25
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
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-11c 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/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(I)
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 of 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:
- -----------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by
Exchange Act Tule 0-11(a) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or scheduel and the
date of its filing.
(1) Amount previously paid:
- -----------------------------------------------------------------
(2) Form, schedle or registration statement no.:
- -----------------------------------------------------------------
(3) Filing party:
- -----------------------------------------------------------------
(4) Date filed:
- -----------------------------------------------------------------
<PAGE 1>
PHARMHOUSE CORP.
860 Broadway
New York, New York 10003
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD JULY 18, 1997
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 10:00 a.m., New York time, on
July 18, 1997 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 30, 1997 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: July 1, 1997
<PAGE 2>
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 18, 1997 (the "Meeting") at 1177 Avenue of the
Americas, 2nd Floor, New York City, at 10:00 a.m. New York
time, and any adjournments thereof. Shareholders of record
as of the close of business on June 30, 1997 will be
entitled to notice of and to vote at the Meeting and at any
adjournments thereof. As of that date, there were 2,444,663
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
SHAREHOLDLER 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 offices 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
July 2, 1997.
<PAGE 3>
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.
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
- -----------------------------------------------------------------------
Manfred Brecker /70 Chairman of the Since 1968
Board of the
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/47 President, Chief Since 1979
Executive Officer
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/51 Senior Vice Since 1991
President -
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/62 Retired. From Since 1991
August 1990 until
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.
<PAGE 4>
Marcie B. Davis/44 Executive Vice Since 1995
President/ Secretary
& 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/65 Partner, law firm of Since 1972
Maloney, Mehlman &
Katz since April
1994; prior thereto,
practicing attorney
in New York City for
more than 36 years
and served as a
partner in various
firms.
Peter Gerard/51 Managing Director of Since 1995
Rauscher 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/45 Managing Director in Since 1995
the Investment
Banking Department
of Credit Suisse
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.
(1) As of May 31, 1997
(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.
MEETING OF THE BOARD AND COMMITTEES
The Board held five meetings during the Corporation's fiscal
year ended February 1, 1997. 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 February 3, 1996.
The Compensation Committee 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
<PAGE 5>
Officer and administers each of the Corporation's Stock
Option Plans. Since the establishment of the Compensation
Committee in October 1995, 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 12, 1997, 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.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class*
------------------------------------------------------------------
Anne Brecker 539,137 (1) 15.4%
860 Broadway
New York, New York
10003
Rosenthal & Rosenthal 209,195 (2) 6.0%
1370 Broadway
New York, New York
10018
Kenneth A. Davis 512,381 (3) 14.6%
860 Broadway
New York, New York
10003
Hemisphere Trading Co., Inc. 260,000 (4) 7.4%
5796 Shelby Oaks Drive
Memphis, TN 38134-7333
*Calculation based upon 3,499,808 Common Shares outstanding
as of June 12, 1997 (including total non-qualified options
of 218,583, total incentive options of 697,588 (of which
471,085 of such options are not currently exercisable) and
209,195 outstanding warrants). To the best of the
Corporation's knowledge, no amendment to Schedules 13D and
to the Forms 4 relied upon in preparing the above table
reflecting a change in beneficial ownership of the Common
Shares since that date has 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
<PAGE 6>
in beneficial ownership of which the Corporation is unaware may
have occurred which have not been reported.
(1) Includes 533,343 shares owned by Mrs. Brecker and 5,794
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, 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. On
behalf of Rosenthal, the Corporation filed a Registration
Statement under the Securities Act of 1933 pertaining to
such warrants and shares which was rendered effective June
12, 1997 and, to the best of the Corporation's knowledge,
Rosenthal is currently engaged in the offer and sale of such
securities.
(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, and shares
subject 15,415 options granted to him pursuant to the
Incentive Option Plan and 109,585 shares subject to options
pursuant to the 1995 Stock Option Plan, none of which is
currently exercisable.
(4) As reported on Amendment #1 to Schedule 13D filed by
Hemisphere Trading Co., Inc. ("Hemisphere") on April 7,
1997. According to Schedule 13D, Hemisphere has shared
voting power and shared dispositive power with respect to
all 260,000 of these shares.
<PAGE 7>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of
June 12, 1997 with respect to holdings of the Registrant's
Common Shares beneficially owned by each of the Registrant's
directors and Named Executive Officers and by all officers
and directors of the Registrant as a group.
Amount and Nature of Percent of Class**
Name of Beneficial Owner Beneficial Ownership (As of June 12, 1997)
------------------------------------------------------------------------
Manfred Brecker 76,281 (1) 2.2%
Kenneth A. Davis 512,381 (2) 14.6%
Joseph Keller 131,153 (3) 3.7%
Marcie B. Davis 182,472 (4) 5.2%
Melvin Katz 5,460 **
Michael A. Feder 5,000 **
Peter Gerard 5,000 **
Raymond L. Steele 6,379 **
Officers and 1,125,860 (5) 32.2%
directors as a
group (consisting
of 13 persons)
**Less than 1%
(1) Includes 75,000 shares subject to options which are not
currently exercisable. Does not include 533,343 shares owned
by Mr. Brecker's wife, Anne Brecker, or 5,794 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 153,663 shares subject to options granted to
Mr. Davis pursuant to the Registrant's Non-Qualified Plan,
54,414 shares subject to options granted pursuant to the
Registrant's Incentive Option Plan, all of which are
exercisable within 60 days, and 15,415 shares subject to
options granted under the Incentive Option Plan, and 109,585
shares subject to options granted under the 1995 Option
Plan, none of which is currently exercisable. Does not
include 182,472
<PAGE 8>
shares beneficially owned by Mr. Davis' wife. Mr. Davis
disclaims beneficial ownership of the shares held by his wife.
(3) Includes 12,874 shares subject to options granted to Mr.
Keller under the Non-Qualified Plan and 26,000 shares
subject to options granted under the Incentive Option Plan,
all of which are exercisable within 60 days, and 15,000
shares subject to options granted under the 1995 Option
Plan, none of which is currently exercisable.
(4) Includes 42,299 shares subject to options granted to Ms.
Davis pursuant to the Registrant's Non-Qualified Plan,
17,379 shares subject to options granted under the Incentive
Option Plan, all of which are exercisable within 60 days,
and 50,000 shares subject to options granted under the 1995
Option Plan, none of which is currently exercisable. Does
include 512,381 shares beneficially owned by Ms. Davis'
husband. Ms. Davis disclaims beneficial ownership of the
shares held by her husband.
(5) Includes an aggregate of 218,583 shares subject to
options granted under the Registrant's Non-Qualified Plan
and 181,657 shares subject to options granted under the
Incentive Option Plan, all of which are exercisable within
60 days, and 342,585 shares subject to options granted under
the Registrant's 1995 Option Plan, none of which is
currently exercisable.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Board has 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 in October 1995, all 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'
<PAGE 9>
compensation to increases in the market vallue of the
Corporation's outstanding Common Shares through
such means as restricted stock awards and/or stock options.
The Compensation Committee is continuing to review executive
compensation policies based on the foregoing objectives.
COMPENSATION FOR THE LAST FISCAL YEAR
Since the commencement of the Corporation's last fiscal year,
except as noted below, the Compensation Committee has not
modified the cash compensation payable to its executive officers,
including its Chief Executive Officer, from the amounts of such
compensation payable to such executive officers which were
established by the Board in July 1995 shortly after the
Corporation's completion of The Rx Place Stores acquisition.
COMPENSATION OF COMPENSATION COMMITTEE DURING FISCAL 1997 AND
DURING CURRENT FISCAL YEAR
Recommendations concerning compensation and the grant of stock
options to executive officers of the Corporation during Fiscal
1997 were made by the Compensation Committee of the Board of
Directors, whose members include Melvin Katz, a member of a law
firm which serves as general counsel to the Corporation. For
further information see "Certain Relationships and Related
Transactions" elsewhere in this Proxy Statement.
COMPENSATION OF EXECUTIVES DURING FISCAL 1997
During Fiscal 1997, the Compensation Committee took 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:
Increased Annual
Name Prior Compensation Compensation
- -------------------------------------------------------------
Marcie B. Davis (1) $ 92,500 $125,000
Joseph Keller $ 108,270 $120,000
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 increasing and 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.
- -----------------
(1) The incrase in the compensation of Ms. Davis was retroactive
to July 1995 when the matter was first considered by the Board
<PAGE 10>
The recommendation of the Compensation Committee with respect to
the increase in Mr. Keller's compensation reflected the fact that
Mr. Keller has 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.
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 equaled
the fair market value of the Common Shares on that date.
Included in those options were the grant of options to purchase
the following number of Common Shares to the following Named
Executive Officers identified in the Summary Compensation Table:
Name Executive Office Options (Number of Shares)
- ---------------------------------------------------------------------
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
Except for the options granted to Mr. Katz, the vesting of which
was governed by his employment agreement, described under
"Agreements with Executive Officers" elsewhere in this Proxy
Statement(2), none of the options granted by the Compensation
Committee to the above-named executive 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 equaled 110% ($3.5063
per share) of the fair market value of the Common Shares on the
date of grant of such options.
BONUS PROGRAM
In July 1995, 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
- -----------------
(2) The employment agreement between the Corporation and Mr. Katz
was terminated in December 1996 and he subsequently exercised
options for 10,000 shares which had vested under the terms of
that agreement.
<PAGE 11>
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). No bonuses are payable
under the Bonus Program for or with respect to any fiscal year
during which the Corporation has not achieved profitable results
of operations. 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
During 1994 and 1995 fiscal years, the annual compensation paid
by the Corporation to Kenneth A. Davis, President and Chief
Executive officer, was reduced substantially. As noted 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 his employment
agreement and the compensation payable to Mr. Davis under that
agreement). The Compensation Committee did not recommend any
modifications to the cash compensation payable to Mr. Davis
during the Corporation's last fiscal year nor to the terms of his
employment agreement with the Corporation. Mr. Davis, however,
elected not to take a $25,000 increase in cash compensation for
the Corporation's last fiscal year to which he was entitled under
his employment agreement. In addition, as indicated under
"Agreements with Executive Officers", Mr. Davis' 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 in March 1996 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 last fiscal year included the vital role played by Mr. Davis
in settling the Corporation's litigation with the Woolworth
Companies arising out of the Corporation's acquisition of The Rx
Place Stores (which, among other matters, resulted in an
extraordinary gain for the Corporation), integrating the
operations of The Rx Place Stores into the Corporation's overall
operations as well as effecting cost-saving efficiencies in its
operations. 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
<PAGE 12>
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
EXECUTIVE COMPENSATION
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 Restricted All Other
Position Year(1) Salary(s) Bonus Stock Awards($)(2) Compensation($)(3)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kenneth A. 1997 225,000 0 0 1,164
Davis 1996 225,000 0 48,772 1,171
President 1995 135,000 0 5,468 1,115
CEO, COO
Manfred Brecker 1997 175,000 25,000 0 1,164
Chairman of 1996 153,845 25,000 0 1,254
the Board 1995 125,000 0 0 985
Marcie B. Davis 1997 143,750 0 0 732
Executive VP 1996 92,500 15,000 19,791 743
Secretary/Treasurer 1995 52,900 0 2,219 656
Joseph Keller 1997 108,243 0 0 864
Sr. VP 1996 108,270 7,500 24,739 875
Administration 1995 100,000 0 2,774 1,067
& Operations
Gerald Katz 1997 125,000 10,000 0 29,473
Sr VP 1996 12,500 0 0 0
Merchandise & 1995 0 0 0 0
GMM
</TABLE>
Certain fiscal 1995 amounts have been reclassified to be consistent with the
presentation used for fiscal 1996.
<PAGE 13>
*Gerald Katz began employment with the Corporation in January
1996 at an annual salary of $130,000. In addition, in connection
with his employment by the Corporation, in March 1996, Mr. Katz
acquired restricted common shares at a nominal purchase price and
was granted incentive stock options to purchase additional Common
Shares as described.
(1) Refers to fiscal years ended February 1, 1997, February 3,
1996 and January 28, 1995, 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. Portions of these
restricted 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.
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 or with respect to 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 is 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 is paid an annual base salary of $225,000 (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 profitable operations.
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
<PAGE 14>
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 December 1995, the Corporation entered into an employment
agreement with Gerald Katz, who commenced employment in January
1996 as its Senior Vice President-Merchandise Manager. Under
that employment agreement, Mr. Katz (a) received an annual base
salary of $130,000 (subject to certain adjustments) during the
first year of his employment by the Corporation and (b) was sold
45,000 Common Shares of the Registrant at a nominal purchase
price and was granted options to purchase 30,000 Common Shares at
an exercise price of $3.75 per share (equal to their fair market
at the date of their grant). The Common Shares sold to Mr. Katz
were subject to ratable vesting and forfeiture provisions during
a three year period and his options vested ratably over the same
three year period.
On December 30, 1996, Mr. Katz's employment with the Corporation
was terminated and, pursuant to the terms of his employment
agreement, he is currently receiving severance pay through
December 1997 (subject to reduction if he receives compensation
from other sources after June 1997) and the Corporation issued to
him 15,000 of the 45,000 Common Shares referred to above.
Subsequent to the end of fiscal 1997, Mr. Katz exercised options
to purchase 10,000 Common Shares at the above-noted exercise
price and his remaining 20,000 options were either forfeited or
have lapsed.
<PAGE 15>
OPTIONS GRANTS IN FISCAL 1997
Option and Stock Appreciation Right ("SAR") Grants in fiscal 1997
- -----------------------------------------------------------------
The following table sets forth certain information concerning
stock options and SARs granted during fiscal 1997 by the Company
to the Named Executive Officers:
<TABLE>
<CAPTION>
% of Total
Options
1991 Granted 1991
Incentive 1995 Stock to Employees Incentive 1995 Expiration
Name Plan Opton Plan Total(2) During Fiscal Plan Stock Date
(4) Year (1)(2) Option
Plan
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth A. Davis 15,415 109,585 125,000 23.0% $3.1875 3.5063 3/06/06
Manfred Brecker -- 75,000 75,000 13.8% --- 3.5063 3/06/06
Marcie B. Davis -- 50,000 50,000 9.2% --- 3.5063 3/06/06
Joseph Keller -- 15,000 15,000 2.8% --- 3.1875 3/06/06
Gerald Katz 30,000 -- 30,000 5.5% 3.7500 --- 3/31/97
</TABLE>
(1) Options were granted during fiscal 1997 to purchase a
total of 543,000 shares. No SARs were granted during fiscal 1997.
(2) During fiscal 1997, the Registrant did not grant stock
appreciation rights.
(3) Pursuant to an employment termination agreement between
the Registrant and Mr. Katz, dated January 31, 1997, 20,000
options granted to Mr. Katz under the 1991 Incentive Plan
were treated as vested and his remaining 10,000 options
under such plan were forfeited as of such date.
(4) Options granted under the 1995 Stock Option Plan vest as
follows (cumulative percentage at end of period is indicated):
Years 1 though 3 - 0%; Year 4 - 20%; Year 5 - 50%;
Years 6 through 10 - 100%.
Options Exercised and Fiscal Year-End Option Values
- ---------------------------------------------------
The following table sets forth certain information concerning
options exercised and the options outstanding at February 1, 1997
held by Named Executive Officers.
<TABLE>
<CAPTION>
Number of Value of
Shares Value Securities Unexercised
Name Acquired Realized Underlying In-the-Money
on $ Unexercised Options/
Exercise Options/SARs SARs at 2/1/97
at 2/1/97 (4)
- ---------------------------------------------------------------------------------------------------------
Exercisable(1) Unexercisable(2) Exercisable(1) Unexercisable(2)
<C> <C> <C> <C> <C> <C>
Kenneth A. Davis --- --- 208,077 125,000 $1,580,913 $ 629,127
Manfred Brecker --- --- 0 75,000 0 374,528
Marcie B. Davis --- --- 59,678 50,000 450,989 249,685
Joseph Keller --- --- 38,874 15,000 273,662 79,688
Gerald Katz --- --- 20,000(3) 0 95,000 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 exercise price for Mr. Katz's options was
$3.75 per share.
(2) The unexercisable options were granted pursuant to the
Registrant's 1995 Stock Option Plan at varying exercise
prices (including 15,415 options granted to Mr. Davis under
the 1991 Incentive Plan at exercise price of $3.1875). For
information regarding the exercise price, vesting
requirements and expiration date of options granted under
the 1995 Stock Option Plan, see paragraph (c) of this item 11.
(3) In March 1997, Mr. Katz exercised options under the 1991
Stock Option Plan to purchase 10,000 Common Shares and his
remaining vested 10,000 options under that Plan lapsed.
(4) The options have been valued at the average of the high
and low bid price on February 1, 1997 (i.e. $8.75 per
share).
<PAGE 16>
PERFORMANCE GRAPH
The following graph shows changes from January 1992 to January
1997 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.
(Line Graph depickting information listed in table below)
INDEXED RETURNS [1/1/92]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Company Return Return Return Return Return
Name Jan 93 Jan 94 Jan 95 Jan 96 Jan 97
Pharmhouse
Corp. 69.87 589.22 55.24 515.56 1134.23
Retail Stores
Composite 119.37 115.04 106.53 114.86 133.70
S& P 500
Composite 110.58 124.82 125.49 174.00 209.26
</TABLE>
<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, as amended, a total
of 75,000 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 1988 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 29,395 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 aggregating
$71,000 for services rendered to the Corporation in fiscal 1997.
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 January 31, 1998.
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 January 31,
1998.
<PAGE 18>
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.
SHAREHOLDERS PROPOSALS
Proposals of shareholders intended to be presented at the next
Annual Meeting of Shareholders of the Corporation (expected to be
held in July 1998) must be received by the Corporation for
inclusion in the Corporation's Proxy Statement on or prior to
April 1, 1998.
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
<PAGE 19>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
PHARMHOUSE CORP.
July 18, 1997
- ---------------------------------------------------------------------
A /X/ Please mark your
votes as indicated
in this example
FOR WITHHOLD
1. ELECTION / / / / Nominees: Manfred Brecker
OF Kenneth A. Davis
DIRECTORS Melvin Katz
(except as marked to the contrary) Joseph Keller
INSTRUCTIONS: to withhold your vote Raymond L. Steele
for any nominee(s), mark "For" and Marcie B. Davis
write that nominee's name on the Michael A. Feder
line below. Peter Gerard
-----------------------------------
2. Ratification of appointment of FOR AGAINST ABSTAIN
Price Waterhouse LLP as / / / / / /
independent accountants of the
Corporation (Mark Only One).
3. In their discretion, upon other FOR AGAINST ABSTAIN
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 APPOINT-
MENT OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTS.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------- Date ---------------
STOCKHOLDER sign ABOVE COHOLDER(if any) sign ABOVE
NOTE: Please be sure to sign and date this Proxy above. 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.
REVOCABLE PROXY
PHARMHOUSE CORP.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION FOR THE ANNUAL MEETING OF
SHAREHOLDERS ON JULY 18, 1997
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 anad 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 AM on July 18, 1997 and any
adjournments thereof, on all matters before said meeting.
