<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>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-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/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
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 25, 1997, at 10:00 a.m.,
for the following purposes:
1. To elect two directors for a three-year term to expire at the 2000
Annual Meeting of Stockholders. The present Board of Directors of the
Company has nominated and recommends for election as directors the
following persons:
RICHARD J. LYNCH, JR.
JIM F. MCCANN
2. 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 9, 1997 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,
[SIG]
Richard C. St. Peter, Secretary
San Diego, California
May 27, 1997
<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 25, 1997, at the Company's corporate offices, 9125 Rehco Road, San
Diego, California. This Proxy Statement was first mailed to stockholders on or
about May 27, 1997.
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 9, 1997 will be
entitled to vote at the meeting. As of that date, 18,630,190 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 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, two
nominees for director are to be elected as Class III directors. The nominees are
Richard J. Lynch, Jr. and Jim F. McCann. The two Class I and one Class II
directors have one year and two years, respectively, remaining on their terms of
office. If no contrary indication is made, proxies in the accompanying form are
to be voted for Messrs. Lynch and McCann or, in the event Messrs. Lynch and
McCann are not candidates or are unable to serve as directors 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. Messrs. Lynch and
McCann are members of the present Board of Directors.
INFORMATION REGARDING DIRECTORS
Set forth below is certain information concerning the nominees to the Board
of Directors, as well as those directors whose terms of office are continuing
after the meeting.
1
<PAGE> 4
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM EXPIRING AT THE
2000 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
- --------------------------------- ---- ---------------------------------------------
<S> <C> <C>
Richard J. Lynch, Jr............. 45 Director
Jim F. McCann.................... 46 Director
</TABLE>
RICHARD J. LYNCH, JR. has served as a Director since May 1, 1997. Mr. Lynch
is President and Chief Operating Officer and a director of The Sports Authority,
a publicly held sporting goods retailer, where he has been employed since 1988.
Before joining The Sports Authority, Mr. Lynch was Executive Vice President &
CFO of Sportsclub, Inc. Prior to that, he served as Senior Vice President & CFO
of W.R. Grace's chain of 88 home improvement centers. Other retail experience
includes assignments with Gimbels' New York Division, Bloomingdale's and Abraham
& Strauss. Mr. Lynch served as a Director of Thrifty Payless, a publicly held
drugstore chain, from May 1995 to December 1996. Mr. Lynch holds an MBA degree
from Harvard Business School and a bachelor's degree from Duke University.
JIM F. MCCANN has served as a Director since May 1, 1997. Mr. McCann is
President of 1-800-FLOWERS where he has been employed since 1987. Mr. McCann
also serves as a Director of Gateway 2000, a publicly held maker and distributor
of personal computers, Office Max, a publicly held retailer of office supplies,
the National Retail Federation, Hofstra University and Winthrop University
Hospital. In addition, Mr. McCann has previously been named Entrepreneur of the
Year by Merrill Lynch and Retailer of the Year by Chain Store Executive
Magazine. Mr. McCann is a graduate of John Jay College at City University of New
York.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING AT THE
1998 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
- --------------------------------- ---- ---------------------------------------------
<S> <C> <C>
Chairman, President and Chief Executive
Brian K. Devine.................. 55 Officer
Peter M. Starrett................ 49 Director
</TABLE>
BRIAN K. DEVINE, Chairman, President and Chief Executive Officer, joined
the Company in 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 held various positions with Toys 'R' Us, a retailer of children's
toys, including Senior Vice President, Director of Stores and Senior Vice
President, Growth, Development and Operations. Mr. Devine is a graduate of
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 and Chief Executive Officer of the
Specialty Store Division of Federated Department Stores from 1986 to 1988. Mr.
Starrett has served in various executive positions including 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.
2
<PAGE> 5
TERM EXPIRING AT THE
1999 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
----------------------------------------- ---- ---------------------------------
<S> <C> <C>
Andrew G. Galef.......................... 64 Director
</TABLE>
ANDREW G. GALEF has served as a Director since 1988 and was Chairman from
1988 to January 1994. Mr. Galef has been President of The Spectrum Group, Inc.
("Spectrum"), a private investment and management firm, since its incorporation
in 1978. Mr. Galef has served as Chairman of MagneTek, Inc., a publicly held
electrical equipment company, since July 1984 and was Chief Executive Officer
from 1984 to 1989 and from 1993 to 1996. Mr. Galef also serves as a Director of
Warnaco, Inc., a publicly held apparel company, and was Chairman of that company
from April 1986 to August 1991. Mr. Galef served as Chairman of Exide
Corporation from July 1982 to June 1989 and was Chairman of Aviall, Inc. and its
predecessor company from 1979 to 1985. He also served as a Director and Chairman
of several Coca Cola Bottling companies from 1980 to 1984 and was Chairman of
Grantree Corporation from 1987 to 1992. Mr. Galef is a graduate of Harvard
Business School and Amherst College.
CERTAIN COMMITTEES OF THE BOARD; MEETINGS
The Board of Directors held four meetings during the fiscal year ended
February 1, 1997. 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. Galef
and Starrett. The Audit Committee held one meeting in fiscal 1996. 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. Galef and Starrett. The Stock Option and Compensation
Committee held three meetings in fiscal 1996. 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 and the Directors Plan (as hereinafter defined).
The Company has a Nominating Committee currently consisting of Messrs.
Devine, Galef and Starrett. The Nominating Committee held four meetings in
fiscal 1996. 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.
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 nominees
listed above. Proxies solicited by the Company will be so voted unless
stockholders specify otherwise on their proxy cards.
3
<PAGE> 6
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 9, 1997 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).................. 3,297,931 17.7%
Putnam Investments, Inc.(3)................... 1,541,138 8.3
AIM Management Group, Inc.(4)................. 1,497,600 8.0
Brian K. Devine............................... 287,770 1.5
Andrew G. Galef(5)............................ 134,143 0.7
William M. Woodard............................ 56,923 0.3
Larry D. Asselin.............................. 46,816 0.3
Richard C. St. Peter.......................... 38,027 0.2
Bruce C. Hall................................. 16,250 0.1
Peter M. Starrett............................. 10,500 0.1
Richard J. Lynch, Jr. ........................ 4,500 0.0
Jim F. McCann................................. 4,500 0.0
James M. Myers................................ 4,485 0.0
All directors and executive officers as a
group
(10 persons)................................ 603,914 3.3
</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 -- 256,575 Option Shares; Mr. Galef -- 7,500 Option
Shares; Mr. Woodard -- 54,316 Option Shares; Mr. Asselin -- 45,316 Option
Shares; Mr. St. Peter -- 38,027 Option Shares; Mr. Hall -- 12,500 Option
Shares; Mr. Starrett -- 9,000 Option Shares; Mr. Lynch -- 4,500 Option
Shares; Mr. McCann -- 4,500 Option Shares; and Mr. Myers -- 3,835 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, 1996 and is
determined through Schedule 13G filings.
(3) The address for Putnam Investments, Inc. is One Post Office Square, Boston,
MA 02109. The information is as of December 31, 1996 and is determined
through Schedule 13G filings.
(4) The address for AIM Management Group, Inc. is 11 Greenway Plaza, Houston,
Texas 77046. The information is as of December 31, 1996 and is determined
through Schedule 13G filings.
(5) Includes (i) 22,618 shares of Common Stock held by Andrew G. Galef Living
Trust, and (ii) 6,456 shares of Common Stock held by Bronya Galef, Mr.
Galef's wife. 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....... 55 Chairman, President and Chief Executive Officer
Bruce C. Hall......... 52 Executive Vice President -- Operations
Richard C. St. Peter.. 49 Executive Vice President -- Administration and
Chief Financial Officer
Larry D. Asselin...... 49 Senior Vice President -- Merchandising and
Distribution
James M. Myers........ 39 Senior Vice President -- Finance
William M. Woodard.... 48 Senior Vice President -- Operations
</TABLE>
BRIAN K. DEVINE, Chairman, President and Chief Executive Officer, joined
the Company in 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."
BRUCE C. HALL, Executive Vice President, Operations, joined the Company in
April 1997. Mr. Hall spent his entire career of 34 years from 1963 to 1997 with
Toys 'R' Us, a retailer of children's toys, where he progressively advanced from
field operations through a number of positions and most recently served as
Senior Vice President of Operations.
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, including 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.
JAMES M. MYERS, Senior Vice President, Finance, joined the Company in May
1990. From 1994 to 1996, Mr. Myers served as Vice President, Finance and prior
to that as Vice President and Controller of the Company. From 1980 to 1990, Mr.
Myers held various positions at the accounting firm KPMG Peat Marwick LLP,
including Senior Audit Manager. Mr. Myers is a CPA and received an accounting
degree from John Carroll University.
WILLIAM M. WOODARD, Senior Vice President, 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 the four other most highly compensated executive officers
of the Company in fiscal 1996, fiscal 1995 and fiscal 1994. Unless otherwise
indicated, all references in this Proxy Statement to a fiscal year refer to the
fiscal year ending on the Saturday
5
<PAGE> 8
closest to January 31 of the following year. For example, references to fiscal
1996 refer to the fiscal year beginning on February 4, 1996 and ending on
February 1, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
FISCAL YEAR NUMBER OF
COMPENSATION SECURITIES
NAME AND FISCAL -------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION(S) YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------------------- ------ -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Brian K. Devine........................ 1996 $400,000 $480,000 75,000 $7,990(1)
Chairman, President 1995 288,500 250,000 45,000 2,880
and CEO 1994 250,000 248,714 271,575 2,592
Richard C. St. Peter................... 1996 214,300 216,646 37,500 1,872(2)
Executive Vice President -- 1995 177,500 107,250 18,000 824
Administration and CFO 1994 154,500 76,853 54,315 633
Larry D. Asselin....................... 1996 184,600 104,000 18,750 2,295(3)
Senior Vice President -- 1995 158,750 77,250 9,000 652
Merchandising and Distribution 1994 154,500 76,853 54,315 633
James M. Myers......................... 1996 117,350 50,000 3,000 1,080(4)
Senior Vice President -- 1995 100,100 26,400 2,250 105
Finance 1994 88,000 24,294 8,835 82
William M. Woodard..................... 1996 184,600 104,000 18,750 2,275(5)
Senior Vice President -- 1995 158,750 77,250 9,000 652
Operations 1994 154,500 76,853 54,315 633
</TABLE>
- ---------------
(1) Includes (i) $3,287, representing the Company's contributions to the 401(k)
Plan (as hereinafter defined), and (ii) $4,703, representing the Company's
payment of premiums on term life insurance.
(2) Includes (i) $563, representing the Company's contributions to the 401(k)
Plan, and (ii) $1,309, representing the Company's payment of premiums on
term life insurance.
(3) Includes (i) $1,476, representing the Company's contributions to the 401(k)
Plan, and (ii) $819, representing the Company's payment of premiums on term
life insurance.
(4) Includes (i) $934, representing the Company's contributions to the 401(k)
Plan, and (ii) $146, representing the Company's payment of premiums on term
life insurance.
(5) Includes (i) $1,456, representing the Company's contributions to the 401(k)
Plan, and (ii) $819, representing the Company's payment of premiums on term
life insurance.
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>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL 1996 PER SHARE DATE 5% 10%
- --------------------------- ----------- ------------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brian K. Devine............ 75,000 20.1% $23.17 03/12/06 $1,092,862 $2,769,526
Richard C. St. Peter....... 37,500 10.0 23.17 03/12/06 546,431 1,384,763
Larry D. Asselin........... 18,750 5.0 23.17 03/12/06 273,215 692,381
James M. Myers............. 3,000 0.8 23.17 03/12/06 43,714 110,781
William M. Woodard......... 18,750 5.0 23.17 03/12/06 273,215 692,381
</TABLE>
6
<PAGE> 9
- ---------------
(1) These options become exercisable in March 1999. See "Aggregated Option
Exercises in Last Fiscal Year and 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 "Compensation Plans."
(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.
The following table sets forth information concerning the exercise of
options during the last fiscal year and the number of options and the value of
unexercised options held by each of the executive officers named in the Summary
Compensation Table at February 1, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
ACQUIRED VALUE --------------------------- ----------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Brian K. Devine........... 15,000 $272,550 209,326 167,250 $ 2,939,984 $ 1,296,024
Richard C. St. Peter...... 16,289 295,971 28,577 64,951 401,364 394,735
Larry D. Asselin.......... 9,000 163,530 35,866 37,201 503,738 263,736
James M. Myers............ -- -- 6,960 7,125 97,753 57,051
William M. Woodard........ -- -- 44,866 37,201 630,143 263,736
</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 1, 1997.
EMPLOYMENT AGREEMENT
The Company has an 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. 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 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
7
<PAGE> 10
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.
Employees' 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 Plan"). The Company Plan
is qualified under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company Plan is administered by the Stock
Option and Compensation Committee and provides for the granting of stock
options, stock appreciation rights or restricted stock with respect to up to
1,604,763 shares of Common Stock to executive or other key employees of the
Company. In June 1996, 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 3.0% of the number of shares of
Common Stock issued and outstanding as of the end of the immediately preceding
fiscal year. Options to purchase 333,068 shares of Common Stock were granted in
1996 which vest over a three year period. Such options are exercisable at $23.17
per share. Options to purchase 598,660 shares of Common Stock at an exercise
price of $22.50 per share were granted in March 1997, which will vest in 2000.
Stock options may be granted in the form of "incentive stock options," as
defined in Section 422 of the Code, or non-statutory stock options and are
exercisable for up to 10 years following the date of grant. The exercise price
of each option is set by the Stock Option and Compensation Committee; provided,
however, that the price per share must be equal to or greater than the fair
market value of the Common Stock on the grant date.
The Company Plan also provides for the issuance of stock appreciation
rights which will generally entitle a holder to receive cash or stock, as
determined by the Stock Option and Compensation Committee, at the time of
exercise equal to the difference between the exercise price and the fair market
value of the Common Stock. In addition, the Company Plan permits the Company to
issue shares of restricted stock to executive or other key employees upon such
terms and conditions as shall be determined by the Stock Option and Compensation
Committee.
PFW Plan. In connection with the Company's acquisition of Pet Food
Warehouse, Inc. ("PFW") in December 1996, the Company assumed PFW's employee
stock option plan, which provided for the granting of incentive and nonqualified
stock options with exercise prices equal to their fair market values on their
grant dates that become exercisable over various periods and expire five or six
years after the date of grant. The PFW common shares under this plan were
adjusted to shares of the Company's Common Stock based on the common share
conversion rate per the merger agreement with PFW. No future grants will be made
under this 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 Stock Option and
Compensation Committee and provides for the granting of stock options with
respect to up to 68,847 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 annually thereafter. Such options will
be exercisable on the date of
8
<PAGE> 11
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, Messrs.
Galef and Starrett each received options to purchase 1,500 shares of Common
Stock at an exercise price of $23.17 per share in March 1996 and options to
purchase 1,500 shares of Common Stock at an exercise price of $22.50 per share
in March 1997. Messrs. Lynch and McCann each received options to purchase 4,500
shares of Common Stock at an exercise price of $21.37 in May 1997.
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 1996, the Stock Option and Compensation Committee of the
Company's Board of Directors was comprised of Messrs. Galef and Starrett and
former directors C. Hunter Boll and Shahan Soghikian. No interlocking
relationship exists or existed during fiscal 1996 between any member of the
Stock Option and Compensation Committee and any member of any other company's
board of directors or compensation committee.
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;
-- 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
9
<PAGE> 12
1996 were based primarily on financial performance measured against objectives
approved by the Committee early in the year. These objectives were based on
financial results and acquisition goals, thus establishing a direct link between
executive pay and Company performance. An executive's bonus may be above or
below his or her target incentive opportunity, depending on the level of overall
performance. In 1996, 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 1996, 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 1996.
Compensation for the Chairman and Chief Executive Officer
For fiscal 1996, 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 performance
objectives (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
$480,000. In addition, pursuant to Mr. Devine's employment agreement, the
Committee approved a stock option grant for Mr. Devine covering 75,000 shares of
Common Stock at an exercise price of $23.17 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 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."
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 1996 and
1997, the Company does not anticipate that there will be nondeductible
compensation for the five Company positions in question. The Committee plans to
continue to review this matter for 1997 and future years in order to determine
the extent of possible modification to the Company's compensation arrangements.
Stock Option and Compensation
Committee
Andrew G. Galef
Peter M. Starrett
10
<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 STOCK
MEASUREMENT PERIOD PETCO ANIMAL MARKET (U.S. NASDAQ RETAIL
(FISCAL YEAR COVERED) SUPPLIES, INC. COMPANIES) TRADE STOCKS
<S> <C> <C> <C>
03/17/94 100.00 100.00 100.00
08/31/94 92.76864 95.69275 95.87261
02/28/95 121.0068 99.9066 90.61703
08/31/95 156.5053 128.8709 105.3996
02/29/96 212.9719 139.213 106.9753
08/30/96 232.333 145.3319 122.4475
01/31/97 235.9632 175.8288 123.3816
</TABLE>
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Company's financial statements for the year ended February 1, 1997 have
been audited 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 auditors 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 1996.
11
<PAGE> 14
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 25, 1998 to be considered for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting.
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 9, 1997. Upon request, the Company
will furnish the Annual Report to any stockholder.
BY ORDER OF THE BOARD OF DIRECTORS,
[SIG]
Richard C. St. Peter, Secretary
San Diego, California
May 27, 1997
12
<PAGE> 15
PETCO ANIMAL SUPPLIES, INC.
9125 REHCO ROAD
SAN DIEGO, CALIFORNIA 92121
------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
------------------------------------------------------------
The undersigned hereby appoints Brian K. Devine and Richard C. St.
Peter, and each or either of them, as proxy holders with power to appoint his
substitute and hereby authorizes the proxy holders to represent and vote, as
designated on the reverse side of this proxy card, all the shares of Common
Stock of Petco Animal Supplies, Inc. held of record by the undersigned on May
9, 1997 at the annual meeting of stockholders to be held on June 25, 1997 at
10:00 a.m. local time or any adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE> 16
A [X] Please mark your
votes as in this
example
THE COMPANY'S BOARD OF DIRECTORS' RECOMMENDS A VOTE "FOR" PROPOSAL 1.
FOR WITHHOLD
all nominees authority to vote for all
as a group nominees as a group
1. ELECTION OF [ ] [ ] NOMINEES:
DIRECTORS Richard J. Lynch, Jr.
Jim F. McCann
YOU MAY WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE(S), BY LINING THROUGH OR OTHERWISE STRIKING
OUT THE NAME OF SUCH NOMINEE(S).
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any and all
adjournments or postponements thereof.
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES AS DIRECTORS, UNLESS
THE CONTRARY IS INDICATED IN THE APPROPRIATE PLACE.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE POSTAGE PAID
ENCLOSED REPLY ENVELOPE.
DATE DATE
- ------------------------ -------- ------------------------- ----------
SIGNATURE OF STOCKHOLDER SIGNATURE IF HELD JOINTLY
NOTE: (Please sign exactly as name(s) appear(s) hereon. Joint tenants must
each sign. Persons signing as executors, administrators, trustees,
guardians, etc. will please so indicate when signing.)
