<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 the Company corporate offices at
155 Hidden Ravines Drive, Powell, Ohio, on the 26th day of June, 1996, at 9:00
a.m. Eastern Daylight Savings Time, for the following purposes:
1. To elect two (2) Class One 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 March 1, 1997; 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, 1996 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 March 2, 1996 are being mailed with this Notice of Annual
Meeting of Stockholders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jane H. Lagusch
----------------------------------
JANE H. LAGUSCH, Secretary
Powell, Ohio
May 20, 1996
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 26, 1996, at 9:00 a.m. Eastern Daylight Savings Time, at the
Company's corporate offices at 155 Hidden Ravines Drive, Powell, 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.
Only stockholders of record at the close of business on April 29, 1996 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 13,184,085 shares were issued and outstanding at the close of business on
April 29, 1996. 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 20, 1996. 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 nine member board unless otherwise fixed by
the directors. The term of office of each Class One director will expire on the
day of the Annual Meeting upon election of his successor.
The Restated Certificate of Incorporation of the Company designates three
classes of directors, with each class serving a term of three years. Two persons
will stand for election at this Annual Meeting as Class One directors: Walter E.
Sinterman and V.J. Wiechart, Sr. Directors are elected by a plurality of the
votes cast at the meeting; the two individuals who receive the largest number of
votes cast will be elected as directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF
THE NOMINEES NAMED HEREIN.
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
<PAGE> 4
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 unless the Board of Directors in its discretion
adopts a resolution reducing the number 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,
1996. 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, 1996.
NOMINEES
<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 1999:
Walter E. Sinterman 77 President of Sinco, Inc. 1983 598,103(1) 4.5%
V.J. Wiechart, Sr. 69 Chairman and Chief Executive 1993 14,000(2) *
Officer of Wiechart
Pharmacy, Inc.
</TABLE>
CONTINUING DIRECTORS
<TABLE>
<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 70 President of M.T.B. Corp. 1994 307,000 2.3%
John B. Gerlach 69 Chairman and Chief Executive 1985 1,251,886(3) 9.5%
Officer of Lancaster Colony
Corporation
Thomas D. Igoe 64 Sr. Vice President, Corporate 1996 2,000 *
Banking, Bank One, Columbus,
NA
David L. Kriegel 50 Chairman, President and Chief 1983 1,529,700(4) 11.2%
Executive Officer of the
Company
</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 THREE:
TERM EXPIRES 1998:
Robert S. Meeder, Sr. 67 Chairman and Chief Executive (5) 22,000 *
Officer of Muirfield
Investors, Inc.
Robert Spiegel 59 Private Investor and (6) 1,000 *
Consultant
William L. Sweet, Jr. 47 Partner; Beckman, Lawson, 1993 20,000 *
Sandler, Snyder & Federoff
</TABLE>
- ---------------
* Less than 1%
(1) 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 Debentures.
(2) The number of shares beneficially owned by Mr. Wiechart includes 1,000
shares owned by his wife.
(3) The number of shares beneficially owned by Mr. Gerlach includes 3,000 shares
owned by Mr. Gerlach's wife, the beneficial ownership of which Mr. Gerlach
disclaims and 4,886 shares held by Mr. Gerlach and Mrs. Gerlach that would
result upon conversion of $75,000 in principal amount of the Company's
7 3/4% Convertible Subordinated Debentures ("Debentures").
(4) The number of shares beneficially owned by Mr. Kriegel includes 246,660
shares held by Kriegel Holding Company, Inc., 22,000 shares held by Mr.
Kriegel's wife, 900 shares owned by Mr. Kriegel's son, 20,000 shares held by
two trusts and 500,000 shares which are the subject of options exercisable
within 60 days.
(5) 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.
(6) Mr. Spiegel was a director of the Company from 1984 to 1992 and was
appointed by the Board of Directors on September 14, 1995 to fill a vacancy
in Class Three.
------------------
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.
MACY T. BLOCK
Mr. Block is the President of MTB Corp., a privately held company dealing
in real estate. Prior to his retirement in August of 1995 Mr. Block was the
Chairman and Chief Executive Officer of Sun Television and Appliances, Inc.
3
<PAGE> 6
JOHN B. GERLACH
Mr. Gerlach is Chairman and Chief Executive Officer of Lancaster Colony
Corporation, a publicly owned conglomerate dealing primarily in specialty foods,
automotive aftermarket products, glassware and candles. Mr. Gerlach is a
director of Lancaster Colony Corporation, Huntington Bancshares, Inc., M/I
Schottenstein Homes, Inc., Worthington Foods, Inc. and Scioto Downs, Inc.
THOMAS D. IGOE
Mr. Igoe is a Senior Vice President, Corporate Banking, of Bank One,
Columbus, N.A.
DAVID L. KRIEGEL
Since December, 1992, Mr. Kriegel has been the Chairman and Chief Executive
Officer of the Company and since June of 1994 has been Chairman, Chief Executive
Officer and President of the Company. Mr. Kriegel is Chairman and Chief
Executive Officer of Kriegel Holding Company, Inc., a privately owned
corporation dealing with real estate and distribution. Until January, 1993, Mr.
Kriegel was Vice President of Cardinal Health, a division of Cardinal
Distribution, Inc., a publicly owned company. Mr. Kriegel is a director of Bank
One, Lima N.A.
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 OMOCO, Inc. Mr.
Meeder is also President and a trustee of the Flex-Funds, a registered
investment company sponsored by R. Meeder & Associates, Inc.
ROBERT SPIEGEL
Since 1980 Mr. Spiegel has been a private investor and consultant. From
1989 through May of 1995, Mr. Spiegel was Chairman, President, Chief Executive
Officer and a director of RJR Drug Distributors, Inc., the Louisville, Kentucky
area franchise of Drug Emporium, Inc. Mr. Spiegel is a director of Graham Field
Health Products, Inc., Hoenig Group, Inc. and Kash N' Karry, all publicly owned
companies.
WILLIAM L. SWEET, JR.
Mr. Sweet is an attorney and partner in the law firm of Beckman, Lawson,
Sandler, Snyder & Federoff in Fort Wayne, Indiana. Prior to 1995 Mr. Sweet was
an attorney and partner in the law firm of Barrett & McNagny in Fort Wayne,
Indiana.
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), an
Audit Committee, an Executive Committee and a Nominating Committee. The Board of
Directors held four regularly scheduled meetings and two special meetings during
the year ended March 2, 1996. 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
4
<PAGE> 7
Committee has responsibility for administering the Company's stock option plans.
During the year ended March 2, 1996, this committee held two 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 March 2, 1996, the committee held one meeting.
Messrs. Sweet, Igoe 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 and Meeder are presently members of this committee. The
committee held no meetings during the last fiscal year.
The Nominating Committee is responsible for reviewing and recommending
candidates to stand for election as board members and to recommend candidates to
fill board vacancies. Prior to January 25, 1996 the Compensation Committee also
served as the Nominating Committee. Messrs. Gerlach, Kriegel and Spiegel are
presently members of this committee.
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.
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, 1996 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
nominees and continuing 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, 1996 (unless
5
<PAGE> 8
otherwise noted) plus shares eligible for purchase within 60 days pursuant to
exercisable stock options and shares available upon conversion of the Company's
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........................ 1,529,700(1) 11.2%
155 Hidden Ravines Drive
Powell, OH 43065
John B. Gerlach......................... 1,251,886(2) 9.5%
37 West Broad Street
Columbus, OH 43215
Pioneering Management Corporation....... 1,036,400(3) 7.9%
60 State Street
Boston, Massachusetts 02109
U.S. Bancorp............................ 905,500(4) 6.9%
111 S. W. Fifth Avenue
Portland, Oregon 97208
Robert E. Lyons......................... 64,050(5) *
A. Joel Arnold.......................... 7,500(6) *
Timothy S. McCord....................... 5,600(7) *
Continuing directors, nominees
and executive officers as
a group (12 persons).................. 3,822,839(8) 28.5%
</TABLE>
- ---------------
* Less than one percent.
(1) The number of shares owned by Mr. Kriegel includes 246,660 shares held by
the Kriegel Holding Company, Inc., 22,000 shares held by Mr. Kriegel's wife,
900 shares owned by Mr. Kriegel's son, 20,000 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 3,000 shares
owned by Mr. Gerlach's wife, the beneficial ownership of which Mr. Gerlach
disclaims, and 4,886 shares that would result upon conversion of $75,000 in
principal amount of the Company's Debentures held by Mr. Gerlach and Mrs.
Gerlach.
(3) Based on a Schedule 13G dated January 26, 1996, filed by Pioneering
Management Corporation reporting 1,036,400 shares held.
(4) Based on a Schedule 13G dated February 13, 1996 filed by U.S. Bancorp
reporting 337,900 shares held by the trust group of United States National
Bank of Oregon ("Bank"), a subsidiary and 395,300 shares beneficially owned
by Qualivest Capital Management, Inc. a subsidiary of the Bank, acting as
investment advisor for The Qualivest Fund, a registered investment company.
(5) The number of shares owned by Mr. Lyons includes 45,000 shares which are
subject to options exercisable within 60 days.
6
<PAGE> 9
(6) The number of shares owned by Mr. Arnold includes 7,500 shares subject to
options exercisable in 60 days.
(7) The number of shares owned by Mr. McCord includes 3,000 shares which are
subject to options exercisable within 60 days.
(8) The number of shares beneficially owned by all directors, nominees and
executive officers as a group includes 3,000 shares as to which beneficial
ownership is disclaimed, 555,500 shares subject to options exercisable
within 60 days, and 6,515 shares that would result upon conversion of
$680,000 in principal amount of the Company's 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
regulations 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 March 2, 1996 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. Kriegel reporting the purchase of 700 shares by his son, and
one report was filed late by Mr. Lyons reporting the sale of 8,750 shares.
7
<PAGE> 10
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 1996 350,000 57,292(2) -0-
1995 275,000 75,000 250,000
1994 275,000 -0- 250,000
Robert E. Lyons 1996 175,000 -0- -0-
1995 175,000 15,000 -0-
1994 175,000 -0- -0-
A. Joel Arnold (3) 1996 162,024 -0- -0-
Timothy S. McCord (4) 1996 107,221 -0- 5,000
1995 91,346 20,000 -0-
</TABLE>
- ---------------
(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 by 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 at the discretion of the Compensation Committee and the Chief
Executive Officer. The Compensation Committee has not yet determined the
bonus amounts for fiscal 1996.
(2) The Board of Directors approved a payment of $171,875 to be made in equal
installments over three years beginning March 1, 1995 to compensate Mr.
Kriegel for a stock option pricing discrepancy.
(3) Mr. Arnold became an officer of the Company on April 20, 1995.
(4) Mr. McCord became an officer of the Company on June 23, 1994.
8
<PAGE> 11
STOCK OPTIONS
The table below sets forth information concerning individual grants of
stock options during the last fiscal year to the individuals named in the
Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE BASE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE VALUE(2)
- ------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Timothy S. McCord........ 5,000 100% 4.9687 9/13/2005 $ 17,150
</TABLE>
- ---------------
(1) The options are qualified stock options and are 30% 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 44% has been assigned to the volatility of the Company's Common
Stock (based on quarterly stock closing prices beginning May 31, 1990, the
risk free rate of return has been fixed at 6.35% for the grant, no dividend
yield, and the exercise of the option at September 13, 2005. Consequently,
the grant date present value set forth in the table is only theoretical
value and may not accurately determine present value. The actual value, if
any, the 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.
STOCK OPTION VALUES AND EXERCISES
The following table provides information regarding the fiscal 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 1996 fiscal year. At March 2, 1996, the Company's fiscal
year end, no outstanding stock options held by the named executive officers had
exercise prices lower than the market value of the underlying Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<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......... 500,000 0 0 0
Robert E. Lyons.......... 45,000 0 0 0
A. Joel Arnold........... 7,500 17,500 0 0
Timothy S. McCord........ 3,000 7,000 0 0
</TABLE>
9
<PAGE> 12
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 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. On April
20, 1995, Mr. Kriegel's salary for fiscal 1996 was set at $350,000.
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
does not believe that the new tax laws relating to deductibility of executive
compensation in excess of $1,000,000 will have an impact on the existing
executive compensation. The Committee will consider the necessity and
desirability of qualifying the Company's compensation plans under the new law
when the Committee believes the new law would affect deductibility of executive
compensation.
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 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.
10
<PAGE> 13
For the fiscal year ended March 1, 1997, Mr. Kriegel's salary was continued
at $350,000 because his performance met expectations. Mr. Kriegel also was
awarded a bonus of $75,000 for fiscal 1996 pursuant to the bonus program based
on the criteria established for such program as discussed in the footnotes to
the Summary Compensation Table. 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.
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
John B. Gerlach
Robert S. Meeder, Sr.
Walter E. Sinterman
11
<PAGE> 14
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, 1991 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 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., Longs
Drug Stores, Revco D.S., Inc., Rite Aid Corporation and Walgreen Co. Perry Drug
Stores, Inc. was deleted from the peer group used in the prior year as a result
of being purchased by Rite Aid Corporation. F&M Distributors, Inc. was deleted
from the peer group used in the prior year due to its filing Chapter 11. 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,
1991 in each of the Company, the Nasdaq Retail Trade Stocks Index, and the Peer
Group Index.
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 Nasdaq Re- Drug Empo-
(Fiscal Year Covered) tail NACDS PEER rium
<S> <C> <C> <C>
1990 100 100 100
1991 110 135 107
1992 157 153 115
1993 167 159 56
1994 197 171 77
1995 199 200 56
1996 201 208 48
</TABLE>
12
<PAGE> 15
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 March 1, 1997. 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 1997
and future years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firms in which William L. Sweet, Jr., a director of the Company, is
or was a partner during fiscal 1996 supplied legal services to the Company
during that period.
David L. Kriegel, a director and officer of the Company, sold $375,000 face
amount of the Company's 7.75% Convertible Subordinated Debentures back to the
Company for $288,750 as part of a publicly announced Debenture buyback program.
Mr. Kriegel had purchased the Debentures in May 1994 for $289,550.
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 1997 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 21, 1997.
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
13
<PAGE> 16
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 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.
The cost of solicitation of Proxies will be borne by the Company. 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
/s/ Jane H. Lagusch
--------------------------
JANE H. LAGUSCH, Secretary
14
<PAGE> 17
DRUG EMPORIUM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 1996
The undersigned hereby appoints Jane H. Lagusch and Timothy S. McCord
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 vote
listed below for all nominees listed
(except as marked to below.
the contrary below)
Walter E. Sinterman V.J. Wiechart, Sr.
(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 March 1, 1997.
/ / 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:_________________, 1996
_____________________________
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
