any person or entity known to the Company to be
the beneficial owner of more than 5% of the outstanding shares of either class
of Common Stock. The persons identified in this table have sole voting and
investment power with respect to the shares set forth opposite their names,
except as otherwise disclosed in the footnotes to the table, according to
information furnished to the Company by each of them.
CLASS A SHAREHOLDERS
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT
NAME & ADDRESS(a) OWNERSHIP(b) OF CLASS
- -------------------------------------------- -------------------- --------
<S> <C> <C>
Genovese Drug Stores, Inc. Employee
Stock Ownership Plan & Trust ('ESOP')..... 417,222 5.8
T. Rowe Price Associates, Inc. (c)
100 E. Pratt Street
Baltimore, MD 21202
(as of December 31, 1997)................. 368,060 5.2
Dimensional Fund Advisors Inc. (c)
1299 Ocean Avenue, 11th floor
Santa Monica, CA 90401
(as of December 31, 1997)................. 324,338 5.1
Leonard Genovese(d)......................... 4,133,908 36.7(e)
Frances Genovese Wangberg(d)................ 2,163,745 23.0(e)
Trust under the Will of the late
Joseph W. Genovese, Jr.(d)................ 1,905,572 20.8(e)
Trust under the Will of the late
Joseph W. Genovese, Sr.................... 688,932 8.7(e)
</TABLE>
4
<PAGE>
CLASS B SHAREHOLDERS
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT
NAME & ADDRESS(a) OWNERSHIP(b) OF CLASS
- -------------------------------------------- -------------------- --------
<S> <C> <C>
Leonard Genovese(d)(f)...................... 3,939,603 61.2
Frances Genovese Wangberg(d)(g)............. 2,107,275 32.7
Trust under the Will of the late
Joseph W. Genovese, Jr.(d)................ 1,905,572 29.6
Trust under the Will of the late
Joseph Genovese, Sr....................... 688,932 10.7
</TABLE>
- ------------------
(a) Except as otherwise noted, the address for all beneficial owners is 80
Marcus Drive, Melville, New York 11747.
(b) Certain shares in the table have been counted twice because of certain rules
and regulations of the Securities and Exchange Commission. See notes (f) and
(g).
(c) These securities are owned by various individual and institutional investors
which T. Rowe Price Associates, Inc. or Dimensional Fund Advisors Inc., as
applicable (each, a 'Fund Advisor'), serves as investment advisor with power
to direct investment and/or shared power to vote the securities. For
purposes of the reporting requirements of the Exchange Act, each Fund
Advisor is deemed to be a beneficial owner of such securities; however, each
Fund Advisor expressly disclaims that it is, in fact, the beneficial owner
of such securities.
(d) All shares of Common Stock beneficially owned by Leonard Genovese and
Frances Genovese Wangberg are subject to the terms of the Stockholders
Agreement, as described below. The shares of Class B Common Stock owned by
the Trust under the Will of the late Joseph W. Genovese, Jr. are held for
the benefit of Frances Genovese Wangberg
(e) Because shares of Class B Common Stock may be converted at any time to
shares of Class A Common Stock on a one-for-one basis, under Securities and
Exchange Commission rules each beneficial owner of outstanding shares of
Class B Common Stock is deemed to be the beneficial owner of shares of Class
A Common Stock. As of March 15, 1998, the following persons were deemed to
be beneficial owners of more than 5% of the outstanding Class A Common Stock
and each were deemed to own the following number of shares of Class A Common
Stock (and percent of outstanding Class A Common Stock) assuming conversion
of shares of Class B Common Stock and exercise of stock options to purchase
shares of Class A Common Stock: Leonard Genovese, 4,133,908 Class A shares
(36.7%), consisting of 3,939,603 shares of Class B Common Stock, 110,363
shares of Class A Common Stock and options covering 83,942 shares of Class A
Common Stock; Frances Genovese Wangberg, 2,163,745 Class A shares (23.0%),
consisting of 2,107,275 shares of Class B Common Stock, 9,900 shares of
Class A Common Stock and options covering 46,570 shares of Class A Common
Stock; Trust under the Will of the late Joseph W. Genovese, Jr., 1,905,572
Class A shares (20.8%), consisting of 1,905,572 shares of Class B Common
Stock; and Trust under the Will of the late Joseph Genovese, Sr., 688,932
Class A shares (8.7%) consisting of 688,932 shares of Class B Common Stock.
(f) Includes 688,932 shares of Class B Common Stock listed as beneficially owned
by the Trust under the Will of the late Joseph Genovese, Sr., of which Mr.
Genovese is Trustee and 1,905,572 shares of Class B Common Stock listed as
beneficially owned by the Trust under the Will of the late Joseph Genovese,
Jr., of which Mr. Genovese is Co-Trustee. Mr. Genovese disclaims any
beneficial ownership in any such shares. Additionally, Mr. Genovese owns
110,363 shares of Class A Common Stock and also has options to purchase
83,942 more shares of Class A Common Stock.
(g) Includes 1,905,572 shares of Class B Common Stock listed as beneficially
owned by the Trust under the Will of the late Joseph W. Genovese, Jr. for
the benefit of Frances Genovese Wangberg, of which Frances Genovese Wangberg
is Co-Trustee with Leonard Genovese. Additionally, Mrs. Wangberg owns 9,900
shares of Class A Common Stock and also has options to purchase 46,570 more
shares of Class A Common Stock.
5
<PAGE>
Leonard Genovese is the brother-in-law of Frances Genovese Wangberg. These
persons are deemed 'associates' of each other as that term is defined in the
regulations promulgated under the Exchange Act.
The Trust under the Will of the late Joseph W. Genovese, Jr. may be deemed
to be an 'associate' of Frances Genovese Wangberg and Leonard Genovese and the
Trust under the Will of the late Joseph Genovese, Sr. may be deemed to be an
'associate' of Leonard Genovese as that term is so defined. The term 'associate'
is used to indicate a relationship with any person, including, in this
situation, any trust or estate as to which such person has a substantial
beneficial interest, or as to which such person serves as trustee or in any
other fiduciary capacity, and any relative or spouse of such person who has the
same home as such person or who is a director or officer of the Company.
SECURITY OWNERSHIP BY MANAGEMENT
The following table presents the number of shares of the Company's Class A
Common Stock and Class B Common Stock owned beneficially as of March 15, 1998,
by (i) all directors and nominees, (ii) the executive officers listed in the
Summary Compensation Table, and (iii) all executive officers and directors as a
group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
AS OF 3/15/98(a)(b) % OF CLASS
--------------------- -----------
NAME CLASS A CLASS B A B
- ------------------------------------- --------- --------- ---- ----
<S> <C> <C> <C> <C>
Abraham Allen........................ 57,102 3,212 * *
Thomas M. Cooney..................... 57,869 0 * 0
Leonard Genovese(c).................. 4,133,908 3,939,603 36.7 61.2
Charles Hayward...................... 57,884 0 * 0
Robert N. Hiatt...................... 30,800 0 * 0
Herbert J. Kett...................... 161,502 0 2.2 0
Irwin Livon.......................... 105,085 0 1.4 0
William J. McKenna................... 51,211 0 * 0
Thomas J. Moran...................... 35,882 0 * 0
Allan Patrick........................ 106,280 0 1.5 0
Jerome Stengel....................... 124,028 45,718 1.7 *
Frances Genovese Wangberg(d)......... 2,163,745 2,107,275 23.0 32.7
All Executive Officers and Directors
as a Group (18 persons)(e)......... 5,669,254 4,497,498(f) 45.5 69.8
</TABLE>
- ------------------
* Indicates less than 1% of Class
(a) The persons identified in this table have sole voting and investment power
with respect to the shares set forth opposite their names, except as
otherwise disclosed in the footnotes to the table, according to information
furnished to the Company by each of them.
(b) The number of shares of Class A Common Stock shown in the table includes the
right to acquire such shares either through the conversion of shares of
Class B Common Stock on a one-for-one basis or through the exercise of stock
options pursuant to the Company's 1984 Plan as follows: Abraham Allen,
57,102 Class A shares, consisting of 7,320 Class A shares, 3,212 Class B
shares and options covering 46,570 Class A shares; Thomas M. Cooney, 57,869
Class A shares, consisting of 11,299 Class A shares and options covering
46,570 Class A shares; Leonard Genovese, 4,133,908 Class A shares,
consisting of 110,363 Class A shares, 3,939,603 Class B shares and options
covering 83,942 Class A shares; Charles Hayward, 57,884 Class A shares,
consisting of 11,314 Class A shares and options covering 46,570 Class A
shares; Robert N. Hiatt, 30,800 Class A shares, consisting of 1,100 Class A
shares and options covering 29,700 Class A shares; Herbert J. Kett, 161,502
Class A shares, consisting of 81,229 Class A shares and options covering
80,215 Class A shares; Irwin Livon, 105,085 Class A shares, consisting of
19,053 Class A shares and options covering 86,032 Class A shares; William J.
McKenna, 51,211 Class A shares, consisting of 13,501 Class A
(Footnotes continued on next page)
6
<PAGE>
(Footnotes continued from previous page)
shares and options covering 37,710 Class A shares; Thomas J. Moran, 35,882
Class A shares, consisting of 1,100 Class A shares and options covering
34,782 Class A shares; Allan Patrick, 106,280 Class A shares, consisting of
69,806 Class A shares and options covering 36,474 Class A shares; Jerome
Stengel, 124,028 Class A shares, consisting of 9,994 Class A shares, 45,718
Class B shares and options covering 68,316 Class A shares; Frances Genovese
Wangberg, 2,163,745 Class A shares, consisting of 9,900 Class A shares,
2,107,275 Class B shares and options covering 46,570 Class A shares; and All
Executive Officers and Directors as a Group, 5,669,254 Class A shares,
consisting of 447,657 Class A shares, 4,497,498 Class B shares and options
covering 724,099 Class A shares.
(c) Includes 688,932 shares of Class B Common Stock held by the Trust under the
Will of the late Joseph W. Genovese, Sr., of which Mr. Genovese is Trustee
and 1,905,572 shares of Class B Common Stock listed as beneficially owned by
the Trust under the Will of the late Joseph Genovese, Jr., of which Mr.
Genovese is Co-Trustee. Mr. Genovese disclaims any beneficial interest in
any such shares.
(d) Includes 1,905,572 shares of Class B Common Stock held by the Trust under
the Will of the late Joseph W. Genovese, Jr. for the benefit of Frances
Genovese Wangberg, of which she is Co-Trustee with Leonard Genovese.
(e) Includes 724,099 shares of Class A Common Stock which the group currently
has rights to acquire through the exercise of stock options pursuant to the
1984 Plan.
(f) The 1,905,572 shares of Class B Common Stock beneficially owned by the Trust
under the Will of the late Joseph W. Genovese, Jr. are included in the Class
B shares owned by each of Leonard Genovese and Frances Genovese Wangberg.
However, these shares are counted only once in the total number of shares
listed under 'All Executive Officers and Directors as a Group'.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission (the 'SEC') and the American Stock Exchange initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Reporting persons are required by SEC regulation to furnish the Company with
copies of all such filed reports. To the Company's knowledge, based solely on a
review of copies of such filed reports furnished to the Company, all of the
Company's directors, officers, and greater than ten percent beneficial owners
made all required filings during fiscal year 1998 in a timely manner, except
that John Harlow filed one revised Form 4 one week late with respect to one sale
transaction and each of the seven non-employee directors filed a late Form 5
with respect to the June 1997 premium-priced option grants described above under
'Compensation of Directors'.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by the Company
during the fiscal years ending January 30, 1998, January 31, 1997 and February
2, 1996 to the Chief Executive Officer and the four most highly compensated
executive officers of the Company. Each executive officer of the Company serves
at the pleasure of the Board of Directors. No executive officer has an
employment agreement with the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($)(a) ($)(b) ($)(c) ($)(b) (#)(d) ($)(3)
- -------------------------- ------ ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LEONARD GENOVESE.......... 1998 512,560 -0- 4,308 -0- 176,000 3,305
Chairman of the Board 1997 461,500 115,000 6,496 115,000 9,515 9,220(f)
and President 1996 442,500 -0- 6,496 -0- 12,100 5,864
ALLAN PATRICK............. 1998 262,560 -0- 188,690 -0- 101,750 1,067
Executive Vice President 1997 243,520 60,500 81,379 60,500 7,260 1,317
and Director 1996 231,500 -0- 2,744 -0- 9,075 1,221
JOHN HARLOW (g)........... 1998 192,560 -0- 1,218 -0- 84,150 -0-
Senior Vice President 1997 91,166 35,000 -0- 35,000 -0- -0-
HERBERT J. KETT........... 1998 187,560 -0- 3,317 -0- 60,720 3,745
Vice Chairman and 1997 176,152 33,250 123,324 33,250 4,916 3,619
Director 1996 169,500 -0- 4,380 -0- 6,292 2,989
JEROME STENGEL............ 1998 170,560 -0- 3,317 -0- 49,500 2,318
Vice President, 1997 154,212 27,540 118,026 27,540 4,840 2,416
Treasurer and CFO 1996 148,416 -0- 3,315 -0- 6,050 2,063
</TABLE>
- ------------------
(a) Includes Company contributions to the Genovese Retirement and Savings Plan,
a Section 401(k) plan. In fiscal 1998, the Company contributed $2,560,
$2,560, $2,560, $2,560 and $2,560, respectively.
(b) The amounts in the table reflect solely bonuses awarded under the 1987 Plan.
50% of such awards are paid in cash and 50% are paid in Class A Common Stock
of the Company over a four year period in five equal installments, assuming
the continued employment of such executives.
(c) The amounts shown in the table reflect, for fiscal 1998, gains related to
the exercise of stock options in the amounts of $0, $0, $186,741, $0 and $0,
respectively, personal use of a Company-leased automobile on a pro-rated
basis in the amounts of $1,500, $1,000, $1,000, $1,000 and $1,000,
respectively; and premiums paid by the Company for life insurance over
$50,000 in the amounts of $2,808, $950, $2,317, $218 and $2,317,
respectively.
(d) Options to purchase shares of Class A Common Stock granted pursuant to the
1984 Plan. The number of options granted in each year has been restated to
reflect the 10% stock dividends issued in January 1996, January 1997 and
January 1998, where applicable. The five named executives each received two
separate grants of options during fiscal 1998. In March 1997, they received
options to purchase 11,000, 8,250, 7,150, 5,720 and 5,500 shares of Class A
Common Stock, respectively, at an exercise price of $12.27.
In June 1997, Leonard Genovese received options to purchase 77,000 shares of
Class A Common Stock at an exercise price of $17.62 per share (the fair
market value of the Class A Common Stock on the date of grant) and
'premium-priced' options to purchase 41,250 shares of Class A Common Stock at
an exercise price of $22.73 per share and options to purchase 46,750 shares
of Class A Common Stock at an exercise price of $27.27 per share.
(Footnotes continued on next page)
8
<PAGE>
(Footnotes continued from previous page)
In June 1997, Allan Patrick received options to purchase 33,000 shares of
Class A Common Stock at an exercise price of $17.62 per share (the fair
market value of the Class A Common Stock on the date of grant) and
'premium-priced' options to purchase 27,500 shares of Class A Common Stock at
an exercise price of $22.73 per share and options to purchase 33,000 shares
of Class A Common Stock at an exercise price of $27.27 per share.
In June 1997, John Harlow received options to purchase 27,500 shares of Class
A Common Stock at an exercise price of $17.62 per share (the fair market
value of the Class A Common Stock on the date of grant) and 'premium-priced'
options to purchase 22,000 shares of Class A Common Stock at an exercise
price of $22.73 per share and options to purchase 27,500 shares of Class A
Common Stock at an exercise price of $27.27 per share.
In June 1997, Herbert J. Kett received options to purchase 55,000 shares of
Class A Common Stock at an exercise price of $17.62 per share (the fair
market value of the Class A Common Stock on the date of grant).
In June 1997, Jerome Stengel received options to purchase 44,000 shares of
Class A Common Stock at an exercise price of $17.62 per share (the fair
market value of the Class A Common Stock on the date of grant).
All options granted in June 1997 to the five named executives had an original
option term of ten years, were unvested for five years and became 100% vested
after five years, provided, however, that the options became immediately
exercisable upon death, disability, retirement or change of control of the
Company. Mr. Kett retired as of April 3, 1998 and Mr. Stengel retired as of
May 1, 1998. Therefore, all of their unvested options became immediately
exerciseable as of May 1, 1998.
(e) The amounts shown in the table reflect, for fiscal year 1998, the Company's
contributions to the Non-Qualified Pension Plan added to salary in the
amounts of $3,305, $1,067, $0, $3,745 and $2,317, respectively.
(f) Includes the amount of annual premiums on the term portion of split-dollar
life insurance on the lives of Leonard Genovese and his spouse in the
amounts of $0, $5,951 and $3,120 for fiscal years 1998, 1997 and 1996,
respectively. The annual premiums paid by the Company for the non-term
portion of such insurance were $231,070, $226,251 and $189,250 for fiscal
years 1998, 1997 and 1996, respectively. Pursuant to collateral assignments
of the split-dollar life insurance policies, upon the death of Leonard
Genovese and his spouse, the Company is repaid the amount of premiums paid
by the Company.
(g) John Harlow commenced employment as Senior Vice President, Director of Store
Operations on April 15, 1996.
REPORT OF THE COMPENSATION COMMITTEE
The Company's current executive compensation program reflects the overall
compensation philosophies of the Company. The program is designed with a goal of
fairly compensating executives for their performance and contribution to the
Company's financial results, as well as providing incentives which attract and
retain key executives, instill a long-term commitment to the Company and develop
a pride and sense of Company ownership, all in a manner consistent with
shareholder interests. Given these objectives, the executive compensation
package includes three elements: (1) base salary; (2) bonuses awarded under the
1987 Executive Bonus & Stock Plan (the '1987 Plan'), consisting of one-half cash
and one-half grants of Class A Common Stock (which grants vest in five equal
installments over a four year period, generally commencing shortly after each
grant); and (3) options to purchase shares of Class A Common Stock granted under
the 1984 Plan, which options are non-qualified options with an exercise price of
no less than 100% of the price per share of Class A Common Stock on the date of
grant and a term of ten years from the date of grant. Each of the foregoing
three elements is reviewed annually and adjusted in light of the Company's
performance for the year, including the attainment of a pre-determined financial
plan, and the individual executive's contribution to that performance.
The Compensation Committee administers the 1987 Plan and the 1984 Plan. In
evaluating an executive's performance at the Company, in addition to financial
results of the Company (such as attaining the pre-
9
<PAGE>
determined financial plan), a broad range of performance criteria is considered.
These criteria include standards of business conduct which reflect the social
values and expectations of the Company's associates and shareholders and the
communities in which it operates. In considering salary increases, bonus awards
and stock option grants (for persons other than the President), the Compensation
Committee considers recommendations submitted by the President.
In approving the salary increase, bonus award and stock option grant to the
President, the Compensation Committee takes into account his level and scope of
responsibilities and contributions to the Company. The Compensation Committee
decides on the compensation of the President privately, without the President
being present. For fiscal 1998, the Compensation Committee increased the
President's base salary from $460,000 to $510,000 and awarded the options
described below under the 1984 Plan, but declined to award a bonus under the
1987 Plan.
Under Section 162(m) of the Internal Revenue Code (the 'Code'), a public
company will be denied federal income tax deductions for compensation paid to
the company's chief executive officer and to its four other most highly
compensated executive officers to the extent that the compensation paid to any
such individual exceeds $1,000,000 for a taxable year, unless such compensation
qualifies for certain exceptions to the loss of deduction rules set forth in
Section 162(m), such as an exception for compensation paid under a performance
based compensation plan. The Compensation Committee, when considering
compensation levels and compensation programs, considers all relevant factors,
including tax deductions that may result from such compensation or programs.
Compensation paid to the Company's chief executive officer and to each of its
four other most highly compensated executive officers has never exceeded
$1,000,000, and in 1998 is not expected to exceed $1,000,000.
The Compensation Committee consists of five independent directors, none of
whom is an employee of the Company.
This report is submitted by the following persons who constitute the
Compensation Committee:
Thomas J. Moran, Chairman
Abraham Allen
Thomas M. Cooney
Charles Hayward
Robert N. Hiatt
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during the 1998 fiscal year consisted of the
following five non-employee directors: Thomas J. Moran (Chairman), Abraham
Allen, Thomas M. Cooney, Charles Hayward and Robert Hiatt.
EMPLOYEE BENEFIT PLANS AND OTHER REMUNERATION
1987 EXECUTIVE BONUS & STOCK PLAN
The 1987 Plan was adopted during fiscal year 1988. Under the 1987 Plan, the
Compensation Committee can award eligible executives, upon meeting targeted
performance levels, incentive compensation which is paid 50% in cash and 50% in
shares of Class A Common Stock. Under the current policy of the Compensation
Committee, only the executive officers of the Company are eligible to receive
awards under the 1987 Plan. The stock is payable in equal installments of 20%
over a four year period, provided the recipient remains employed by the Company.
The Company had available, as of January 31, 1998, approximately 246,494 shares
of Class A Common Stock for future awards under the 1987 Plan. For fiscal year
1998, the Compensation Committee did not grant any bonuses under the 1987 Plan.
The Company distributed during fiscal 1998 29,201 shares of Class A Common Stock
for amounts awarded in previous years.
10
<PAGE>
1984 EMPLOYEE STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
The 1984 Plan authorizes the grant of discretionary options to purchase
shares of Class A Common Stock from the Company to officers of the Company,
other key employees of and consultants to the Company and non-employee directors
of the Company. The 1984 Plan authorizes the grant of such options at an
exercise price which is not less than 100% of the fair market value of the Class
A Common Stock at the time the option is granted. All outstanding options
currently have a ten-year term. Under Proposal 1 set forth in this Proxy
Statement, the shareholders of the Company are being asked to consider a
proposal to amend the 1984 Plan to increase the number of shares of Class A
Common Stock of the Company available thereunder by 500,000 shares.
Payment for shares of Class A Common Stock purchased upon exercise of an
option must be made in full at the time of exercise, either in cash, by delivery
of shares of Common Stock then owned by the optionee or a combination of cash
and shares of Common Stock having an aggregate fair market value equal to the
option price, or by participation in a cashless exercise program. Under the
cashless exercise program, an optionee may sell all or part of his or her option
shares through a brokerage firm with whom the Company has arranged to handle
such sales. The brokerage firm pays the aggregate amount of the exercise price
for such option shares directly to the Company. The remaining monies or shares,
less a brokerage commission, are credited to the account of the optionee at such
brokerage firm. As of January 30, 1998, options to purchase 1,495,409 shares
were outstanding at exercise prices ranging from $5.72 to $27.27 per share.
OPTION GRANTS IN FISCAL 1998
The following table sets forth certain information concerning individual
grants of stock options made to each of the executive officers of the Company
named in the above Summary Compensation Table during fiscal 1998 pursuant to the
1984 Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENAIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS OPTIONS PRICE APPRECIATION FOR
GRANTED GRANTED TO EXERCISE OPTION TERM($)
(# OF EMPLOYEES IN PRICE(2) EXPIRATION ----------------------
NAME SHARE)(1) FISCAL 1998 ($/SH) DATE 5%(3) 10%(3)
- ------------------- --------- ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leonard Genovese... 11,000 1.0% $12.27 3/11/07 $ 84,882 $ 215,107
77,000 6.7% $17.62 6/15/07 $853,246 $2,162,294
41,250 3.6% $22.73 6/15/07 $246,309 $ 947,584
46,750 4.0% $27.27 6/15/07 $ 66,905 $ 861,684
Allan Patrick...... 8,250 0.7% $12.27 3/11/07 $ 63,661 $ 161,331
33,000 2.9% $17.62 6/15/07 $365,677 $ 926,697
27,500 2.4% $22.73 6/15/07 $164,206 $ 631,723
33,000 2.9% $27.27 6/15/07 $ 47,227 $ 608,247
John Harlow........ 7,150 0.6% $12.27 3/11/07 $ 55,173 $ 139,820
27,500 2.4% $17.62 6/15/07 $304,731 $ 772,248
22,000 1.9% $22.73 6/15/07 $131,365 $ 505,378
27,500 2.4% $27.27 6/15/07 $ 39,356 $ 506,873
Herbert J. Kett.... 5,720 0.5% $12.27 3/11/07 $ 44,139 $ 111,856
55,000 2.4% $17.62 6/15/07 $609,462 $1,544,496
Jerome Stengel..... 5,500 0.5% $12.27 3/11/07 $ 42,441 $ 107,554
44,000 3.8% $17.62 6/15/07 $487,569 $1,235,597
</TABLE>
(Footnotes on next page)
11
<PAGE>
(Footnotes from previous page)
- ------------------
(1) The stock options which expire on 3/11/07 are fully vested immediately upon
grant. All rights to exercise such options terminate 14 business days after
termination of employment, provided, however, that the optionee or his
estate shall have three months after termination of employment to exercise
the options if the cessation of employment is due to retirement on or after
attaining the age of 65, disability, or death.
All options granted in June 1997 (which expire on 6/15/07) to the five named
executives had an original option term of ten years, were unvested for five
years and became 100% vested after five years, provided, however, that the
options become immediately exercisable upon death, disability, retirement or
change of control of the Company.
Mr. Kett retired as of April 3, 1998 and Mr. Stengel retired as of May 1,
1998. Therefore, all of their unvested options became immediately
exerciseable as of the date of retirement. As part of their Retirement
Agreements, which are described below, all of Mr. Kett and Mr. Stengel's
options terminate on December 31, 2001.
The revised net realizable values of Mr. Kett's options assuming 5% and 10%
growth rates (which would result in stock prices of $22.10 and $27.70,
respectively, on December 31, 2001) are $56,228 (at 5%) and $88,260 (at
10%)(for the 5,720 options) and $246,400 (at 5%) and $554,400 (at 10%)(for
the 55,000 options).
The revised net realizable values of Mr. Stengel's options assuming 5% and
10% growth rates (which would result in stock prices of $22.10 and $27.70,
respectively, on December 31, 2001) are $54,065 (at 5%) and $84,865 (at
10%)(for the 5,500 options) and $197,120 (at 5%) and $443,520 (at 10%)(for
the 44,000 options).
The Company paid on January 14, 1998 a 10% stock dividend to shareholders of
record on December 26, 1997. Since the 1984 Plan contains antidilution
provisions, the number of options granted and the option prices in the table
have been adjusted to reflect the stock dividend.
(2) Exercise prices have been adjusted to reflect the 10% stock dividend paid in
January 1998.
(3) The potential realizable value amounts shown illustrate the values that
might be realized upon exercise of stock options immediately prior to the
expiration of their ten-year term using 5% and 10% appreciation rates (as
specified by the SEC), compounded annually, and therefore are not intended
to forecast possible future appreciation, if any, of the price of Class A
Common Stock. Additionally, these values do not take into consideration the
provisions of the options providing for non-transferability or termination
of the options following termination of employment.
In order to achieve the potential realizable values set forth in the 5% and
10% columns, the price per share of Class A Common Stock for the stock options
granted on the following dates would need to appreciate to the applicable stock
prices from the date of grant through the ten-year option term:
5% 10%
------ ------
March 1997.... $19.99 $31.83
June 1997..... $28.70 $45.70
On January 30, 1998, the last day of trading in fiscal 1998, the closing
price of the Class A Common Stock on the American Stock Exchange was $16.875 per
share.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during fiscal year 1998
and unexercised options held at fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT YEAR-END(#) FISCAL YEAR-END($)(a)
SHARES ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Genovese... -0- -0- 83,942 165,000 $ 725,599 -0-
Allan Patrick...... 13,287 $ 186,741 36,474 93,500 $ 280,214 -0-
John Harlow........ -0- -0- 7,150 77,000 $ 32,926 -0-
Herbert J. Kett.... -0- -0- 25,215 55,000 $ 193,618 -0-
Jerome Stengel..... -0- -0- 24,316 44,000 $ 186,809 -0-
</TABLE>
- ------------------
(a) Calculated based on the excess of the fair market value of Class A Common
Stock on January 30, 1998 ($16.875) over the option exercise price. All
awards made to Leonard Genovese from 1990 through 1992 were at an option
exercise price equal to 110% of the market price on the date of the grant.
THE GENOVESE RETIREMENT AND SAVINGS PLAN
The Company maintains a profit sharing and retirement savings plan pursuant
to Section 401(k) of the Code. All employees participate after one year of
service and attainment of age 21.
The Company may make discretionary contributions in an amount determined
annually by the Board of Directors. Company contributions are allocated to
eligible participants in proportion to their compensation. Participants may make
contributions to the Plan on a salary reduction basis, and the Company may make
matching contributions on behalf of each participant. A separate salary
reduction account and matching employer contribution account are maintained for
each participant. All contributions are paid to The Dreyfus Trust Company, as
Trustee, to hold, invest and reinvest the funds. All accounts are vested at
retirement, death or disability. Upon any other termination of employment,
matching and discretionary contributions vest 20% a year for the first five
years of service. Subject to certain restrictions and tax penalties,
participants may borrow from or make early withdrawals from their salary
reduction accounts.
RETIREMENT INCOME PLAN
The Company's Retirement Income Plan (the 'Pension Plan') covers
approximately 700 participants. The Company, during fiscal year 1990, elected to
freeze the Pension Plan as of December 31, 1988, which resulted in the freezing
of maximum benefits available to employees covered by the Pension Plan as of
December 31, 1988. Employees covered by the Pension Plan will continue to vest
with the passage of time.
The Pension Plan provides 100% vesting after five years of service. Normal
retirement age is 65 and early retirement can be taken after age 55. A
participant's benefits under the Pension Plan are based upon a maximum of 50% of
his or her average earnings during the final five years of employment up to a
maximum of $30,000, less 75% of his primary Social Security benefits, for 30
years or more of service. Benefits are reduced proportionately if the
participant's actual years of service are less than 30. As a result of the
freeze of benefits described above, these benefits were determined for each
affected employee as if he or she terminated employment on December 31, 1988.
The following named executive officers shall be entitled to receive the
following annual benefits upon retirement at age 65: Leonard Genovese, $4,991;
Herbert Kett, $5,172; Allan Patrick, $2,398; Jerome Stengel, $3,364; and John
Harlow, $0. Because the Pension Plan was frozen, the benefits payable upon
retirement to the named executive officers will not vary based on final
compensation or additional years of service.
NON-QUALIFIED PENSION PLAN
In addition, five key officers of the Company (Leonard Genovese, Herbert J.
Kett, Allan Patrick, Jerome Stengel and Dominick Lettieri) participate in a
non-qualified pension plan. The plan provides benefits at retirement equal to
50% of a participant's base salary with a maximum benefit of $50,000 per year
for 10 years.
13
<PAGE>
This plan also provides life insurance on the individual officers, payable to
the officers in an amount equal to five years base salary up to a maximum of
$500,000. Because each of these five officers receives (and is expected to
receive in future years) a base salary in excess of $100,000, each such officer
is expected to receive at retirement the maximum benefits available under the
non-qualified pension plan. As part of their Retirement Agreements, Mr. Kett and
Mr. Stengel agreed to forfeit their rights to receive benefits under the
Non-Qualified Pension Plan in exchange for a lump sum cash payment.
EMPLOYEE STOCK OWNERSHIP PLAN & TRUST
On April 6, 1976, the Board of Directors of the Company approved the
adoption of the ESOP for the benefit of all of its employees, including
officers, who meet certain eligibility requirements, based primarily on age,
length of service and number of hours worked. Under the ESOP, the Company may
make contributions to a trust fund in cash or property, including shares of
Class A Common Stock, in an amount to be determined annually by the Board of
Directors. The Trustees of the trust fund will be directed to invest any funds
received primarily in Class A Common Stock and to make distributions in the form
of Class A Common Stock or cash to participants upon death, disability or
retirement. In the event employment of a participant is terminated prior to
death, disability or retirement, the number of shares of the ESOP he or she will
be entitled to receive as a distribution will depend, in general, upon his or
her length of service with the Company. A participant's share in the
contribution for each year is determined by the ratio of his or her compensation
(exclusive of any bonuses) to the aggregate compensation of all participants
(exclusive of bonuses).
For fiscal year 1998, the Board of Directors did not authorize any
contribution to the ESOP. On March 15, 1998, the ESOP held 417,222 shares of
Class A Common Stock.
CERTAIN TRANSACTIONS
During fiscal year 1998, the Company paid to Leonard Genovese and another
member of the Genovese family, as Trustees under deeds of trust for the benefit
of certain family members, an aggregate of $303,913 for facilities located in
Long Island City, New York, under the terms of a lease which expires on July 31,
2010. During fiscal 1998 the Company paid to the Trustees an annual base rental
of $241,500 and $62,413 for the payment of certain real estate taxes. The
Company believes that the lease, when entered into, was made on terms no less
favorable to the Company than could have been obtained from an unaffiliated
person in a similar transaction.
CHANGE IN CONTROL AGREEMENTS
The Company has in force Severance Agreements with seven of its officers.
The Agreements become effective only upon a Change in Control (as defined in the
Agreements). If, after a Change in Control, the Executive's employment is
terminated with rights to receive severance benefits, the Executive will be
entitled to receive (i) a lump-sum severance payment equal to two times the sum
of the highest base salary ever paid to the Executive and the highest incentive
pay paid to the Executive in the three most recent calendar years, and (ii)
employee benefits for a period of 24 months. The Agreements were amended in June
1997 to provide for a gross-up of benefits to compensate the executive for any
excise taxes imposed by Section 4999 of the Code by reason of the payments
thereunder being considered 'contingent on a change in ownership or control' of
the Company, within the meaning of Section 280G of the Code.
RETIREMENT AGREEMENTS
On March 6, 1998, the Company entered into Severance Agreements (the
'Retirement Agreements') with Herbert J. Kett, Vice Chairman of the Company,
Jerome Stengel, Vice President, Treasurer and Chief Financial Officer of the
Company, and Irwin Livon, Vice President, Merchandising and Advertising. Copies
of the Severance Agreements have been filed as Exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1998.
Mr. Kett retired as Vice Chairman of the Company and as a member of the
Board of Directors of the Company as of April 3, 1998 after 45 years of service
to the Company. Pursuant to his Retirement Agreement, he received a lump sum of
approximately $1.1 million. In addition, all of his outstanding options to
purchase
14
<PAGE>
Company stock became exerciseable upon his retirement and now expire on December
31, 2001. Mr. Kett will remain available as a consultant to the Company.
Mr. Stengel retired as Vice President, Treasurer and Chief Financial
Officer of the Company as of May 1, 1998 after 25 years of service to the
Company. Pursuant to his Retirement Agreement, he received a lump sum of
approximately $900,000. In addition, all of his outstanding options to purchase
Company stock became exerciseable upon his retirement and now expire on December
31, 2001. Mr. Stengel will remain available as a consultant to the Company.
Mr. Livon retired as Vice President, Merchandising and Advertising, of the
Company as of May 1, 1998 after eight years of service to the Company. Pursuant
to his Retirement Agreement, he received a lump sum of approximately $600,000.
In addition, all of his outstanding options to purchase Company stock became
exerciseable upon his retirement and now expire on December 31, 2001.
STOCKHOLDERS AGREEMENT
On June 30, 1997, Leonard Genovese and Frances Genovese Wangberg, the two
principal stockholders of the Company (the 'Principal Stockholders'), entered
into a Stockholders Agreement (the 'Stockholders Agreement'). A copy of the
Stockholders Agreement was filed as Exhibit 1 to Amendment No. 3 to a joint
Schedule 13D filed with the SEC on July 2, 1997 by the Principal Stockholders.
The Principal Stockholders entered into the Stockholders Agreement to
impose certain restrictions on and conditions to the transfer and voting of the
Class A and Class B Common Stock of the Company beneficially owned by them. The
Class B Common Stock is not registered as a class of equity securities under the
Exchange Act, but may be converted or exchanged for shares of Class A Common
Stock at any time.
The Stockholders Agreement governs all shares of Common Stock and all
securities convertible into or exchangeable for Common Stock beneficially owned
by the Principal Stockholders or their Permitted Transferees (as defined in the
Stockholders Agreement) as of the date of the Stockholders Agreement or at any
time thereafter, subject to certain limited exceptions.
The Stockholders Agreement provides that, subject to certain limited
exceptions, neither the Principal Stockholders nor their Permitted Transferees
may, without the prior written consent of both Principal Stockholders, directly
or indirectly, whether voluntary or involuntary, sell, distribute, transfer,
assign, pledge, hypothecate or otherwise dispose of (including, without
limitation, by tendering such shares into a tender offer) or encumber
(including, without limitation, by subjecting such shares to any proxy or voting
agreement, trust or other arrangement except as set forth in the Stockholders
Agreement) any Common Stock subject to the Stockholders Agreement. All Permitted
Transferees will be required to become a party to the Stockholders Agreement.
The Stockholders Agreement also provides that without the prior written
consent of the Principal Stockholders, the Principal Stockholders and their
Permitted Transferees will not convert or exchange any shares of Class B Common
Stock into or for shares of Class A Common Stock except as may be required in
connection with certain permitted transfers.
The Stockholders Agreement further provides that on all matters that are
put to a vote (or action by written consent) of the stockholders of the Company,
including, without limitation, the election of directors, a merger,
consolidation, sale, acquisition or other business combination involving the
Company and amendments to the Company's certificate of incorporation or by-laws,
each of the Principal Stockholders and their Permitted Transferees will vote (or
act by written consent with respect to) its Common Stock as directed in writing
by both of the Principal Stockholders; provided, however, that if the Principal
Stockholders cannot agree as to how such Common Stock shall be voted, such
Common Stock will be voted in accordance with the recommendation of the
Company's Board of Directors.
15
<PAGE>
PERFORMANCE GRAPH
The graph below compares the yearly percentage change in the cumulative
total shareholder return on the Company's Class A Common Stock against the
cumulative total return of the S&P 500 and a composite peer group for the period
of five years commencing February 1, 1993 and ending January 31, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN FOR THE
FIVE YEARS COMMENCING 2/1/93 AND ENDING 1/31/98
[LINE GRAPH]
1/93 1/94 1/95 1/96 1/97 1/98
---- ---- ---- ---- ---- ----
Genovese Drug Stores 100 140 124 129 218 286
S&P 500 100 113 113 157 199 252
NACDS Peer Group 100 91 99 129 164 258
The graph assumes that the value of the investment in the Class A Common
Stock and each index was $100 on February 1, 1993 and that all dividends were
reinvested.
The peer group currently consists of the Company and the following
drugstore chains: Arbor Drugs, Inc., CVS Corporation, Drug Emporium, Inc.,
Horizon Pharmacy, Inc., Longs Drug Stores Corp., Phar-Mor Inc., Pharmhouse
Corp., Rite Aid Corp. and Walgreen Co.
16
<PAGE>
CERTIFIED PUBLIC ACCOUNTANTS
The certified public accounting firm of Deloitte & Touche LLP was engaged
as independent auditors by the Board for fiscal year 1998. The Board, on the
recommendation of its Audit Committee, has retained Deloitte & Touche LLP to
provide accounting services for fiscal year 1999. Deloitte & Touche LLP is
expected to have representatives present at the 1998 Annual Meeting who will be
available to respond to shareholders' questions and, if they desire, will have
an opportunity to make any statement they consider appropriate.
PROPOSAL 1
PROPOSAL TO APPROVE AN AMENDMENT TO THE 1984 EMPLOYEE STOCK OPTION AND STOCK
APPRECIATION RIGHTS PLAN
DESCRIPTION OF PROPOSAL AND RECOMMENDED VOTE
The Compensation Committee has adopted Amendment No. 7 to the 1984 Plan
('Amendment No. 7') subject to the approval of the shareholders of the Company.
The text of Amendment No. 7 is appended hereto as Exhibit A.
Amendment No. 7 would increase by 500,000 the number of shares of Class A
Common Stock that can be awarded under the 1984 Plan.
The foregoing change would be effective as of March 10, 1998. In all other
respects, the current terms and conditions of the 1984 Plan would remain in
effect.
The Compensation Committee and Company management believe that amending the
1984 as proposed will further the purpose of the 1984 Plan and is in the best
interests of the Company and its shareholders.
The affirmative vote of the majority of the votes entitled to be cast at
the meeting is required for approval of Amendment No. 7 under Proposal 1. THE
BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE 'FOR' THE APPROVAL OF
THIS PROPOSAL.
DESCRIPTION OF 1984 PLAN
The 1984 Plan provides for the granting of stock options or stock
appreciation rights with respect to an aggregate of up to 1,450,000 shares
(before adjustment in accordance with the antidilution provisions of the 1984
Plan) of the Company's Class A common stock, par value $1.00 per share ('Class A
Stock'). The 1984 Plan includes provisions authorizing a Stock Option Plan
Committee to administer the 1984 Plan, to grant stock options or stock
appreciation rights thereunder, to construe and interpret the 1984 Plan, to
define the terms used therein, to prescribe, amend and rescind rules and
regulations relating to the 1984 Plan, and to make all other determinations
necessary or advisable for the administration of the 1984 Plan. The Stock Option
Plan Committee must consist of at least three disinterested, non-employee
directors of the Company. The Compensation Committee serves as the Stock Option
Committee under the 1984 Plan.
Purpose. The purpose of the 1984 Plan is to encourage the acquisition of a
proprietary interest in the Company by its directors, officers, consultants and
other key employees. Under Proposal 1 set forth in this Proxy Statement, the
shareholders of the Company are being asked to consider a proposal to amend the
1984 Plan to increase by 500,000 the number of shares of Class A Common Stock
that can be awarded under the 1984 Plan.
Adoption and Amendments. The 1984 Plan was approved by shareholders of the
Company on June 4, 1984 to be effective as of March 16, 1984 and was to
terminate automatically on March 16, 1994. The 1984 Plan was modified by an
amendment approved by shareholders of the Company on June 6, 1988, which
amendment authorized automatic, non-discretionary grants of stock options to
directors of the Company under the 1984 Plan and increased the number of shares
of Class A Stock authorized to be awarded under the 1984 Plan by 200,000 shares.
The 1984 Plan was further modified by an amendment approved by shareholders of
the Company on June 8, 1992, which amendment increased the number of shares of
Class A Stock authorized to be awarded under the 1984 Plan by 250,000 shares and
extended the term of the 1984 Plan from March 16, 1994 to March 16, 2004. The
1984 Plan was further modified by Amendment No. 3 approved by shareholders of
the Company on
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June 13, 1994, which amendment made three changes to the 1984 Plan. First, the
number of shares for which each non-employee director shall annually receive an
option grant was increased from 500 to 2,000, subject to adjustment in
accordance with the antidilution provisions of the 1984 Plan. Second, the
requirement for the receipt of consideration from the recipients of stock
options and stock appreciation rights under the plan was deleted. Third,
participation in a cashless exercise program sponsored by Merrill Lynch was
authorized. The 1984 Plan was further modified by Amendment No. 4 approved by
shareholders of the Company on June 17, 1996, which amendment made two changes
to the 1984 Plan. First, the number of authorized shares of Class A common stock
that may be issued under the 1984 Plan was increased by 800,000 shares. Second,
the term of existing options was extended from five to 10 years (subject to the
consent of existing option holders), and the permissible term of future options
(except certain incentive stock options) was extended from five to 10 years. The
1984 Plan was further modified by Amendment No. 5 approved by the Compensation
Committee of the Board of Directors and the full Board of Directors on March 12,
1997, which amendment made one change to the 1984 Plan. The amendment modified
the number of options that may be granted under the 1984 Plan to non-employees
who are members of the Board of Directors. Prior to such amendment, non-employee
directors automatically received an annual option grant to purchase 2,000 shares
of Class A common stock. The amendment gave the Compensation Committee the
authority to grant to each non-employee director an option to purchase such
number of shares as the Board of Directors shall determine in its sole
discretion. The amendment also eliminated the requirement that non-employee
directors receive an option grant once each year. The 1984 Plan was further
modified by Amendment No. 6 approved by the Compensation Committee and the full
Board of Directors on March 12, 1997, and approved by the shareholders of the
Company on June 16, 1997, which amendment provided that consultants to the
Company may be selected to participate in the 1984 Plan and limited the maximum
annual awards under the 1984 Plan. The shareholders also approved the 1984 Plan,
as amended, for purposes of Section 162(m) of the Code.
Persons Eligible. Such officers or other key employees of, or consultants
to, the Company as the Compensation Committee in its sole discretion may select
are eligible to receive discretionary grants of stock options and stock
appreciation rights under the 1984 Plan. In addition, the Compensation Committee
has the authority to grant to each non-employee director an option to purchase
such number of shares as the Board of Directors shall determine in its sole
discretion. There are approximately 90 officers, consultants and other key
employees and 7 non-employee directors currently participating in the 1984 Plan.
Shares Available. 1,546,445 shares of Class A Stock remain available for
issuance and sale under the 1984 Plan, 1,497,430 of which are covered by stock
options outstanding thereunder and 49,015 of which remain available for future
grants; no stock appreciation rights have been granted under the 1984 Plan to
date. Under Proposal 1 set forth in this Proxy Statement, the shareholders of
the Company are being asked to consider a proposal to amend the 1984 Plan to
increase by 500,000 the number of shares of Class A Common Stock that can be
awarded under the 1984 Plan. The shares of Class A Stock that may be issued and
sold under the 1984 Plan may be either treasury shares or authorized and
unissued shares of such Class A Stock. The number of authorized shares of Class
A Stock with respect to which stock options have been granted but not exercised
is subject to adjustment if a stock dividend is declared and paid upon the
issued and outstanding shares of common stock of the Company, or if such shares
are split, combined, converted, exchanged, reclassified or in any way
substituted for, or if the Company merges or consolidates with another
corporation. In any such event, a stock option that has been granted and not
exercised will entitle the holder of such stock option upon its future exercise
to the number and kind of securities or other property subject to the terms of
the stock option to which such holder would have been entitled had such holder
actually owned the shares of Class A Stock subject to the unexercised portion of
the stock option at the time of the occurrence of such stock dividend, split,
combination, conversion, exchange, reclassification, substitution, merger or
consolidation. If a stock appreciation right is granted, then, upon the
occurrence of any of the foregoing events, the Compensation Committee in its
sole discretion has the right to determine the amount of cash and/or the number
of shares or other property subject to the terms of the stock appreciation right
so that there will be no decrease or dilution (as determined by the Compensation
Committee in its sole discretion) in the cash and/or the value of the shares or
other property to which the holder of such stock appreciation right upon its
payment is entitled by reason of such events.
Awards. The Compensation Committee may grant options to purchase shares of
Class A Stock to eligible directors, officers and other key employees of and
consultants to the Company in accordance with the terms and
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conditions of the 1984 Plan. Such terms and conditions are described in detail
in the 1984 Plan and are summarized below. The stock options granted under the
1984 Plan may be options that are intended to qualify as 'incentive stock
options' within the meaning of Section 422 of the Code or options that are not
intended to so qualify ('non-qualified options'). The Compensation Committee
also may grant stock appreciation rights in accordance with the terms and
conditions of the 1984 Plan. Such terms and conditions also are described in
detail in the 1984 Plan and are summarized below. The stock appreciation rights
granted under the 1984 Plan may be free-standing rights or rights that are
granted in tandem with stock options. The form of stock options and stock
appreciation rights granted under the 1984 Plan is determined from time to time
by the Compensation Committee. An Option Certificate or Stock Appreciation Right
Certificate is issued to each person to whom a stock option or stock
appreciation right is granted. If a stock appreciation right is granted in
tandem with a stock option, an Option Certificate, with appropriate
modifications as determined by the Compensation Committee, is issued.
Grants to Employees and Consultants. The number of shares of Class A Stock
subject to stock options or stock appreciation rights granted to any eligible
officer or other key employee of or consultant to the Company is determined by
the Compensation Committee in its sole discretion. An individual who has been
granted a stock option or stock appreciation right may be granted additional
stock options or stock appreciation rights if the Compensation Committee so
determines, even though stock options or stock appreciation rights previously
granted to that individual remain outstanding.
Grants to Non-Employee Directors. The Compensation Committee has the
authority to grant to each non-employee director of the Company an option to
purchase the number of shares of Class A Stock as determined by the full Board
of Directors in its sole discretion. On March 12, 1997, each of the seven
non-employee directors of the Company received a discretionary grant of an
option to purchase 4,000 shares of Class A Common Stock. In addition, on June
16, 1997, each of the seven non-employee directors of the Company received a
discretionary grant of an option to purchase 5,500 shares at an exercise price
of $17.62 per share (the fair market value of the Class A Common Stock on the
date of grant), an option to purchase 8,250 shares at an exercise price of
$22.73 per share, and an option to purchase 11,550 shares at an exercise price
of $27.27. These options are immediately exerciseable.
Duration of Options or Rights. The duration of each stock option or any
stock appreciation right granted under the 1984 Plan is for such period as the
Compensation Committee shall determine, but currently not more than ten years
from the date of grant thereof. The duration of each tandem stock appreciation
right is coextensive with the stock option pursuant to which it was granted and
expires at the same time. As part of the Retirement Agreements for Messrs. Kett,
Stengel and Livon, all of their options are immediately exerciseable but
terminate on December 31, 2001.
Assignability of Stock Options. Stock options, stock appreciation rights
and all rights thereunder granted under the 1984 Plan are not transferrable by
the holder thereof other than by will or the laws of descent and distribution,
and such stock option or stock appreciation right may be exercised during such
holder's lifetime only by or on behalf of such holder.
Price. The price per share of the shares of Class A Stock to be purchased
pursuant to the exercise of a stock option and the price per share of the shares
of Class A Stock subject to a non-tandem stock appreciation right must be not
less than one hundred percent (100%) (110% in the case of incentive stock
options granted to certain 10% shareholders) of the closing sale price of a
share of Class A Stock on the stock exchange on which the shares of Class A
Stock are then primarily listed and traded for such relevant date, or if there
have been no sales on such exchange on the relevant date, the closing sale price
on the last preceding day upon which a sale took place, or if the shares of
Class A Stock are not listed, the average of the high and low bid prices in the
domestic over-the-counter market on the relevant date (the 'Fair Market Value'),
as determined by the Compensation Committee, of a share of Class A Stock of the
Company on the date of grant of such stock option or stock appreciation right.
The price per share of the shares of Class A Stock subject to a tandem stock
appreciation right must be the same as the price per share of the shares of
Class A Stock to be purchased pursuant to the exercise of the stock option
underlying such tandem stock appreciation right.
Exercise of Stock Options or Stock Appreciation Rights. Stock options and
non-tandem stock appreciation rights are exercisable in whole or in part at such
time and upon such terms and conditions as the Compensation
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Committee shall determine. A stock option or any stock appreciation right may be
exercised by delivery of a duly signed notice in writing specifying the number
of shares of Class A Stock with respect to which such exercise occurs, together
with the Option Certificate or Stock Appreciation Right Certificate, and in the
case of the exercise of a stock option, the full purchase price of the shares of
Class A Stock to be purchased pursuant to such exercise, to the Chairman of the
Board or an officer of the Company appointed by the Chairman of the Board for
the purpose of receiving the same; provided, however, that no stock option or
stock appreciation right granted pursuant to the 1984 Plan may be exercised at
any time when the exercise thereof violates any law or governmental order or
regulation. Payment for the shares of Class A stock purchased pursuant to the
exercise of a stock option must be made in full at the time of the exercise of
the stock option by any one or more of the following methods: in cash; by check
payable to the order of the Company; by delivery to the Company of shares of
Class A Stock which will be valued at their Fair Market Value on the date of
exercise of the stock option; by participation in a cashless exercise program
maintained by the Company and a registered broker-dealer or by any other method
acceptable to the Compensation Committee and counsel to the Company, including
loans, advances and guarantees of loans by the Company.
Special Rules Applicable to Stock Appreciation Rights. A stock
appreciation right may be granted by the Compensation Committee to an eligible
officer, consultant or other key employee as a free-standing right or may be
granted in tandem with all or any part of a stock option granted under the 1984
Plan at the time of the grant of such stock appreciation right. Subject to the
provisions set forth below, upon the exercise of a stock appreciation right
granted in tandem with a stock option, the holder thereof may surrender the
stock option, or any applicable portion thereof, to the extent then exercisable
but unexercised and receive cash or shares of Class A Stock or any combination
thereof as determined by the Compensation Committee pursuant to the 1984 Plan.
Such stock option will, to the extent surrendered, thereupon cease to be
exercisable.
A stock appreciation right is subject to the following terms and conditions
and to such other terms and conditions as may from time to time be approved by
the Compensation Committee:
(a) A tandem stock appreciation right is exercisable at such time or
times and to such extent, but only to the extent, that the stock option to
which it relates is exercisable. A tandem stock appreciation right is not
transferrable or assignable separately from the stock option to which it
relates and the exercise or expiration of such stock option will terminate
the related stock appreciation right.
(b) The exercise by the holder of a stock appreciation right may be
made in writing to the Chairman of the Board or an officer of the Company
appointed by the Chairman of the Board for the purpose of receiving the
same, specifying whether such holder desires cash or shares of Class A
Stock or any combination thereof. Such request will be subject to the
absolute right of the Compensation Committee to substitute stock for cash
or cash for stock as set forth in subparagraph (d) below. An exercise by an
officer, director or ten percent (10%) shareholder of the Company electing
a full or partial settlement for cash must be received in writing during
the period beginning on the third business day next following the date of
release by the Company of quarterly or annual financial data and ending on
the twelfth business day following such date of release.
(c) Upon the exercise of a stock appreciation right, the holder
thereof will be entitled to receive from the Company the difference between
(i) the price per share under such stock appreciation right determined in
accordance with the section entitled 'Price' above, and (ii) the Fair
Market Value on the date of exercise of one share of Class A Stock,
multiplied by the number of rights with respect to which such stock
appreciation right is exercised. For purposes of this subparagraph, Fair
Market Value will be determined by the Compensation Committee as of the
date of exercise of the stock appreciation right.
(d) Notwithstanding any provision to the contrary herein, the
Compensation Committee may, under such terms and conditions as it deems
appropriate, accept the exercise of a stock appreciation right and
authorize payment to be made in cash or shares of Class A Stock or any
combination thereof. Shares of Class A Stock will be valued at Fair Market
Value as determined by the Compensation Committee as of the date of
exercise of the stock appreciation right.
If the Compensation Committee decides to pay cash upon the exercise of a
stock appreciation right, the Compensation Committee has the discretion to make
such cash payments over a period of time, such period not
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to exceed five years from the date of exercise, plus interest at a rate to be
determined by the Compensation Committee from the date of exercise. Shares of
Class A Stock with respect to which a non-tandem stock appreciation right is
exercised will be charged against the maximum number of shares which may be
subject to stock options or non-tandem stock appreciation rights under the 1984
Plan notwithstanding that payment upon the exercise of such stock appreciation
right is made in whole or in part in cash.
Tax Withholding. In the event that a director, officer, consultant or
other key employee elects to exercise a stock option or stock appreciation
right, or any part thereof, pursuant to the 1984 Plan, and if the Company is
required to withhold any amounts under any federal, state or local tax rules or
regulations by reason of the issuance of shares of Class A Stock and/or cash to
such holder, the Company is entitled to deduct and withhold such amounts from
any cash payments to be made to such holder. In any event, such holder must make
available to the Company, promptly when required, sufficient funds to meet the
requirements of such tax withholding obligation, and the Compensation Committee
is entitled to take and authorize such steps as it may deem advisable in order
to have such funds available to the Company when required.
Issuance of Shares and Compliance With Securities Act. Within a reasonable
time after the due exercise of a stock option or stock appreciation right, the
Company will cause to be delivered to the holder thereof a certificate for the
shares of Class A Stock issuable and/or the cash payable pursuant to the
exercise of the stock option or stock appreciation right together with either
(i) an Option Certificate or Stock Appreciation Right Certificate for a number
of shares of Class A Stock, equivalent to the difference between the number of
shares as to which the stock option and/or stock appreciation right had not been
exercised immediately prior to the time of the exercise of the stock option or
stock appreciation right and the number of shares with respect to which the
stock option or stock appreciation right was so exercised, or (ii) the original
Option Certificate or Stock Appreciation Right Certificate endorsed to give
effect to the partial exercise thereof. The Company may postpone the issuance
and delivery of shares of Class A Stock upon any exercise of a stock option or
stock appreciation right until (a) the admission of such shares to listing on
any stock exchange on which shares of the same class are then listed and (b) the
completion of such registration or other qualification of such shares under any
state or federal law, rule or regulation as the Company shall determine to be
necessary or advisable. Any person exercising a stock option or stock
appreciation right must make such representations (including representations to
the effect that such person will not dispose of such shares of Class A Stock in
violation of the Federal securities laws, if required by the Company) and
furnish such information as may in the opinion of counsel to the Company be
appropriate to permit the Company, in the light of the then existence or
nonexistence of an effective registration statement under the Securities Act of
1933, as amended (the 'Securities Act'), with respect to such shares, to issue
the shares in compliance with the provisions of that or any comparable act. The
Company may place an appropriate legend on any certificate evidencing the shares
of Class A Stock and may issue stop transfer instructions in respect thereof.
Nothing herein, however, will be deemed to require that the Company file or
amend a registration statement under the Securities Act.
Termination of Options. Notwithstanding any other provisions of the 1984
Plan, any stock option or stock appreciation right not exercised within the
period fixed for such exercise will expire and become void and of no effect.
Termination of Employment or Service. In general, any unexercised stock
option or stock appreciation right held by an officer, consultant or other key
employee will terminate forthwith at the close of business on the fourteenth
business day after cessation or termination for any reason of such holder's
employment by or service with the Company. Notwithstanding the foregoing, if the
cessation of employment or service is due to retirement on or after attaining
the age of sixty-five (65) years, disability or death, or if death occurs within
three months of such holder's cessation of employment or service by reason of
retirement or disability, as aforesaid, such holder or the legal representatives
of the estate of such holder or a specific legatee under a will or the
distributees in intestacy, after distribution of the stock options or stock
appreciation rights to said legatee or distributees, shall have the privilege
within the remaining period of the stock option or stock appreciation right or
within three months of such holder's cessation of employment or service,
whichever is shorter, of exercising the unexercised stock options or stock
appreciation rights which such holder could have exercised at the time of such
cessation of employment or service. If the employment or service with the
Company of any officer, consultant or other key employee is terminated because
of such holder's violation of his or her duties with the Company, all
unexercised
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stock options or stock appreciation rights held by such officer, consultant or
other key employee will terminate immediately upon the termination of such
holder's employment or service with the Company.
The Compensation Committee has the right in any specific case upon the
grant of the stock option or stock appreciation right to provide any other rule
or method for termination of the stock option or stock appreciation right upon
termination of employment or service as the Compensation Committee deems proper
and appropriate under the circumstances.
The stock options granted in June 1997 to officers and non-employee
directors contain different termination provisions than as set forth above. The
options granted to officers of the Company in June 1997 terminate upon the
earliest of:
a. voluntary termination of employment;
b. termination for cause;
c. six months after termination of employment due to disability;
d. one year after death;
e. two years after retirement;
f. 30 days after termination of employment for any reason other than cause
or disability; or
g. ten years after date of grant.
These termination provisions were modified for Messrs. Kett, Stengel and
Livon. As part of their Retirement Agreements, all of their options terminate on
December 31, 2001.
The options granted to non-employee directors of the Company in June 1997
terminate upon the earliest of:
a. 30 days after voluntary termination of membership on the Company's
Board of Directors;
b. termination for cause;
c. six months after termination of employment due to disability;
d. one year after death;
e. ten years after retirement; or
f. ten years after date of grant.
Amendment by the Board of Directors or the Compensation Committee. Subject
to the provisions of the following paragraph, the Board of Directors or the
Compensation Committee may at any time withdraw or from time to time amend the
1984 Plan and the terms and conditions of any stock options or stock
appreciation rights not theretofore granted, and the Board of Directors or the
Compensation Committee, with the consent of the affected holder of a stock
option or stock appreciation right, may at any time withdraw or from time to
time amend the 1984 Plan and the terms and conditions of any stock appreciation
rights which have been theretofore granted.
Amendments Requiring Stockholder Approval. Notwithstanding the provisions
of the preceding paragraph, any amendment to the 1984 Plan which changes the
option price as set forth in the 1984 Plan, or changes the method of computation
of the amount payable upon exercise of a stock appreciation right pursuant to
the 1984 Plan, or changes the directors, officers or other key employees or
consultants eligible to receive stock options or stock appreciation rights under
the 1984 Plan will not be effective unless approved by the holders of a majority
of the common stock of the Company present, or represented by proxy, and
entitled to vote thereon at a meeting called for such purposes within twelve
months after the adoption of such amendment by the Board of Directors or the
Compensation Committee.
Plan Benefits. Set forth in the table below are the number of stock
options that were granted under the 1984 Plan during the Company's last
completed fiscal year, and the number of stock options that have been granted
under the 1984 Plan to date, to (i) each of the named executive officers, (ii)
all current executive officers as a group, (iii) all current non-employee
directors as a group, and (iv) all current non-executive officer
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employees as a group. The amounts shown (a) include options granted by the
Compensation Committee in March and June of 1997, and (b) do not include options
granted to executive officers who have terminated employment.
NUMBER OF STOCK
OPTIONS GRANTED NUMBER OF STOCK
DURING LAST OPTIONS GRANTED
NAME AND POSITION FISCAL YEAR TO DATE
- ------------------------------------------- --------------- ---------------
Leonard Genovese, President and Chief
Executive Officer........................ 176,000 302,978
Allan Patrick, Executive Vice President.... 101,750 195,147
John Harlow, Senior Vice President......... 84,150 84,150
Herbert Kett, Vice Chairman................ 60,720 139,052
Jerome Stengel, Vice President and
Treasurer................................ 49,500 113,080
All Current Executive Officers as a
Group.................................... 768,570 1,443,335
All Current Non-Employee Directors as a
Group.................................... 207,900 331,349
All Current Non-Executive Officer Employees
as a Group............................... 106,480 417,379
No incentive stock options or stock appreciation rights have been granted
under the 1984 Plan to date. Stock options to purchase 168,523 shares of Class A
common stock granted under the 1984 Plan were exercised during the Company's
last completed fiscal year. The number of stock options or stock appreciation
rights that will be granted under the 1984 Plan to the above-named individuals
and groups in the future is not determinable at this time.
Market Value of Securities Underlying Stock Options. The last sale price
of Class A Common Stock as reported on the American Stock Exchange on April 21,
1998 was $22.75 per share.
Federal Income Tax Consequences. The following is a brief summary of
certain of the federal income tax consequences of certain transactions under the
1984 Plan based on federal income tax laws in effect on January 1, 1998. This
summary is not intended to be exhaustive and does not describe state or local
tax consequences.
(a) Tax Consequences to Participants.
Non-qualified Stock Options. In general: (i) no income will be
recognized by a holder of a non-qualified stock option at the time such
stock option is granted; (ii) at the time of exercise of a non-qualified
stock option, ordinary income will be recognized by the holder thereof in
an amount equal to the difference between the option price paid for the
shares of Class A Stock and the Fair Market Value of such shares if they
are not restricted on the date of exercise; and (iii) at the time of sale
of shares of Class A Stock acquired pursuant to the exercise of a
non-qualified stock option, any appreciation (or depreciation) in the value
of the shares after the date of exercise will be treated as either
short-term or long-term capital gain (or loss) to the holder thereof,
depending on how long such shares have been held.
Stock Appreciation Rights. No income will be recognized by the holder
of a stock appreciation right in connection with the grant of such stock
appreciation right. When a stock appreciation right is exercised, the
holder thereof normally will be required to include as taxable ordinary
income in the year of exercise an amount equal to the amount of any cash,
and the Fair Market Value of any nonrestricted shares of Class A Stock,
received pursuant to such exercise.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of Class A Stock that is received as the
result of a grant of an award could subject an officer or director to suit
under Section 16(b) of the Exchange Act, the tax consequences to such
officer or director may differ from the tax consequences described above.
In these circumstances, unless a special election has been made, the
principal difference usually will be to postpone valuation and taxation of
the Class A Stock received so long as the sale of the stock received could
subject such officer or director to suit under Section 16(b) of the
Exchange Act, but not longer than six months.
(b) Tax Consequences to the Company. To the extent that a director,
officer or other key employee recognizes ordinary income in the circumstances
described above, the Company will be entitled to a corresponding deduction
provided that, among other things, (i) the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
'excess parachute payment' within the meaning of Section 280G of the Code, and
(ii) any applicable withholding obligations are satisfied.
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OTHER MATTERS RELATING TO THE ANNUAL MEETING
As of the date of this Proxy Statement, the Board knows of no business
other than that described above to be presented for action at the 1998 Annual
Meeting, but it is intended that all proxies will be exercised in accordance
with the best judgment of their holders upon any other matters and/or proposals
that may properly come before the meeting of the assembled shareholders, or at
any adjournment thereof, in accordance with the direction of the persons named
therein.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal which a holder of Common Stock intends to present at the 1999
Annual Meeting of Shareholders must be received by the Secretary of the Company,
at 80 Marcus Drive, Melville, New York 11747, no later than the close of
business on February 15, 1999. Reference is made to Rule 14a-8 under the
Exchange Act for information concerning the content and form of such proposal
and the manner in which such proposal must be made.
ADDITIONAL INFORMATION
The Company's Annual Report, including certain financial statements, is
being mailed concurrently with the Notice and Proxy Statement to all persons who
were shareholders of record at the close of business on April 22, 1998, which is
the record date for voting purposes. The Annual Report does not constitute a
part of the proxy soliciting material.
Upon the written request of any shareholder, the Company will provide,
without charge, a copy of the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1998. Written requests for such report should be
directed to the Secretary of the Company, 80 Marcus Drive, Melville, New York
11747.
By Order of the Board of Directors,
DONALD W. GROSS
Secretary
May 7, 1998
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EXHIBIT A
GENOVESE DRUG STORES, INC.
1984 EMPLOYEE STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
AMENDMENT NO. 7
Pursuant to sections 21 and 22 of the Genovese Drug Stores, Inc. 1984
Employee Stock Option and Stock Appreciation Rights Plan (the '1984 Plan'), the
1984 Plan is hereby amended as follows:
1. The first sentence of Section 5 of the 1984 Plan is amended by replacing
the term '1,450,000' with '1,950,000.'
2. The foregoing amendment shall be effective as of March 10, 1998, subject
to the approval of such amendment by the shareholders of Genovese Drug
Stores, Inc.
A-1
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS OF GENOVESE DRUG STORES, INC.
The undersigned shareholder of Genovese Drug Stores, Inc. does hereby
nominate and appoint Leonard Genovese and Donald W. Gross, or either of them, as
true and lawful attorneys and proxies of the undersigned with power of
substitution, to vote as designated below all shares of Common Stock of said
Company which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of said Company at 80 Marcus Drive, Melville, New York 11747 on
June 15, 1998 at 11:00 A.M., local time, or at any adjourment or adjournments
thereof to the same extent with all powers the undersigned would possess if
personally present and voting at said meeting or adjournments thereof.
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/X/ Please mark your
votes as in this
example.
Nominees for Class III Directors to serve until the 2001 Annual Meeting
1. ELECTION OF DIRECTORS
FOR WITHHELD Nominees: Abraham Allen, Thomas M. Cooney,
/ / / / Leonard Genovese
To withhold authority for any individual nominee(s), cheack the box to vote
"FOR" and strike a line through the nominee's name in the list at right.
2. Amend the 1984 Employee Stock Option and Stock Appreciation Rights Plan (the
"1984 Plan") to increase by 500,000 the number of shares of Class A Common
Stock eligible for awards under the 1984 Plan.
FOR AGAINST ABSTAIN
/ / / / / /
This proxy will be voted as directed in the space provided or, if no direction
is given, it will be voted FOR the election of directors and FOR the proposed
amendment.
PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY.
SIGNATURE DATE
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DATE
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SIGNATURE IF HELD JOINTLY
NOTE: Please sign exactly as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian give full title. If a corporation, sign
in full corporate name by President or other authorized officer. If a
partnership, sign in partnership name by authorized person.
