<PAGE> 1
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>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
PETCO ANIMAL SUPPLIES, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
(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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PETCO ANIMAL SUPPLIES, INC.
9125 REHCO ROAD
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND PROXY STATEMENT
To the Stockholders of
Petco Animal Supplies, Inc.
Notice is hereby given that the Annual Meeting of Stockholders of PETCO
ANIMAL SUPPLIES, INC. (the "Company") will be held at the Company's corporate
offices, 9125 Rehco Road, San Diego, California on June 26, 1996, at 10:00 a.m.,
for the following purposes:
1. To elect one director for a three-year term to expire at the 1999 Annual
Meeting of Stockholders. The present Board of Directors of the Company
has nominated and recommends for election as a director the following
person:
ANDREW G. GALEF
2. To consider and vote upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation (the "Certificate") to increase
the Company's authorized common stock from 20,000,000 shares to
100,000,000 shares.
3. To consider and vote upon a proposal to amend the 1994 Stock Option and
Restricted Stock Plan for Executive and Key Employees of the Company
(the "Company Plan") to increase the number of shares available for
issuance under the Company Plan.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on May 24, 1996 as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting.
Accompanying this Notice of Annual Meeting is a proxy. WHETHER OR NOT YOU
EXPECT TO BE AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AND RETURN IT PROMPTLY.
BY ORDER OF THE BOARD OF DIRECTORS,
Richard C. St. Peter, Secretary
San Diego, California
May , 1996
<PAGE> 3
PETCO ANIMAL SUPPLIES, INC.
9125 REHCO ROAD
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
The Board of Directors of the Company is soliciting the enclosed proxy for
use at the Annual Meeting of Stockholders of the Company to be held at 10:00
a.m. on June 26, 1996, at the Company's corporate offices, 9125 Rehco Road, San
Diego, California. This Proxy Statement was first mailed to stockholders on or
about May , 1996.
All stockholders who find it convenient to do so are cordially invited to
attend the meeting in person. In any event, please complete, sign, date and
return the proxy in the enclosed envelope.
A proxy may be revoked by written notice to the Secretary of the Company at
any time prior to the voting of the proxy, or by executing a later proxy or by
attending the meeting and voting in person. Unrevoked proxies will be voted in
accordance with the instructions indicated in the proxies, or if there are no
such instructions, such proxies will be voted for the election of the Board's
nominee for director and for all other matters described in this Proxy
Statement. Shares represented by proxies that reflect abstentions or include
"broker non-votes" will be treated as present and entitled to vote for purposes
of determining the presence of a quorum. Abstentions or "broker non-votes" do
not constitute a vote "for" or "against" any matter and thus will be disregarded
in the calculation of "votes cast."
Stockholders of record at the close of business on May 24, 1996 will be
entitled to vote at the meeting. As of that date, shares of common
stock, par value $.0001 per share ("Common Stock"), of the Company were
outstanding. Each share of Common Stock is entitled to one vote. A majority of
the outstanding shares of the Company, represented in person or by proxy at the
meeting, constitutes a quorum.
A plurality of the votes cast at the meeting is required to elect
directors. The affirmative vote of a majority of the outstanding shares of
Common Stock is required to amend the Company's Certificate. The affirmative
vote of a majority of the shares present in person or represented by proxy and
entitled to vote at the meeting is required for approval of all other matters
presented at the meeting.
The costs of preparing, assembling and mailing the Notice of Annual
Meeting, Proxy Statement and proxy will be borne by the Company.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors currently consists of five members. The Company's
Certificate provides for the classification of the Board of Directors into three
classes, as nearly equal in number as possible, with staggered terms of office
and provides that upon the expiration of the term of office for a class of
directors, nominees for such class shall be elected for a term of three years or
until their successors are duly elected and qualified. At this meeting, one
nominee for director is to be elected as a Class II director. The nominee is
Andrew G. Galef. The two Class I and two Class III directors have two years and
one year, respectively, remaining on their terms of office. If no contrary
indication is made, proxies in the accompanying form are to be voted for Mr.
Galef or, in the event Mr. Galef is not a candidate or is unable to serve as a
director at the time of the election (which is not currently expected), for any
nominee who shall be designated by the Board of Directors to fill such vacancy.
Mr. Galef is a member of the present Board of Directors.
1
<PAGE> 4
INFORMATION REGARDING DIRECTORS
Set forth below is certain information concerning the nominee to the Board
of Directors, as well as those directors whose terms of office are continuing
after the meeting.
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM EXPIRING AT THE
1999 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
---- --- ---------------------------------
<S> <C> <C>
Andrew G. Galef.......................... 63 Director
</TABLE>
ANDREW G. GALEF has served as a Director since 1988, and served as Chairman
from 1988 to January 1994. Mr. Galef is Chairman of The Spectrum Group, Inc.
("Spectrum") and has been a principal since its formation in 1978. Mr. Galef
serves other Spectrum portfolio companies as Chairman and Chief Executive
Officer of MagneTek, Inc. and as a Director of Warnaco, Inc. which he served as
Chairman from April 1986 to August 1991. Mr. Galef served prior portfolio
companies as Chairman of Coca-Cola Bottling Company of Cincinnati from 1982 to
1984; Chairman of Century Electric, Inc. from 1983 to 1986 and Chairman of
GranTree Corporation from 1987 to 1992. Mr. Galef is a graduate of Harvard
Business School and Amherst College.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING AT THE
1997 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
---- --- ---------------------------------
<S> <C> <C>
C. Hunter Boll............................ 41 Director
Shahan D. Soghikian....................... 37 Director
</TABLE>
C. HUNTER BOLL has served as a Director of the Company since July 1988. Mr.
Boll is a Managing Director of Thomas H. Lee Company ("THL") and has been
employed by THL since 1986. Mr. Boll is also a Vice President of Thomas H. Lee
Advisors I and T.H. Lee Mezzanine II, the latter of which is the administrative
general partner of Thomas H. Lee Advisors II, L.P., which are the investment
advisors to ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P. and
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (collectively, the
"ML-Lee Partnerships"). Mr. Boll also serves as a Director of Big V
Supermarkets, Inc., HomeSide, Inc., Stanley Furniture Company, Inc. and Select
Beverages, Inc. Mr. Boll holds an MBA degree from Stanford University and a
bachelor's degree from Middlebury College.
SHAHAN D. SOGHIKIAN has served as a Director since July 1993. Mr. Soghikian
is a General Partner of Chase Capital Partners, the general partner of Chase
Venture Capital Associates, L.P. ("Chase" -- formerly Chemical Venture Capital
Associates, a California limited partnership) and has been employed by Chase
Capital Partners since 1990. Prior to 1990, he was a member of the mergers and
acquisitions department of Prudential Securities, Inc. Mr. Soghikian also serves
as a Director of Drilltec Patents & Technologies Company, Inc., American Floral
Services, Inc., Lacto Iberica, Colep Holdings, United Texon PLC and the Advisory
Board of Barings Communications Equity Ltd. Mr. Soghikian holds an MBA degree
from UCLA and a bachelor's degree from Pitzer College.
2
<PAGE> 5
TERM EXPIRING AT THE
1998 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
---- --- ---------------------------------
<S> <C> <C>
Brian K. Devine................. 54 Chairman, President and Chief Executive Officer
Peter M. Starrett............... 48 Director
</TABLE>
BRIAN K. DEVINE, Chairman, President and Chief Executive Officer of the
Company, has been with the Company since August 1990 and has served as Chairman
since January 1994. Prior to joining the Company, Mr. Devine was President of
Krause's Sofa Factory, a furniture retailer and manufacturer, from 1988 to 1989.
From 1970 until 1988, Mr. Devine was employed by Toys "R" Us, a retailer of
children's toys, in various positions, including Senior Vice President, Director
of Stores; and Senior Vice President, Growth, Development and Operations. Mr.
Devine graduated from Georgetown University with a degree in economics.
PETER M. STARRETT has served as a Director since March 1994. Mr. Starrett
is President of Warner Bros. Studio Stores Worldwide and has been employed by
Warner Bros. since 1990. Before joining Warner Bros., Mr. Starrett was President
and Chief Executive Officer of Plymouth Lamston Stores Corporation from 1988 to
1990. Prior to that, he served as Chairman, Chief Executive Officer of the
Specialty Store Division of Federated Department Stores from 1986 to 1988. Mr.
Starrett has served in various executive positions which include Senior Vice
President, General Merchandise Manager of Filene's Division of Federated
Department Stores from 1983 to 1986; and Vice President, General Merchandise
Manager of the May Company from 1975 to 1983. Mr. Starrett is a graduate of
Harvard Business School and the University of Denver.
CERTAIN COMMITTEES OF THE BOARD; MEETINGS
The Board of Directors held four meetings during the fiscal year ended
February 3, 1996. In that year, each director attended at least 75% of the
aggregate of all meetings held by the Board of Directors and all meetings held
by all committees of the Board on which such director served.
The Company has an Audit Committee currently consisting of Messrs. Boll,
Galef and Starrett. The Audit Committee held one meeting in fiscal 1995. The
Audit Committee's responsibilities include, among other things, reviewing the
Company's selection of independent certified public accountants and meeting with
the accountants regarding their management letters and the annual audit.
The Company has a Stock Option and Compensation Committee currently
consisting of Messrs. Boll, Galef and Soghikian. The Stock Option and
Compensation Committee held one meeting in fiscal 1995. The responsibilities of
the Stock Option and Compensation Committee include, among other things,
reviewing, approving and reporting to the Board the Company's compensation
policies with respect to its executive officers, reviewing the Company's overall
compensation policy and making recommendations with respect thereto, and
administering the Company Plan.
The Company has a Directors Stock Option and Compensation Committee
currently consisting of Messrs. Boll and Soghikian. The Directors Stock Option
and Compensation Committee held one meeting in fiscal 1995. The responsibilities
of the Directors Stock Option and Compensation Committee include, among other
things, reviewing the Company's compensation policies with respect to its
directors and making recommendations with respect thereto, and administering the
Directors Plan (as hereinafter defined).
The Company has a Nominating Committee currently consisting of Messrs.
Devine, Galef and Starrett. The Nominating Committee held no meetings in fiscal
1995. The responsibilities of the Nominating Committee include, among other
things, recommending to the Board of Directors nominees for election as
directors. Stockholders wishing to recommend director candidates for
consideration by the Nominating Committee may do so by writing to the Secretary
of the Company and providing the candidate's name, biographical data,
qualifications and written consent to serve as a director.
3
<PAGE> 6
COMPENSATION OF DIRECTORS
Directors of the Company are reimbursed for expenses actually incurred in
attending meetings of the Board of Directors and its committees. Outside
directors are paid an annual fee of $6,000 and attendance fees of $2,500 per
meeting ($750 for telephonic meetings) and $750 per separately scheduled
committee meeting (including telephonic meetings), of which 50% may be paid in
the form of Common Stock, and receive an initial grant of options to purchase
4,500 shares of Common Stock and an annual grant of options to purchase 1,500
shares of Common Stock under the Directors Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the nominee listed
above. Proxies solicited by the Company will be so voted unless stockholders
specify otherwise on their proxy cards.
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the shares of Common Stock as of May 10, 1996 by (i) each of the
Company's executive officers and directors, (ii) the Company's executive
officers and directors as a group and (iii) all other stockholders known by the
Company to beneficially own more than five percent of the Common Stock. Unless
otherwise indicated, the address for each of the stockholders listed below is
c/o Petco Animal Supplies, Inc., 9125 Rehco Road, San Diego, California 92121.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNERSHIP(1) BENEFICIALLY OWNED
---- -------------------------- ------------------
<S> <C> <C>
Janus Capital Corporation(2).................. 1,993,575 13.0%
FMR Corp.(3).................................. 1,020,600 6.7
Brian K. Devine............................... 240,520 1.6
Andrew G. Galef(4)............................ 134,152 0.9
William M. Woodard............................ 47,295 0.3
Larry D. Asselin.............................. 37,365 0.2
Richard C. St. Peter.......................... 28,577 0.2
Peter M. Starrett............................. 7,500 0.1
C. Hunter Boll................................ -- --
Shahan D. Soghikian........................... -- --
All directors and executive officers as a
group (8 persons) .......................... 495,409 3.2
</TABLE>
- - ---------------
(1) Includes the following shares which are issuable upon the exercise of
outstanding stock options which are exercisable within 60 days ("Option
Shares"): Mr. Devine -- 209,325 Option Shares; Mr. Galef -- 4,500 Option
Shares; Mr. Woodard -- 44,865 Option Shares; Mr. Asselin -- 35,865 Option
Shares; Mr. St. Peter -- 28,577 Option Shares; and Mr. Starrett -- 6,000
Option Shares.
(2) The address for Janus Capital Corporation is 100 Fillmore Street, Suite 300,
Denver, Colorado 80206. The information is as of December 31, 1995 and is
determined through Schedule 13G filings.
(3) The address for FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109. The information is as of December 31, 1995 and is determined through
Schedule 13G filings.
(4) Includes (i) 22,618 shares of Common Stock held by Andrew G. Galef Living
Trust, (ii) 6,456 shares of Common Stock held by Bronya Galef, Mr. Galef's
wife, and (iii) 3,009 shares of Common Stock held in trust for Ms. Galef's
children. Mr. Galef disclaims beneficial ownership of such shares.
4
<PAGE> 7
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
The information set forth below is submitted with respect to each of the
Company's executive officers.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
- - ---------------------- --- ---------------------------------------------------
<S> <C> <C>
Brian K. Devine....... 54 Chairman, President and Chief Executive Officer
Richard C. St. Executive Vice President -- Administration and
Peter............... 47 Chief Financial Officer
Larry D. Asselin...... 48 Senior Vice President -- Merchandising and
Distribution
William M. Woodard.... 47 Senior Vice President -- Store Operations
</TABLE>
BRIAN K. DEVINE, Chairman, President and Chief Executive Officer of the
Company, has been with the Company since August 1990 and has served as Chairman
since January 1994. For a more detailed discussion of Mr. Devine's business
experience, see "-- Information Regarding Directors."
RICHARD C. ST. PETER, Executive Vice President, Administration and Chief
Financial Officer, joined the Company in September 1990. From 1986 to 1990, Mr.
St. Peter was Vice President and Chief Financial Officer at Stor, a furniture
retailer. From 1982 to 1986, Mr. St. Peter held various positions at W.R.
Grace's Home Centers, which operated 90 retail stores, most recently as Vice
President and Chief Financial Officer. From 1980 to 1982, Mr. St. Peter was
Controller at Smart & Final, a 120-store grocery retailer. From 1971 to 1980,
Mr. St. Peter was employed by Alpha Beta, a grocery retailer and a division of
American Stores, where he held a number of positions including Controller. Mr.
St. Peter received a bachelor's degree from California State University at Long
Beach and an MBA from the University of Southern California.
LARRY D. ASSELIN, Senior Vice President, Merchandising and Distribution,
joined the Company in April 1991. Prior to that time, beginning in 1987, Mr.
Asselin was Vice President and General Merchandising Manager at Oshman's, a
sporting goods retailer. From 1969 to 1987, Mr. Asselin was in various positions
including Division Merchandising Manager at Foley's Department Stores, a
division of Federated Department Stores. Mr. Asselin received a marketing degree
from the University of Arkansas.
WILLIAM M. WOODARD, Senior Vice President, Store Operations, joined the
Company in January 1991. From 1987 to 1990, Mr. Woodard was Vice President,
Director of Marketing at J.M. Jones, Inc., a wholesale division of SuperValu
Stores, Inc. From 1970 to 1987, Mr. Woodard was employed by Safeway Stores,
Inc., a grocery retailer, in a number of positions including Retail Operations
Manager and Marketing Operations Manager. Mr. Woodard holds an administrative
management degree from North Texas State University and an MBA in marketing from
the University of Southern California.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid by the Company to or on behalf of the Company's Chief
Executive Officer and each of the Company's other three executive officers in
fiscal 1995, fiscal 1994 and fiscal 1993. Unless otherwise indicated, all
references in this Proxy Statement to a fiscal year refer to the fiscal year
ending on the Saturday closest to January 31 of the following year. For example,
references to fiscal 1995 refer to the fiscal year beginning on January 29, 1995
and ending on February 3, 1996.
5
<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
FISCAL YEAR COMPENSATION NUMBER OF
--------------------------------------- SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION(S) YEAR SALARY BONUS COMPENSATION(1) OPTIONS
- - ------------------------------------ ------ -------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Brian K. Devine..................... 1995 $288,500 $250,000 -- 45,000
Chairman, President 1994 250,000 248,714 -- 271,575
and CEO 1993 250,000 236,000 -- --
Richard C. St. Peter................ 1995 177,500 107,250 -- 18,000
Executive Vice President -- 1994 154,500 76,853 -- 54,315
Administration and CFO 1993 153,000 73,000 -- --
Larry D. Asselin.................... 1995 158,750 77,250 -- 9,000
Senior Vice President -- 1994 154,500 76,853 -- 54,315
Merchandising and Distribution 1993 153,000 73,000 -- --
William M. Woodard.................. 1995 158,750 77,250 -- 9,000
Senior Vice President -- 1994 154,500 76,853 -- 54,315
Store Operations 1993 153,000 73,000 -- --
</TABLE>
- - ---------------
(1) Other Annual Compensation consists of the annual lease value of
company-owned automobiles. The aggregate amount of such lease value does not
exceed the lesser of $50,000 or 10% of the total annual salary for the named
executive officer.
The following table sets forth certain summary information concerning
individual grants of stock options made during the last completed fiscal year to
each of the Company's executive officers named in the Summary Compensation
Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION TERM(2)
UNDERLYING GRANTED TO EXERCISE OR ----------------------------------
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL 1995 PER SHARE(2) DATE 5% 10%
- - --------------------------- ----------- ------------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brian K. Devine............ 45,000 28.9% $12.33 02/28/05 $ 348,942 $ 884,288
Richard C. St. Peter....... 18,000 11.6 12.33 02/28/05 139,577 353,715
Larry D. Asselin........... 9,000 5.8 12.33 02/28/05 69,788 176,858
William M. Woodard......... 9,000 5.8 12.33 02/28/05 69,788 176,858
</TABLE>
- - ---------------
(1) These options become exercisable in February 1998. See "Aggregated Fiscal
Year-End Option Values" table below. For a discussion of the material terms
of the plan pursuant to which these options were granted, see "Proposal 3:
Amendment of the Company Plan."
(2) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. Actual gains,
if any, on stock option exercises will depend on the future price of the
Common Stock and overall stock market conditions. There is no representation
that the rates of appreciation reflected in this table will be achieved.
6
<PAGE> 9
The following table sets forth at February 3, 1996 the number of options
and the value of unexercised options held by each of the executive officers
named in the Summary Compensation Table. None of such executive officers
exercised any options during fiscal 1995.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
--------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Brian K. Devine................................. 177,075 139,500 $ 1,889,390 $ 1,398,465
Richard C. St. Peter............................ 35,415 36,900 377,878 357,723
Larry D. Asselin................................ 35,415 27,900 377,878 279,693
William M. Woodard.............................. 35,415 27,900 377,878 279,693
</TABLE>
- - ---------------
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options and the
exercise price of the options at February 3, 1996.
EMPLOYMENT AGREEMENT
The Company has entered into a new employment agreement (the "Employment
Agreement") with Brian K. Devine, Chairman, President and Chief Executive
Officer. The Employment Agreement provides for an indefinite term at a salary of
not less than $400,000 per year plus a bonus determined by the Board of
Directors. The Employment Agreement may be terminated, among other reasons, by
Mr. Devine upon 90 days' notice. Pursuant to the Employment Agreement, if Mr.
Devine is terminated by the Company other than for cause he will be entitled to
severance pay for one year. The Employment Agreement also permits Mr. Devine to
receive 2.99 times his average compensation for the preceding five years in the
event he is terminated within one year following a change in control of the
Company which is not approved by the Board of Directors, and 2.00 times his
average compensation for the preceding five years in the event he is terminated
within one year following a Board approved change in control. Beginning in
fiscal 1996, Mr. Devine is entitled to receive annually options to purchase
shares of Common Stock in an amount to be determined by the Stock Option and
Compensation Committee of the Board of Directors, which options shall vest as
determined by such Committee and shall be exercisable at the fair market value
of the Common Stock at the date of grant.
COMPENSATION PLANS
401(k) Plan. The Company has established a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering all of the Company's eligible
full-time employees. The Company adopted the 401(k) Plan effective January 1992.
Pursuant to the 401(k) Plan, participants may elect to contribute, through
salary reductions, up to 15% of their annual compensation. Effective January 1,
1996 the Company adopted a matching provision for 25% of the first 4% of
compensation that is contributed by all participating employees. Previously,
there was no matching provision. The 401(k) Plan is designed to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), so
that contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. The trustee under the 401(k) Plan, at the
direction of each participant, invests the assets of the 401(k) Plan in any of
six investment options.
Deferred Compensation Plan. The Company has established a non-qualified
deferred compensation plan (the "Deferred Compensation Plan") for senior
executives. The Deferred Compensation Plan, which was adopted in January 1995,
allows employees to defer compensation up to certain specified levels. The
Company does not currently provide matching contributions, but may do so in the
future.
Stock Option Plan. In February 1994, the Company's stockholders approved
the 1994 Stock Option and Restricted Stock Plan for Executive and Key Employees
of Petco Animal Supplies, Inc. (the "Company
7
<PAGE> 10
Plan"). For a discussion of the material terms of the Company Plan, see
"Proposal 3: Amendment of the Company Plan."
Directors' Stock Option Plan. In February 1994, the Company's stockholders
approved the Petco Animal Supplies, Inc. Directors' 1994 Stock Option Plan (the
"Directors Plan"). The Directors Plan is administered by the Directors Stock
Option and Compensation Committee and provides for the granting of stock options
with respect to up to 50,236 shares of Common Stock to directors of the Company
who: (i) are not at the time they receive options under the Directors Plan,
employees of the Company or any of its subsidiaries and (ii) have not served as
directors of the Company on or before the date that the Directors Plan became
effective. In June 1995, the Company's stockholders approved an amendment to the
Directors Plan to increase the number of shares available for issuance under the
plan for each of the next five fiscal years by 0.1% of the number of shares of
Common Stock issued and outstanding as of the end of the immediately preceding
fiscal year and to make Mr. Galef eligible to participate under the plan. The
Directors Plan is a "formula" plan which provides that each participating
director will be entitled to receive options to purchase 4,500 shares of Common
Stock on the date on which such director is first elected as a director of the
Company and options to purchase 1,500 shares of Common Stock on each anniversary
of the Company's initial public offering on which such director continues to
serve as a director of the Company. Such options will be exercisable on the date
of grant and the exercise price of such options will be the fair market value of
the Common Stock on the date of grant. Pursuant to the Directors Plan, Mr.
Starrett received options to purchase 4,500 shares of Common Stock at an
exercise price of $10.33 per share in 1994, options to purchase 1,500 shares of
Common Stock at an exercise price of $12.33 per share in 1995 and options to
purchase 1,500 shares of Common Stock at an exercise price of $23.17 per share
in March 1996. Mr. Galef received options to purchase 4,500 shares of Common
Stock at an exercise price of $12.33 in 1995 and options to purchase 1,500
shares of Common Stock at an exercise price of $23.17 per share in March 1996.
Group Benefit Plan. In July 1991, the Company established the Group Benefit
Plan of Petco Animal Supplies, Inc. (the "Group Benefit Plan") which provides
certain medical and vacation benefits for employees of the Company. Pursuant to
the terms of the Group Benefit Plan, the Company contributes funds to a trust
fund administered by the trustee under the Group Benefit Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the Stock Option and Compensation Committee of the
Company's Board of Directors was comprised of Messrs. Boll, Galef and Soghikian
and the Directors Stock Option and Compensation Committee was comprised of
Messrs. Boll and Soghikian. Mr. Boll, individually, and Messrs. Boll and
Soghikian, through their respective positions as managing director of THL (an
affiliate of which acts as a general partner of the ML-Lee Partnerships) and
general partner of Chase Capital Partners (the general partner of Chase), had an
interest in the amendment of the Stockholders Agreement (as hereinafter
defined). See "Certain Transactions."
REPORT ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee (the "Committee") is
responsible for administering the Company's compensation policies and practices
and approves all elements of compensation for executive officers. The Committee
reports regularly to the Board of Directors on its activities.
Compensation Philosophy and Practices
The Company's executive compensation program is based on the belief that
the interests of executives should be closely aligned with those of the
Company's stockholders. To support this philosophy, the following principles
provide a framework for the compensation program:
-- offer compensation opportunities that attract the best talent to the
Company; motivate individuals to perform at their highest levels; reward
outstanding achievement; and retain the leadership and skills necessary
for building long-term stockholder value;
8
<PAGE> 11
-- maintain a significant portion of executives' total compensation at
risk, tied to both the annual and long-term financial performance of the
Company, as well as to the creation of stockholder value; and
-- encourage executives to manage from the perspective of owners with an
equity stake in the Company.
The Company's compensation program for executive officers is designed to
provide a total compensation level (including both annual and long-term
incentives) that is competitive with survey companies. For executive officers
recently recruited by the Company, annual compensation rates and long-term
incentive awards reflect amounts necessary to attract them to the Company. The
compensation program is benchmarked by using surveys of companies in the retail
industry with similar revenues and/or prospects. These companies, which are
representative of the firms the Company competes with for executive talent and
have jobs similar to those at the Company in magnitude, complexity and scope of
responsibility, form the basis for the survey group used by the Committee.
Components of Executive Compensation
The compensation program for executive officers consists of the following
components:
ANNUAL CASH COMPENSATION includes base salary and an annual cash incentive
(bonus). Salaries are established by the Committee based on an executive's job
responsibilities, level of experience, individual performance and contribution
to the business, and information obtained from surveys. The annual incentive
component of pay is at risk and tied to specific performance measures. The
Committee establishes the annual incentive opportunity for each executive
officer in relation to his or her base salary. Actual incentive awards for 1995
were based primarily on performance measured against annual financial targets
approved by the Committee early in the year. These targets were pretax earnings
and cash flow with most of the weighting on earnings, thus establishing a direct
link between executive pay and Company profitability. An executive's bonus may
be above or below his or her target incentive opportunity, depending on the
level of overall performance. In 1995, the Company's financial performance met
the objectives set by the Committee, resulting in target incentive payouts to
the executive officers named in the Summary Compensation Table.
LONG-TERM INCENTIVES include awards of stock options, stock appreciation
rights and restricted stock. The objective for these awards is to align closely
executive interests with the longer term interests of stockholders. These
awards, which are at risk and dependent on the creation of incremental
stockholder value or the attainment of cumulative financial targets over several
years, represent a significant portion of the total compensation opportunity
provided for the executive officers. Award sizes are based on individual
performance, level of responsibility, the individual's potential to make
significant contributions to the Company, and award levels at companies in the
survey group. Long-term incentives granted in prior years are also taken into
consideration.
For fiscal 1995, the Committee determined that the only form of long-term
incentive awards would be stock options. Stock appreciation rights and
restricted stock were not granted in fiscal 1995.
Compensation for the Chairman and Chief Executive Officer
For fiscal 1995, Mr. Devine's base salary, as well as his annual cash
incentive opportunity and stock option awards, were governed by his employment
agreement. Based on achievement of the Company's financial targets (referred to
under the section above entitled "Annual Cash Compensation"), and the
Committee's assessment of Mr. Devine's contributions to the business, the
Committee approved an annual incentive payment to him of $250,000. In addition,
pursuant to Mr. Devine's employment agreement, the Committee approved a stock
option grant for Mr. Devine covering 45,000 shares of Common Stock at an
exercise price of $12.33 per share, which was the fair market value of the
Common Stock on the date of grant. In approving this grant, the Committee
considered several factors, including the size and complexity of the Company,
the leadership challenge facing the Chairman and improved business results for
the Company.
For a discussion of the material terms of Mr. Devine's employment
agreement, see "-- Executive Compensation and Other Information -- Employment
Agreement."
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<PAGE> 12
Deductibility of Compensation in Excess of $1 Million Per Year
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation in excess of $1 million paid to a
company's Chief Executive Officer and any of its four other most highly
compensated executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. For 1995 and
1996, the Company does not anticipate that there will be nondeductible
compensation for the four Company positions in question. The Committee plans to
continue to review this matter for 1996 and future years in order to determine
the extent of possible modification to the Company's compensation arrangements.
Stock Option and Compensation
Committee
C. Hunter Boll
Andrew G. Galef
Shahan D. Soghikian
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<PAGE> 13
PERFORMANCE GRAPH
The following graph shows the value of an investment of $100 in cash on
March 17, 1994 in (i) the Company's Common Stock, (ii) The Nasdaq Stock Market
(U.S. Companies) and (iii) Nasdaq Retail Trade Stocks. All values reflect
cumulative total return and assume reinvestment of the full amount of all
dividends.
COMPARISON OF CUMULATIVE TOTAL RETURNS
PERFORMANCE REPORT FOR
PETCO ANIMAL SUPPLIES, INC.
<TABLE>
<CAPTION>
THE NASDAQ
PETCO ANIMAL STOCK MARKET NASDAQ RE-
MEASUREMENT PERIOD SUPPLIES, (U.S. TAIL TRADE
(FISCAL YEAR COVERED) INC. COMPANIES) STOCKS
<S> <C> <C> <C>
03/17/94 100.00 100.00 100.00
07/01/94 77.165 88.195 88.870
11/03/94 111.811 96.639 98.603
03/03/95 114.961 100.506 90.554
07/03/95 143.307 117.736 100.354
11/03/95 170.079 134.958 109.741
02/02/96 203.150 135.508 100.779
</TABLE>
CERTAIN TRANSACTIONS
On April 19, 1991, upon completion of the Company's restructuring, the
Company and certain of its largest stockholders, including the ML-Lee
Partnerships, Chase, Tom E. Dixson and Spectrum and their affiliates, entered
into a Stockholders Agreement (the "Stockholders Agreement"). The Stockholders
Agreement provided certain tag-along rights permitting the parties thereto to
sell their shares (the "Shares") of Common Stock and preferred stock on the same
terms and conditions as the ML-Lee Partnerships, Chase and Spectrum if they
should desire to sell such Shares. The Stockholders Agreement also granted
certain participation rights, which expired upon closing of the Company's
initial public offering, and provided for certain registration rights. The
Stockholders Agreement also provided for the corporate governance of the Company
and required various consents and procedures regarding certain extraordinary
transactions. The parties to the Stockholders Agreement subsequently agreed to
supersede the Stockholders Agreement with a new agreement which provides that
all rights and obligations under the Stockholders Agreement have no force or
effect other than rights to three demand registrations and certain unlimited
piggyback registration rights.
11
<PAGE> 14
PROPOSAL 2:
AMENDMENT OF THE COMPANY'S CERTIFICATE
GENERAL
The Company's Board of Directors has declared advisable an amendment to the
Company's Certificate to increase the aggregate number of authorized shares of
Common Stock from 20,000,000 to 100,000,000 (the "Amendment") and has directed
that the Amendment be submitted to the Company's stockholders at the meeting.
The Certificate presently authorizes the issuance of 20,000,000 shares of
Common Stock and 2,000,000 shares of preferred stock. The Amendment would
increase the authorized number of shares of Common Stock to 100,000,000. No
change is proposed in the number of authorized shares of preferred stock.
PROPOSED AMENDMENT
If the Amendment is approved, the text of the first sentence of Article 4
of the Certificate would read in its entirety as follows:
The total number of shares of stock which the Corporation shall
have authority to issue shall be (i) one hundred million
(100,000,000) shares of Common Stock with a par value of $.0001
per share, and two million (2,000,000) shares of Preferred Stock
with a par value of $.0001 per share.
GENERAL EFFECT OF PROPOSED AMENDMENT AND REASONS FOR APPROVAL
Of the Company's 20,000,000 authorized shares of Common Stock, were
issued and outstanding as of May 24, 1996, leaving only a limited number of
authorized but unissued shares available for issuance. The Board of Directors is
concerned that there is not presently authorized a sufficient number of shares
of Common Stock to give the Company the flexibility it requires to satisfy the
present and future needs and growth of the Company. The Board considers it
desirable that the Company have a reasonable amount of Common Stock available
for issuance for possible stock offerings, stock dividends, stock splits,
employee benefit plans, corporate mergers and acquisitions and other corporate
purposes, although there are no present agreements, understandings or plans for
the issuance of any of the additional shares that would be authorized by the
Amendment. Having the additional shares available for issuance, without the
expense and delay of obtaining the approval of stockholders at a special
meeting, will afford the Company greater flexibility.
Adoption of the Amendment would enable the Board from time to time to issue
additional shares of Common Stock for such purposes and such consideration as
the Board may approve, without further approval of the Company's stockholders
except as may be required by law or the rules of any national securities
exchange on which the shares of Common Stock are then listed. As is true for
shares presently authorized, Common Stock authorized by the Amendment could be
issued in connection with defending the Company against a hostile takeover bid,
and the issuance of shares authorized by the Amendment may, among other things,
have a dilutive effect on earnings per share and on the equity and voting power
of existing holders of Common Stock.
There are no preemptive rights with respect to the Common Stock. The
additional authorized shares of Common Stock would have the identical powers,
preferences and rights as the shares now authorized. Under Delaware law,
stockholders will not have any dissenters' or appraisal rights in connection
with the Amendment. If the Amendment is approved by the Company's stockholders,
it will become effective upon executing, acknowledging, filing and recording a
Certificate of Amendment as required under Delaware law.
REQUIRED VOTE FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of the outstanding shares of Common
Stock is required to approve the amendment to the Certificate. The Board of
Directors unanimously recommends that stockholders vote FOR approval of the
amendment to the Certificate. Proxies solicited by the Board of Directors will
be so voted unless stockholders specify otherwise on their proxy cards.
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<PAGE> 15
PROPOSAL 3:
AMENDMENT OF THE COMPANY PLAN
DESCRIPTION OF THE COMPANY PLAN
General Nature and Purpose. In February 1994, the Company's stockholders
approved the 1994 Stock Option and Restricted Stock Plan for Executive and Key
Employees of Petco Animal Supplies, Inc. (the "Company Plan"). The Company Plan
was adopted (i) to further the growth, development and financial success of the
Company by providing additional incentives to certain of its officers and other
key employees who have been or will be given responsibility for the management
or administration of the Company's business affairs, by assisting them to become
owners of the Company's Common Stock and thus to benefit directly from the
Company's growth, development and financial success and (ii) to enable the
Company to obtain and retain the services of the type of professional, technical
and managerial employees considered essential to the long-range success of the
Company by providing and offering them an opportunity to become owners of the
Common Stock. The Company Plan authorizes the grant of stock options that
qualify as "incentive stock options" under Section 422 of the Code (such
qualified options being hereinafter referred to as "Incentive Stock Options"),
the grant of stock options that do not so qualify ("Non-Qualified Options"), the
grant of stock appreciation rights ("SARs") and the issuance of restricted stock
("Restricted Stock").
The principal features of the Company Plan are summarized below, but the
summary is qualified in its entirety by reference to the full text of the
Company Plan which is set forth as Exhibit A to this Proxy Statement.
Administration. The Company Plan is administered by the Stock Option and
Compensation Committee (the "Committee") of the Board of Directors. In addition
to administering the Company Plan, the Committee is also authorized to interpret
the terms of the Company Plan, the options, the SARs and the Restricted Stock
and to adopt such rules for the administration, interpretation and application
of the Company Plan as are consistent therewith and to interpret, amend or
revoke any such rules.
Eligibility. The executive officers and key employees of the Company and
its subsidiary corporation are eligible to receive options under the Company
Plan. The Committee, acting in its absolute discretion, will determine which
employees are key employees of the Company. No person is entitled to participate
in the Company Plan as a matter of right. Only those executive officers and key
employees who are selected from time to time to receive options by the
Committee, acting in its absolute discretion, may participate in the Company
Plan. No option shall be granted to any employee who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any subsidiary.
Grant of Options; Purchase Price of Optioned Shares. The Committee will
from time to time, in its absolute discretion, determine the number of shares to
be subject to options granted to selected officers and key employees, determine
whether such options are to be Incentive Stock Options or Non-Qualified Options,
and determine the terms and conditions of such options, consistent with the
Company Plan. In consideration of the granting of an option under the Company
Plan, the stock option agreements relating to such option may provide that the
optionee shall agree to remain in the employment of the Company or its
subsidiary for a period of at least one year after the option is granted.
However, the Company is under no obligation to retain the optionee as an
employee during such one-year period.
The purchase price of shares covered by an option granted under the Company
Plan must not be less than 100% of the fair market value of the Common Stock on
the date such option is granted, except that in the case of an Incentive Stock
Option granted to an individual then owning more than 10% of the total combined
voting power of all classes of stock of the Company or any subsidiary, such
purchase price shall not be less than 110% of the fair market value of the
Common Stock on the date such option is granted.
On May 10, 1996, the last reported sale price of the Common Stock as
reported by The Nasdaq Stock Market's National Market was $28.00 per share.
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<PAGE> 16
Terms and Exercise of Options. Options granted under the Company Plan may
not be exercised more than ten years after the date of grant, although the
Committee may grant options having shorter terms. No option may be exercised in
whole or in part during the first six months after such option is granted,
except as the Committee may otherwise provide with respect to employees who are
not officers of the Company. Subject to these limitations, and other limitations
which may be imposed by the Company Plan or applicable law, the Committee is
authorized to determine the time or times and the conditions under which each
option is exercisable. In addition, the Committee may accelerate the time at
which any option may be exercised.
Upon exercise of an option under the Company Plan, the stock purchased must
be paid for in full, by one or more of the following methods: (i) in cash or by
check; (ii) with the consent of the Committee and subject to certain
limitations, in shares of Common Stock (including shares issuable to the
optionee upon exercise of the option), valued at the fair market value of such
shares; (iii) with the consent of the Committee and subject to certain
limitations, by a full recourse promissory note bearing interest and payable
upon such terms as may be prescribed by the Committee; or (iv) with the consent
of the Committee, by any combination of methods (i), (ii) and (iii).
Grant and Terms of SARs. The Committee may grant SARs having terms and
conditions consistent with the Company Plan to any employee who receives or has
received an option grant under the Company Plan. An SAR entitles the optionee to
surrender unexercised to the Company a portion of the option to which the SAR
relates in exchange for shares of Common Stock or cash (as determined by the
Committee) in an amount determined by multiplying the lesser of (i) the
difference obtained by subtracting the option exercise price per share of the
Common Stock subject to the related option from the fair market value of a share
of the Common Stock on the date of exercise of the SAR or (ii) two times the
option exercise price per share of the Common Stock subject to the related
option, by the number of shares of the Common Stock subject to the related
option with respect to which the SAR has been exercised.
SARs are not exercisable until six months after the date of grant (except
in the case of death or disability of the optionee), and are exercisable only to
the extent the related option is exercisable.
Grant and Terms of Restricted Stock. The Committee is authorized to
determine (i) which executive and key employees of the Company or its subsidiary
should be issued Restricted Stock, (ii) the number of shares of Restricted Stock
to be issued to such executive and key employees and (iii) the terms and
conditions applicable to such Restricted Stock, consistent with the Company
Plan. Restricted Stock issued under the Company Plan is subject to such
restrictions as the Committee may provide in the terms of each individual
restricted stock agreement; provided, however, that the Committee may remove any
or all of such restrictions after issuance of the Restricted Stock, and that all
such restrictions shall expire in any event within ten years of the date of
grant.
Amendment of the Plan. The Company Plan may be wholly or partially amended
or otherwise modified, suspended or terminated at any time and from time to time
by the Committee. However, without approval of the stockholders of the Company,
the Company Plan may not be amended to (i) increase the maximum number of shares
issuable upon exercise of options granted under the Company Plan, (ii)
materially modify the requirements for eligibility under the Company Plan, (iii)
reduce the minimum exercise price of options issuable under the Company Plan,
(iv) extend the maximum period during which options issuable under the Company
Plan may be exercised or (v) amend or modify the Company Plan in any manner
requiring stockholder approval under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as the same may be hereafter
amended.
Grants in 1995 and 1996. Options to purchase 155,505 shares of Common Stock
were granted in 1995, which vest over a three year period. Such options are
exercisable at $12.33-18.33 per share. See "Option Grants in Last Fiscal Year"
table above for a list of the options granted to each of the Company's executive
officers. As a group, the executive officers received options to purchase 81,000
shares of Common Stock in 1995. All employees of the Company, including all
current officers who are not executive officers, as a group received options to
purchase 74,505 shares of Common Stock in 1995.
14
<PAGE> 17
In March 1996, options to purchase 324,930 shares of Common Stock at an
exercise price of $23.17 per share were granted, which will vest in March 1999.
Brian K. Devine, Chairman, President and Chief Executive Officer of the Company,
received options to purchase 75,000 shares of Common Stock. Richard C. St.
Peter, Executive Vice President, Administration and Chief Financial Officer,
received options to purchase 37,500 shares of Common Stock. Larry D. Asselin,
Senior Vice President, Merchandising and Distribution, and William M. Woodard,
Senior Vice President, Store Operations, each received options to purchase
18,750 shares of Common Stock. As a group, the executive officers received
options to purchase 150,000 shares of Common Stock. All employees, including all
current officers who are not executive officers, as a group received options to
purchase 174,930 shares of Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of the Company Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the Company Plan, and is intended for general
information only. Alternative minimum tax and state and local income taxes are
not discussed and may vary depending on individual circumstances and from
locality to locality.
Non-Qualified Stock Options. For federal income tax purposes, the recipient
of Non-Qualified Stock Options granted under the Company Plan will not have
taxable income upon the grant of the option, nor will the Company then be
entitled to any deduction. Generally, upon exercise of Non-Qualified Stock
Options, the optionee will realize ordinary income, and the Company will be
entitled to a deduction, in an amount equal to the difference between the option
exercise price and the fair market value of the stock at the date of exercise.
An optionee's basis for the stock for purposes of determining his gain or loss
on his subsequent disposition of the shares generally will be the fair market
value of the stock on the date of exercise of the Non-Qualified Stock Option.
Incentive Stock Options. There is no taxable income to an employee when an
Incentive Stock Option is granted to him or when that option is exercised;
however, the amount by which the fair market value of the shares at the time of
exercise exceeds the option price will be an "item of tax preference" for the
optionee. Gain realized by an optionee upon sale of stock issued on exercise of
an Incentive Stock Option is taxable at capital gains rates, and no tax
deduction is available to the Company, unless the optionee disposes of the
shares within two years after the date of grant of the option or within one year
of the date the shares were transferred to the optionee. In such event, the
difference between the option exercise price and the fair market value of the
shares on the date of the option's exercise will be taxed at ordinary income
rates, and the Company will be entitled to a deduction to the extent the
employee must recognize ordinary income. An Incentive Stock Option exercised
more than three months after an optionee's retirement from employment, other
than by reason of death or disability, will be taxed as a Non-Qualified Stock
Option, with the optionee deemed to have received income upon such exercise
taxable at ordinary income rates. The Company will be entitled to a tax
deduction equal to the ordinary income, if any, realized by the optionee.
SARs. No taxable income is realized upon the receipt of an SAR, but upon
exercise of the SAR, the fair market value of the shares (or cash in lieu of
shares) received must be treated as compensation taxable as ordinary income to
the recipient in the year of such exercise. The Company will be entitled to a
deduction for compensation paid in the same amount which the recipient realized
as ordinary income.
Restricted Stock. An employee to whom Restricted Stock is issued will not
have taxable income upon issuance and the Company will not then be entitled to a
deduction, unless an election is made under Section 83(b) of the Code. However,
when restrictions on shares of Restricted Stock lapse, such that the shares are
no longer subject to repurchase by the Company, the employee will realize
ordinary income and the Company will be entitled to a deduction in an amount
equal to the fair market value of the shares at the date such restrictions
lapse, less the purchase price therefor. If an election is made under Section
83(b) of the Code, the employee will realize ordinary income at the date of
issuance equal to the difference between the fair market value of the shares at
that date less the purchase price therefor and the Company will be entitled to a
deduction in the same amount.
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<PAGE> 18
PROPOSED AMENDMENT TO THE COMPANY PLAN
In June 1995, the Company's stockholders approved an amendment to the
Company Plan to increase the number of shares available for issuance under the
plan for each of the next five fiscal years by 2.0% of the number of shares of
Common Stock issued and outstanding as of the end of the immediately preceding
fiscal year. The Board of Directors now recommends an amendment to the Company
Plan to provide that, for each of the next five fiscal years, 3.0% of the number
of shares of Common Stock issued and outstanding as of the end of the
immediately preceding fiscal year would become available for issuance under the
Company Plan. The proposed amendment would increase the number of shares
available for issuance under the Company Plan (i) for each of the next four
fiscal years by 1.0% of the number of shares of Common Stock issued and
outstanding as of the end of the immediately preceding fiscal year, and (ii) for
the following fiscal year by 3.0% of the number of shares of Common Stock issued
and outstanding as of the end of the immediately preceding fiscal year.
The Board of Directors believes that increasing the number of shares
available for issuance under the Company Plan is necessary in order for the
Committee to have sufficient flexibility to carry out its responsibilities to
(i) establish compensation programs that attract, motivate and retain executive
and other key employees of the Company, (ii) make available additional shares
for grants to employees of companies which may be acquired and (iii) administer
such programs in a manner that benefits the long-term interests of the Company
and its stockholders.
REQUIRED VOTE FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote at the meeting is required to approve
the amendment to the Company Plan. The Board of Directors unanimously recommends
that stockholders vote FOR approval of the amendment to the Company Plan.
Proxies solicited by the Board of Directors will be so voted unless stockholders
specify otherwise on their proxy cards.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Company's financial statements for the year ended February 3, 1996 have
been examined by KPMG Peat Marwick LLP. Representatives of KPMG Peat Marwick LLP
are expected to be available at the meeting to respond to appropriate questions
and to make a statement if they desire to do so. The Company will select
independent accountants for the current year sometime after the meeting.
SECTION 16(a) REPORTING
Under Section 16(a) of the Exchange Act, directors, executive officers and
beneficial owners of 10% or more of the Common Stock ("Reporting Persons") are
required to report to the Securities and Exchange Commission on a timely basis
the initiation of their status as a Reporting Person and any changes with
respect to their beneficial ownership of the Common Stock. Based solely on its
review of such forms received by it, or written representations from certain
Reporting Persons that no such forms were required, the Company believes that
all filing requirements applicable to its directors, executive officers and
beneficial owners of 10% or more of the Common Stock were complied with during
fiscal 1995.
STOCKHOLDER PROPOSALS
Any proposal of a stockholder of the Company intended to be presented at
the next Annual Meeting of Stockholders of the Company must be received by the
Secretary of the Company not later than January , 1997 to be considered for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting.
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<PAGE> 19
OTHER MATTERS
The Company does not know of any business other than that described herein
which will be presented for consideration or action by the stockholders at the
meeting. If, however, any other business shall properly come before the meeting,
shares represented by proxies will be voted in accordance with the best judgment
of the persons named therein or their substitutes.
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report to Stockholders is being mailed with the Proxy
Statement to stockholders of record on May 24, 1996. Upon request, the Company
will furnish the Annual Report to any stockholder.
BY ORDER OF THE BOARD OF DIRECTORS,
Richard C. St. Peter, Secretary
San Diego, California
May , 1996
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<PAGE> 20
EXHIBIT A
1994 STOCK OPTION AND RESTRICTED STOCK PLAN
FOR EXECUTIVE AND KEY EMPLOYEES
OF
PETCO ANIMAL SUPPLIES, INC.
Petco Animal Supplies, Inc., a corporation organized under the laws of the
State of Delaware, hereby adopts this Stock Option and Restricted Stock Plan for
Executive and Key Employees of Petco Animal Supplies, Inc. The purposes of this
Plan are as follows:
(1) To further the growth, development and financial success of the Company
by providing additional incentives to certain of its executive and other key
Employees who have been or will be given responsibility for the management or
administration of the Company's business affairs, by assisting them to become
owners of the Company's Common Stock and thus to benefit directly from its
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type of
professional, technical and managerial employees considered essential to the
long-range success of the Company by providing and offering them an opportunity
to become owners of the Company's Common Stock under restricted stock and
options, including options that are intended to qualify as "incentive stock
options" under Section 422 of the Code.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
SECTION 1.1 -- Board
"Board" shall mean the Board of Directors of the Company.
SECTION 1.2 -- Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.3 -- Committee
"Committee" shall mean the Stock Option Committee of the Board, appointed
as provided in Section 9.1.
SECTION 1.4 -- Company
"Company" shall mean Petco Animal Supplies, Inc., a Delaware corporation.
In addition, "Company" shall mean any corporation assuming, or issuing new
employee stock options in substitution for, Incentive Stock Options, outstanding
under the Plan, in a transaction to which Section 424(a) of the Code applies.
SECTION 1.5 -- Director
"Director" shall mean a member of the Board.
SECTION 1.6 -- Employee
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a
A-1
<PAGE> 21
Parent Corporation or a Subsidiary, whether such employee is so employed at the
time this Plan is adopted or becomes so employed subsequent to the adoption of
this Plan.
SECTION 1.7 -- Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
SECTION 1.8 -- Incentive Stock Option
"Incentive Stock Option" shall mean an Option which qualifies under Section
422 of the Code and which is designated as an Incentive Stock Option by the
Committee.
SECTION 1.9 -- Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not an Incentive Stock
Option and which is designated as a Non-Qualified Option by the Committee.
SECTION 1.10 -- Officer
"Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f)
under the Exchange Act, as such Rule may be amended in the future.
SECTION 1.11 -- Option
"Option" shall mean an option to purchase Common Stock of the Company,
granted under the Plan. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
SECTION 1.12 -- Optionee
"Optionee" shall mean an Employee to whom an Option is granted under the
Plan.
SECTION 1.13 -- Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
SECTION 1.14 -- Plan
"Plan" shall mean this 1994 Stock Option and Restricted Stock Plan for
Executive and Key Employees of Petco Animal Supplies, Inc.
SECTION 1.15 -- Restricted Stock
"Restricted Stock" shall mean shares of the Company's Common Stock issued
pursuant to Article VII of the Plan.
SECTION 1.16 -- Restricted Stockholder
"Restricted Stockholder" shall mean an Employee to whom Restricted Stock
has been issued under the Plan.
SECTION 1.17 -- Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended in the future.
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SECTION 1.18 -- Secretary
"Secretary" shall mean the Secretary of the Company.
SECTION 1.19 -- Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.20 -- Stock Appreciation Rights
"Stock Appreciation Rights" shall mean a stock appreciation right granted
under the Plan.
SECTION 1.21 -- Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
SECTION 1.22 -- Termination of Employment
"Termination of Employment" shall mean, as to an Optionee, the holder of a
Stock Appreciation Right or a Restricted Stockholder, the time when the
employee-employer relationship between the Employee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
The Committee, in its absolute discretion, shall determine the effect of all
other matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for the purposes of Section
422(a)(2) of the Code and the then applicable regulations and revenue rulings
under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 -- Shares Subject to Plan
For each of the five fiscal years from and including the fiscal year ended
February 1, 1997, a number of shares of the Company's Common Stock, par value
$.0001 per share, equal to the amount of 3.0% of the total number of issued and
outstanding shares of Common Stock as of the last day of the immediately
preceding fiscal year (the "3.0% Limit") shall become available for issuance
under the Plan. In addition, (i) any shares of the Company's Common Stock
remaining from the 847,500 shares initially reserved in January 1994 for
issuance under the Plan but which have not been issued; (ii) any shares of
Common Stock relating to awards granted at any time under the Plan which have
expired or have been cancelled, including but not limited to shares of Common
Stock covered by Options which have expired or which have been cancelled without
having been exercised and shares of Restricted Stock forfeited to the Company;
(iii) any shares of Common Stock which are exchanged by an Optionee as full or
partial payment to the Company in connection with the exercise of an Option
awarded under the Plan; and (iv) any unused portion of the 3.0% Limit for any
fiscal year, shall be added to the aggregate number of shares of Common Stock
available for issuance in each fiscal year under the Plan. To the extent that a
Stock Appreciation Right shall have been exercised for cash, the number of
shares subject to the related Option, or portion thereof, may again be optioned
hereunder. The number of shares of Common Stock which may be issued upon
exercise of Options and Stock Appreciation Rights or as Restricted Stock granted
to any single Employee shall not exceed 750,000. In no event, except as
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subject to adjustment as provided in Section 2.2, shall more than three million
shares of Common Stock be cumulatively available for issuance pursuant to the
exercise of Options awarded under the Plan which qualify as "incentive stock
options" under the Code.
SECTION 2.2 -- Changes in Company's Shares
In the event that the outstanding shares of Common Stock of the Company are
hereafter changed into or exchanged for a different number or kind of shares or
other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, appropriate adjustments shall
be made by the Committee in the number and kind of shares for the purchase of
which Options may be granted and in the number and kind of shares of Restricted
Stock that may be issued, including adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued on exercise of
Options or as Restricted Stock.
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 -- Eligibility
Any executive or other key Employee of the Company or of any corporation
which is then a Parent Corporation or a Subsidiary shall be eligible to be
granted Options, except as provided in Section 3.2. However, no option shall be
granted to any Employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, any Parent
Corporation or any Subsidiary.
SECTION 3.2 -- Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the Code.
SECTION 3.3 -- Granting of Options
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are executive or other key Employees and
select from among the executive or other key Employees (including those to
whom Options and/or Stock Appreciation Rights have been previously granted
and/or Restricted Stock has previously been issued under the Plan) such of
them as in its opinion should be granted Options; and
(ii) Determine the number of shares to be subject to such Options
granted to such selected executive or other key Employees, and determine
whether such Options are to be Incentive Stock Options or Non-Qualified
Options; and
(iii) Determine the terms and conditions of such Options, consistent
with the Plan.
(b) Upon the selection of an executive or other key Employee to be granted
an Option, the Committee shall instruct the Secretary to issue such Option and
may impose such conditions on the grant of such Option as it deems appropriate.
Without limiting the generality of the preceding sentence, the Committee may, in
its discretion and on such terms as it deems appropriate, require as a condition
on the grant of an Option to an Employee that the Employee surrender for
cancellation some or all of the unexercised Options which have been previously
granted to him. An Option the grant of which is conditioned upon such surrender
may have an option price lower (or higher) than the option price of the
surrendered Option, may cover the same (or a lesser or greater) number of shares
as the surrendered Option, may contain such other terms as the Committee deems
appropriate and shall be exercisable in accordance with its terms, without
regard to the number of shares, price, option period or any other term or
condition of the surrendered Option. Without limiting the generality of the
preceding sentence, the Committee may, in its discretion and on such terms as it
deems appropriate, require as a condition on the issuance of Restricted Stock to
an Employee that the
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Employee surrender for cancellation some or all of the Restricted Stock that has
been previously granted to him.
ARTICLE IV
TERMS OF OPTIONS
SECTION 4.1 -- Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with the Plan. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to qualify
such Options as "incentive stock options" under Section 422 of the Code.
SECTION 4.2 -- Option Price
(a) The price of the shares subject to each Option shall be set by the
Committee; provided, however, that the price per share shall be not less than
100% of the fair market value of such shares on the date such Option is granted;
provided, further, that, in the case of an Incentive Stock Option, the price per
share shall not be less than 110% of the fair market value of such shares on the
date such Option is granted in the case of an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company, any Subsidiary or any
Parent Corporation.
(b) For purposes of the Plan, the fair market value of a share of the
Company's Common Stock as of a given date shall be: (i) the closing price of a
share of the Company's Common Stock on the principal exchange on which shares of
the Company's Common Stock are then trading, if any, on the trading day previous
to such date, or, if shares were not traded on the trading day previous to such
date, then on the next preceding trading day during which a sale occurred; or
(ii) if such Common Stock is not traded on an exchange but is quoted on NASDAQ
or a successor quotation system, (1) the last sales price (if the Company's
Common Stock is then listed as a National Market Issue under the NASD National
Market System) or (2) the mean between the closing representative bid and asked
prices (in all other cases) for the Company's Common Stock on the trading day
previous to such date as reported by NASDAQ or such successor quotation system;
or (iii) if such Common Stock is not publicly traded on an exchange and not
quoted on NASDAQ or a successor quotation system, the mean between the closing
bid and asked prices for the Company's Common Stock, on the day previous to such
date, as determined in good faith by the Committee; or (iv) if the Company's
Common Stock is not publicly traded, the fair market value established by the
Committee acting in good faith; provided, however, that the fair market value of
the shares of the Company's Common Stock granted concurrent with the closing of
the Company's initial public offering shall be deemed to be the initial public
offering price of the shares of Common Stock sold in such initial public
offering.
SECTION 4.3 -- Commencement of Exercisability
(a) Except as the Committee may otherwise provide, no Option may be
exercised in whole or in part during the first six months after such Option is
granted.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c), and 10.3, Options
shall become exercisable at such times and in such installments (which may be
cumulative) as the Committee shall provide in the terms of each individual
Option; provided, however, that by a resolution adopted after an Option is
granted the Committee may, on such terms and conditions as it may determine to
be appropriate and subject to Sections 4.3(a), 4.3(c), and 10.3, accelerate the
time at which such Option or any portion thereof may be exercised.
(c) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
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(d) To the extent that the aggregate fair market value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company, any Subsidiary and any Parent
Corporation) exceeds $100,000, such options shall be taxed as Non-Qualified
Options. The rule set forth in the preceding sentence shall be applied by taking
options into account in the order in which they were granted. For purposes of
this Section 4.3(d), the fair market value of stock shall be determined as of
the time that the option with respect to such stock is granted.
SECTION 4.4 -- Expiration of Options
(a) No Option may be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten years from the date the Option was granted;
or
(ii) With respect to an Incentive Stock Option in the case of an
Optionee owning (within the meaning of Section 424(d) of the Code), at the
time the Incentive Stock Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation, the expiration of five years from the
date the Incentive Stock Option was granted; or
(iii) Except in the case of any Optionee who is disabled (within the
meaning of Section 22(e)(3) of the Code), the expiration of three months
from the date of the Optionee's Termination of Employment for any reason
other than such Optionee's death unless the Optionee dies within said
three-month period; or
(iv) In the case of an Optionee who is disabled (within the meaning of
Section 22(e)(3) of the Code), the expiration of one year from the date of
the Optionee's Termination of Employment for any reason other than such
Optionee's death unless the Optionee dies within said one-year period; or
(v) The expiration of one year from the date of the Optionee's death.
(b) Subject to the provisions of Section 4.4(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires and
becomes unexercisable; and (without limiting the generality of the foregoing)
the Committee may provide in the terms of individual Options that said Options
expire immediately upon a Termination of Employment for any reason.
SECTION 4.5 -- Consideration
In consideration of the granting of an Option, the Optionee shall agree, in
the written Stock Option Agreement, to remain in the employ of the Company, a
Parent Corporation or a Subsidiary for a period of at least one year after the
Option is granted. Nothing in this Plan or in any Stock Option Agreement
hereunder shall confer upon any Optionee any right to continue in the employ of
the Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without cause.
SECTION 4.6 -- Adjustments in Outstanding Options
In the event that the outstanding shares of the stock subject to Options
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding Options,
or portions thereof then unexercised, shall be exercisable, to the end that
after such event the Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an outstanding Option
shall be made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices) and with any
necessary corresponding adjustment in Option price
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per share; provided, however, that, in the case of Incentive Stock Options, each
such adjustment shall be made in such manner as not to constitute a
"modification" within the meaning of Section 424(h)(3) of the Code. Any such
adjustment made by the Committee shall be final and binding upon all Optionees,
the Company and all other interested persons.
SECTION 4.7 -- Merger, Consolidation, Acquisition, Liquidation or Dissolution
Notwithstanding the provisions of Section 4.6, in its absolute discretion,
and on such terms and conditions as it deems appropriate, the Committee may
provide by the terms of any Option that such Option cannot be exercised after
the merger or consolidation of the Company with or into another corporation, the
acquisition by another corporation or person of all or substantially all of the
Company's assets or 80% or more of the Company's then outstanding voting stock
or the liquidation or dissolution of the Company; and if the Committee so
provides, it may, in its absolute discretion and on such terms and conditions as
it deems appropriate, also provide, either by the terms of such Option or by a
resolution adopted prior to the occurrence of such merger, consolidation,
acquisition, liquidation or dissolution, that, for some period of time prior to
such event, such Option shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in Section 4.3(a), Section 4.3(b)
and/or any installment provisions of such Option.
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1 -- Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise an Option (or any
portion thereof) granted to him. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Stock Option Agreement,
be exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's will or under the then applicable laws of descent
and distribution.
SECTION 5.2 -- Partial Exercise
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable under the Plan or
the applicable Stock Option Agreement, such Option or portion thereof may be
exercised in whole or in part; provided, however, that the Company shall not be
required to issue fractional shares and the Committee may, by the terms of the
Option, require any partial exercise to be with respect to a specified minimum
number of shares.
SECTION 5.3 -- Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when such Option or such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement:
(a) Notice in writing signed by the Optionee or other person then entitled
to exercise such Option or portion, stating that such Option or portion is
exercised, such notice complying with all applicable rules established by the
Committee; and
(b) (i) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is thereby exercised; or
(ii) With the consent of the Committee, (A) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer to the
Company or (B) except with respect to Incentive Stock Options and subject
to the timing requirements of Section 5.4, shares of the Company's Common
Stock issuable to the Optionee upon exercise of the Option, with a fair
market value (as determined under Section 4.2(b)) on the date of Option
exercise equal to the aggregate Option price of the shares with respect to
which such Option or portion is thereby exercised; or
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(iii) With the consent of the Committee, a full recourse promissory
note bearing interest (at no less than such rate as shall then preclude the
imputation of interest under the Code or any successor provision) and
payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to be
given for such note. No Option may, however, be exercised by delivery of a
promissory note or by a loan from the Company when or where such loan or
other extension of credit is prohibited by law; or
(iv) With the consent of the Committee, any combination of the
consideration provided in the foregoing subsections (i), (ii) and (iii);
and
(c) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law in
connection with the exercise of the Option; with the consent of the Committee,
(i) shares of the Company's Common Stock owned by the Optionee duly endorsed for
transfer or (ii) except with respect to Incentive Stock Options and subject to
the timing requirements of Section 5.4, shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option, valued in accordance with
Section 4.2(b) at the date of Option exercise, may be used to make all or part
of such payment;
(d) Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option
or portion thereof.
SECTION 5.4 -- Certain Timing Requirements
Shares of the Company's Common Stock issuable to the Optionee upon exercise
of a Non-Qualified Option may be used to satisfy the Non-Qualified Option price
or the tax withholding consequences of such exercise only (i) during the period
beginning on the third business day following the date of release of the
quarterly or annual summary statement of sales and earnings of the Company and
ending on the twelfth business day following such date or (ii) pursuant to an
irrevocable written election by the Optionee to use shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Non-Qualified Option
to pay all or part of the Non-Qualified Option price or the withholding taxes
(subject to the approval of the Committee) made at least six months prior to the
payment of such Non-Qualified Option price or withholding taxes.
SECTION 5.5 -- Conditions to Issuance of Stock Certificates
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
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(d) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law in
connection with the exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may establish from time to time for reasons of
administrative convenience.
SECTION 5.6 -- Rights as Shareholders
The holders of Options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
SECTION 5.7 -- Transfer Restrictions
Unless otherwise approved in writing by the Committee, no shares acquired
upon exercise of any Option by any Officer may be sold, assigned, pledged,
encumbered or otherwise transferred until at least six months have elapsed from
(but excluding) the date that such Option was granted. The Committee, in its
absolute discretion, may impose such other restrictions on the transferability
of the shares purchasable upon the exercise of an Option as it deems
appropriate. Any such other restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificates evidencing
such shares. The Committee may require the Employee to give the Company prompt
notice of any disposition of shares of stock, acquired by exercise of an
Incentive Stock Option, within two years from the date of granting such Option
or one year after the transfer of such shares to such Employee. The Committee
may direct that the certificates evidencing shares acquired by exercise of an
Incentive Stock Option refer to such requirement to give prompt notice of
disposition.
ARTICLE VI
STOCK APPRECIATION RIGHTS
SECTION 6.1 -- Grant of Stock Appreciation Rights
A Stock Appreciation Right may be granted to any Employee who receives a
grant of an Option under the Plan. A Stock Appreciation Right may be granted in
connection and simultaneously with the grant of an Option or with respect to a
previously granted Option. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall
impose, including the following:
(a) A Stock Appreciation Right shall be related to a particular Option and
shall be exercisable only to the extent the related Option is exercisable.
(b) A Stock Appreciation Right shall be granted to the Optionee to the
maximum extent of 100% of the number of shares subject to the simultaneously or
previously granted Option.
(c) A Stock Appreciation Right shall entitle the Optionee (or other person
entitled to exercise the Option pursuant to Section 5.1) to surrender
unexercised a portion of the Option to which the Stock Appreciation Right
relates to the Company and to receive from the Company in exchange therefor an
amount, payable in shares of the Company's Common Stock (valued pursuant to
Section 4.2(b)), or, in the discretion of the Committee, in cash, determined by
multiplying the lesser of (i) the difference obtained by subtracting the Option
exercise price per share of the Company's Common Stock subject to the related
Option from the fair market value (as determined under Section 4.2(b)) of a
share of the Company's Common Stock on the date of exercise of the Stock
Appreciation Right or (ii) two times the Option exercise price per share of the
Company's Common Stock subject to the related Option, by the number of shares of
the Company's Common Stock subject to the related Option with respect to which
the Stock Appreciation Right shall have been exercised.
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SECTION 6.2 -- Exercise of Stock Appreciation Rights
(a) Except in the case of death or disability (within the meaning of
Section 22(e)(3) of the Code) of the Optionee, no Stock Appreciation Right shall
be exercisable during the first six months after a Stock Appreciation Right is
granted with respect to an outstanding Option.
(b) A Stock Appreciation Right may be exercised for cash only (i) during
the period beginning on the third business day following the date of release of
the quarterly or annual summary statement of sales and earnings of the Company
and ending on the twelfth business day following such date or (ii) pursuant to
an irrevocable written election by the Employee to receive cash, in whole or in
part, upon exercise of his Stock Appreciation Right (subject to the approval of
the Committee) made at least six months prior to the exercise of the Stock
Appreciation Right.
ARTICLE VII
ISSUANCE OF RESTRICTED STOCK
SECTION 7.1 -- Eligibility
Any executive or other key Employee of the Company or of any corporation
which is then a Parent Corporation or a Subsidiary, shall be eligible to be
issued Restricted Stock.
SECTION 7.2 -- Issuance of Restricted Stock
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are executive or key Employees and
select from among the executive or key Employees (including those to whom
Options and/or Stock Appreciation Rights have been previously granted
and/or Restricted Stock has been previously issued) such of them as in its
opinion should be issued Restricted Stock; and
(ii) Determine the number of shares of Restricted Stock to be issued
to such selected executive or key Employees; and
(iii) Determine the terms and conditions applicable to such Restricted
Stock, consistent with the Plan.
(b) Shares issued as Restricted Stock may be either previously authorized
but unissued shares or issued shares that have been reacquired by the Company.
Legal consideration, but no other cash payment, shall be required for each
issuance of Restricted Stock.
(c) Upon the selection of an executive or key Employee to be issued
Restricted Stock, the Committee shall instruct the Secretary to issue such
Restricted Stock and may impose such conditions on the issuance of such
Restricted Stock as it deems appropriate.
ARTICLE VIII
TERMS OF RESTRICTED STOCK
SECTION 8.1 -- Restricted Stock Agreement
Restricted Stock shall be issued only pursuant to a written Restricted
Stock Agreement, which shall be executed by the Restricted Stockholder and an
authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with the Plan.
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SECTION 8.2 -- Consideration
As partial consideration for the issuance of the Restricted Stock, the
Restricted Stockholder shall agree, in the written Restricted Stock Agreement,
to remain in the employ of the Company, a Parent Corporation or a Subsidiary for
a period at least one year after the Restricted Stock is issued. Nothing in this
Plan or in any Restricted Stock Agreement hereunder shall confer upon any
Restricted Stockholder any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to terminate or discharge any Restricted
Stockholder at any time for any reason whatsoever, with or without cause.
SECTION 8.3 -- Rights as Shareholders
Upon delivery of the shares of Restricted Stock to the escrow holder
pursuant to Section 8.7, the Restricted Stockholder shall have all the rights of
a stockholder with respect to said shares, subject to the restrictions in his
Restricted Stock Agreement, including the right to vote the shares and to
receive all dividends or other distributions paid or made with respect to the
shares.
SECTION 8.4 -- Restrictions
All shares of Restricted Stock issued under this Plan (including any shares
received by Restricted Stockholders as a result of stock dividends, stock splits
or any other forms of recapitalization) shall be subject to such restrictions as
the Committee shall provide in the terms of each individual Restricted Stock
Agreement; provided, however, that by a resolution adopted after the Restricted
Stock is issued, the Committee may, on such terms and conditions as it may
determine to be appropriate and subject to Section 10.3, remove any or all of
the restrictions imposed by the terms of the Restricted Stock Agreement. All
restrictions imposed pursuant to this Section 8.4 shall expire within ten years
of the date of issuance. Restricted Stock may not be sold or encumbered until
all restrictions are terminated or expire.
SECTION 8.5 -- Forfeiture of Restricted Stock
The Committee shall provide in the terms of each individual Restricted
Stock Agreement that the Restricted Stock then subject to restrictions under the
Restricted Stock Agreement be forfeited by the Restricted Stockholder back to
the Company immediately upon a Termination of Employment for any reason;
provided, however, that provision may be made that no such forfeiture shall
occur in the event of a Termination of Employment because of the Employee's
normal retirement, death, total disability or early retirement with the consent
of the Board.
SECTION 8.6 -- Merger, Consolidation, Acquisition, Liquidation or Dissolution
Upon the merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock or the liquidation of the Company, the Committee may
determine, at its sole discretion, that the restrictions imposed under the
Restricted Stock Agreement upon some or all shares of Restricted Stock shall
immediately expire and/or that some or all of such shares shall cease to be
subject to forfeiture under Section 8.5.
SECTION 8.7 -- Escrow
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing Restricted Stock
until all of the restrictions imposed under the Restricted Stock Agreement
expire or shall have been removed; provided, however, that in no event shall any
Restricted Stockholder retain physical custody of any certificates representing
Restricted Stock issued to him.
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SECTION 8.8 -- Legend
In order to enforce the restrictions imposed upon shares of Restricted
Stock hereunder, the Committee shall cause a legend or legends to be placed on
certificates representing all shares of Restricted Stock that are still subject
to restrictions under Restricted Stock Agreements, which legend or legends shall
make appropriate reference to the conditions imposed thereby.
ARTICLE IX
ADMINISTRATION
SECTION 9.1 -- Stock Option Committee
The Stock Option Committee shall consist of two or more Non-Employee
Directors, appointed by and holding office at the pleasure of the Board, each of
whom is both (a) a "disinterested person" as defined by Rule 16b-3 and (b) an
"outside director" within the meaning of Section 162(m)(4)(C)(ii) of the Code.
Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee shall be filled by the Board.
SECTION 9.2 -- Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general administration
of the Plan in accordance with its provisions. The Committee shall have the
power to interpret the terms of the Plan, the Options, the Stock Appreciation
Rights and the Restricted Stock and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret, amend or revoke any such rules. Any such interpretations and rules in
regard to Incentive Stock Options shall be consistent with the basic purpose of
the Plan to grant "incentive stock options" within the meaning of Section 422 of
the Code. The Board shall have no right to exercise any of the rights or duties
of the Committee under the Plan.
SECTION 9.3 -- Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
SECTION 9.4 -- Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
incurred by members of the Committee in connection with the administration of
the Plan shall be borne by the Company. The Committee may employ attorneys,
consultants, accountants, appraisers, brokers or other persons. The Committee,
the Company and its Officers and Directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Optionees, all Restricted Stockholders, the Company
and all other interested persons. No member of the Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan, the Options, the Stock Appreciation Rights or the
Restricted Stock and all members of the Committee shall be fully protected by
the Company in respect to any such action, determination or interpretation.
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<PAGE> 32
ARTICLE X
OTHER PROVISIONS
SECTION 10.1 -- Options, Stock Appreciation Rights and Restricted Stock Not
Transferable
No Option, Stock Appreciation Right, Restricted Stock or interest or right
therein or part thereof shall be liable for the debts, contracts or engagements
of the Optionee, the holder of the Stock Appreciation Right, the Restricted
Stockholder or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that nothing in this
Section 10.1 shall prevent transfers by will or by the applicable laws of
descent and distribution.
SECTION 10.2 -- Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Committee.
However, without approval of the Company's shareholders given within 12 months
before or after the action by the Committee, no action of the Committee may
increase any limit imposed in Section 2.1 on the maximum number of shares which
may be issued on exercise of Options or Stock Appreciation Rights or as
Restricted Stock, materially modify the eligibility requirements of Section 3.1,
reduce the minimum Option price requirements of Section 4.2(a) or extend the
limit imposed in this Section 8.2 on the period during which Options or Stock
Appreciation Rights may be granted or Restricted Shares may be issued, or amend
or modify the Plan in a manner requiring shareholder approval under Rule 16b-3.
Neither the amendment, suspension nor termination of the Plan shall, without the
consent of the holder of the Option or Stock Appreciation Rights or the
Restricted Stockholder, impair any rights or obligations under any Option or
Stock Appreciation Rights theretofore granted or under any Restricted Stock
theretofore issued, as the case may be. No Option or Stock Appreciation Rights
may be granted and no Restricted Stock may be issued, during any period of
suspension nor after termination of the Plan, and in no event may any Option or
Stock Appreciation Rights be granted or may any Restricted Stock be issued,
under this Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's shareholders under Section 10.3.
SECTION 10.3 -- Approval of Plan by Shareholders
This Plan will be submitted for the approval of the Company's shareholders
within 12 months after the date of the Board's initial adoption of the Plan.
Options and Stock Appreciation Rights may be granted and Restricted Stock may be
issued prior to such shareholder approval; provided, however, that such Options
and Stock Appreciation Rights shall not be exercisable prior to the time when
the Plan is approved by the shareholders; provided, further, that if such
approval has not been obtained at the end of said 12-month period, all Options
and Stock Appreciation Rights previously granted and all Restricted Stock
previously issued under the Plan shall thereupon be cancelled and become null
and void. The Company shall take such actions with respect to the Plan as may be
necessary to satisfy the requirements of Rule 16b-3(b).
SECTION 10.4 -- Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume options or stock
appreciation rights or to issue restricted stock otherwise than under this Plan
in
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<PAGE> 33
connection with any proper corporate purpose, including, but not by way of
limitation, the grant or assumption of options or stock appreciation rights or
the issuance of restricted stock in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of the business, stock or assets of
any corporation, firm or association.
SECTION 10.5 -- Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
SECTION 10.6 -- Conformity to Securities Laws
The Plan is intended to conform to the extent necessary with all provisions
of the Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
the Plan shall be administered, and Options and Stock Appreciation Rights shall
be granted and may be exercised and Restricted Stock may be issued, only in such
a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan, Options and Stock Appreciation Rights
granted and Restricted Stock issued hereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
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<PAGE> 34
PROXY
PETCO ANIMAL SUPPLIES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 1996
The undersigned stockholder(s) of PETCO ANIMAL SUPPLIES, INC. (the
"Company") hereby constitutes and appoints Brian K. Devine and Richard C. St.
Peter, and each of them, attorneys and proxies of the undersigned, each with
power of substitution, to attend, vote and act for the undersigned at the
Annual Meeting of Stockholders of the Company to be held on June 26, 1996, and
at any adjournment or postponement thereof, according to the number of shares
of common stock of the Company which the undersigned may be entitled to vote,
and with all powers which the undersigned would possess if personally present,
as follows:
(Continued on reverse side)
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FOLD AND DETACH HERE
<PAGE> 35
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3.
Please mark
your vote as -----
indicated in X
this example. -----
WITHHOLD
FOR AUTHORITY
the nominee to vote for the
listed below nominee listed below
1. ELECTION OF DIRECTORS:
Nominee: Andrew G. Galef ------ ------
THIS PROXY WILL BE VOTED FOR THE ELECTION
AS A DIRECTOR OF THE NOMINEE LISTED
ABOVE, UNLESS THE CONTRARY IS INDICATED
IN THE APPROPRIATE PLACE.
FOR AGAINST ABSTAIN
2. AMENDMENT OF THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
(THE "CERTIFICATE") TO INCREASE THE
COMPANY'S AUTHORIZED COMMON STOCK FROM ------ ------- -------
20,000,000 SHARES TO 100,000,000 SHARES.
THIS PROXY WILL BE VOTED FOR THE AMENDMENT OF THE CERTIFICATE AS DESCRIBED
IN THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, UNLESS THE CONTRARY
IS INDICATED IN THE APPROPRIATE PLACE.
FOR AGAINST ABSTAIN
3. AMENDMENT OF THE 1994 STOCK OPTION AND
RESTRICTED STOCK PLAN FOR EXECUTIVE AND
KEY EMPLOYEES OF THE COMPANY (THE "COM-
PANY PLAN") TO INCREASE THE NUMBER OF ------ ------- -------
SHARES AVAILABLE FOR ISSUANCE UNDER THE
COMPANY PLAN.
THIS PROXY WILL BE VOTED FOR THE AMENDMENT OF THE COMPANY PLAN AS
DESCRIBED IN THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT, UNLESS
THE CONTRARY IS INDICATED IN THE APPROPRIATE PLACE.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
The undersigned revokes any prior proxy at such meeting and
ratifies all that said attorneys and proxies, or any of them,
may lawfully do by virtue hereof. Receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement is hereby
acknowledged.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PETCO ANIMAL SUPPLIES, INC.
PLEASE COMPLETE, SIGN, DATE AND MAIL PROMPTLY IN THE
POSTAGE-PAID ENVELOPE ENCLOSED
(Signature(s) of stockholders) Dated: , 1996
-------------------------- -----------
Please sign exactly as name appears herein. When shares are held by joint
tenants, both should sign; when signing as an attorney, executor,
administrator, trustee or guardian, give full title as such. If a corporation,
sign in full corporate name by President or other authorized officer. If a
partnership, sign in partnership name by authorized partner.
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
