<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 Section 240.14a-11(c) or Section 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
[LOGO]
DRUG EMPORIUM, INC.
155 Hidden Ravines Drive
Powell, Ohio 43065
Telephone: (740) 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 24th day of June, 1998, at 9:00
a.m. Eastern Daylight Savings Time, for the following purposes:
1. To elect two (2) Class Three 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 27, 1999; 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 28, 1998 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 28, 1998 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, 1998
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
[LOGO]
DRUG EMPORIUM, INC.
155 Hidden Ravines Drive
Powell, Ohio 43065
Telephone: (740) 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 24, 1998, 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 and 2 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, 1998 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 13,179,785 shares were issued and outstanding at the close of business on
April 28, 1998. 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, 1998. 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.
<PAGE> 4
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. The term of office of each present Class Three 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 Three directors: Robert
S. Meeder, Sr. and William L. Sweet, Jr. 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 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,
1998. 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, 1998.
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 THREE:
TERM EXPIRES 2001:
Robert S. Meeder, Sr. 69 Chairman of Muirfield Investors, Inc. (1) 22,000 *
William L. Sweet, Jr. 50 Partner; Beckman Lawson, LLP 1993 20,000 *
</TABLE>
CONTINUING DIRECTORS
<TABLE>
<S> <C> <C> <C> <C> <C>
CLASS ONE:
TERM EXPIRES 1999:
Walter E. Sinterman 79 President of Sinco, Inc. 1983 598,103(2) 4.5%
V.J. Wiechart 71 Chairman and Chief Executive Officer 1993 14,000(3) *
of Wiechart Pharmacy, Inc.
</TABLE>
2
<PAGE> 5
<TABLE>
Wesley C. Wright 51 President, Wright 1997 0 *
Management Consultants
<S> <C> <C> <C> <C> <C>
CLASS TWO:
TERM EXPIRES 2000:
Macy T. Block 72 President of M.T.B. Corp. 1994 426,700 3.2%
David L. Kriegel 52 Chairman, President and Chief 1983 1,519,320(4) 11.1%
Executive Officer of the Company
</TABLE>
- ---------------
* Less than 1%
(1) 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.
(2) 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.
(3) The number of shares beneficially owned by Mr. Wiechart includes 1,000
shares owned by his wife.
(4) The number of shares beneficially owned by Mr. Kriegel includes 246,660
shares held by Kriegel Holding Company, Inc., 532,520 shares which are the
subject of options exercisable within 60 days.
------------------
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-fund and Flex Partners Funds, registered investment
companies sponsored by R. Meeder & Associates, Inc.
WILLIAM L. SWEET, JR.
Mr. Sweet is an attorney and partner in the law firm of Beckman Lawson LLP
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
Mr. Wright is President of Wright Management Consultants and a Managing
Partner of Diversified Retail Solutions, both retail advisory companies. Prior
to 1996 Mr. Wright was associated with Wal-Mart Stores, Inc. for 20 years in
various management positions, most recently as Senior Vice President of Store
Operations.
3
<PAGE> 6
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 and is a director of Sun Television and
Appliances, Inc., a publicly owned company.
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 an Advisory Board
member of Bank One, Ohio and a member of the Board of Trustees for Ohio Northern
University, Ada, Ohio.
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 one telephonic meeting
during the year ended February 28, 1998. 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 28, 1998, this committee held five meetings. Messrs. Meeder, Sinterman
and Sweet 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 28, 1998, the committee held one
meeting. Messrs. Sweet, Wright and Weichart 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.
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. 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.
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 28, 1998 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, 1998 (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................................ 1,519,320(1) 11.1%
155 Hidden Ravines Drive
Powell, OH 43065
John B. Gerlach Trust........................... 1,248,000 9.5%
37 West Broad Street
Columbus, OH 43215
U.S. Bancorp.................................... 1,202,603(2) 9.1%
601 2nd Ave. South
Minneapolis, MN 55402
Dimensional Fund Advisors Inc................... 861,600(3) 6.5%
1299 Ocean Ave.
Santa Monica, CA 90401
A. Joel Arnold.................................. 18,500(4) *
Timothy S. McCord............................... 9,514(5) *
Continuing directors, nominees
and executive officers as
a group (9 persons)........................... 2,628,137 19.1%
</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. and 532,520 shares subject to options
exercisable within 60 days.
(2) Based on a Schedule 13G dated February 9, 1998 filed by U.S. Bancorp
reporting 1,202,603 shares held by two bank subsidiaries, U.S. Bank National
Association and First Trust National Association.
(3) Based on a Schedule 13G dated February 9, 1998 filed by Dimensional Fund
Advisors Inc. reporting 861,600 shares held.
(4) The number of shares owned by Mr. Arnold includes 18,500 shares subject to
options exercisable in 60 days.
(5) The number of shares owned by Mr. McCord includes 9,500 shares which are
subject to options exercisable within 60 days.
5
<PAGE> 8
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 February 28, 1998 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that two
reports were 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 $100,000 for the last fiscal year information concerning all
forms of compensation paid or payable by the Company for services in all
capacities for the fiscal years indicated:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
NAME AND PRINCIPAL ----------------------- SECURITIES UNDERLYING
POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#)
------------------ ---- --------- ----------- ---------------------
<S> <C> <C> <C> <C>
David L. Kriegel 1998 350,000 197,291(2) -0-
President & CEO 1997 350,000 57,291 70,000
1996 350,000 132,291 -0-
A. Joel Arnold 1998 200,000 30,000 -0-
Sr. Vice President 1997 176,212 35,000 10,000
1996 162,024 -0- -0-
Timothy S. McCord(3) 1998 139,087 -0- -0-
Treasurer & CFO 1997 115,796 35,000 25,000
1996 107,221 -0- 5,000
</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 and approved by
the Chief Executive Officer. Bonuses are subjectively determined based on
amounts available and evaluation of performance based upon 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.
(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. The final payment of $57,291
was made in fiscal 1998.
6
<PAGE> 9
(3) Mr. McCord resigned as Chief Financial Officer and Treasurer effective
February 17, 1998. His severance package includes continuation of his
compensation and health care benefits through November 16, 1998.
STOCK OPTION VALUES AND EXERCISES
The following table provides information regarding the fiscal year end
value of unexercised options for the individuals named in the Summary
Compensation Table. No stock options were exercised by the named executive
officers during the 1998 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS FOR MONEY OPTIONS/SARS FOR
YEAR END (#) YEAR END ($)
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David L. Kriegel............ 532,520 37,480 -0- -0-
A. Joel Arnold.............. 18,500 16,500 -0- -0-
Timothy S. McCord........... 9,500 25,500 -0- -0-
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement with David L. Kriegel
dated as of March 11, 1993, as amended. 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, 1999 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. Mr. Kriegel's salary for fiscal 1999 has been set at $400,000.
Pursuant to an amendment to Mr. Kriegel's Agreement and Employment Security
Agreements with Mr. Arnold and Mr. McCord dated December 2, 1997, 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
7
<PAGE> 10
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 to Mr. Kriegel exceed an amount equal to
three times the aggregate present value of his 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. Arnold and McCord's rights
continue for two years after such event. The right to payment for Messrs. Arnold
and McCord will terminate upon their termination by the Company for cause or
voluntary resignation and the right to payment for Mr. Kriegel terminates upon
his termination for cause as Chairman and Chief Executive Officer of the Company
by the Board of Directors.
Mr. Kriegel has also entered into a Consulting Agreement with the Company
which provides that upon termination of Mr. Kriegel's employment due to a change
of control, he shall provide consulting services to the Company for one year and
receive a consulting fee of $150,000.
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. Meeder, Sinterman and Sweet. 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.
8
<PAGE> 11
For the fiscal year ending February 28, 1998, Mr. Kriegel's salary was
continued at $350,000 because his performance met expectations. The five
executive officers were awarded a total of $245,000 in bonuses for the fiscal
year ending February 28, 1998, pursuant to the Company's bonus plan. 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 a Consulting Agreement and an amendment
to Mr. Kriegel's Employment Agreement and replacement Employment Security
Agreements for Messrs. Arnold, McCord and one other executive officer in order
to 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
Robert S. Meeder, Sr.
Walter E. Sinterman
William L. Sweet Jr.
9
<PAGE> 12
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, 1993 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. The industry peer group consists of the
Company and the following other chain drug companies: Arbor Drugs, Inc., CVS,
Genovese Drug Stores, Inc., Horizon Pharmacy, Longs Drug Stores, Phar-Mor, Inc.,
Pharmhouse Corp., Rite Aid Corp. and Walgreen Co. Revco D.S., Inc. was deleted
from the peer group used the prior year as a result of being purchased by CVS.
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,
1993 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 NACDS Drug
(Fiscal Year Covered) Retail PEER Emporium
<S> <C> <C> <C>
1993 100 100 100
1994 111 97 138
1995 102 104 100
1996 120 132 91
1997 134 179 134
1998 177 294 105
</TABLE>
10
<PAGE> 13
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 27, 1999. 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 1999
and future years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert S. Meeder, Sr., Walter E Sinterman and William L. Sweet, Jr. are the
current members of the Compensation Committee.
The law firm in which Mr. Sweet was a partner during fiscal 1998 supplied
some legal services to the Company during that period.
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 1999 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, 1999.
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 and 2. 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.
11
<PAGE> 14
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
12
<PAGE> 15
[LOGO]
VISIT OUR ON-LINE STORE
http://www.drugemporium.com
<PAGE> 16
DRUG EMPORIUM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 1998
The undersigned herby appoints A. Joel Arnold and Jane H. Lagusch 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.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE> 17
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
DRUG EMPORIUM, INC.
JUNE 24, 1998
Please Detach and Mail in the Envelope Provided
[X] Please mark your
votes as in this
example.
The Board of Directors recommends a vote FOR all nominees and FOR Proposal 2.
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as marked to to vote for all
the contrary below) nominees listed at right
<S> <C> <C> <C>
1. ELECTION OF Nominees: Robert S. Meader, Sr.
DIRECTORS [ ] [ ] William L. Sweet, Jr.
</TABLE>
(Instruction: To withhold authority to vote for any individual nominee, write
the nominee's name on the space provided below.
- ----------------------------------------
FOR AGAINST ABSTAIN
2. To approve and ratify the appointment of Ernst & [ ] [ ] [ ]
Young LLP as independent auditors for the fiscal
year ending February 27, 1998.
3. To take any 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 and 2.
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY
Signed
-------------------------------------------------------------------------
Signed
-------------------------------------------------------------------------
Dated
--------------------------, 1998
Note: 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 partnership, please sign in the corporate name, by the 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.
