<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
DRUG EMPORIUM, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DRUG EMPORIUM, INC.
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $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:
Not Applicable
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
Not Applicable
---------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:*
Not Applicable
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
Not Applicable
---------------------------------------------------------------------------
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
/ / 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:
Not Applicable
---------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Not Applicable
---------------------------------------------------------------------------
(3) Filing Party:
Not Applicable
---------------------------------------------------------------------------
(4) Date Filed:
Not Applicable
---------------------------------------------------------------------------
<PAGE> 2
DRUG EMPORIUM, INC.
155 Hidden Ravines Drive
Powell, Ohio 43065
Telephone: (614) 548-7080
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Drug Emporium, Inc., a Delaware
corporation (the "Company"), will be held at Worthington Hills Country Club, 920
Clubview Blvd., Worthington, Ohio, on the 23rd day of June, 1994, at 9:00 a.m.
Eastern Daylight Savings Time, for the following purposes:
1. To elect three (3) Class Two directors to the Board of Directors for
terms of three (3) years and until their successors are elected and
qualified;
2. To approve and ratify the appointment of Ernst & Young as independent
auditors for the fiscal year ending February 25, 1995; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 29, 1994 are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof. The stock transfer books will not be closed.
The Proxy Statement, Proxy and the Annual Report of the Company for the
fiscal year ended February 26, 1994 are being mailed with this Notice of Annual
Meeting of Stockholders.
BY ORDER OF THE BOARD OF DIRECTORS
JANE H. LAGUSCH, Secretary
Powell, Ohio
May 18, 1994
IMPORTANT
PLEASE VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING. IF YOU ATTEND THE ANNUAL MEETING AND SO DESIRE, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
<PAGE> 3
DRUG EMPORIUM, INC.
155 Hidden Ravines Drive
Powell, Ohio 43065
Telephone: (614) 548-7080
--------------------------
PROXY STATEMENT
--------------------------
The accompanying Proxy is solicited by the Board of Directors of Drug
Emporium, Inc. (the "Company"), for use at the Annual Meeting of Stockholders to
be held on June 23, 1994, at 9:00 a.m. Eastern Daylight Savings Time, at
Worthington Hills Country Club, 920 Clubview Blvd., Worthington, Ohio, or at any
adjournments thereof. When the Proxy is properly executed and returned to the
Company, the shares it represents will be voted at the Annual Meeting in
accordance with the directions noted thereon or, if no direction is indicated,
such shares will be voted in favor of the proposals set forth in the Notice of
Annual Meeting of Stockholders attached hereto. Any stockholder may revoke his
or her Proxy at any time before it is voted by executing and delivering a later
Proxy or notice of revocation to the Secretary of the Company at the Company's
principal office, or by giving notice of revocation or voting in person at the
Annual Meeting. The cost of the solicitation of Proxies will be borne by the
Company.
Only stockholders of record at the close of business on April 29, 1994 will
be entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
The Company has outstanding only common stock (the "Common Stock"), of
which 13,155,585 shares were issued and outstanding at the close of business on
April 29, 1994. Each outstanding share of Common Stock is entitled to one vote.
This Proxy Statement, together with the Notice of Annual Meeting of
Stockholders, Proxy and Annual Report of the Company was first mailed to
stockholders on or about May 18, 1994. Stockholders are referred to the Annual
Report for financial and other information concerning the activities of the
Company. The Annual Report is not incorporated by reference into this Proxy
Statement and is not deemed a part hereof.
ELECTION OF DIRECTORS
GENERAL
The Bylaws of the Company provide for a Board of Directors composed of
three to fifteen directors, with a seven member board unless otherwise fixed by
the directors.
Gary Wilber has decided not to seek reelection as a director of the Company
when his term expires at the 1994 Annual Meeting. The Board of Directors has
nominated Macy T. Block as Mr. Wilber's replacement.
The Restated Certificate of Incorporation of the Company designates three
classes of directors, with each class serving a term of three years. Three
persons will stand for election at this Annual Meeting as Class Two directors:
Macy T. Block, John B. Gerlach and David L. Kriegel. Directors are elected by a
plurality of the votes cast at the meeting; the three individuals who receive
the largest number of votes cast will be elected as directors.
<PAGE> 4
Unless otherwise directed, the proxyholders will vote the Proxies received
by them FOR the election of the nominees set forth in the table below for terms
of three years, and until their successors are duly elected and qualified.
Although the Board of Directors has no reason to believe that any of the
nominees will decline or be unavailable to serve as a director, should that
occur before the Annual Meeting, the Proxies will be voted by the proxyholders
for such other person or persons as may be designated by the present Board of
Directors.
INFORMATION REGARDING NOMINEES AND CONTINUING DIRECTORS
The following information was supplied to the Company by the listed
nominees and continuing directors of the Company and is current as of April 29,
1994. The Common Stock ownership information includes current stockholdings plus
shares which the listed individuals have the right to acquire within 60 days of
April 29, 1994.
<TABLE>
NOMINEES
<CAPTION>
FIRST YEAR COMMON STOCK
ELECTED BENEFICIALLY PERCENT
NAME AGE PRINCIPAL OCCUPATION DIRECTOR OWNED OF CLASS
- ---------------------- --------- ------------------------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
CLASS TWO:
TERM EXPIRES 1997:
Macy T. Block 68 Chairman and Chief Executive -- 307,000 2.3%
Officer Sun Television and
Appliances, Inc.
John B. Gerlach 67 President of Lancaster Colony 1985 1,248,211(1) 9.5%
Corporation
David L. Kriegel 48 Chairman and Chief Executive 1983 1,500,000(2) 11.0%
Officer of the Company
</TABLE>
<TABLE>
CONTINUING DIRECTORS
<CAPTION>
FIRST YEAR COMMON STOCK
ELECTED BENEFICIALLY PERCENT
NAME AGE PRINCIPAL OCCUPATION DIRECTOR OWNED OF CLASS
- ---------------------- --------- ------------------------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
CLASS THREE:
TERM EXPIRES 1995:
Robert S. Meeder, Sr. 65 Chairman and Chief Executive (3) 6,000 *
Officer Muirfield Investors,
Inc.
William L. Sweet 46 Partner, Barrett & McNagny 1993 20,000 *
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
FIRST YEAR COMMON STOCK
ELECTED BENEFICIALLY PERCENT
NAME AGE PRINCIPAL OCCUPATION DIRECTOR OWNED OF CLASS
- --------------------- ---------- ------------------------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
CLASS ONE:
TERM EXPIRES 1996:
Walter E. Sinterman 75 President of Sinco, Inc. 1983 598,103(4) 4.3%
V.J. Wiechart, Sr. 67 Chairman and Chief Executive 1993 9,000(5) *
Officer of Wiechart
Pharmacy, Inc.
<FN>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by Mr. Gerlach includes 2,000 shares
owned by Mr. Gerlach's wife, the beneficial ownership of which Mr. Gerlach
disclaims, 24,000 shares held by Mr. Gerlach as guardian and 5,211 shares
that would result upon conversion of $80,000 in principal amount of the
Company's 7.75% Convertible Subordinated Debentures held by Mr. Gerlach,
Mrs. Gerlach and Mr. Gerlach as guardian.
(2) The number of shares beneficially owned by Mr. Kriegel includes 246,660
shares held by Kriegel Holding Company, Inc., 20,000 shares held by Mr.
Kriegel's wife, 200 shares owned by Mr. Kriegel's son, 18,000 shares held by
two trusts, and 500,000 shares which are the subject of options exercisable
within 60 days.
(3) Mr. Meeder was a director of the Company from 1983 to 1988 and was appointed
by the Board of Directors on April 28, 1993 to fill a vacancy in Class
Three.
(4) The number of shares beneficially owned by Mr. Sinterman includes 312,610
shares owned by his wife and 1,629 shares that would result upon conversion
of $25,000 in principal amount of the Company's 7.75% Convertible
Subordinated Debentures.
(5) The number of shares beneficially owned by Mr. Wiechart includes 1,000
shares owned by his wife.
--------------------
</TABLE>
MACY T. BLOCK
Mr. Block is Chairman, Chief Executive Officer and a director of Sun
Television and Appliances, Inc., a specialty retailer of consumer electronics
and home appliances.
JOHN B. GERLACH
Mr. Gerlach is President and Chief Executive Officer of Lancaster Colony
Corporation, a publicly owned conglomerate dealing primarily in specialty foods,
automotive aftermarket products and housewares. Mr. Gerlach is a director of
Lancaster Colony Corporation, Huntington Bancshares, Inc. and M/I Schottenstein
Homes, Inc.
DAVID L. KRIEGEL
Since December 1992, Mr. Kriegel has been the Chairman and Chief Executive
Officer of the Company. Mr. Kriegel is Chairman and Chief Executive Officer of
Kriegel Holding Company, Inc., a privately owned corporation dealing with
consumer products, real estate and distribution. Until January, 1993, Mr.
Kriegel was Vice President of Cardinal Health and Marketing Group, a division of
Cardinal Distribution, Inc., a publicly owned company. From September 1988 to
December 1990, Mr. Kriegel was Corporate Vice President of Roundy's Inc., a
cooperative food distributor. Mr. Kriegel is a director of Bank One, Lima, N.A.
3
<PAGE> 6
WILLIAM L. SWEET, JR.
Mr. Sweet is an attorney and Partner in the law firm of Barrett & McNagny
in Fort Wayne, Indiana.
ROBERT S. MEEDER, SR.
Mr. Meeder is Chairman and Chief Executive Officer of Muirfield Investors,
Inc. and Chairman of its operating subsidiaries: R. Meeder & Associates, Inc.,
Meeder Advisory Services, Mutual Fund Services Company and OMCO, Inc. Mr. Meeder
is also President and a trustee of the Flex-Funds, a registered investment
company sponsored by R. Meeder & Associates, Inc.
WALTER E. SINTERMAN
Mr. Sinterman is a private investor and President of Sinco, Inc., a
consulting company.
V.J. WIECHART, SR.
Mr. Wiechart is Chairman and Chief Executive Officer of Wiechart Pharmacy,
Inc. and Chairman and Chief Executive Officer of Lima Medical Supply, Inc.
MEETINGS AND COMMITTEES OF THE BOARD; DIRECTOR FEES AND PAYMENTS
The Board of Directors, pursuant to its powers, has designated a
Compensation Committee (which also serves as the Stock Option Committee and
Nominating Committee), an Audit Committee and an Executive Committee. The Board
of Directors held five regularly scheduled meetings and took one action in
writing without a meeting during the year ended February 26, 1994. Each member
of the Board attended at least 75% of the aggregate number of meetings of the
Board and the number of meetings held by all committees of the Board on which he
served.
The Compensation Committee is responsible for making recommendations to the
Board of Directors regarding salaries and bonuses to be paid to Company
executive officers. In addition, the Compensation Committee has responsibility
for administering the Company's stock option plans. During the year ended
February 26, 1994, this committee held three meetings. Messrs. Gerlach, Meeder
and Sinterman are presently members of this committee.
The Audit Committee is responsible for reviewing the plan of audit and
scope of the independent auditor's examination, meeting with the independent
auditors to review internal controls, reviewing the scope of internal audit
procedures and reviewing the annual financial statements and reporting thereon
to the Board of Directors. The Audit Committee also makes recommendations to the
Board of Directors regarding the selection of the Company's independent
auditors. During the year ended February 26, 1994, the committee held three
meetings. Messrs. Sweet, Sinterman and Wiechart are presently members of this
committee.
The Executive Committee works with management regarding the Company's
strategic planning and reviews leases and proposed capital expenditures. Messrs.
Gerlach, Kriegel, Meeder, and Wilber are presently members of this committee.
The committee held no meetings during the last fiscal year.
Directors who are not Company officers are paid a fee of $2,500 per Board
meeting attended plus expenses. In addition, such directors receive a fee of
$750 for each committee meeting attended.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to each person
known to the Company to be the beneficial owner of more than five percent of the
issued and outstanding Common Stock of the Company as of April 29, 1994 and the
stock ownership of the executive officers of the Company named in the Summary
Compensation Table set forth below. Information regarding stock ownership of
directors is set forth under "Information Regarding Nominees and Continuing
Directors." The Common Stock ownership and percentage information includes
current shareholdings as of April 29, 1994 (unless otherwise noted) plus shares
eligible for purchase within 60 days pursuant to exercisable stock options and
shares available upon conversion of the Company's 7.75% Convertible Subordinated
Debentures.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF NUMBER OF SHARES OUTSTANDING
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ---------------------------------------- ------------------ ------------
<S> <C> <C>
David L. Kriegel........................ 1,500,000(1) 11.0%
155 Hidden Ravines Drive
Powell, OH 43065
John B. Gerlach......................... 1,248,211(2) 9.5%
37 West Broad Street
Columbus, OH 43215
Gary Wilber............................. 509,885(3) 3.9%
155 Hidden Ravines Drive
Powell, OH 43065
Keith E. Alessi......................... 128,258(4) *
155 Hidden Ravines Drive
Powell, Ohio 43065
Robert E. Lyons......................... 74,800(5) *
155 Hidden Ravines Drive
Powell, OH 43065
Directors, nominees and
executive officers as
a group (11 persons).................. 4,417,994(6) 32.0%
<FN>
- ---------------
* Less than one percent.
(1) The number of shares owned by Mr. Kriegel includes 246,660 shares held by
the Kriegel Holding Company, Inc., 20,000 shares held by Mr. Kriegel's
wife, 200 shares owned by Mr. Kriegel's son, 18,000 shares held by two
trusts and 500,000 shares subject to options exercisable within 60 days.
(2) The number of shares beneficially owned by Mr. Gerlach includes 2,000 shares
owned by Mr. Gerlach's wife, the beneficial ownership of which Mr. Gerlach
disclaims, 24,000 shares held by Mr. Gerlach as guardian and 5,211 shares
that would result upon conversion of $80,000 in principal amount of the
Company's 7.75% Convertible Subordinated Debentures held by Mr. Gerlach,
Mrs. Gerlach and Mr. Gerlach as guardian.
</TABLE>
5
<PAGE> 8
(3) The number of shares beneficially owned by Mr. Wilber includes 241,910
shares owned by a trust of which Mr. Wilber is co-trustee.
(4) The number of shares owned by Mr. Alessi includes 75,000 shares which are
subject to options exercisable within 60 days and 3,258 shares which would
result upon conversion of $50,000 in principal amount of the Company's
7.75% Convertible Subordinated Debentures.
(5) The number of shares owned by Mr. Lyons includes 45,000 shares which are
subject to options exercisable within 60 days.
(6) The number of shares beneficially owned by all directors, nominees and
executive officers as a group includes 2,000 shares as to which beneficial
ownership is disclaimed, 630,000 shares subject to options exercisable
within 60 days, and 10,098 shares that would result upon conversion of
$155,000 in principal amount of the Company's 7.75% Convertible
Subordinated Debentures.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers and persons who own more than ten percent of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. 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.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended February 26, 1994 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that one
report was filed late by Mr. Alessi reporting the purchase of 10,000 shares of
Company Common Stock and two reports were filed late by Mr. Wilber reporting the
sale of 30,000 shares and 90,000 shares of Common Stock, respectively.
6
<PAGE> 9
EXECUTIVE COMPENSATION
REMUNERATION OF EXECUTIVE OFFICERS
The following table sets forth as to the Chief Executive Officer and the
most highly compensated executive officers of the Company whose annual salary
and bonus exceeded $100,000 for the last fiscal year information concerning all
forms of compensation paid or payable by the Company for services in all
capacities for the fiscal years indicated:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ---------------------------- UNDERLYING
POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#)
- ------------------------- ----- ------- ------- ------------
<S> <C> <C> <C> <C>
David L. Kriegel 1994 275,000 -0- 250,000(2)
Chairman 1993 64,166 -0- -0-
Chief Executive 1992 --0- -0- -0-
Officer
Gary Wilber 1994 175,000 -0- -0-
Vice Chairman 1993 237,449 -0- -0-
Treasurer 1992 250,000 -0- -0-
Keith E. Alessi 1994 145,000 -0- 75,000
Chief Financial 1993 22,500 -0- -0-
Officer 1992 -0- -0- -0-
Robert E. Lyons 1994 175,000 -0- -0-
Senior 1993 195,832 -0- -0-
Vice President 1992 200,000 -0- -0-
<FN>
- ---------------
(1) A bonus program in which executive officers may participate requires each
executive officer to submit management objectives which he or she intends
to fulfill during the fiscal year. The objectives are reviewed, revised and
approved by the Chief Executive Officer, and the Compensation Committee in
the case of the Chief Executive Officer. Bonuses are subjectively
determined based on amounts available and evaluation of performance based
upon the agreed upon management objectives. The maximum bonus achievable is
50% of base compensation. Participation of Company executive officers in
the bonus plan is in the discretion of the Compensation Committee and the
Chief Executive Officer. Although management objectives were obtained in
most cases, no executive officers named in the Summary Compensation Table
received a bonus in the bonus program during the 1994 fiscal year.
(2) On April 21, 1994 Mr. Kriegel received an option to purchase an additional
250,000 shares of Company Common Stock.
</TABLE>
7
<PAGE> 10
STOCK OPTIONS
The table below sets forth information concerning individual grants of
stock options during the last fiscal year to the individuals named in the
Summary Compensation Table.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE BASE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE VALUE(2)
- ------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
David L. Kriegel......... 250,000 36% 4.125 4/30/97 $440,000
Keith E. Alessi.......... 75,000 11% 5.00 4/28/2004 265,500
<FN>
- ---------------
(1) All options are nonqualified stock options and are fully vested.
(2) Grant date present value is determined using the Black-Scholes Model. The
Black-Scholes option pricing model relies on several key assumptions to
estimate the present value of options, including the volatility of and
dividend yield on the security underlying the option, the risk free rate of
return on the date of grant and the term of the option. In the table, a
factor of 47% has been assigned to the volatility of the Company's Common
Stock (based on monthly stock closing prices beginning June 30, 1988), the
risk free rate of return has been fixed at 5.07% and 6.63% for the grants
respectively, no dividend yield, and the exercise of the option at four and
11 years, respectively. Consequently, the grant date present values set
forth in the table are only theoretical values and may not accurately
determine present value. The actual value, if any, an optionee will realize
will depend upon the excess of the market value of the Common Stock over
the exercise price on the date the option is exercised.
</TABLE>
STOCK OPTION VALUES AND EXERCISES
The following table provides information regarding the year end value of
unexercised options for the individuals named in the Summary Compensation Table.
No stock options were exercised by the named executive officers during the 1994
fiscal year.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS/SARS FOR YEAR OPTIONS/SARS FOR
END (#) YEAR END ($)
--------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
David L. Kriegel......... 250,000 0 296,875 0
Keith E. Alessi.......... 75,000 0 23,437 0
Robert E. Lyons.......... 45,000 0 1,260 0
</TABLE>
8
<PAGE> 11
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with David L. Kriegel
dated as of March 11, 1993, and amended on April 21, 1994. Pursuant to the terms
of this agreement, Mr. Kriegel has agreed to perform the duties of Chief
Executive Officer for an annual minimum salary of $275,000 with an annual bonus
in an amount up to 100% of salary as determined by the Board of Directors. Mr.
Kriegel has also received nonqualified stock options to purchase 500,000 shares
of Company Common Stock exercisable until April 30, 1997 or ninety (90) days
following termination of his employment, whichever occurs first. Mr. Kriegel is
also entitled to such employee benefits as are available for senior members of
management. The employment agreement may be terminated at any time by the Board
of Directors and may be terminated by Mr. Kriegel upon 60 days' notice. The
agreement contains no change of control provisions, but does provide that if Mr.
Kriegel is terminated without cause, as defined in the agreement, or if he dies
or is permanently disabled, his salary will be continued for one year.
The Company has entered into a severance agreement with Gary Wilber, the
Vice Chairman of the Company, who has decided to retire from the Company
effective April 29, 1994. Under the terms of the severance agreement, Mr. Wilber
will continue to receive his base salary and will continue to receive certain
insurance benefits for a period of eight months beginning April 30, 1994. The
total value of the severance package is approximately $121,500.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation program for the executive officers of the Company is the
responsibility of the Compensation Committee composed of three members of the
Board of Directors: Messrs. Gerlach, Meeder and Sinterman. Compensation for
executive officers is recommended by the Chief Executive Officer and reviewed by
the Compensation Committee, which passes its recommendations to the full Board
of Directors for approval. The Chief Executive Officer's compensation is
determined by the Compensation Committee based in part on his employment
agreement, which provides for a base salary of $275,000.
The Company's primary objective in the area of compensation is to provide a
compensation program that will attract, retain, motivate and reward executives
with the experience and capabilities of providing outstanding leadership to the
Company's employees and excellent returns for the Company's stockholders. The
key components of the compensation program, which are evaluated annually,
include base salary, bonus opportunities and longer term equity incentives
such as stock options. The Company believes its compensation package provides
incentives for causing both short term and long term improvement in the
Company's earnings, cash flow and net return on equity. The Committee currently
has under consideration the impact of the new tax laws relating to deductibility
of executive compensation in excess of $1,000,000 and is evaluating the
necessity and desirability of qualifying the Company's compensation plans under
the new law.
In determining annual compensation, the same standards are applied to the
Chief Executive Officer as to the other executive officers. Salaries are
determined by evaluating the scope of responsibilities of the executive's
position, experience, recent past performance, length of service, contribution
to corporate performance and the development and execution of business
strategies. There are no specific defined targets or other criteria which tie
corporate performance to executive compensation. Compensation is subjectively
measured by individual qualitative measures, with no specific weight given to
any particular factor. Meaningful differences in individual performance and
contribution to long-term stockholder value are recognized. The salary and cash
bonus components are intended to reward short term or long term improvements in
the Company's performance attributable to the recent efforts of the officer.
Equity based
9
<PAGE> 12
compensation is intended to provide a long-term link between executive
performance with a view toward maximization of long term stockholder value and
rewards provided to the executives.
For the fiscal year ended February 26, 1994, Mr. Kriegel's salary was the
amount agreed upon in his employment agreement. Pursuant to his employment
agreement, Mr. Kriegel received options to purchase 250,000 shares of Company
stock. While the Compensation Committee did not take into consideration
compensation paid to executives in peer group retail companies in determining
compensation for the Company's executive officers, the Committee notes that the
Company's executive officers are generally compensated below the levels paid to
peer group executives. No executive officer received a salary increase or a cash
incentive award in 1994.
The Committee will continue to review the elements of the Company's
executive compensation program to ensure that the total program, and each
element thereof, meets the Company's business objectives and philosophy.
Respectfully submitted,
COMPENSATION COMMITTEE
Walter E. Sinterman
John B. Gerlach
Robert S. Meeder, Sr.
10
<PAGE> 13
COMPARISON OF CUMULATIVE STOCKHOLDER RETURN
The following graph compares the yearly percentage change in the
cumulative stockholder return on the Company's Common Stock since February 28,
1990 as measured against the Center for Research in Securities Prices Total
Return Index for The NASDAQ Stock Market for U.S. Companies and with an index
of peer companies. The Company has selected as its index of peer companies the
NACDS Peer Group Index of the twelve publicly-held chain drug companies. This
industry peer group consists of the Company and the following other chain drug
companies: Arbor Drugs, Inc., Big B Inc., Fay's Incorporated, Genovese Drug
Stores, Inc., Hook SupeRx Inc., Longs Drug Stores, F&M Distributors, Inc.,1
Perry Drug Stores, Inc., Revco D.S., Inc., Rite Aid Corporation and Walgreen
Co. The comparison of total return (change in year end stock price plus
reinvested dividends) for each of the years assumes that $100 was invested on
February 28, 1990 in each of the Company, the NASDAQ Index, and the Peer Group
Index.
- ---------------
1 F&M Distributors, Inc. replaced Medicine Shoppe in the peer group on the basis
of its greater similarity to the business of the other peer group members.
THE GRAPH DISPLAYED BELOW IS PRESENTED IN ACCORDANCE WITH THE REQUIREMENTS
OF THE SECURITIES AND EXCHANGE COMMISSION. STOCKHOLDERS ARE CAUTIONED AGAINST
DRAWING ANY CONCLUSIONS FROM THE DATA CONTAINED THEREIN, AS PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THIS GRAPH IN NO WAY REFLECTS THE
COMPANY'S FORECAST OF FUTURE FINANCIAL PERFORMANCE.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Nasdaq NACDS PEER Drug Emporium
<S> <C> <C> <C>
1989 100 100 100
1990 108 109 72
1991 119 146 76
1992 170 166 83
1993 181 172 40
1994 213 184 55
</TABLE>
11
<PAGE> 14
INDEPENDENT PUBLIC ACCOUNTANTS
The stockholders are asked to approve and ratify the Board of Directors'
reappointment of Ernst & Young as the independent auditors of the Company for
the purpose of auditing and reporting upon the financial statements of the
Company for the fiscal year ending February 25, 1995. Representatives of the
firm of Ernst & Young are expected to be present at the Annual Meeting. At such
time, the representatives will have an opportunity to make a statement, if they
so desire, and will be available to respond to appropriate questions.
An affirmative vote of the holders of a majority of shares of Common Stock
present or represented and entitled to vote at the Annual Meeting is required
for approval. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN
FAVOR OF THE APPROVAL AND RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS
INDEPENDENT AUDITORS OF THE COMPANY. If the resolution is not adopted, the Board
will consider the selection of another public accounting firm for fiscal 1995
and future years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm in which William L. Sweet, a director of the Company, is a
partner supplied legal services to the Company during fiscal 1994.
STOCKHOLDERS' PROPOSALS
Stockholders intending to bring any business before an Annual Meeting of
Stockholders of the Company, including nominations of persons for election as
directors, must give written notice to the Board of Directors of the business to
be presented. The notice must be delivered within the time periods specified in
the Company's Bylaws. A copy of the Bylaws may be obtained by writing to the
Secretary of the Company.
Proposals of stockholders that are intended to be included in the Company's
proxy materials for the 1995 Annual Meeting of Stockholders pursuant to the
Securities and Exchange Commission's stockholder proposal rule must be received
at the Company's executive offices not later than January 12, 1995.
VOTING AND SOLICITATION OF PROXIES
The presence, in person or by proxy, of the holders of a majority of shares
of Company Common Stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum at the Annual Meeting.
The persons named in the Proxy, which is solicited by management, will vote
all properly executed Proxies. If a stockholder specifies on such Proxy a choice
with respect to a proposal to be acted upon, the Proxy will be voted in
accordance with such specification. Where no choice is specified, the Proxy will
be voted in favor of all proposals. In accordance with Delaware law, a
stockholder entitled to vote for the election of directors can withhold
authority to vote for certain nominees for directors. The shares represented by
any Proxy which directs abstention on any proposal will not be voted on such
proposal, but will be included in calculating the shares represented by proxy at
the Annual Meeting. Broker non-votes on the proposals are treated as shares as
to which voting power has been withheld by the beneficial holders of those
shares and, therefore, will be counted for purposes of establishing a quorum,
but will not be voted on any proposal.
The Proxy confers discretionary authority to vote on other matters which
may properly come before the meeting or an adjournment thereof, but the Board of
Directors does not know of any matter to be brought
12
<PAGE> 15
before the meeting other than the matters referred to in the Notice of Annual
Meeting of Stockholders and matters incident thereto. If any matter not set
forth in the Notice of Annual Meeting of Stockholders is properly brought before
the meeting, the proxyholders will vote thereon in accordance with their best
judgment.
In addition to solicitation of stockholders by the use of the mails, the
Company may request brokers and banks to forward copies of proxy materials to
persons for whom they hold Common Stock and to obtain authority for the
execution and delivery of Proxies. Several officers and employees of the Company
may, to a limited extent, solicit Proxies by personal delivery of material and
by telephone, facsimile or mail.
BY ORDER OF THE BOARD OF DIRECTORS
JANE H. LAGUSCH, Secretary
13
<PAGE> 16
DRUG EMPORIUM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS
JUNE 23, 1994
The undersigned hereby appoints Jane H. Lagusch and Keith E.
Alessi and each of them, with full power of substitution, as proxies
to represent the undersigned at the Annual Meeting of Stockholders
of Drug Emporium, Inc. (the "Company") and any adjournments thereof
and to vote all shares of common stock the undersigned would be
entitled to vote as indicated upon all matters referred to herein
and in their discretion upon any other matters which may properly
come before the meeting.
1. ELECTION OF DIRECTORS:
/ / FOR all nominees / / WITHHOLD AUTHORITY to
listed below (except as vote for all nominees
marked to the contrary listed below.
below)
Macy T. Block John B. Gerlach David L. Kriegel
(INSTRUCTION: To withhold authority to vote for any individual nominee
write the nominee's name on the space provided below.)
----------------------------------------------------------------------
2. To approve and ratify the appointment of Ernst & Young as
independent auditors for the fiscal year ending February 25,
1995.
/ / For / / Against / / Abstain
3. To take action and vote in their discretion upon such other
matters as may properly come before the Annual Meeting or any
adjournments thereof.
(continued on reverse side)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF
NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED "FOR" PROPOSALS 1
AND 2.
Dated: , 1994
Signed
Signed
If the shares are issued in
the names of two or more
persons, each person should
sign the Proxy. If the shares
are issued in the name of a
corporation or a partnership,
please sign in the corporate
name, by president or other
authorized officer, or in the
partnership name, by an
authorized person.
Please sign exactly as your
name appears and return this
Proxy promptly in the
accompanying postage-paid
envelope. When signing as an
Attorney, Executor,
Administrator, Trustee,
Guardian or in any other
representative capacity,
please give your full title
as such.
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY
