<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
DRUG EMPORIUM, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] 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: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<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 25th day of June, 1997, 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 28, 1998;
3. If presented, to consider and vote on a stockholder proposal requesting
elimination of election of directors by classes;
4. If presented, to consider and vote on a stockholder proposal requesting
the Board of Directors to engage an investment banker to explore
alternatives to enhance the value of the Company; and
5. 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 28, 1997 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 1, 1997 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 19, 1997
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 25, 1997, 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 proposals 1, 2 and 5 and against proposals
3 and 4 as 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 28, 1997 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 13,153,485 shares were issued and outstanding at the close of business on
April 28, 1997. 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 19, 1997. 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 Two 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. Three
persons will stand for election at this Annual Meeting as Class Two directors:
Macy T. Block, Thomas D. Igoe 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF
THE NOMINEES NAMED HEREIN.
<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 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 28,
1997. The Common Stock ownership information includes current stockholdings plus
shares which the listed individuals have the right to acquire within 60 days of
April 28, 1997.
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 TWO:
TERM EXPIRES 2000:
Macy T. Block 71 President of M.T.B. Corp. 1994 426,700 3.2%
Thomas D. Igoe 65 Consultant and former Sr. Vice 1996 2,000 *
President, Corporate
Banking, Bank One, Columbus,
NA
David L. Kriegel 51 Chairman, President and Chief 1983 1,529,549(1) 11.2%
Executive Officer of the
Company
</TABLE>
2
<PAGE> 5
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 THREE:
TERM EXPIRES 1998:
Robert S. Meeder, Sr. 68 Chairman of Muirfield (2) 22,000 *
Investors, Inc.
Robert Spiegel 60 Private Investor and (3) 1,000 *
Consultant
William L. Sweet, Jr. 48 Partner; Beckman, Lawson, 1993 20,000 *
Sandler, Snyder & Federoff
CLASS ONE:
TERM EXPIRES 1999:
Walter E. Sinterman 78 President of Sinco, Inc. 1983 598,103(4) 4.5%
V.J. Wiechart 70 Chairman and Chief Executive 1993 14,000(5) *
Officer of Wiechart
Pharmacy, Inc.
Wesley C. Wright 50 President, Wright (6) 0 *
Management Consultants
- ---------------
<FN>
* Less than 1%
(1) 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 and 519,849 shares
which are the subject of options exercisable within 60 days.
(2) 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.
(3) 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.
(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 Debentures.
(5) The number of shares beneficially owned by Mr. Wiechart includes 1,000
shares owned by his wife.
(6) Mr. Wright was elected to the Board on April 16, 1997 to fill a vacancy
created by the death of John B. Gerlach.
</TABLE>
------------------
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.
THOMAS D. IGOE
Mr. Igoe was Senior Vice President, Corporate Banking, of Bank One,
Columbus, N.A. through December 31, 1996 and is currently a consultant.
3
<PAGE> 6
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 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 and Flex Partners Funds, registered investment companies
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. and Hoenig Group, Inc., 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.
WALTER E. SINTERMAN
Mr. Sinterman is a private investor and President of Sinco, Inc., a
consulting company.
V.J. WIECHART
Mr. Wiechart is Chairman and Chief Executive Officer of Wiechart Pharmacy,
Inc. and Chairman and Chief Executive Officer of Lima Medical Supply, Inc.
WESLEY C. WRIGHT
Beginning in 1996 Mr. Wright has been President of Wright Management
Consultants. Prior to 1996 Mr. Wright was associated with Wal-Mart Stores, Inc.
for 20 years in various management positions, most recently as Vice President of
Store Operations.
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 took one action in writing
without a meeting during the year ended March 1, 1997. Each member of the Board
attended at least 75% of
4
<PAGE> 7
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 March
1, 1997, this committee held two meetings. Messrs. Igoe, 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 1, 1997, the committee held one meeting.
Messrs. Sweet, Igoe, Spiegel, Sweet and Wright 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.
Igoe, 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. Block, Sinterman and Wiechart 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.
5
<PAGE> 8
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 28, 1997 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 28, 1997 (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
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........................ 1,529,549(1) 11.2%
155 Hidden Ravines Drive
Powell, OH 43065
John B. Gerlach Trust................... 1,248,000 9.4%
37 West Broad Street
Columbus, OH 43215
Pioneering Management Corporation....... 1,134,400(2) 8.6%
60 State Street
Boston, Massachusetts 02109
U.S. Bancorp............................ 1,221,200(3) 9.2%
111 S. W. Fifth Avenue
Portland, Oregon 97208
A. Joel Arnold.......................... 12,500(4) *
Timothy S. McCord....................... 7,614(5) *
Continuing directors, nominees
and executive officers as
a group (11 persons).................. 2,633,466(6) 19.2%
- ---------------
<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., 22,000 shares held by Mr. Kriegel's wife,
900 shares owned by Mr. Kriegel's son and 519,849 shares subject to options
exercisable within 60 days.
(2) Based on a Schedule 13G dated January 22, 1997, filed by Pioneering
Management Corporation reporting 1,134,400 shares held.
(3) Based on a Schedule 13G dated February 11, 1997 filed by U.S. Bancorp
reporting 647,600 shares held by the trust group of United States National
Bank of Oregon ("Bank"), a subsidiary and 573,600 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.
(4) The number of shares owned by Mr. Arnold includes 12,500 shares subject to
options exercisable in 60 days.
(5) The number of shares owned by Mr. McCord includes 5,000 shares which are
subject to options exercisable within 60 days.
</TABLE>
6
<PAGE> 9
(6) The number of shares beneficially owned by all directors, nominees and
executive officers as a group includes 537,349 shares subject to options
exercisable within 60 days, and 1,629 shares that would result upon
conversion of $25,000 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 1, 1997 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.
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($) OPTIONS/SARS(#)
- ------------------------- ----- --------- ----------- -------------------
<S> <C> <C> <C> <C>
David L. Kriegel 1997 350,000 132,291(1)(2) 70,000
1996 350,000 57,292(2) -0-
1995 275,000 75,000(1) 250,000
A. Joel Arnold (3) 1997 176,212 35,000(1) 10,000
1996 162,024 -0- -0-
Timothy S. McCord 1997 115,796 35,000(1) 25,000
1996 107,221 -0- 5,000
1995 91,346 20,000 -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 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 table reflects bonus amounts for fiscal 1996 paid in
fiscal 1997. The Compensation Committee has decided there will not be any
bonuses for executive officers for fiscal 1997.
</TABLE>
7
<PAGE> 10
(2) The Board of Directors approved a payment of $171,875 to be made in equal
installments over three years beginning March 1, 1995 to compensate Mr.
Kriegel for a stock option pricing discrepancy.
(3) Mr. Arnold became an officer of the Company on April 20, 1995.
STOCK OPTIONS
The table below sets forth information concerning individual grants of
stock options during the last fiscal year to the individuals named in the
Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
PRESENT
INDIVIDUAL GRANTS VALUE($)(2)
- ---------------------------------------------------------------------------------------------------- --------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE BASE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE
- ------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
David L. Kriegel......... 70,000 56% 4.5793 6/25/2001 156,800
A. Joel Arnold........... 10,000 8% 4.1563 6/25/2006 20,300
Timothy S. McCord........ 25,000 20% 4.1563 6/25/2006 50,750
- ---------------
<FN>
(1) The options are qualified stock options and are 28% vested for Mr. Kriegel
have not yet vested for Messrs. Arnold and McCord.
(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 46% has been assigned to the volatility of the Company's Common
Stock (based on quarterly stock closing prices beginning August 31, 1988,
the risk free rate of return has been fixed at 6.50% for the grant, no
dividend yield, and the exercise of the option at June 24, 2001, the date
the options are completely vested. 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.
</TABLE>
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.
8
<PAGE> 11
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......... 519,849 50,151 468,919 39,906
A. Joel Arnold........... 12,500 22,500 7,032 19,219
Timothy S. McCord........ 5,000 30,000 1,018 31,483
</TABLE>
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, September 25, 1996
and April 16, 1997. 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, 1998 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 provides 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 16,
1997, Mr. Kriegel's salary for fiscal 1998 was set at $350,000.
Pursuant to an amendment to Mr. Kriegel's Agreement and Employment Security
Agreements with Mr. Arnold and Mr. McCord dated September 25, 1996, each of the
officers is entitled to certain payments in the event of a "change of control."
A change of control means either the ownership of 50% of the Company Common
Stock by a person or group of persons not Directors of the Company as of the
date of the Agreement, or the occurrence of both (i) the ownership of 20% of the
Company Common Stock by a person or group of persons not Directors of the
Company as of the date of the Agreement; and (ii) a majority of the persons
acting as Directors at the date of the Agreement or their designees no longer
constituting a majority of the Board.
The payments due to the officers upon a change of control and the officers
leaving the employ of the Company, other than for cause, are cash payments equal
to the past two years' (three years for Mr. Kriegel) salary and bonus, 24 months
(36 months for Mr. Kriegel) continuation of employee benefits and additional
retirement benefits computed as though the officer were an employee for two
additional years (three years for Mr. Kriegel.) However, in no event can the
aggregate present value of the payments exceed an amount equal to three times
the aggregate present value of an officer's base amount, calculated in
accordance with sec.280G of the Internal Revenue Code, multiplied by 99%.
Mr. Kriegel's rights to payment in the event of a change of control
continue for one year after such event; Messrs. McCord and Arnold's rights
continue for two years after such event. The right to payment for Messrs. McCord
and Arnold will terminate upon their death, permanent disability, termination
for cause, or voluntary resignation and the right to payment for Mr. Kriegel
terminates upon his death, permanent
9
<PAGE> 12
disability, voluntary resignation, or his termination as Chairman and Chief
Executive Officer of the Company by the Board of Directors.
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. Igoe, 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 tax laws relating to deductibility of executive
compensation in excess of $1,000,000 will have a material 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.
For the fiscal year ending 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 which was paid in fiscal 1997
pursuant to the bonus program based on the criteria established for such program
as discussed in the footnotes to the Summary Compensation Table. The
Compensation Committee decided that there would not be any bonuses paid to
executive officers for fiscal 1997. 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 Compensation Committee approved the amendment to Mr. Kriegel's
Employment Agreement and the Employment Security Agreements for Messrs. Arnold,
McCord and one other executive officer in order to
10
<PAGE> 13
help assure management continuity and stability in the current drug store chain
environment of acquisition and consolidations.
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
Thomas D. Igoe
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, 1992 as
measured against the Center for Research in Securities Prices Total Return Index
for the Nasdaq Retail Trade Stock Index 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.,
Genovese Drug Stores, Inc., Longs Drug Stores, Revco D.S., Inc., Rite Aid
Corporation and Walgreen Co. Big B Inc. was deleted from the peer group used in
the prior year as a result of being purchased by Revco D.S. Inc. and Fay's
Incorporated was deleted from the peer group used in the prior year as a result
of being purchased by Thrift Drug, Inc. 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, 1992 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
(Fiscal Year Covered) Nasdaq Retail NACDS PEER Drug Emporium
<S> <C> <C> <C>
1992 100 100 100
1993 84 104 49
1994 93 113 67
1995 86 133 49
1996 101 186 44
1997 113 249 66
</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 February 28, 1998. 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 1998
and future years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm in which William L. Sweet, Jr., a director of the Company, was
a partner during fiscal 1997 supplied legal services to the Company during that
period.
STOCKHOLDER PROPOSALS
Proponents have stated they intend to have the following proposals
presented at the Annual Meeting. The proposals and supporting statements are
quoted below. Approval of a Stockholder Proposal, which requires approval by the
holders of a majority of the Common Stock, present or represented and entitled
to vote at the Annual Meeting, serves only as a recommendation to the Board of
Directors to take the necessary steps to initiate such action as called for. The
Board of Directors has concluded it cannot support these proposals for the
reasons given.
FIRST STOCKHOLDER PROPOSAL
Mr. William Steiner, the beneficial owner of 1400 shares of the Company's
Common Stock, having an address of 4 Radcliff Drive, Great Neck, NY 11024, has
given notice that he intends to propose the following resolution at the Annual
Meeting. The proposed resolution and supporting statement for which the Board of
Directors and the Company accept no responsibility, are as follows:
"RESOLVED, that the stockholders of the Company request that the
Board of Directors take the necessary steps, in accordance with state
law, to declassify the Board of Directors so that all directors are
elected annually, such declassification to be effected in a manner
that does not affect the unexpired terms of directors previously
elected."
SUPPORTING STATEMENT
The election of directors is the primary avenue for stockholders to
influence corporate governance policies and to hold management accountable for
implementation of those policies. I believe that the classification of the Board
of Directors, which results in only a portion of the Board being elected
annually, is not in the best interests of the Company and its stockholders.
The Board of Directors of the Company is divided into three classes serving
staggered three year terms. I believe that a Company's classified Board of
Directors maintains the incumbency of the current Board and therefore of current
management, which in turn limits management's accountability to shareholders.
13
<PAGE> 16
The elimination of the Company's classified board would require each new
director to stand for election annually and allow the stockholders an
opportunity to register their views on the performance of the Board collectively
and each director individually. I believe that this is one of the best methods
available to the stockholder to insure that the Company will be managed in a
manner that is in the best interests of the stockholders.
A classified board might also be seen as an impediment to a potential
takeover of the Company's stock at a premium price. With the inability to
replace the majority of the Board at one annual meeting, an outside suitor might
be reluctant to make an offer in the first place.
I am a founding member of the Investors Rights Association of America and I
believe that the concerns expressed by companies with classified boards that the
annual election of all directors could leave companies without experienced
directors in the event that all incumbents are voted out by stockholders, are
unfounded. In my view, in the unlikely event that the stockholders vote to
replace all directors, this decision would express stockholder dissatisfaction
with the incumbent directors and reflect the need for change.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Board of Directors believes a classified Board of Directors is in the
best interests of the stockholders and should be maintained.
A classified Board, which divides the Board approximately in thirds and
provides for three year terms, has several advantages over annual elections of
all directions. At all times, a majority of the Board will have experience and
familiarity with the business and issues of the Company. This allows a
consistent and informed decision-making process on both a short term and a long
term basis.
The Board also believes that the inability of hostile suitor to remove a
majority of the Board in less than two years increases the Board's ability to
negotiate in the best interests of the stockholders and to carefully analyze any
proposal, solicit additional proposals or take other appropriate steps.
The Directors of the Company are fully accountable to serve the
stockholders whether their term of office is one year or three and a vote of
stockholders rejecting the Company's nominees for one class of Directors is an
expression of the stockholders' view of performance which would not be ignored
by the remaining Directors.
Under the corporate law of the State of Delaware, the state in which the
Corporation is incorporated, declassification of the Board of Directors can be
effected only by the Board authorizing an amendment to the Company's Restated
Certificate of Incorporation and directing that the amendment be submitted to a
vote of the Company's stockholders. With respect to such vote by the Company's
stockholders, the affirmative vote of 80% of all outstanding shares is required
under the Company's Restated Certificate of Incorporation for approval of such
amendment. Therefore, the adoption of this proposal would not in itself
reinstate the annual election of directors, but would only amount to an advisory
recommendation to the Board that it take steps to initiate such an amendment.
Your Board of Directors urges that stockholders vote AGAINST this
stockholder proposal. Unless otherwise specified by the stockholder, the Board
intends the accompanying proxy to be voted against this resolution.
14
<PAGE> 17
SECOND STOCKHOLDER PROPOSAL
Dr. Charles Miller, the beneficial owner of 850 shares of the Company's
Common Stock, having an address of 23 Park Circle, Great Neck, NY 11024, has
given notice that he intends to propose the following resolution at the Annual
Meeting. The proposal resolution and supporting statement for which the Board of
Directors and the Company accept no responsibility, are as follows:
"RESOLVED, that the shareholders of the Company recommend and
deem it desirable and in their best interest that the Board of
Directors immediately engage the services of a nationally recognized
investment banker to explore all alternatives to enhance the value of
the Company. These alternatives should include, but not be limited to,
the possible sale, merger or other transaction involving the Company."
SUPPORTING STATEMENT
In support of the above resolution, the proponent believes that in view of
the unacceptable performance of the Company over the past five years, the
deplorable stock price, and in my opinion, ineffective management, the Board of
Directors should take immediate action to engage the services of an investment
banker to explore all alternatives to enhance the value of the Company.
I am a co-founder of the Investors Rights Association of America and it is
my opinion that the value of the Company can be enhanced if the above resolution
is carried out and the shareholders would at long last be able to salvage
meaningful monetary rewards for their patience and long suffering.
Nell Minow, a highly acclaimed corporate governance specialist, and
principal of the LENS Fund, which specializes in increasing the value of
under-performing companies, has stated:
"Companies can only justify asking investors to take the risk of
investing in equities by delivering a competitive rate of return on
the invested capital. When a company's management and board cannot
meet that goal, they owe it to their investors to submit themselves to
an independent evaluation by an outside firm, to insure that all
options are objectively evaluated.
If a company's performance lags over a sustained period, it is
time for the shareholders to send a message of no confidence to the
board, reminding them that they have to hold management -- and
themselves -- to a higher standard."
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Board of Directors is committed to maximizing stockholder value and has
maintained relationships with nationally recognized investment banking firms.
The Board, because of its significant stock ownership and only one management
director, also believes its interest in maximizing stockholder value is
consistent with the stockholders'. The Board is aware of the consolidations and
acquisitions occurring in the Company's industry and is prepared to react and
obtain the guidance of investment bankers if an opportunity presents itself,
which the Board believes will maximize stockholder value.
The board does not believe that there is currently any value to
stockholders in initiating the expensive and potentially disruptive process of
engaging an investment banker for the purpose set forth in this proposal.
Your Board of Directors urges that stockholders vote AGAINST this
stockholder proposal. Unless otherwise specified by the stockholder, the Board
intends the accompanying proxy to be voted against this resolution.
15
<PAGE> 18
SUBMISSION OF STOCKHOLDERS' PROPOSALS AND NOMINATIONS
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 1998 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 20, 1998.
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 proposals 1, 2 and 5 and against proposals 3 and 4. 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 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
16
<PAGE> 19
DRUG EMPORIUM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS
JUNE 25, 1997
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:
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below) nominees listed below.
Macy T. Block Thomas D. Igoe David L. Kriegel
</TABLE>
(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 28,
1998.
[ ] For [ ] Against [ ] Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND FOR
PROPOSAL 2.
3. Stockholder Proposal requesting elimination of election of
directors by class.
4. Stockholder Proposal requesting the Board of Directors to engage
an investment banker to explore alternatives to enhance the value
of the Company.
THE BOARD OF DIRECTORS RECOMMENDS VOTES AGAINST ITEMS 3 AND 4.
(continued on reverse side)
5. To take action and vote in their discretion upon such other
matters as may properly come before the Annual Meeting or any
adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF
NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED "FOR" PROPOSALS 1,
2 AND 5 AND "AGAINST" 3 AND 4.
Dated: , 1997
-----------------
-----------------------------
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
