PHARMHOUSE CORP.
860 Broadway
New York, New York 10003
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
(IN LIEU OF THE ANNUAL MEETING)
TO BE HELD OCTOBER 15, 1998
PLEASE TAKE NOTICE that A Special Meeting (in lieu of the Annual Meeting)
of Shareholders of PHARMHOUSE CORP., a New York corporation (the "Corporation"),
will be held at 1177 Avenue of the Americas, 29th Floor, New York City,
at 10:00 a.m., New York time, on October 15, 1998 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 and approve a proposed Second Amendment to the
Corporation's 1992 Equity Compensation Plan for Non-Employee
Directors.
3. To ratify the appointment of PricewaterhouseCoopers LLP to
serve as independent accountants of the Corporation for the
current year.
4. 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 September 15,
1998 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: September 15, 1998
<Page 1>
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 Special Meeting of Shareholders of the
Corporation to be held (in lieu of the Annual Meeting) on October 15, 1998
(the "Meeting") at 1177 Avenue of the Americas, 29th 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 September 15th, 1998 will be
entitled to notice of and to vote at the Meeting and at any adjournments
thereof. As of that date, there were 2,461,062 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
and approval of the Second Amendment to the Corporation's 1992 Equity
Compensation Plan for Non-Employee Directors; (iii) for the ratification
of the appointment of PricewaterhouseCoopers LLP as the Corporation's
independent accountants for the current fiscal year; and (iv) 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 Proposals Two and Three each require 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
September 17, 1998.
<Page 2>
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>
<S> <C> <C>
Other Positions With The Corporation;
Principal Occupation(s) or Employment Person Served as a
Name/Age (1) During Past Five Years Director of the Corporation
- --------------------------------------------------------------------------------------
Manfred Brecker/71 Chairman of the Board of the Since 1968
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/49 President, Chief Executive Officer and Since 1979
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/52 Senior Vice President-Administration Since 1991
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/63 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.
Marcie B. Davis/45 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/66 Partner, law firm of Maloney, Mehlman Since 1972
& Katz (and predecessor firm) 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/52 Managing Director of Rauscher Pierce & Since 1995
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/46 Managing Director in the Investment Since 1995
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.
</TABLE>
<Page 3>
(1) As of May 31, 1998
(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 three meetings during the Corporation's fiscal year ended
January 31, 1998 ("Fiscal 1998"). During Fiscal 1998, 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 except for Manfred Brecker, who attended only two of the
three meetings held by the Board during Fiscal 1998.
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 held two meetings during Fiscal 1998.
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 Officer and administers each of the Corporation's Stock
Option Plans.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of August 31, 1998,
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 Amount and Nature Percentage
of Beneficial Owner of Beneficial Ownership of Class *
- --------------------- ----------------------- ----------
Anne Brecker 484,542 (1) 16.2%
860 Broadway
New York, New York 10003
Kenneth A. Davis 392,519 (2) 13.1%
860 Broadway
New York, New York 10003
Hemisphere Trading Co., Inc 260,000 (3) 8.7%
5796 Shelby Oaks Drive
Memphis, TN 38134-7333
Stephen R. Mittel 158,600 (4) 5.3%
One Sansome Street
San Francisco, CA 94101
*Calculation based upon 2,997,253 Common Shares and Common Share Equivalents
outstanding as of August 31, 1998 (including total non-qualified options of
215,273 and total incentive options of 187,149, all of which are exercisable
within 60 days).
(1) Includes 484,542 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) Includes 153,663 shares subject to options granted to Mr. Davis pursuant
to Corporation's 1991 Non-Qualified Stock Option Plan (the "Non-Qualified
Plan") and 59,552 shares subject to options granted pursuant to the
Corporation's 1991 Incentive Stock Option Plan (the "Incentive Option Plan"),
all of which are exercisable within 60 days. Does not include 122,472 shares
beneficially owned by Mr. Davis' wife. Mr. Davis disclaims beneficial
ownership of the shares held by his wife.
<Page 4>
(3) As reported on Amendment #1 to Schedule 13D filed by Hemisphere Trading
Co. Inc. ("Hemisphere") on April 7, 1997. According to such Schedule 13D,
Hemisphere has shared voting power and shared dispositive power with respect
to all 260,000 of these shares.
(4) As reported on a Schedule 13G jointly filed by Mr. Stephen R. Mittel, Nob
Hill Capital Management Partners and Nob Hill Capital Management, Inc. (the
"Mittel Group"), on July 30, 1998. According to such Schedule 13G, the
Mittel Group has shared voting power and shared dispositive power with respect
to all 158,600 of these shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of August 31, 1998 with
respect to holdings of the Corporation's Common Shares beneficially owned by
each of the Corporation's directors and Named Executive Officers and by all
officers and directors of the Corporation as a group.
Name of Amount and Nature Percentage
Beneficial Owner of Beneficial Ownership of Class
---------------- ----------------------- ----------
Manfred Brecker 1,281 (1) *
Kenneth A. Davis 392,519 (2) 13.1%
Joseph Keller 108,153 (3) 3.6%
Marcie B. Davis 122,472 (4) 4.1%
Richard A. Davis 33,333 (5) 1.1%
Melvin Katz 7,960 *
Michael A. Feder 7,500 *
Peter Gerard 7,500 *
Raymond L. Steele 8,879 *
Officers and directors
as a group (consisting
of 12 persons) 726,745 (6) 23.9%
* Less than 1%
(1) Does not include 484,542 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. Mr. Brecker disclaims beneficial ownership
of the shares held by his wife and shares held by the trusts.
(2) Includes 153,663 shares subject to options granted to Mr. Davis pursuant
to the Corporation's Non-Qualified Plan and 59,552 shares subject to options
granted pursuant to the Corporation's Incentive Option Plan, all of which
are exercisable within 60 days. Does not include 122,472 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.
(4) Includes 42,299 shares subject to options granted to Ms. Davis pursuant to
the Corporation's Non-Qualified Plan and 17,379 shares subject to options
granted under the Incentive Option Plan, all of which are exercisable within
60 days. Does not include 392,519 shares beneficially owned by Ms. Davis'
husband. Ms. Davis disclaims beneficial ownership of the shares held by her
husband.
(5) Includes 33,333 shares subject to options granted to Mr. Richard A. Davis
pursuant to the Corporation's Incentive Option Plan, all of which are
exercisable within 60 days.
(6) Includes an aggregate of 215,514 shares subject to options granted under
the Corporation's Non-Qualified Plan and 147,896 options granted under the
Incentive Option Plan, all of which are exercisable within 60 days.
<Page 5>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Board has 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 its Chief Executive Officer, and administers each
of the Corporation's Stock Option Plans.
The Compensation Committee reviews executive compensation policies based on the
following objectives.
(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.
COMPOSITION OF COMPENSATION COMMITTEE DURING FISCAL 1998 AND DURING
CURRENT FISCAL YEAR
The Compensation Committee of the Board of Directors includes 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 1998
During Fiscal 1998, the Compensation Committee made no recommendations to the
Board to change executive compensation, including compensation payable to the
Corporation's Chief Executive Officer. The Compensation Committee did not
recommend any changes in such executive compensation, and may not recommend
any such changes until the Corporation achieves profitable operations, hires
a new executive officer or is party to a significant corporate transaction.
For more information concerning compensation payable to such executives
during Fiscal 1998, see "Executive Compensation." elsewhere in this Proxy
Statement. In addition, the compensation of its Chief Executive Officer is
governed by an employment agreement which is effective through the
Corporation's current fiscal year. As noted under "Chief Executive Officer
Compensation", that employment agreement provides for significant additional
performance-based compensation conditioned upon the Corporation's future
profitability. For information concerning stock options granted to
executives during the fiscal year ended February 1, 1997 ("Fiscal 1997"),
see "Grant of Stock Options" under this caption.
GRANT OF STOCK OPTIONS IN FISCAL 1997
In March 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
Marcie B. Davis Executive Vice President 50,000
Richard A. Davis Senior VP-Finance/CFO 25,000
Joseph Keller Senior VP-Administration 15,000
Except for the options granted to a former officer of the Corporation, the
vesting of which was governed by his employment agreement, none of the
options granted in March 1996 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 equaled 110% ($3.5063 per share) of the fair market value
of the Common Shares on the date of grant of such options.
<Page 6>
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 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.
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 voluntarily reduced substantially by Mr. Davis. 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 current fiscal year. (See
"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. 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. Pursuant to these provisions, Mr. Davis' base annual salary
increased to $300,000 retroactive to of the commencement of Fiscal 1997
because the Corporation realized net income in Fiscal 1997.
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. 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
<Page 7>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the annual and
long-term compensation paid or accrued on behalf of the Chairman of the
Board, the Chief Executive Officer and the three other most highly
compensated Executive Officers (the "Named Executive Officers") for each of
the Corporation's last three completed fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
------------------- -----------------------------
NAME AND RESTRICTED OPTIONS ALL
PRINCIPAL FISCAL STOCK (# OF LTIP OTHER
POSITION YEAR SALARY BONUS AWARDS SHARES) PAYOUTS COMP
- --------------------------------------------------------------------------------
Kenneth 1998 $311,539 $118,000 $ - - $ - $ 1,118
Davis 1997 225,000 - - 125,000 - 1,164
President 1996 225,000 - 48,772 - - 1,171
CEO, COO
Manfred 1998 175,000 25,000 - - - 1,041
Brecker 1997 175,000 25,000 - 75,000 - 1,164
Chairman 1996 175,000 25,000 - - - 1,254
of the Board
Marcie 1998 125,000 - - - - 703
B.Davis 1997 143,750 - - 50,000 - 732
Exec. VP 1996 92,500 15,000 19,791 - - 743
Sec, Treas
Joseph 1998 120,000 - - - - 821
Keller 1997 108,243 - - 15,000 - 864
S VP 1996 108,270 7,500 24,739 - - 875
Richard A. 1998 122,307 - - - - 910
Davis 1997 110,000 - - 25,000 - -
S VP 1996 25,384(*) - - 50,000 - -
Finance &
CFO
(*) The foregoing table does not include severance compensation of $110,000
paid to a former executive officer of the Corporation whose employment with
the Corporation terminated in 1996, all of which was accrued in the
Corporation's 1997 fiscal year.
YEAR - Refers to fiscal years ended January 31, 1998, February 1, 1997 and
February 3, 1996, respectively.
SALARY - The Corporation leases a number of automobiles that are made
available to certain of its executive officers as well as to other members
of management and supervisory employees for use in the performance of their
duties. The Summary Compensation Table does not include the value one
executive officer derived from his personal use of an automobile, which in
any event would not exceed the lesser of $25,000 per year or 10% of the
salary reported in the Summary Compensation Table as to any Named Executive
Officer.
RESTRICTED STOCK AWARDS - 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 certain of the Named Executive Officers in
December 1991. A portion of the shares purchased by each such officer
vested over the subsequent four year period.
LTIP PAYOUTS - None paid. No plan in place.
ALL OTHER COMPENSATION - 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%
<Page 8>
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
derive a profit from its operations.
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 (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 $250,000
(which increased to $300,000 as of the first day of Fiscal 1997 by reason of
the fact that the Corporation realized net income in Fiscal 1997), subject to
annual cost of living increases and an annual bonus equal to $10,000 for
every $.05 of per share pre-tax net income for the appropriate fiscal year.
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 November 1995, the Corporation entered into an Executive Employment
Agreement with Richard A. Davis with respect to his employment as the
Corporation's Senior Vice President-Finance and Chief Financial Officer
continuing through January 30, 1999. Pursuant to this employment agreement,
Mr. Davis: (a) currently receives an annual base salary of $132,300, which
reflects increases from his initial base salary of $110,000 plus annual
increases based on cost of living adjustments; and (b) was granted options
to purchase 50,000 Common Shares of the Corporation at an exercise price
equal to the fair market value of such shares as of the date of their grant.
The options granted to Mr. Davis vest ratably over a three year period
commencing with the first anniversary date of Mr. Davis' employment with the
Corporation. The employment agreement with Mr. Davis also provides for one
year's additional compensation based on similar termination provisions as
are described in the preceding paragraph with respect to Mr. Brecker's and
Mr. Kenneth Davis' employment agreements.
OPTION AND STOCK APPRECIATION RIGHT ("SAR") GRANTS IN FISCAL 1998
No options or Stock Appreciation Rights were granted by the Corporation to
the Named Executive Officers during Fiscal 1998.
Options Exercised and Fiscal Year-End Option Values
- ---------------------------------------------------
The following table sets forth certain information concerning options exercised
and the options outstanding at January 31, 1998 held by the Named Executive
Officers:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-The-Money
Name on Exercise Realized Options/SARs Options/SARs(*)
- --------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Kenneth A. Davis - - 213,215 119,862 $968,564 $242,245
Manfred Brecker - - - 75,000 - 149,528
Marcie B. Davis - - 59,678 50,000 271,955 99,685
Joseph Keller - - 38,874 15,000 157,040 34,688
Richard A. Davis - - 33,333 41,667 - 57,813
</TABLE>
(*) Market value of securities underlying in-the-money options at the end of
fiscal 1998 (based on $5.50 per share, the closing price of Common Shares on
the Nasdaq SmallCap Market on 1/30/98) minus the exercise price.
PERFORMANCE GRAPH
The following graph shows changes from January 1993 to January 1998 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 depicting information listed in table below]
INDEXED RETURNS [1/1/93]
Company Return Return Return Return Return
Name Jan 94 Jan 95 Jan 96 Jan 97 Jan 98
Pharmhouse
Corp. 106.67 13.33 93.33 240.00 150.07
Retail Stores
Composite 95.18 88.04 94.95 113.49 168.28
S& P 500
Composite 111.86 112.48 155.85 196.87 249.80
COMPENSATION OF DIRECTORS
Until January 1998, each member of the Board who is not an officer or employee
of the Corporation or any of its subsidiaries (an "Independent Director" or
"Non-Employee Director") was 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 "Plan"). However, as noted under "Ratification and Approval
of Second Amendment to the Corporation's 1992 Equity Compensation Plan for
Non-Employee Directors", Independent Directors are now to be compensated in
Common Shares of the Corporation for Board and Committee attendance, upon terms
described therein.
Pursuant to the Plan, as amended in 1995, 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
<Page 10>
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 Plan is effected automatically on the business day
next succeeding each Annual Meeting of Shareholders (or Special Meeting held
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 Plan.
The Board has proposed an amendment to the Plan whereby the duration and
amount of Common Shares reserved under the Plan would be increased to permit
the Independent Directors to receive Common Shares in lieu of cash
compensation for attendance at meetings of the Board of Directors of the
Corporation and Committees thereof. For a detailed description of the
proposed amendment to the Plan, see Proposal 2.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Maloney, Mehlman & Katz, a law firm of which Melvin Katz, a director of the
Corporation is currently a member, currently provides legal services to the
Corporation, and received fees for services rendered to the Corporation
during Fiscal 1998 totaling approximately $79,000.
PROPOSAL NO 2: RATIFICATION AND APPROVAL OF SECOND AMENDMENT TO THE
CORPORATION'S 1992 EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
Background
- ----------
In April, 1992, the Corporation adopted its 1992 Equity Compensation Plan for
Non-Employee Directors (the "Plan") providing for annual grants of restricted
stock awards to Directors of the Corporation who are not officers or
employees (as defined in the Plan) of the Corporation. The Plan originally
authorized the grant of an aggregate of 11,494 Common Shares of the Company
(the "Shares") to Non-Employee Directors of the Corporation. The Plan was
first amended on July 14, 1995 to increase the authorization of Shares to
50,000. Pursuant to the Plan, as amended, each such Director is entitled to
receive an Annual Grant of 2,500 Shares upon being elected as a member of the
Board at a Shareholders Meeting, through the 1998 Shareholders Meeting.
The Corporation has compensated its Non-Employee Directors with a cash
award of $500 for every Meeting of the Board of Directors such Non-Employee
Director attends and $250 for every Committee Meeting such Non-Employee
Director attends. At a Meeting of the Board of Directors held on January 22,
1998, the members of the Board of Directors agreed in principle that it would
be in the best interests of the Corporation for such Non-Employee Directors
to receive, at their election, such compensation either in cash or in the
form of Shares. In order to implement this proposed amendment, the Plan
needs to be further amended to extend its duration and increase the number of
Shares authorized for issuance under its provisions. The proposed amendments
to the Plan are described herein (collectively, the "Second Amendment").
Proposed Amendments
1. Equity Compensation for Non-Employee Directors' Attendance at
Meetings of the Board of Directors
The proposed Second Amendment provides that, in consideration of a Non-Employee
Director's attendance at Meetings of the Board of Directors and/or any Committee
thereof, commencing and effective as of the Board Meeting held on January 22,
1998, each Director, at his/her election, may receive, in lieu of cash fees
of $500 per Board Meeting or $250 per Committee Meeting, Shares of the
Corporation for each such Board Meeting or Committee Meeting attended by such
Director during each year of his/her incumbency as a Director. All of the
Independent Directors elected to take such compensation in Shares of the
Corporation at the January 22, 1998 Board Meeting for the current fiscal year.
The number of such Shares to be awarded per Board Meeting and/or per Committee
Meeting attended by such Director during the period fo his or her incumbency
through the date of the most recent Shareholders' Meeting of the Company
shall be determined by dividing the sum of $500 and/or $250, as the case may
be, by the closing price of the Common Shares of the Corporation on the
NASDAQ SmallCap Market on the trading day immediately preceding each such
Board or Committee Meeting or, if there is no trading in the Corporation's
Common Shares on the NASDAQ SmallCap Market for thirty (30) consecutive
trading days prior to such Meeting, by the mean between the quoted closing
bid and asked price for the Common Shares of the Corporation on the trading
day immediately preceding such Meeting. The total number of such Shares so
issuable to such Directors for their attendance at Board or Committee
Meetings during the preceding year shall be determined and granted within
ten (10) days after the date of each Annual Meeting of the Board of Directors
or Shareholders and share certificates evidencing the Shares included in each
such grant shall be issued and delivered by the Corporation to each Director
as soon as practicable thereafter. All such Shares shall be subject to the
existing restrictions under the Plan and under the Securities Exchange Act of
1934 and the Securities Act of 1933.
<Page 11>
2. Extension of the Duration of the Plan
To implement the intent of the Second Amendment, the Plan (which was scheduled
to terminate immediately prior to the Annual Meeting of Shareholders held in
1999) shall be extended to terminate on the date immediately preceding the
date of the 2001 Annual Shareholders Meeting of the Corporation (or at such
other Meeting of Shareholders held in 2001 at which Directors are elected)
or at such earlier time as may be determined by the Board.
3. Increase in number of shares reserved under the Plan
By reason of the extension of the duration of the Plan and the increase in the
number of Shares to be awarded to the Non-Employee Directors annually, the
number of Shares authorized for issuance under the Plan, in accordance with
the provisions of the Plan and subject to such restrictions or other
provisions as the Committee may from time to time deem necessary, shall be
increased from 50,000 authorized Shares to 80,000 authorized Shares.
Based upon the number of meetings of the Board and Committees thereof held
during the past two fiscal years, the Board anticipates that (i) the total
number, and (ii) aggregate market value of Common Shares of the Corporation
issuable pursuant to the Plan, as amended hereby, would not be significant.
The Board recommends a vote FOR ratification and approval of the Second
Amendment to the Corporation's 1992 Equity Compensation Plan for
Non-Employee Directors. Shareholder ratification and approval of this
Proposal No. 2 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.
PROPOSAL NO 3: RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
It is proposed that the shareholders ratify the selection of
PricewaterhouseCoopers LLP as the independent accountants of the Corporation
for the fiscal year ended January 30, 1999. PricewaterhouseCoopers LLP has
examined the financial statements of the Corporation and its subsidiaries
since the Corporation's 1989 fiscal year. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Meeting and will
have the opportunity to address the shareholders if he so desires. 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
PricewaterhouseCoopers LLP to serve as the Corporation's independent
accountants for the fiscal year ending January 30, 1999. Ratification of
this Proposal No. Three 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.
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 1999) must be
received by the Corporation for inclusion in the Corporation's Proxy
Statement on or prior to May 15, 1999.
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
- -------------------------------------------------------------------------
Please date, sign and mail your
proxy card back as soon as possible!
Special Meeting of Shareholders in Lieu of Annual Meeting
PHARMHOUSE CORP.
October 15, 1998
- -----------------------------------------------------------------------------
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 and approval of the FOR AGAINST ABSTAIN
Second Amendment to the Corporation's / / / / / /
1992 Equity Compensation Plan
for Non-Employee Directors
3. Ratification of appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as / / / / / /
independent accountants of the
Corporation (Mark Only One).
4. 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 APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
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 SPECIAL MEETING OF
SHAREHOLDERS ON OCTOBER 15, 1998
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 Special Meeting of Shareholders
of PHARMHOUSE CORP. to be held at 1177 Avenue of the Americas, 29th Floor,
New York, N.Y., at 10:00 AM on October 15, 1998 and any adjournments thereof,
on all matters before said meeting.
SECOND AMENDMENT TO PHARMHOUSE CORP.
(formerly S.E. Nichols Inc.)
1992 EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
Dated: As of January 22, 1998
A. Background
On April 22, 1992, Pharmhouse Corp. (the "Company") adopted its 1992
Equity Compensation Plan for Non-Employee Directors (the "Plan") providing
for annual grants of restricted stock awards to Directors of the Company who
are not officers or employees (as defined in the Plan) of the Company. The
Plan originally authorized the grant of an aggregate of 11,494 Shares to
non-employee Directors of the Company. The Plan was first amended on
July 14, 1995 to increase the authorization of Shares to 50,000. Pursuant
to the Plan, as amended, each such Director is entitled to receive an Annual
Grant of 2,500 Shares upon being elected as a member of the Board at a
Shareholders Meeting, through the 1998 Shareholders Meeting. All references
herein to numbers of Shares reflect the one for 4.35 reverse split of the
Company's Shares effected by the Company in April 1993.
The amendments to the Plan set forth herein (collectively, the "Second
Amendment") were adopted by the Board as of January 22, 1998, subject to
approval by the Company's shareholders.
Capitalized terms used herein which are defined in the Plan shall have
the respective meanings ascribed thereto in the Plan.
B. Amendments to the Plan
Pursuant to Section 10 of the Plan, the Plan is hereby amended as follows:
1. The first sentence of Section 4.1 of the Plan is hereby deleted
in its entirety adn the following sentence shall be inserted in
its place:
"Eighty Thousand (80,000) Shares are authorized for issuance
under the Plan in accordance with the provisions of the Plan
and subject to such restrictions or other provisions as the
Committee may from time to time deem necessary."
2. Section 6.1 of the Plan is hereby deleted in its entirety
and the following new Section 6.1 shall be inserted in its
place:
"6.1 Grant of Share Awards; Date of Grant; Computation of Amount;
(a) In consideration for such person's services as a member
of the Board during each Annual Term of Service as a member
of the Board, each Director shall be entitled to receive a
Share Award of 2,500 Shares upon being elected as a
member of the Board at the relevant Shareholders' Meeting
(an "Annual Grant"), commencing with the 1995 Shareholders'
Meeting. Each Annual Grant shall be made as of the first
business day following the date on which such Director is
elected a member of the Board at the relevant Shareholders'
Meeting and share certificates evidencing the Shares
included in each such Annual Grant shall be issued and
delivered by the Company to each Director as soon as
practicable thereafter.
(b) (i) In addition to, and not in lieu of, the Share
Awards described in Section 6.1(a) of the Plan,
in consideration for such person's attendance at
Meetings of the Board of Directors and/or any
Committee thereof, commencing and effective as
of January 22, 1998, each Director, at his
election, may receive, in lieu of cash fees of
$500 per Board Meeting or $250 per Committee
Meeting, Shares of the Company for each such
Board Meeting or Committee Meeting attended by
such Director during each year of his incumbency
as a Director. Such election by a Director to
receive Shares of the Company in lieu of cash
fees for attendance at Meetings of the Board
and/or any Committee thereof shall be effective
for the duration of such Director's incumbency
as a Director of the Company up until the date
of termination of the Plan unless and until
such Director notifies the Secretary of the
Company in writing of his or her desire to
again receive cash fees for attendance at any
such Meetings.
(ii) The number of such Shares to be awarded per Board
Meeting and/or Committee Meeting attended by such
Director during the period of his or her incumbency
through the date of the most recent Shareholders'
Meeting of the Company shall be determined by
dividing the sum of $500 and/or $250, as the case
may be, by the closing price of the Common Shares
of the Company on the NASDAQ SmallCap Market on
the trading day immediately preceding each such
Board or Committee Meeting or, if there is no
trading in the Company's Common Shares on the
NASDAQ SmallCap Market for thirty (30) consecutive
trading days prior to such Meeting, by the mean
between the quoted closing bid and asked price for
the Common Shares of the Company on the trading day
immediately preceding such Meeting. The total number of
such Shares so issuable to such Directors for
their attendance at Board or Committee Meetings
during the preceding year shall be determined and
granted within ten (10) days after the date of
each Annual Meeting of the Board of Directors and
share certificates evidencing the Shares included
in each such grant shall be issued and delivered
by the Company to each Director as soon as
practicable thereafter."
3. Section 12 of the Plan shall be deleted in its entirely adn the
following new Section 12 shall be inserted in its place:
"Section 12
Duration of the Plan
The Plan shall terminate immediately prior to the election of
Directors at any Shareholders' Meeting of the Company held in 2001
or at such earlier time as may be determined by the Board, and no
Share Award shall be granted under the Plan after the date of its
termination."
C. Effective Date
This Second Amendment was adopted by the Board effective as of
January 22, 1998 adn will become effective as of such date if ratified and
approved by the holders of record of a majority of outstanding Shares of the
Company at the 1998 Shareholders' Meeting. In the event of the Company's
shareholders do not ratify and approve the Second Amendment at the 1998
Shareholders' Meeting, this Second Amendment to the Plan shall automatically
terminate adn be of no further force and effect without further action by the
Company of the Board.
