<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
[LONGS DRUG STORES CORPORATION LOGO]
The Annual Meeting of Shareholders of Longs Drug Stores Corporation will be
held at the Regional Center for the Arts, 1601 Civic Drive, Walnut Creek,
California, on Tuesday, May 21, 1996, at 11:00 a.m., for the purposes of (1)
electing five directors; (2) voting on two proposals to amend the Company's
Amended Articles of Incorporation ("Articles") to simplify the Articles and
remove an ambiguity regarding the Board of Directors' authority to amend the
By-laws of the Company; (3) voting on a shareholder proposal regarding the
compensation of directors; and (4) transacting such other business as may
properly be brought before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on Tuesday, April 9,
1996, will be entitled to vote at the meeting.
If you are unable to be present, you are requested to vote your shares by
signing the enclosed proxy and returning it in the envelope provided.
Walnut Creek, California
April 19, 1996
ORLO D. JONES
Secretary
<PAGE>
[LONGS DRUG STORES CORPORATION LOGO]
EXECUTIVE OFFICES
141 NORTH CIVIC DRIVE
WALNUT CREEK, CALIFORNIA 94596
PROXY STATEMENT
The following information is submitted concerning the enclosed proxy and the
matters to be acted upon at the Annual Meeting of Shareholders of Longs Drug
Stores Corporation (the "Company") to be held on May 21, 1996, or any
adjournment thereof, pursuant to the Notice of said meeting.
The approximate date on which this Proxy Statement and form of proxy are
first being sent or given to shareholders is April 19, 1996.
INFORMATION CONCERNING PROXY
The proxy is solicited on behalf of the Board of Directors of the Company.
It may be revoked at any time before its exercise by filing with the Secretary
of the Company a written revocation or a duly executed proxy bearing a later
date. It may also be revoked by attendance at the meeting and election to vote
in person.
D.F. King & Co., Inc. has been engaged to assist in the solicitation of
proxies from brokers, banks, institutions, and other shareholders for an
anticipated fee of approximately $5,500, plus reasonable out-of-pocket costs and
expenses. Certain directors, officers, and regular employees of the Company may
solicit proxies by mail, telephone, telegraph, or personal interview. The entire
cost of solicitation of proxies will be borne by the Company.
As of April 9, 1996, the Company had shares of Common Stock
outstanding. Only shareholders of record at the close of business on April 9,
1996, will be entitled to notice of, and to vote at, the Annual Meeting. Each
share is entitled to one vote. A plurality of all the votes cast at the meeting,
with a quorum present, is sufficient to elect a director and abstentions and
broker non-votes will not be considered votes cast for the purposes of electing
directors. As further described below in this Proxy Statement, Item 2, the first
of the two amendments to the Company's Articles of Incorporation, requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock and Item 3 requires the affirmative vote of two-thirds of the
outstanding shares of Common Stock; broker non-votes and abstentions will have
the same effect as a vote against each of these proposals. With respect to Item
4, the shareholder proposal, abstentions and broker non-votes will not be
considered as votes cast for such matter.
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
The following table presents the number of shares of the Company's Common
Stock owned beneficially as of April 9, 1996, by each director and nominee, each
of the five most highly compensated executive officers for the fiscal year ended
January 25, 1996, and all directors and executive officers as a group, and by
all other persons known by the Company to beneficially own more than 5% of the
Company's Common Stock.
1
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
----------------------------
NAME(2) COMMON STOCK % OF CLASS
- --------------------------------------------------------------------------------------------------- --------------- ----------
<S> <C> <C>
Robert M. Long..................................................................................... (3)
Vera M. Long....................................................................................... (4)
Thomas J. Long Foundation.......................................................................... (5)
J.M. Long Foundation............................................................................... (6)
Ariel Capital Management, Inc...................................................................... (7)
Bill M. Brandon....................................................................................
Richard M. Brooks..................................................................................
William G. Combs...................................................................................
David G. DeSchane..................................................................................
Edward E. Johnston.................................................................................
Orlo D. Jones......................................................................................
Mary S. Metz.......................................................................................
Ronald A. Plomgren................................................................................. (8)
Stephen D. Roath...................................................................................
Gerald H. Saito....................................................................................
Harold R. Somerset.................................................................................
Donald L. Sorby....................................................................................
Thomas R. Sweeney..................................................................................
Frederick E. Trotter...............................................................................
All directors and executive officers as a group
( persons)...................................................................................... (9)
Employees' Profit Sharing Plan and
Variable Investment Plan......................................................................... (10)
</TABLE>
- ------------------------
* Less than 1%.
(1) Participants in the Employees' Profit Sharing Plan and the Variable
Investment Plan have the right to direct the trustee as to the voting of the
shares of the Company's Common Stock that have been allocated to their
respective stock accounts, and as such have voting power with respect
thereto. The beneficial ownership of each individual included in this table
who is a participant in the plans includes the shares held in that person's
stock accounts under the plans. The aggregate number of shares so included
for all such individuals is , and the maximum so included for any
individual is . See note 10 below. Beneficial ownership also includes
the shares of restricted stock held by executive officers in respect of
which shares the executive officers have voting power. See note 1 to the
Summary Compensation Table on page
------- for the shares of restricted stock held by the listed executive
officers. The persons named in this table have sole voting and investment
powers with respect to the shares indicated, except as otherwise noted and
subject to community property laws, where applicable.
(2) Except as otherwise noted, the address for all beneficial owners of more
than five percent of the Company's stock is P.O. Box 5222, Walnut Creek,
California 94596.
(3) Includes shares held in fiduciary capacity for family members and
other relatives for which R.M. Long has sole voting and investment power and
shares held in fiduciary capacity for family members for which R.M.
Long has shared voting and investment power with E. Long. Excludes
shares held by family members. R.M. Long disclaims beneficial ownership of
all shares referenced above. Also includes shares held in fiduciary
capacity for which R.M. Long has sole voting power and shared investment
power with V.M. Long. Includes shares held in a fiduciary capacity for
which R.M. Long has shared voting and investment power.
(4) Includes shares as to which V.M. Long shares investment power with
R.M. Long. Such shares appear in the table for both V.M. Long and R.M. Long.
(5) T.R. Sweeney and W.G. Combs, with others, serve as co-trustees of the
Thomas J. Long Foundation, and therefore share investment and voting power
over these shares. These shares are not included in the table for
any of these individuals and each of them disclaims beneficial ownership
thereof.
2
<PAGE>
(6) Four of the five co-trustees of the J.M. Long Foundation include R.M. Long,
W.G. Combs, O.D. Jones, and S.D. Roath and they therefore share, with all
co-trustees, investment and voting power over these shares. These
shares are not included in the table for any of these individuals and each
of them disclaims beneficial ownership thereof.
(7) The address of Ariel Capital Management, Inc., is 307 N. Michigan Avenue,
Chicago, Illinois 60601.
(8) Does not include certain shares held by the Employees' Profit Sharing Plan
and the Variable Investment Plan in respect of which R.A. Plomgren may have
shared voting power by virtue of his membership on the Policy Committee of
such plans, and of which he disclaims beneficial ownership. Includes
---------- shares held in a fiduciary capacity for which R.A. Plomgren has
shared voting and investment power.
(9) Includes shares held by the Thomas J. Long Foundation and
shares held by the J.M. Long Foundation because certain of the trustees of
each entity are directors or executive officers of the Company.
(10) Merrill Lynch Trust Company of California is the trustee of the Employees'
Profit Sharing Plan and Variable Investment Plan. The Policy Committee for
both of the plans has the authority to direct the trustee as to the voting
of allocated whole shares of the Company's Common Stock for which no voting
instructions are timely received from the participant, the aggregate number
of fractional shares allocated to participants' accounts and all unallocated
shares. As such, the members of the Policy Committee may be deemed to have
shared voting power with respect to such shares. On March 31, 1996, the
aggregate number of such fractional and unallocated shares in the plans was
.
ITEM 1. ELECTION OF DIRECTORS
The Board of Directors consists of thirteen members, divided into three
classes. Five directors, as set forth below, are to be elected at the Annual
Meeting. The remaining eight directors will continue to serve as set forth
below. The proxy holders will vote the proxies received by them for the
following five nominees for the terms set below and until their successors are
duly elected and qualified (unless authorization to vote for election of
directors has been withheld). The five nominees receiving the greatest number of
votes will be elected as directors of the Company. The Company is unaware of any
nominee who would be unavailable to serve if elected. In the event that any
nominee shall be unable to serve, the proxies will be voted by the proxy holders
for such other person as may be designated by the Board of Directors.
The following sets forth information as to each nominee for election at this
meeting and each director continuing in office, including their ages, present
principal occupations and those held during the last five years, directorships
in other publicly held corporations, membership in committees of the Board of
Directors, and the year in which each first became a director of the Company.
All occupations listed refer to the Company unless otherwise stated.
NOMINEES FOR ELECTION AT THIS MEETING:
(TERMS TO EXPIRE MAY 1999)
R.M. Brooks, 67, Financial Consultant and Director. Mr. Brooks is a
Director of BEI Electronics, Inc., and Granite Construction, Inc. Mr. Brooks
chairs the Stock Bonus and Compensation Review Committee and the Stock
Investment Committee, and is a member of the Audit Committee and the
Nominating Committee. He has been a Director of the Company since 1988.
W.G. Combs, 65, Retired Vice President -- Administration of the Company;
and Director. Prior thereto he was Vice President -- Administration of the
Company; prior thereto he was Vice President -- Administration and Treasurer
of the Company. He has been a Director of the Company since 1980.
D.G. DeSchane, 71, Retired Vice President and District Manager of the
Company; and Director. Mr. DeSchane is a member of the Stock Bonus and
Compensation Review Committee. He has been a Director of the Company since
1990.
3
<PAGE>
D.L. Sorby, Ph.D., 63, Retired Dean Emeritus at the School of Pharmacy
at the University of the Pacific; and Director. Prior thereto he was Dean
Emeritus at the School of Pharmacy at the University of the Pacific. He has
been a Director of the Company since 1995.
NOMINEE FOR ELECTION AT THIS MEETING:
(TERM TO EXPIRE MAY 1997)
G.H. Saito, 51, Senior Vice President -- Hawaii District Manager and
Director. Prior thereto he was Vice President -- Hawaii District Manager;
prior thereto he was Assistant Secretary and Hawaii District Manager. He has
been a Director of the Company since 1995.
DIRECTORS WHOSE PRESENT TERMS EXPIRE MAY 1997:
E.E. Johnston, 78, Insurance Consultant and Director. Mr. Johnston
chairs the Audit Committee and is a member of the Stock Investment
Committee, the Nominating Committee, and the Stock Bonus and Compensation
Review Committee. He has been a Director of the Company since 1980.
M.S. Metz, Ph.D., 58, Dean, U.C. Berkeley Extension; and Director. Dr.
Metz is a Director of Pacific Gas and Electric Company, Union Bank, and
Pacific Telesis Group. Dr. Metz is a member of the Audit Committee and the
Stock Bonus and Compensation Review Committee. She has been a Director of
the Company since 1991.
S.D. Roath, 55, President and Director. He has been a Director of the
Company since 1979.
T.R. Sweeney, 57, Retired Vice President and District Manager of the
Company; and Director. He has been a Director of the Company since 1978.
DIRECTORS WHOSE PRESENT TERMS EXPIRE MAY 1998:
R.M. Long, 57, Chairman of the Board, Chief Executive Officer, and
Director. Mr. Long chairs the Nominating Committee. He has been a Director
of the Company since 1968.
R.A. Plomgren, 62, Senior Vice President -- Development, Chief Financial
Officer, and Director. Prior thereto he was Senior Vice President --
Development. He has been a Director of the Company since 1972.
H.R. Somerset, 60, Business Consultant and Director. Prior thereto he
was President and Chief Executive Officer of California and Hawaiian Sugar
Company. Mr. Somerset is a Director of PLM International, Inc., and Brown
and Caldwell. Mr. Somerset is a member of the Audit Committee, the Stock
Bonus and Compensation Review Committee, and the Stock Investment Committee.
He has been a Director of the Company since 1992.
F.E. Trotter, 65, President, F.E. Trotter, Inc.; and Director. Prior
thereto he was Trustee of the Estate of James Campbell. Mr. Trotter is a
Director of Bancorp Hawaii, Inc., Bank of Hawaii, Kikiaola Land Co., and
Maui Land and Pineapple Co. Mr. Trotter is a member of the Audit Committee.
He has been a Director of the Company since 1989.
THE BOARD OF DIRECTORS
During the fiscal year ended January 25, 1996, the Board of Directors met
five times. During the fiscal year, each director attended more than 75% of all
meetings of the Board and the Committees upon which they served.
COMMITTEES OF THE BOARD
The Audit Committee is composed entirely of non-employee directors. The
current Committee members are E.E. Johnston (Chairman), H.R. Somerset, F.E.
Trotter, M.S. Metz, and R.M. Brooks. The Audit Committee's primary functions are
to monitor the Company's accounting, financial reporting, and control
procedures, and to recommend the independent certified public accountants to be
selected by the Company. The Committee met two times during the fiscal year
ended January 25, 1996.
4
<PAGE>
The Stock Bonus and Compensation Review Committee establishes compensation
for the Company's senior executive officers and administers the Company's
long-term incentive plans. The current Committee members are R.M. Brooks
(Chairman), D.G. DeSchane, E.E. Johnston, M.S. Metz, and H.R. Somerset. The
Committee met two times during the fiscal year ended January 25, 1996.
The Nominating Committee recommends to the Board of Directors candidates for
directors of the Company. The Committee will consider qualified candidates
including those submitted by shareholders. Shareholder recommendations may be
submitted to the Secretary in accordance with the Company's By-Laws. The
Committee met two times during the fiscal year ended January 25, 1996. The
current Committee members are R.M. Long (Chairman), R.M. Brooks, and E.E.
Johnston.
The Stock Investment Committee is responsible for authorizing the purchase
by the Corporation, or by its subsidiary, Longs Drug Stores California, Inc.
("Subsidiary"), or by the Employee Profit Sharing Plan or the Variable
Investment Plan of the Subsidiary, of shares of the Corporation's Common Stock.
The Committee met four times during the fiscal year ended January 25, 1996. The
current Committee members are R.M. Brooks (Chairman), H.R. Somerset, and E.E.
Johnston.
EXECUTIVE COMPENSATION
The table below sets forth the compensation earned by the following persons
during the fiscal years ended January 25, 1996, January 26, 1995, and January
27, 1994, for services rendered in all capacities to the Company and its
subsidiaries: (i) the chief executive officer (CEO) of the Company, and (ii) the
four other most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- --------------
OTHER ANNUAL RESTRICTED ALL OTHER
FISCAL COMPENSATION STOCK COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) AWARD(S)(1)($) ($)
- ----------------------------------------------- ------ --------- -------- ------------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
R.M. Long--CEO & Chairman of the Board 1996 $ 100,000 $291,479 $2,451 $ 36,500 $
1995 100,000 255,670 2,309 107,125 3,024
1994 103,000 282,610 2,242 -- 3,115
S.D. Roath--President 1996 $ 100,000 $289,251 $2,451 $ 36,500 $
1995 100,000 255,372 2,309 107,125 3,024
1994 92,700 252,330 2,242 -- 3,115
R.A. Plomgren--Senior Vice President-- 1996 $ 90,000 $183,524 $2,451 $ 29,200 $
Development 1995 90,000 160,980 2,309 100,400 3,024
1994 82,400 171,590 2,242 -- 3,115
O.D. Jones--Senior Vice President--Properties 1996 $ 90,000 $161,934 $2,451 $ 27,375 $
1995 90,000 142,040 2,309 98,719 3,024
1994 82,400 131,200 2,242 -- 3,115
B.M. Brandon--Senior Vice President 1996 $ 80,000 $140,339 $2,451 $ 27,375 $
1995 80,000 123,090 2,309 98,719 3,024
1994 72,100 121,120 2,242 -- 3,115
- -----------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) The number and value (based on the last reported sale price on January 25,
1996), of the aggregate restricted stock holdings of the named executive
officers at the end of fiscal 1996 were: R.M. Long, 3,000 shares ($136,125);
S.D. Roath, 8,000 shares ($363,000); R.A. Plomgren, 2,800 shares ($127,050);
O.D. Jones, 2,750 shares ($124,781); and B.M. Brandon, 2,750 shares
($124,781). Dividends paid on restricted shares are retained by the Company
and, when the restricted shares vest, the retained dividends thereon, plus
interest earned from the Company's investment of dividends, are paid to the
recipient.
(2) Comprised entirely of Company contributions for the indicated year that were
allocated to the named executive officer's account in the Employee's Profit
Sharing Plan.
5
<PAGE>
DIRECTORS' COMPENSATION
Directors who are employees of the Company or any subsidiary of the Company
receive no additional compensation for their services as directors. Each other
member of the Board is paid an annual retainer of $28,000 plus a fee of $900 for
each Board meeting attended. Each director who is not an employee of the Company
or any subsidiary of the Company receives $900 for each Committee meeting
attended. Each Committee Chairman receives an additional annual fee of $4,000
for each such position held.
TERMINATION AGREEMENTS
The Subsidiary has entered into Agreements with the officers identified in
the table under the caption "Executive Compensation" on page 5, and other
officers and key employees of the Subsidiary which provide for severance
payments to such officers and employees in the event of their discharge by the
Subsidiary at any time within two years after the date of an Uninvited Change in
Control (as defined) or a resignation of the executive or employee at any time
within the period commencing 180 days and ending two years after an Uninvited
Change in Control. The severance benefits payable to the executive or employee
would be equal to three times the annual average income of the executive or
employee during the five taxable years preceding the date of termination of
employment. For purposes of the Agreements, Uninvited Change in Control means
any change in the ownership or effective control of the Company or any
subsidiary or the ownership of a substantial portion of the assets of the
Company or any subsidiary, which change is not approved by a majority of the
directors of the Company who have been in office at least six months prior to
the date of such change.
If an Uninvited Change in Control had occurred on December 31, 1995, and all
executives and other employees covered by the Agreements had been discharged by
the Company, Messrs. R.M. Long, S.D. Roath, R.A. Plomgren, O.D. Jones and B.M.
Brandon would have been entitled to receive $1,178,076, $1,057,935, $791,067,
$666,996, and $595,146, respectively. All other officers and employees covered
by the Agreements would have been entitled to receive $74,759,442.
CERTAIN TRANSACTIONS
During fiscal 1996, the Subsidiary forgave an obligation in the amount of
$90,580 owed to it by D.R. Wilson, an executive officer of the Subsidiary.
Pursuant to a fiscal 1992 agreement, Mr. Wilson agreed to reimburse the
Subsidiary for a portion of the loss it sustained in selling Mr. Wilson's house,
which the Company had purchased from him in conjunction with his promotion and
relocation. The house was sold in fiscal 1996, thus giving rise to the
obligation. The Company also paid $40,000 to Mr. Wilson in respect of a portion
of the taxes owed as a result of the forgiveness.
REPORT OF THE STOCK BONUS
AND COMPENSATION REVIEW COMMITTEE
The Stock Bonus and Compensation Review Committee consists of five members
of the Board, none of whom is an employee of the Company. One member, D.G.
DeSchane, who retired in 1988, is a former officer of the Company. The purpose
of the Committee is to establish compensation for the Company's executive
officers and to administer the Company's long-term incentive plans.
In compensating executives, including the Chief Executive Officer, the
Company's policy has been to employ a straightforward compensation program under
which a significant portion of compensation is tied to the Company's
performance. Given the stability of the senior management team, the Committee
believes that this approach provides an appropriate incentive to senior
management to continually strive to increase long-term profitability. The
Committee recognizes that management compensation is a key ingredient in
attracting and retaining capable leadership and that the compensation program
must afford members of senior management the opportunity to earn levels of
compensation that they will find acceptable.
The major components of executive compensation consist of base salary,
bonus, and awards under the Company's incentive equity plans. Base annual
salaries for executive officers are set at levels that the Committee believes,
based on its study of comparative industry data, are relatively low for the
senior management of large, publicly traded retail businesses. The companies
surveyed for the sake of this
6
<PAGE>
comparison have included virtually all of the peer group companies included in
the chart appearing under "Performance Graph" on page 8, and certain additional
grocery and general merchandise retailers, although the precise group of
companies surveyed may vary slightly from year to year. Base annual salaries for
executive officers in the fiscal year ended January 25, 1996, ranged from
$56,000 to $100,000.
The more significant component of cash compensation is the Company's bonus
program. Under this program the Committee establishes an applicable percentage
of the Company's operating income before provisions ("OIBP") for each executive
officer at the beginning of each year. OIBP is, essentially, earnings before
taxes, profit sharing contributions, senior officer bonuses, and any required
LIFO adjustment. The bonus program is designed to produce cash compensation
(i.e., salary and bonus) that the Committee believes, based on the survey
described in the preceding paragraph, is below the mid-level of the range of
annual compensation for senior management in large, publicly traded retail
businesses if the Company achieves target levels of OIBP. The applicable
percentages are arrived at on the basis of the percentage of budgeted OIBP
necessary to reach the target range. A cash bonus is paid quarterly to the
officer in the amount of his applicable percentage of OIBP for that quarter.
Bonuses for executive officers in fiscal 1996 ranged from $46,000 to $291,500.
These bonuses accounted for approximately % of total cash compensation for all
executive officers. The Committee has not established limits on the percentage
of cash compensation that may consist of these bonuses.
The third component of executive compensation is the periodic granting of
equity based awards under the Company's Long-Term Incentive Plan of 1987 and the
1995 Long-Term Incentive Plan. Awards under these plans can include restricted
stock, stock options, performance shares and stock appreciation rights and can
be made to key employees, including executive officers, key general office
employees and the top three managers in most stores. These plans are intended to
provide compensation that will be an incentive to key employees to enhance the
profitable growth of the Company and the value of its common stock. While the
range of award sizes among participants has been relatively modest, the
difference in size of awards under the plans has been based primarily on the
general level of responsibility of the recipient. The Committee may also
consider subjective factors on a case by case basis as it believes to be in the
Company's best interests. Awards made under the plans have been a relatively
small component of executive officer compensation. Since the adoption of the
1987 plan through the end of fiscal 1996, awards ranging from 7,000 to 9,000
shares of restricted stock have been made under the plans to the Chief Executive
Officer and each other executive officer other than the President, to whom an
aggregate of 14,000 shares of restricted stock has been awarded. Approximately
335,000 additional shares of restricted stock have been granted to the other
recipients under the plans.
The Chief Executive Officer's base salary which was 26% of aggregate salary
and bonus in 1996, was unchanged from its 1995 level, as was his applicable
percentage. Consequently, the increase in Mr. Long's cash compensation resulted
from the increase in OIBP attained in 1996. In awarding restricted stock to Mr.
Long in fiscal 1996, the Committee was aware of Mr. Long's substantial
shareholdings in the Company. The Committee believed that his award was
appropriate in light of Mr. Long's overall level of compensation and as compared
to the level of awards made to the other executive officers and key employees.
<TABLE>
<S> <C>
R.M. Brooks (Chairman) D.G. DeSchane
E.E. Johnston H.R. Somerset
M.S. Metz
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Stock Bonus and Compensation Review Committee consists of five members
of the Board, none of whom is an employee of the Company. One member, D.G.
DeSchane, who retired in 1988, is a former officer of the Company. The other
members of the committee are R.M. Brooks, E.E. Johnston, M.S. Metz and H.R.
Somerset.
7
<PAGE>
PERFORMANCE GRAPH
The graph below indicates the cumulative total shareholder return, including
reinvestment of dividends, over the last five fiscal years. The stock price
performance shown is not necessarily indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
LONGS DRUG STORES, S&P 500 INDEX, AND NATIONAL ASSOCIATION OF
CHAIN DRUG STORES ("NACDS") PEER GROUP INDEX.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LONGS DRUG STORES S&P 500 NACDS PEER GROUP INDEX
<S> <C> <C> <C>
Jan-91 100.00 100.00 100.00
Jan-92 115.16 123.00 126.00
Jan-93 116.84 136.00 132.00
Jan-94 110.81 153.00 134.00
Jan-95 112.04 154.00 167.00
Jan-96 159.48 213.00 233.00
</TABLE>
*The NACDS Peer Group Index is comprised of the following companies:
Arbor Drugs, Inc.; Big B, Inc.; Drug Emporium, Inc.; Fay's Inc.;
Genovese Drug Stores, Inc.; Longs Drug Stores; Revco D.S., Inc.; Rite
Aid Corporation; and Walgreen Co.
ITEMS 2 AND 3. APPROVAL OF AMENDMENTS TO THE COMPANY'S
AMENDED ARTICLES OF INCORPORATION
DESCRIPTION OF PROPOSED AMENDMENTS
On February 20, 1996, the Board of Directors approved two amendments to the
Amended Articles of Incorporation of the Company that would simplify the
Company's Amended Articles of Incorporation ("Charter") and eliminate an
ambiguity in the Charter. Specifically, the first amendment ("First Amendment")
would (a) restate Article Third to streamline the description of the purposes
for which the Company is formed, and (b) delete subparagraphs (3), (4) and (5)
of Article Tenth, which paragraphs are considered unnecessary and, in certain
respects, redundant with corresponding provisions of Maryland law that would
apply irrespective of inclusion in the Charter. The second amendment ("Second
Amendment" and, with the First Amendment, the "Amendments") would restate
subparagraph (6) (which would be renumbered subparagraph (3) by the First
Amendment) of Article Tenth to more clearly provide that the Board of Directors
is empowered to adopt, amend and repeal the By-laws of the Company.
The First Amendment is being presented at the meeting as Item 2 and the
Second Amendment as Item 3. The forms of the Amendments are set forth on Exhibit
A to this proxy statement, and the descriptions thereof contained herein are
qualified in their entirety by reference thereto.
PURPOSES AND EFFECTS OF AMENDMENTS
In 1985 the shareholders of Longs Drug Stores California, Inc.
("Subsidiary") approved a reorganization (the "Reorganization") pursuant to
which the Company became a holding company for the Subsidiary and the
shareholders became shareholders of the Company. At the time of the
establishment of the Company as a holding company, the Company's Charter was
adopted and a description thereof was included in a Proxy Statement dated April
16, 1985 (the "Reincorporation Proxy Statement") of the Subsidiary.
Subsequently, two amendments to the Charter have been filed by the Company,
updating certain provisions of the Charter.
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The Company recently has undertaken a review of its Charter and By-laws to
determine whether or not any amendments or modifications of those documents
would be appropriate at this time. The Company has concluded that three
modifications or amendments are appropriate in order to simplify the Charter,
delete certain provisions considered unnecessary and resolve an existing
ambiguity between the provisions of the Charter and the By-laws.
FIRST AMENDMENT. The First Amendment contains two components that are
primarily designed to simplify certain provisions of the Charter and eliminate
provisions that the Company now believes are unnecessary and, in certain
respects, redundant with corresponding provisions of Maryland law. Existing
Article Third of the Charter consists of 13 subparagraphs containing a detailed
description of the purposes for which the Company was formed and the types of
activities that can be undertaken by the Company. Under the Maryland General
Corporation Law, it is not necessary for a corporation to specifically state all
of these purposes in order for it to have the authority generally to take the
specified actions, and most charters adopted today would not include a long
listing of permitted actions to be taken by the corporation. Accordingly, the
Company is proposing an amendment to Article Third to significantly shorten the
statement of purposes for which the Company is formed. The Company does not
believe that the shortening of this provision will affect the authority and
power of the Company to conduct business or otherwise take action with respect
to its affairs.
The Company also is proposing modifications that would delete subparagraphs
(3), (4) and (5) of existing Article Tenth of the Charter. Subparagraph (3)
essentially provides the Board of Directors of the Company the power to make
certain determinations with respect to the net profits, working capital,
retained earnings and other reserves of the Company, to distribute and pay
dividends as determined by the Board to be appropriate, and to determine,
consistent with applicable law, the circumstances under which the books,
accounts and documents of the Company shall be open for inspection by the
shareholders of the Company. Under Maryland law, the Board of Directors
generally has the power to take these actions without a requirement for
specification in the charter, subject to applicable law. In this regard, the
Maryland General Corporation Law specifies the circumstances under which a
shareholder of a corporation is entitled to inspect the books, accounts and
records of the corporation. The Company believes that the provisions of
subparagraph (3) are unnecessary and primarily articulate existing rights of the
Board of Directors under applicable law.
Subparagraph (4) specifies certain matters with respect to contracts or
transactions between the Company and any of its directors or between the Company
and any other corporation or entity in which a director has a material financial
interest and primarily codifies existing provision of the Maryland General
Corporation Law on the same subject. Subparagraph (4) provides that if the fact
of the common directorship or interest is properly disclosed and the transaction
is approved by a vote of a majority of the disinterested directors or by a vote
of a majority of the votes cast by shareholders other than the interested
director, the transaction is not void or voidable. Further, if the contract or
transaction is not authorized or approved in this manner, the person asserting
the validity of the contract or transaction bears the burden of proving that it
was fair and reasonable to the Company. The same result would be obtained under
existing statutory provisions of Maryland law and, accordingly, the Company
believes that the continued inclusion of this provision in the Charter is
unnecessary.
Lastly, subparagraph (5) provides that, except for contracts subject to the
provision of subparagraph (4) described above, any contract or transaction which
is ratified by a majority of the shareholders of the Company having voting power
shall, so far as permitted by applicable law, be valid and binding as though
ratified by every shareholder of the Company. Generally approval by such minimum
percentages of shareholders as is prescribed by the Maryland General
Corporations Law or the Charter will constitute sufficient shareholder approval
to effectively bind all shareholders. Although subparagraph (5) could, possibly,
under certain circumstances, be used as a defense by the Company in the event of
the approval of a transaction by fewer than all of the shareholders of the
Company, the Company believes that other legal principles are likely to govern
whether or not a transaction which has been approved by shareholders is valid
and binding on shareholders who did not approve. Accordingly, the Company
believes that continuation of subparagraph (5) is unnecessary.
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If the proposal to eliminate subparagraphs (3), (4) and (5) is approved, it
also will be necessary to modify the remaining paragraphs of Article Tenth in
order to renumber those paragraphs, as well as change any other cross-references
in the remainder of the Charter of the Company to reflect the renumbered
paragraphs.
SECOND AMENDMENT. The Second Amendment is intended to clarify an existing
ambiguity between the provisions of the Charter and the Company's By-laws
relating to the power of the Board of Directors to adopt, amend, or repeal
By-laws of the Company. Under Maryland law, the power to adopt and amend By-laws
rests with the shareholders of the corporation, except to the extent that the
charter or By-laws vests the power in the Board of Directors.
The Charter currently provides as follows:
"The By-laws of the Corporation may be adopted, amended or repealed by
the affirmative vote of two-thirds (2/3) of the votes entitled to be
cast by the outstanding shares of voting stock of the Corporation,
voting together as a single voting group. By-laws may also be adopted,
amended or repealed by the Board of Directors as provided or permitted
by the By-laws."
Section 6.09 of the By-laws provides that:
"These By-laws may be altered, amended or repealed and new By-laws may
be adopted to the extent and as provided in the Charter of the
Corporation."
The Board of Directors believes that the correct interpretation of the
Charter and By-laws in their current form is that the Board of Directors is
empowered to amend the By-laws. Nonetheless, the ambiguity in the documents
creates the potential for uncertainty as to the effectiveness of any Board of
Director action to amend the By-laws. The purpose of the Second Amendment is
unambiguously to authorize the Board of Directors to amend the By-laws to the
full extent allowed by Maryland law. There have been no amendments of the
By-laws since they were adopted in connection with the Reorganization and the
Board is not currently considering any changes to the By-laws. The amendment
will not affect the continued right of shareholders to amend the By-laws as
provided in the Charter.
VOTE REQUIRED
The First Amendment (Item 2) requires for approval the affirmative vote of a
majority of the shares of Common Stock outstanding and entitled to vote with
respect to such amendment. The Second Amendment (Item 3) requires for approval
the affirmative vote of two-thirds of the shares of Common Stock outstanding and
entitled to vote with respect to such amendment. The Company will complete the
appropriate filings with the Maryland Secretary of State to give effect to each
Amendment that receives the required level of shareholder approval.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF
THE FIRST AMENDMENT AND THE SECOND AMENDMENT.
ITEM 4. SHAREHOLDER PROPOSAL REGARDING
DIRECTORS' COMPENSATION
Mr. William Steiner, the owner of 200 shares of the Company's common stock,
whose address is 4 Radcliff Drive, Great Neck, New York 11024, has given notice
that he intends to present for action at the Annual Meeting the following
resolution:
"RESOLVED that the shareholders recommend that the board of directors
take the necessary steps to ensure that from here forward all
non-employee directors should receive a minimum of fifty percent of
their total compensation in the form of company stock which cannot be
sold for three years."
The Board does not support Mr. Steiner's proposal for the reasons stated by
it below following Mr. Steiner's statement.
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SHAREHOLDER STATEMENT IN SUPPORT
Mr. Steiner's statement in support of his resolution is as follows:
A significant equity ownership by outside directors is probably the best
motivator for facilitating identification with shareholders.
Traditionally, outside directors, sometimes selected by management, were
routinely compensated with a fixed fee, regardless of corporate
performance. In today's competitive global economy, outside directors
must exercise a critical oversight of management's performance in
furthering corporate profitability. All too often, outside director's
oversight has been marked by complacency, cronyism, and inertia.
Corporate America has too many examples of management squandering
company assets on an extended series of strategic errors. Meanwhile,
boards of directors stood by and passively allowed the ineptitude to
continue, well after disaster struck. They fiddled while Rome was
burning.
When compensation is in company stock, there is a greater likelihood
that outside directors will be more vigilant in protecting their own, as
well as corporate, and shareholder interests.
What is being recommended in this proposal is neither novel or untried.
A number of corporations have already established versions of such
practices, namely Scott Paper, The Travelers, Hartford Steam Boiler, and
Alexander & Alexander.
Harvard Business School did a series of studies comparing highly
successful to poorly performing companies. They found that outside
directors in the better performing companies had significantly larger
holdings of company stock than outside directors in the more mediocre
and poorly performing companies.
It can be argued that awarding stock options to outside directors
accomplishes the same purpose of insuring director's allegiance to a
company's profitability as paying them exclusively in stock. However, it
is our contention that stock options are rewarding on the upside but
offer no penalties on the downside. There are few strategies that are
more likely to cement outside directors with shareholder interests and
company profitability than one which results in their sharing the same
bottom line.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION.
BOARD OF DIRECTOR RECOMMENDATION AGAINST AND COMMENTS ON SHAREHOLDER PROPOSAL
The Board, after consideration of this proposal, recommends that
shareholders vote AGAINST it because it is not in the best interests of the
Company.
Such an inflexible requirement hinders the Company's ability to attract and
retain qualified people to serve on the Board. In today's rigorous business
environment the Company needs enhanced capability to attract outstanding people
of demonstrated skill, judgment and leadership. This rigid requirement can only
limit the Company's ability to craft compensation programs that are appealing to
these exceptional people.
A compensation structure such as the one proposed raises potential adverse
tax consequences to directors receiving the compensation in this inflexible
form. In the event of future changes in tax and securities laws or Board
compensation practices, an inflexible structure may further hinder the Company's
ability to attract or retain strong directors.
Adoption of such a proposal would cause the Company to incur unnecessary and
additional expense. The face amount of director compensation would have to be
increased to provide directors with compensation equivalent to that which is
currently provided. In addition, there would be certain costs of formulating and
administering an appropriate plan for the issuance of the transfer restricted
shares.
For the foregoing reasons, the Board of Directors believes that the proposal
is unnecessary and not in the best interests of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE AGAINST THIS PROPOSAL.
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FINANCIAL STATEMENTS
The Annual Report of the Company, including financial statements for the
fiscal year ended January 25, 1996, is being mailed to all shareholders
concurrently with the mailing of this Proxy Statement. A copy of the Company's
Form 10-K for such fiscal year may be obtained without charge by writing to
Longs Drug Stores Corporation, Attention: Corporate Treasurer, 141 North Civic
Drive, Walnut Creek, California 94596.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(SEC). Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that for the fiscal year ended January 25, 1996, all filing
requirements applicable to its officers, directors, and greater than ten percent
beneficial owners were complied with, except for one late filing of notice
reporting a transfer into his family trust of the Company's Common Stock in a
prior year by S.D. Roath, President, and late filing of notices for a sale and
two transfers into his family trust of the Company's Common Stock by G.A. Duey,
Senior Vice President.
CERTIFIED PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP was engaged as certified public
accountants for the fiscal year ended January 25, 1996. The Board of Directors,
on recommendation of its Audit Committee, has retained the firm for the current
fiscal year. Representatives of Deloitte & Touche are expected to be present at
the Annual Meeting. They will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
SHAREHOLDER'S PROPOSALS FOR 1997 ANNUAL MEETING
Under the rules of the Securities Exchange Commission, in order for a
shareholder's proposal to be considered for inclusion in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders, such proposal must be
received at the Company's Executive Offices at 141 North Civic Drive, Post
Office Box 5222, Walnut Creek, California 94596, Attention: Corporate Secretary,
no later than the close of business on December 20, 1996. In addition, the
By-laws of the Company contain requirements relating to the timing and content
of the notice which shareholders must provide to the Secretary of the Company
for any matter to be properly presented at a shareholders meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
business other than that described above to be presented for action at the
meeting, but it is intended that all proxies will be exercised upon any other
matters and proposals that may properly come before the meeting or any
adjournment thereof, in accordance with the direction of the persons named
therein.
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EXHIBIT A
ITEM 2
(a) Article THIRD of the Charter is hereby amended in its entirety to read
as follows:
THIRD: (a) The purposes for which and any of which the Corporation
is formed and the business and objects to be carried on and promoted by
it are:
(1) To own and operate drug and general merchandise stores.
(2) To engage in any one or more businesses or transactions, or to
acquire all or any portion of any entity engaged in any one or more
businesses or transactions which the Board of Directors may from time to
time authorize or approve, whether or not related to the business described
elsewhere in this Article or to any other business at the time or
theretofore engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be
in no way limited or restricted by reference to, or inference from, the
terms of any other clause of this or any other Article of the Charter of
the Corporation, and each shall be regarded as independent; and they are
intended to be and shall be construed as powers as well as purposes and
objects of the Corporation and shall be in addition to and not in
limitation of the general powers of corporations under the General Laws
of the State of Maryland.
(b) Article TENTH of the Charter is hereby amended to delete the provisions
of subparagraphs (3), (4) and (5) thereof, to renumber existing subparagraphs
(6), (7), (8), (9), (10) and (11) thereof as subparagraphs (3), (4), (5), (6),
(7) and (8), respectively, and to modify, as appropriate, cross-references to
the renumbered paragraphs.
ITEM 3
Subparagraph (6) of Article TENTH of the Charter is hereby amended to read
as follows (if the amendment set forth in Item 2 becomes effective, subparagraph
(6) will be renumbered subparagraph (3)):
(3) The By-laws of the Corporation may be adopted, amended or repealed
by the affirmative vote of two-thirds (2/3) of the votes entitled to be cast
by the outstanding shares of voting stock of the Corporation, voting
together as a single voting group. The By-laws may also be adopted, amended
or repealed by the affirmative vote of a majority of the members of the
Board of Directors.
<PAGE>
PROXY CARD PROXY CARD
LONGS DRUG STORES CORPORATION
141 North Civic Drive, Walnut Creek, California
ANNUAL MEETING OF SHAREHOLDERS--MAY 21, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned appoints R.M. LONG, S.D. ROATH, R.A. PLOMGREN and each of
them proxies for the undersigned, with the powers the undersigned would
possess if personally present and with full power of substitution to act and
to vote, as designated below, all the shares of the undersigned in Longs Drug
Stores Corporation, at the Annual Meeting of its Shareholders to be held on
Tuesday, May 21, 1996, at 11:00 A.M., and at any adjournment thereof. In the
absence of instructions from me my proxies will vote in accordance with the
Directors' recommendations on the reverse side of this card. My proxies may
vote according to their discretion on any other matter which may properly
come before the meeting.
This card also provides voting instructions to the trustee of the Longs Drug
Stores California, Inc. Employee Profit Sharing and Variable Investment
Plans. The trustee will vote, as indicated on the reverse side of this card,
the shares of common stock credited to my account under the Plans.
_______________________________________________________________________________
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as / X /
indicated in
this example
This Proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
DIRECTORS' RECOMMENDATIONS AS NOTED BELOW.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, & 3.
WITHHELD
FOR FOR ALL
1. ELECTION OF DIRECTORS / / / /
Nominees:
R.M. Brooks
W.G. Combs
D.G. DeSchane
G.H. Saito
D.L. Sorby
WITHHELD FOR: (Write that nominee's name in the space provided below)
_____________________________________________________________________
2. Restate Article Third and delete subparagraphs (3), (4), & (5) of Article
Tenth of Articles of Incorporation
FOR AGAINST ABSTAIN
/ / / / / /
3. Restate subparagraph (6) of Article Tenth of Articles of Incorporation
FOR AGAINST ABSTAIN
/ / / / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 4.
4. Shareholder proposal concerning director compensation
FOR AGAINST ABSTAIN
/ / / / / /
Signatures(s)_____________________________________________ Date _________
Please sign exactly as name(s) appear(s) hereon. If acting as executor,
administrator, trustee, guardian, etc., you should so indicate in signing. If
the shareholder is a corporation, please sign the full corporation name, by
duly authorized officer. If shares are held jointly, each shareholder named
should sign, date and promptly return this card in the envelope provided.
_______________________________________________________________________________
FOLD AND DETACH HERE
