<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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
Pharmhouse Corp.
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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> 2
PHARMHOUSE CORP.
860 Broadway
New York, New York 10003
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 16, 1996
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of PHARMHOUSE CORP.,
a New York corporation (the "Corporation"), will be held at 1177 Avenue of the
Americas, 2nd Floor, New York City, at 10:00a.m., New York time, on July 16,
1996 for the following purposes:
1. To elect eight directors to hold office until the next Annual Meeting of
Shareholders and until their successors shall have been duly elected and
qualified.
2. To ratify the appointment of Price Waterhouse LLP to serve as independent
accountants of the Corporation for the current year.
3. To transact such other business as may properly come before the Meeting or
any adjournments thereof.
The Board of Directors has fixed the close of business on June 17, 1996 as the
record date for the determination of shareholders of the Corporation entitled to
notice of and to vote at the Meeting.
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, BUT DESIRE YOUR COMMON SHARES
TO BE VOTED, PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY.
By Order of the Board of Directors
Marcie B. Davis,
Secretary
New York, New York
Dated: June 21, 1996
<PAGE> 3
PHARMHOUSE CORP.
860 Broadway
New York, New York 10003
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors (the "Board") of Pharmhouse Corp. (the "Corporation")
for use at the Annual Meeting of Shareholders of the Corporation to be held on
July 16, 1996 (the "Meeting") at 1177 Avenue of the Americas, 2nd Floor, New
York City, at 10:00a.m. New York time, and any adjournments thereof.
Shareholders of record as of the close of business on June 17, 1996 will be
entitled to notice of and to vote at the Meeting and at any adjournments
thereof. As of that date, there were 2,231,140 Common Shares, par value $.01 per
share ("Common Shares"), issued and outstanding and entitled to vote. Each such
Common Share is entitled to one vote on any matter presented to the Meeting.
If Proxies in the accompanying form are properly executed and returned, unless
contrary instructions are indicated thereon, the Common Shares represented
thereby will be voted as follows: (i) for the election of the eight nominees
named below as directors; (ii) for the ratification of the appointment of Price
Waterhouse LLP as the Corporation's independent accountants for the current
fiscal year; and (iii) in the discretion of the persons named in the enclosed
form of Proxy on any other proposals to properly come before the Meeting or any
adjournments thereof. Any shareholder who has given a Proxy may revoke it by
written notice addressed to and received by the Secretary of the Corporation
prior to its exercise, or by submitting a duly executed Proxy bearing a later
date or by electing to vote in person at the Meeting. The mere presence at the
Meeting of the person appointing a Proxy does not revoke the prior grant of a
Proxy.
The presence in person or by proxy of a majority of the outstanding Common
Shares entitled to vote at the Meeting will be necessary to constitute a quorum.
Directors shall be elected by a plurality of the votes cast by the Common Shares
present in person or represented by Proxy at the Meeting. Ratification of the
Corporation's independent accountants requires the affirmative vote of a
majority of the votes cast by the Common Shares present in person or represented
by Proxy at the Meeting.
Information with respect to beneficial ownership of Common Shares by directors
and officers of the Corporation is set forth under the captions "Principal
Shareholders" and "Security Ownership of Management."
The approximate date of mailing of this Proxy Statement is expected to be June
21, 1996.
<PAGE> 4
MATTERS TO BE BROUGHT BEFORE THE MEETING
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Eight directors are to be elected to hold office until the next Annual Meeting
of Shareholders and until their successors shall have been duly elected and
qualified. It is the intention of the persons named in the enclosed form of
Proxy to vote the Common Shares represented thereby for the election as
directors of the persons named in the table below unless otherwise specified in
the Proxy. In the event that any of the nominees named below should become
unavailable or unable to serve as a director, it is intended that the persons
named in the Proxy will vote for the election, in his or her place and stead, of
any substitute nominee who shall be designated by the Board. The Board has no
reason to believe that it will be necessary to designate any substitute
nominees.
The following table contains information regarding all nominees for election as
directors of the corporation.
<TABLE>
<CAPTION>
Other Positions With The
Corporation; Principal
Occupation(s) or Employment During Person Served as a Director
Name/Age (1) Past Five Years of the Corporation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manfred Brecker /69 Chairman of the Board of the Since 1968
Corporation since 1983; Chief
Executive Officer from 1983 to
1989; President and Chief Operating
Officer of the Corporation from
1971 until 1983. (2)
Kenneth A. Davis/46 President, Chief Executive Officer Since 1979
and Chief Operating Officer of the
Corporation since January 1990;
President and Chief Operating
Officer from 1983 to December 1989;
from 1980 to 1983, Vice-President
of the Corporation; an employee of
the Corporation since 1979.(2)
Joseph Keller/50 Senior Vice President - Since 1991
Administration and Operations since
May 1995; Senior Vice President -
Operations since 1985; Vice
President from September 1984 to
September 1985; an employee of the
Corporation since 1963.
Raymond L. Steele/61 Retired. From August 1990 until Since 1991
September 1993, Executive Vice
President of Pacholder Associates,
Inc. Cincinnati, Ohio; prior
thereto, Executive Advisor at The
Nickert Group from 1989 through
1990; Vice President, Trust Officer
and Chief Investment Officer of The
Provident Bank, Cincinnati, Ohio,
from 1984 through 1988.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
Other Positions With The
Corporation; Principal
Occupation(s) or Employment During Person Served as a Director
Name/Age (1) Past Five Years of the Corporation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marcie B. Davis/43 Executive Vice President/ Secretary Since 1995
& Treasurer Senior Vice President -
Finance from 1991 to October 1995;
Chief Financial Officer from January
1995 to October 1995; Secretary of the
Corporation since 1990, Treasurer since
1988 and Vice President since 1984; an
employee of the Corporation since 1971.
(2)
Melvin Katz/64 Partner, law firm of Maloney, Since 1972
Gerra, Mehlman & Katz since April
1994; prior thereto, practicing
attorney in New York City for more
than 35 years and served as a
partner in various firms.
Peter Gerard/49 Managing Director of Rauscher Since 1995
Pierce & Clark, Inc., a London
based investment banking firm,
resident in Dallas, Texas, since
July 1995; Managing Partner of
Llama Associates, a provider of
mezzanine and bridge financing
since 1990; Chairman and Chief
Executive Officer of Spinnaker
Partners, Westbrook Hospitality
Corporation and affiliates since
1984; prior to 1984, Senior Vice
President - Corporate Finance of
Schneider Bernet & Hickman, an
investment banking and brokerage
organization.
Michael A. Feder/44 Managing Director in the Investment Since 1995
Banking Department of CS First
Boston, an international investment
banking firm with which Mr. Feder
has been associated in the areas of
investment banking and capital
markets since 1980; prior thereto,
a Vice President of the Chase
Manhattan Bank.
</TABLE>
-----------------------------
(1) As of May 30, 1996
(2) Mr. Davis is the son-in-law of Mr. Brecker. Ms. Davis is the
daughter of Mr. Brecker and the wife of Mr. Davis.
MEETINGS OF THE BOARD AND COMMITTEES
The Board held four meetings during the Corporation's fiscal year ended
February 3, 1996. During such fiscal year, each of the incumbent
directors attended at least 75% of the sum of (a) the total number of
meetings held by the Board during the period in which he was a director
and (b) the total number of meetings held by the respective committees
on which he served.
The Board has an Audit Committee and a Compensation Committee. The
Board has no standing Nominating Committee.
The Audit Committee, currently consisting of Messrs. Katz, Gerard and
Steele, oversees the Corporation's accounting and internal control
systems and the annual audit of the Corporation's financial books and
records. The Audit Committee has held two meetings since January 28,
1995.
3
<PAGE> 6
The Compensation Committee was established on October 26, 1995 and
currently consists of Messrs. Katz, Steele and Feder. The Compensation
Committee reviews and approves compensation arrangements for principal
executive officers of the Corporation, including the Chief Executive
Officer, and administers each of the Corporation's Stock Option Plans.
Since the creation of the Compensation Committee, the Board of
Directors has dissolved its 1991 Incentive Stock Option Plan Committee
and its 1991 Non-Qualified Stock Option Plan Committee.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of June 14, 1996
with respect to holdings of the Corporation's Common Shares by each
person known by the Corporation to be the beneficial owner of more than
5% of the total number of Common Shares outstanding as of that date.
Each beneficial owner has sole voting and investment power with respect
to the Common Shares set forth opposite his or her name in the
following table, except as otherwise disclosed in the footnotes to the
table.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class *
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Anne Brecker 562,139(1) 25.2%
860 Broadway
New York, New York 10003
Rosenthal & Rosenthal 209,195(2) 8.6%
1370 Broadway
New York, New York 10018
Kenneth A. Davis 387,381(3) 14.9%
860 Broadway
New York, New York 10003
Marcie B. Davis 132,472(4) 5.6%
860 Broadway
New York, New York 10003
Wisdom Tree Associates, L.P. 176,000(5) 7.9%
1633 Broadway
New York, New York 10019
</TABLE>
------------------------
*Calculation based upon 2,231,140 Common Shares outstanding as of June
14, 1996. As of such date, to the best of the Corporation's knowledge,
no amendment to Schedule 13D and to the Forms 4 relied upon in
preparing the above table reflecting a change in beneficial ownership
of the Common Shares had been filed with the Securities and Exchange
Commission. The Corporation is not aware, and has no reason to believe,
that the information contained in such filings is not complete and
accurate or that a statement or amendment should have been filed and
was not as of the date hereof. However, changes in beneficial ownership
of which the Corporation is unaware may have occurred which have not
been reported.
(1) Includes 556,343 shares owned by Mrs. Brecker and 5,796 shares held
by trusts, of which she is the trustee, for the benefit of her
children. Mrs. Brecker disclaims beneficial ownership of the shares
held by such trusts. Does not include 1,281 shares beneficially owned
by Mrs. Brecker's husband,
4
<PAGE> 7
Manfred Brecker, the Chairman of the Board of the Corporation, with
respect to which Mrs. Brecker disclaims beneficial ownership.
(2) Consists of shares beneficially owned by Rosenthal &
Rosenthal, Inc. ("Rosenthal") which Rosenthal has the right to acquire
pursuant to currently exercisable warrants.
(3) Includes 54,414 shares subject to options granted to Mr. Davis
pursuant to the Corporation's 1991 Incentive Stock Option Plan (the
"Incentive Option Plan") and 153,663 shares subject to options granted
pursuant to Corporation's 1991 Non-Qualified Stock Option Plan (the
"Non-Qualified Plan"), all of which are exercisable within 60 days.
Does not include 132,472 shares beneficially owned by Mr. Davis' wife.
Mr. Davis disclaims beneficial ownership of the shares held by his
wife.
(4) Includes 17,379 shares subject to options granted to Ms. Davis
pursuant to the Incentive Plan and 42, 299 shares subject to options
granted to Ms. Davis pursuant to the Non-Qualified Plan, all of which
are exercisable within 60 days. Does not include 387,381 shares
beneficially owned by Ms. Davis' husband. Ms. Davis disclaims
beneficial ownership of the shares held by her husband.
(5) Wisdom Tree Capital Management Inc. (the "General Partner"), the
general partner of Wisdom Tree Associates, L.P. ( "Wisdom Tree"), and
Jonathan Steinberg, Chairman, Chief Executive Officer and Treasurer of
the General Partner and co-manager of Wisdom Tree, may also be deemed
to be beneficial owners of the Common Shares of the Corporation owned
by Wisdom Tree. Each of Wisdom Tree, the General
Partner and Mr. Steinberg shares voting and dispositive power with
respect to such shares with Russell Amuth, a Vice President of the
General Partner and co-manager of Wisdom Tree.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of June 14, 1996
with respect to holdings of the Corporation's Common Shares
beneficially owned by each of the Corporation's directors, nominees for
director and named executive officers and by all officers and directors
of the Corporation as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manfred Brecker 1,281(1) *
Kenneth A. Davis 387,381(2) 14.8%
Joseph Keller 116,153(3) 4.9%
Marcie B. Davis 132,472(4) 5.6%
Gerald Katz 45,000(5) 2.0%
Melvin Katz 2,960 *
Michael A. Feder 2,500 *
Peter Gerard 2,500 *
Raymond L. Steele 3,880 *
Officers and directors as a group 782,560(6) 26.0%
(consisting of 14 persons)
</TABLE>
*Less than 1%
- -----------------------
5
<PAGE> 8
(1) Does not include 556,343 shares owned by Mr. Brecker's wife, Anne
Brecker, or 5,796 shares held by trusts for the benefit of Mr.
Brecker's adult children, of which his wife is the trustee, as to which
Mr. Brecker disclaims beneficial ownership.
(2) Includes 54,414 shares subject to options granted pursuant to the
Corporation's Incentive Option Plan and 153,663 granted pursuant to the
Corporation's Non-Qualified Plan, all of which are exercisable within
60 days. Does not include 132,472 shares beneficially owned by Mr.
Davis' wife. Mr. Davis disclaims beneficial ownership of the shares
held by his wife.
(3) Includes 26,000 shares subject to options granted to Mr. Keller
under the Incentive Option Plan and 12,874 granted under the
Non-Qualified Plan, all of which are exercisable within 60 days.
(4) Includes 17,379 shares subject to options granted to Ms. Davis
pursuant to the Incentive Option Plan and 42,299 shares subject to
options granted to Ms. Davis pursuant to the Non-Qualified Plan, all of
which are exercisable within 60 days. Does not include 387,381 shares
beneficially owned by Ms. Davis' husband. Ms. Davis disclaims
beneficial ownership of the shares held by her husband.
(5) Such shares were purchased by Mr. Katz in March 1996 for a de
minimis purchase price in connection with his employment by the
Corporation. Such shares are subject to vesting and forfeiture by Mr.
Katz in the event his employment is terminated prior to the vesting
thereof.
(6) Includes and aggregate of 121,242 shares subject to options granted
under the Incentive Option Plan and 218,583 granted under the
Non-Qualified Plan, all of which are exercisable within 60 days.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
At its Annual Meeting of the Board held on October 26, 1995, the Board
appointed a Compensation Committee comprised of independent,
non-employee directors of the Corporation. The Compensation Committee
reviews and approves compensation arrangements for principal executive
officers of the Corporation, including the Chief Executive Officer, and
administers each of the Corporation's Stock Option Plans.
Prior to the appointment by the Board of the Compensation Committee,
determinations with respect to the levels and categories of executive
compensation were made by the Board based upon various objectives,
including the following:
(1) To pay sufficient compensation to attract, retain and
motivate competent executive officers, subject, however,
to the limitations imposed by the Corporation's limited
cash resources;
(2) To attempt to relate executive compensation to individual
and company-wide performance and improvement in the future
results of operations of the Corporation; and
(3) To more directly relate executives' financial interests to
the interests of shareholders by tying a significant
aspect of such executives' compensation to increases in
the market value of the Corporation's outstanding Common
Shares through such means as restricted stock awards
and/or stock options.
The Compensation Committee is continuing to implement executive
compensation policies based on the foregoing objectives.
6
<PAGE> 9
COMPENSATION FOR LAST FISCAL YEAR
All determinations with respect to cash compensation payable to the executive
officers during the Corporation's last fiscal year were made by the Board.
At the commencement of the last fiscal year, the Board determined not to
increase the cash compensation payable to the Corporation's executive officers,
including its Chief Executive Officer, from the amounts of such compensation
paid to such executive officers during Fiscal 1995 which, as indicated in the
"Summary Compensation Table" under "Executive Compensation" elsewhere in this
Proxy Statement, were significantly less than the cash compensation paid to such
executive officers in Fiscal 1994. This determination was based upon the
Corporation's continuing losses from operations during Fiscal 1995 and its need
to conserve its cash resources.(1)
In July 1995, in light of the Corporation's completion of The Rx Place
acquisition, the Board determined to re-evaluate the compensation payable to the
Corporation's senior executives. In making its determination, the Board
considered a variety of factors, including the significant increase in the size
and complexity of the Corporation's discount drug store business resulting from
The Rx Place acquisition.
Based upon those considerations, the following changes in executive compensation
were approved by the Board:
1. Employment Agreements were entered into with Messrs. Brecker and
Davis pursuant to which their base annual salaries were restored to
$175,000 and $225,000, respectively, subject to additional increases,
bonuses and other incentive based compensation as described under
"Agreements with Executive Officers" in this Proxy Statement.
2. Five officers were paid one-time bonuses aggregating $45,000 in
consideration of their considerable efforts and the results achieved in
completing The Rx Place acquisition.
3. The Board approved a bonus program in principle pursuant to which a
defined group of executives of the Corporation (other than the Chief
Executive Officer) would be entitled to share in a bonus pool equal to
5% to 10% of the Corporation's pre-tax income in future fiscal years.
Allocations of the bonus pool to individual executives would be made
either pursuant to a formula to be incorporated in the plan or by the
Compensation Committee based upon recommendations of the Chief
Executive Officer (or through a combination of such methods). The
Compensation Committee has not made any definitive recommendations to
date with respect to establishing formulae for the determination of
potential benefits under the proposed bonus plan, but intends to review
with management several alternative approaches to fashioning a bonus
plan appropriate for the Corporation's executives.
- -------------------------
(1) Notwithstanding such determination, upon commencement of the last fiscal
year, the compensation of those executives who had participated in the Salary
Reduction Plan for the three fiscal years ended January 28, 1995, other than
Kenneth A. Davis, the Corporation's Chief Executive Officer, was restored to the
level in effect prior to implementation of the Salary Reduction Plan. As noted
elsewhere in this Proxy Statement, the compensation of Mr. Davis was restored
subsequent to the consummation of The Rx Place acquisition to the level in
effect prior to the effectiveness of the Salary Reduction Plan.
7
<PAGE> 10
4. The Corporation's 1995 Stock Option Plan was adopted and approved by
shareholders at the Corporation's Special Meeting (in lieu of Annual Meeting) of
Shareholders held in October 1995, pursuant to which 500,000 Common Shares have
been reserved for issuance to officers and key employees upon the exercise of
stock options granted under such plan. See "Compensation For Current Fiscal
Year" with respect to options granted in March 1996 to executive officers of the
Corporation, including its Chief Executive Officer.
5. In late Fiscal 1996, the Board authorized the employment of Gerald Katz, the
Corporation's Senior Vice President-Merchandising and General Merchandise
Manager, pursuant to an employment agreement providing for annual cash
compensation of $130,000 plus the issuance of 45,000 Common Shares (subject to
vesting and forfeiture provisions) and the grant of incentive stock options
(subject to vesting provisions) to purchase 30,000 Common Shares at fair
market value on the date of their grant. In late Fiscal 1996, the Board also
authorized the employment of Richard A. Davis, the Corporation's Senior Vice
President-Finance and Chief Financial Officer, pursuant to an employment
agreement providing for annual cash compensation of $110,000 plus the grant of
incentive stock options (subject to vesting provisions) to purchase 50,000
Common Shares at fair market value on the date of their grant. Such options
were granted to Messrs. Katz and Davis on March 6, 1996 at an exercise price
of $3.1875 per share. The Board concluded that such arrangements reflected
fair compensation for executives with experience and qualifications of both
such persons.
COMPOSITION OF BOARD OF DIRECTORS DURING FISCAL 1996 AND COMPOSITION OF
COMPENSATION COMMITTEE DURING CURRENT FISCAL YEAR
The determinations of executive officer compensation for the last fiscal year of
the Corporation were made by the Corporation's Board whose members included
Manfred Brecker, Chairman of the Board, Kenneth A. Davis, President and Chief
Executive Officer, Joseph Keller, Senior Vice President-Administration and
Operations and Melvin Katz, a member of a law firm which served as general
counsel to the Corporation. Recommendations concerning such compensation and the
grant of stock options to executive officers of the Corporation for the current
fiscal year have been made by the Compensation Committee of the Board of
Directors, whose members include Melvin Katz, a member of a law firm which
serves as a general counsel to the Corporation. For further information see
"Certain Relationships and Related Transactions" elsewhere in this Proxy
Statement.
COMPENSATION OF EXECUTIVES FOR CURRENT FISCAL YEAR
During the current fiscal year, the Compensation Committee has taken the
following actions with respect to executive compensation:
In February 1996, the Compensation Committee recommended to the Board the
following increases in the annual cash compensation payable to the two following
executive officers:
8
<PAGE> 11
<TABLE>
<CAPTION>
Name Prior Compensation Increased Annual Compensation
- --------------------------- ----------------------- -----------------------------
<S> <C> <C>
Marcie B. Davis(2) $ 92,500 $125,000
Joseph Keller $100,000 $120,000
</TABLE>
The recommendation by the Compensation Committee to the Board with respect to
the increase in Ms. Davis' compensation reflected the Committee's assessment of
the substantial executive responsibilities borne by Ms. Davis in recent years
and the important contribution which she has made to the Corporation's
operations and financial management.
The recommendation of the Compensation Committee with respect to the increase in
Mr. Keller's compensation reflected the fact that Mr. Keller had assumed
additional administrative responsibilities in connection with the Corporation's
operations and that the $20,000 increase in Mr. Keller's compensation restored
only $20,000 of the $30,000 reduction in his annual base compensation from the
amount he received in Fiscal 1994. See "Executive Compensation-Summary
Compensation Table" elsewhere in this Proxy Statement.
The foregoing increases in the compensation of the above-named executive
officers recommended by the Compensation Committee were subsequently approved by
the Board.
GRANT OF STOCK OPTIONS
On March 6, 1996, the Compensation Committee authorized the grant of incentive
stock options under its 1991 and 1995 Stock Option Plans to executive officers
and key employees of the Corporation to purchase an aggregate of 534,000 Common
Shares at an exercise price, except as noted below, of $3.1875 per share, which
equalled the fair market vallue of the Common Shares on such date. Included in
those options were the grant of options to purchase the following number of
Common Shares to the following executives of the Corporation named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
Name Executive Office Options (Number of Shares)
- ---------------------- ------------------------------ --------------------------
<S> <C> <C>
Kenneth A. Davis President/CEO/COO 125,000
Manfred Brecker Chairman of the Board 75,000
Joseph Keller Senior VP - Administration 15,000
Marcie B. Davis Executive Vice President 50,000
Gerald Katz Senior VP - Merchandising 30,000
</TABLE>
Except for the options granted to Mr. Katz, the vesting of which is governed by
his Employment Agreement, as described under "Agreements with Executive
Officers" elsewhere in this Proxy Statement, none of the options granted by
the Compensation Committee to the above-named executives vests or is
exercisable until the completion of the third year of the term of such options
and thereafter such options vest and become exercisable (on a cumulative
basis) with respect to specified percentages of such options during subsequent
years of their term. The exercise prices of the incentive stock options
granted to Kenneth A. Davis, Manfred Brecker and Marcie B. Davis equalled 110%
of the fair market value of the Common Shares on the date of grant of such
options.
- ---------------------
(2) The increase in the compensation of Ms. Davis was retroactive to July 1995
when the matter was first considered by the Board.
9
<PAGE> 12
CHIEF EXECUTIVE OFFICER COMPENSATION
During the 1994 and 1995 fiscal years, the annual compensation paid to Kenneth
A. Davis, President and Chief Executive officer, was reduced substantially. As
noted above in this Report and described in detail elsewhere in this Proxy
Statement, the Board determined in July 1995 to increase Mr. Davis' compensation
pursuant to the terms of an employment agreement which is effective through the
Corporation's 1999 fiscal year. See "Compensation for Last Fiscal Year" in this
Report and "Agreements with Executive Officers" elsewhere in this Proxy
Statement for a further description of such agreement and the compensation
arrangements with Mr. Davis.
The Board based its determination in regard to Mr. Davis' compensation on its
evaluation of Mr. Davis' invaluable contribution to the Corporation in
identifying, negotiating and effecting The Rx Place Acquisition as well as
supervising the Corporation's operations which had expanded considerably by
reason of that acquisition. In conducting its review of the compensation levels
of the Corporation's executives, including the Chief Executive Officer, the
Board concluded that, even after implementation of the salary increases
described herein, the annual cash compensation payable to Mr. Davis, he is in
the lower range of compensation paid to chief executive officers of comparable
retail companies. As indicated under "Agreements with Executive Officers", Mr.
Davis' new employment agreement provides for significant additional
performance-based compensation which is conditioned upon the Corporation's
future profitability, including an increase in base salary effective the year in
which the Corporation achieves profitability and annual bonuses thereafter based
upon a formula that is conditioned upon the level of the Corporation's pre-tax
earnings per Common Share.
The determination by the Compensation Committee to grant Mr. Davis additional
incentive stock options to purchase 125,000 Common Shares of the Corporation
reflected its views concerning the central contribution and effort which Mr.
Davis has made and is continuing to make to the furtherance of the Corporation's
business objectives. That contribution during the past year has included the
vital role played by Mr. Davis in integrating the operations of the Rx Place
stores into the Corporation's overall operations as well as seeking to effect
operational cost-saving efficiencies while increasing the Corporation's gross
profit margins. Since the potential benefits which Mr. Davis may derive from
these additional options will result from improvements in the Corporation's
performance in future fiscal periods and the reflection of such improvements in
the increased market value of its outstanding Common Shares, the granting of
such options is consistent with the approach of the Board in prior fiscal years,
and the Compensation Committee's current approach, to relate a significant
portion of executive compensation to future performance of the Corporation in a
manner which aligns the interests of its executives with the interests of the
shareholders of the Corporation.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Michael A. Feder
Melvin Katz
Raymond L. Steele
10
<PAGE> 13
EXECUTIVE COMPENSATION
All references to the Shares included in restricted stock awards and to stock
options granted to executive officers of the Corporation in the Tables and Graph
set forth under this caption reflect the one for 4.35 reverse stock split
effected by the Corporation in April 1993.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the compensation
paid, as well as stock options and restricted stock awards earned by the
Corporation's Chief Executive Officer and the Corporation's four most highly
compensated executive officers other than the Chief Executive Officer for
services rendered in all capacities to the Corporation and its subsidiaries
during the fiscal year ended February 3, 1996 (the "named executive officers"):
<TABLE>
<CAPTION>
Name and Principal All Other
Position Restricted Stock Compensation ($)
Year (1) Salary ($) Bonus Awards($)(2) (3)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kenneth A. Davis 1996 225,000 0 48,772 1,171
President 1995 135,000 0 5,468 1,115
CEO, COO 1994 175,000 0 63,206 1,731
Manfred Brecker 1996 153,845 25,000 0 1,254
Chairman of 1995 125,000 0 0 985
the Board 1994 175,000 0 0 1,344
Marcie B. 1996 92,500 15,000 19,791 743
Davis 1995 59,200 0 2,219 656
Executive VP 1994 59,200 0 25,469 1,344
Secretary/Treasurer
Joseph Keller 1996 108,270 7,500 24,739 875
Sr. VP 1995 100,000 0 2,774 842
Administration & 1994 97,939 0 32,061 1,067
Operations
Gerald Katz 1996 12,500 0 0 0
Sr VP Merchandise 1995 0 0 0 0
& GMM 1994 0 0 0 0
</TABLE>
- ------------------------
Certain fiscal 1995 and fiscal 1994 amounts have been reclassified to be
consistent with the presentation used in fiscal 1996.
*Gerald Katz began employment with the Corporation in January 1996. His current
annual salary is $130,000. In addition, in connection with his employment by the
Corporation, in March 1996, Mr. Katz acquired restricted common shares at a de
minimum purchase price and was granted incentive stock options to purchase
additional Common Shares.
(1) Refers to fiscal years ended February 3, 1996, January 28, 1995 and
January 29, 1994, respectively.
(2) The amounts set forth under this column represent the excess of the
fair market value of the restricted shares vested during the fiscal
year over the purchase price of such restricted shares. The restricted
shares were sold to the named executive officers in December 1991 in
connection with the Corporation's emergence from its Chapter 11
proceeding. A portion of the shares purchased by each such officer
vested over the subsequent four year period.
(3) Includes contributions made by the Corporation to its 401(k) plan
on behalf of the named executive officers.
11
<PAGE> 14
In July 1995, the Board approved an employee incentive bonus program (the "Bonus
Program") pursuant to which employees of the Corporation would be eligible to
receive annual bonuses from a bonus pool equal to between 5% and 10% of the
Corporation's pre-tax net income for such fiscal year. Such pool would be used
to pay bonuses on an annual basis to such employees of the Corporation (other
than the Chief Executive Officer) as shall be determined by the Compensation
Committee based upon recommendations of the Chief Executive Officer. No bonuses
will be payable under the Bonus Program for any fiscal year in which the
Corporation does not realize a profit.
AGREEMENTS WITH EXECUTIVE OFFICERS
In July 1995, the Corporation entered into Executive Employment Agreements with
each of Manfred Brecker, Chairman of the Board, and Kenneth A. Davis, President
and Chief Executive Officer of the Corporation. Each such agreement provides for
an employment term continuing through the end of the Corporation's 1999 fiscal
year (i.e., January 30, 1999). Under his employment agreement, Mr. Brecker will
be paid an annual base salary of $175,000, subject to annual cost of living
increases, and a special bonus, in consideration of services rendered and to be
rendered, in the amount of $100,000, payable in four equal annual installments
commencing in 1995. Pursuant to his employment agreement, Mr. Davis will be paid
an annual base salary of $225,000 (to be increased to $250,000 as of the
commencement of the Corporation's 1997 fiscal year), subject to annual cost of
living increases, and an annual bonus, commencing in fiscal 1997, equal to
$10,000 for every $.05 of per share pre-tax net income for the appropriate
fiscal year. Mr. Davis' base salary will further increase to $300,000
retroactively to the first day of the fiscal year in which the Corporation
achieves profitability.
The employment agreements with Messrs. Brecker and Davis also provide that, if
such executive's employment with the Corporation is terminated (i) by the
Corporation in breach of the agreement or (ii) by the executive for "Good
Reason," as defined in the agreement to include, among other events, the
occurrence of a change of control of the Corporation, then such executive shall
be entitled to continue to be paid his base salary then in effect for a period
of three years from the date of termination of employment or, in lieu thereof, a
lump sum amount equal to the discounted present value of such three years of
base salary.
In January 1996, the Corporation entered into an Executive Employment Agreement
with Gerald Katz, Senior Vice-President-Merchandising and General Merchandise
Manager of the Corporation. Such agreement provides for an employment term
continuing through the end of the Corporation's 1999 fiscal year (i.e. January
30, 1999). Mr. Katz will be paid an annual base salary of $130,000 subject to
annual cost of living increases, and a special bonus of up to $10,000 during the
first six months of the current fiscal year provided he remains employed by the
Corporation through such period. Pursuant to the agreement and a Restricted
Stock Purchase Agreement between the Corporation and Mr. Katz on March 6, 1996,
Mr. Katz was sold 45,000 Common Shares of the Corporation at a de minimis
purchase price, subject to vesting and forfeiture provisions contained in such
agreement pursuant to which such shares will vest over a three year period. The
Corporation also agreed to grant Mr. Katz incentive stock options to purchase up
to 30,000 Common Shares at an exercise price equal to the market price of such
Common Shares on the date of the grant. Such options were granted on March 6,
1996, at which time the market price for a Common Share on the NASDAQ SmallCap
Market was $3.1875 per share. Such options also vest over a 3 year period
commencing on the first anniversary of the date of his employment. The
Employment Agreement further provides that, if Mr. Katz' employment with the
Corporation is terminated (i) by the Corporation without cause
12
<PAGE> 15
or (ii) by the executive for "Good Reason", as defined in the agreement to
include, among other events, the occurrence of a change in control of the
Corporation, then he shall be entitled to continue to be paid his base salary
then in effect for a period of twelve months from the date of termination of
employment or through the remaining employment term, if shorter.
OPTION GRANTS IN FISCAL 1995
No stock options were granted by the Corporation to the named executive officers
during its fiscal year ended February 3, 1996. See "Report of the Compensation
Committee - Grant of Stock Options" with respect to certain options granted to
the named executive officers in March 1996.
OPTION EXERCISES AND FISCAL YEAR-END (FEBRUARY 3, 1996)
OPTION VALUES
No stock options were exercised by the named executive officers during fiscal
1996. The following table sets forth certain information concerning the
outstanding held at February 3, 1996 by such named executive officers.
<TABLE>
<CAPTION>
Number of Value of
Shares Unexercised Options at Unexerciseed
Acquired Value FYE In-the-Money
Name on Exercise Realized $ # of Shares (1) Options at FYE $
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kenneth A. Davis 0 0 208,077 Exercisable $514,519
0 Unexercisable 0
Manfred Brecker 0 0 0 Exercisable 0
0 Unexercisable 0
Joseph Keller 0 0 38,874 Exercisable 74,432
0 Unexercisable 0
Marcie B. Davis 0 0 59,678 Exercisable 145,139
0 Unexercisable 0
Gerald Katz 0 0 0 Exercisable 0
0 Unexercisable 0
</TABLE>
(1) The exercisable options were granted pursuant to the 1991 Incentive
Stock Option Plan and the 1991 Non-Qualified Stock Option Plan at
exercise prices of $1.914 and $.544, respectively. The options have
been valued at the average of the high and low bid price on February 3,
1996 (i.e., $3.375 per share).
13
<PAGE> 16
PERFORMANCE GRAPH
The following graph shows changes from January 1991 to January 1996 in the value
of $100 invested in (1) Common Shares of the Corporation, (2) the Standard &
Poor's Retail-Composite Index and (3) the Standard & Poor's 500 Index.
TOTAL RETURN TO SHAREHOLDERS
JANUARY 1991 TO JANUARY 1996
INDEXED RETURNS [1/1/91]
<TABLE>
<CAPTION>
Company Return Jan Return Jan Return Jan Return Jan Return Jan
Name 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Pharmhouse 200.00 139.74 1178.43 110.48 1031.12
Corp.
Retail Stores 139.73 166.79 160.75 148.85 160.50
Composite
S&P 500 122.69 135.67 153.14 153.96 213.48
Composite
</TABLE>
14
<PAGE> 17
COMPENSATION OF DIRECTORS
Each member of the Board who is not an officer or employee of the Corporation or
any of its subsidiaries (an "Independent Director") is entitled to receive a fee
of $500 for each Board meeting attended and $250 for each Committee meeting
attended, in addition to each such Director's annual grant of Common Shares
pursuant to the Corporation's 1992 Incentive Compensation Plan for Non-Employee
Directors, as amended, (the "Independent Directors Plan").
Pursuant to the Independent Directors Plan, a total of 50,000 Common Shares were
reserved for issuance to Independent Directors. Each Independent Director
elected by shareholders to serve as a member of the Board, through the 1998
Annual Meeting of Shareholders, is entitled to an award of 2,500 Common Shares
upon his or her election or re-election. Each annual award of Common Shares
under the Independent Directors Plan is effected automatically on the business
day next succeeding each Annual Meeting of Shareholders (or Special Meetings in
lieu thereof) at which an Independent Director is elected. As of the date
hereof, an aggregate of 19,395 Common Shares have been issued to Independent
Directors under the Independent Directors Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of which Melvin Katz is currently a member performs legal services
for the Corporation and received fees for services rendered to the Corporation
in fiscal 1996. Such firm also represented the Corporation in connection with
its acquisition in April 1995 of The Rx Place and the financing transactions
related thereto, in consideration for which such firm and its partners received
legal and other fees from the Corporation aggregating approximately $328,000
during that fiscal period.
PROPOSAL NO. 2: RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
It is proposed that the shareholders ratify the selection of Price Waterhouse
LLP as the independent accountants of the Corporation for the fiscal year ended
February 1, 1997.
Price Waterhouse LLP has examined the financial statements of the Corporation
and its subsidiaries since the Corporation's 1989 fiscal year. A
representative of Price Waterhouse LLP will have the opportunity to address
the shareholders if he so desires and is expected to be present at the Meeting.
The representative will be available to answer appropriate questions from
shareholders.
The Board recommends a vote FOR ratification of the appointment of the firm of
Price Waterhouse LLP to serve as the Corporation's independent accountants for
the fiscal year ending February 1, 1997.
OTHER MATTERS
The Board is not aware of any matters to be presented for action at the Meeting
other than the matters referred to above and does not intend to bring any other
matters before the Meeting. However, if other matters should properly come
before the Meeting, it is intended that the holders of Proxies will vote thereon
in their discretion.
15
<PAGE> 18
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next Annual Meeting of
Shareholders of the Corporation (expected to be held in June 1997) must be
received by the Corporation for inclusion in the Corporation's Proxy Statement
on or prior to March 1, 1997.
COST OF SOLICITATION
The Corporation will pay the expenses for soliciting Proxies for the Meeting.
Solicitations of Proxies may be made by personal calls upon, or telephone or
telegraphic communications with, shareholders or their representatives by
directors, officers and employees of the Corporation, none of whom will be
compensated specially for these services.
By Order of the Board of Directors
Marcie B. Davis,
Secretary
16
<PAGE> 19
/X/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE PHARMHOUSE CORP.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR THE ANNUAL MEETING OF
SHAREHOLDERS ON JULY 16, 1996
The undersigned hereby constitutes and appoints Joseph Keller and Kenneth A.
Davis, each of them with full power to act without the other, his true and
lawful agents and proxies with full power of substitution and resubstitution in
each, to represent the undersigned at the Annual Meeting of Shareholders of
PHARMHOUSE CORP. to be held at 1177 Avenue of the Americas, 2nd Floor, New York,
N.Y., at 10:00 A.M. on July 16, 1996 and any adjournments thereof, on all
matters before said meeting.
WITH- FOR ALL
FOR HOLD EXCEPT
1. ELECTION OF DIRECTORS (except as / / / / / /
marked to the contrary):
NOMINEES:MANFRED BRECKER, KENNETH A. DAVIS, MELVIN KATZ, JOSEPH KELLER, RAYMOND
L. STEELE, MARCIE B. DAVIS, MICHAEL A. FEDER AND PETER GERARD.
INSTRUCTION: To withhold your vote for any nominee(s), mark "For All Except" and
write that nominee's name on the line below
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of appointment of Price / / / / / /
Waterhouse LLP as independent
accountants of the Corporation
(Mark Only One)
3. In their discretion, upon other matters as / / / / / /
may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED AND FOR RATIFICATION OF THE APPOINTMENT OF PRICE
WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS.
------------------------------
Please be sure to sign and date Date
this Proxy in the box below
- --------------------------------------------------------------------------------
- ----- Stockholder sign above --------------- Co-holder (if any) sign above -----
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
PHARMHOUSE CORP.
- --------------------------------------------------------------------------------
This proxy must be signed as name appears hereon. Executors, administrators,
trustees, etc. should give full title as such. If the signer is a corporation,
please sign full corporate name by duly authorized officer.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------------------------------
