<PAGE> 1
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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:
[ ] 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
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:
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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 Hyatt Regency La Jolla
at Aventine, 3777 La Jolla Village Drive, San Diego, CA 92122, on June 18, 1998,
at 10:30 a.m., for the following purposes:
1. To elect two directors for a three-year term to expire at the 2001
Annual Meeting of Stockholders. The present Board of Directors of the
Company has nominated and recommends for election as directors the
following persons:
BRIAN K. DEVINE
PETER M. STARRETT
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 8, 1998 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,
/s/ RICHARD C. ST. PETER
Richard C. St. Peter, Secretary
San Diego, California
May 15, 1998
<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 10:30
a.m., on June 18, 1998, at the Hyatt Regency La Jolla at Aventine, 3777 La Jolla
Village Drive, San Diego, CA 92122. This Proxy Statement was first mailed to
stockholders on or about May 15, 1998.
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 8, 1998 will be
entitled to vote at the meeting. As of that date, 21,068,826 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 I directors. The nominees are
Brian K. Devine and Peter M. Starrett. The one Class II and two Class III
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. Devine and Starrett or, in the event Messrs. Devine and
Starrett 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. Devine and
Starrett 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
2001 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
---- --- ---------------------------------
<S> <C> <C>
Brian K. Devine.................... 56 Chairman, President and Chief Executive Officer
Peter M. Starrett.................. 50 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 also serves as a
Director of Wild Oats Markets, Inc., a publicly held retailer and distributor of
natural foods. Mr. Devine is a graduate of Georgetown University with a degree
in economics.
PETER M. STARRETT has served as a Director since 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 also serves as a
Director of Guitar Center, Inc., a publicly held retailer of musical
instruments, and Brylane, Inc., a publicly held catalog retailer of value-priced
apparel. Mr. Starrett is a graduate of Harvard Business School and the
University of Denver.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING AT THE
1999 ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
---- --- ---------------------------------
<S> <C> <C>
Andrew G. Galef.................... 65 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. Mr. Galef is a graduate of Harvard
Business School and Amherst College.
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............... 46 Director
James F. McCann.................... 46 Director
</TABLE>
RICHARD J. LYNCH, JR. has served as a Director since May 1997. Mr. Lynch is
President and Chief Operating Officer and a director of The Sports Authority, a
publicly held retailer of sporting goods, 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
2
<PAGE> 5
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.
JAMES F. MCCANN has served as a Director since May 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.
CERTAIN COMMITTEES OF THE BOARD; MEETINGS
The Board of Directors held five meetings during the fiscal year ended
January 31, 1998. 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,
Lynch, McCann and Starett. The Audit Committee held two meetings in fiscal 1997.
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, Lynch, McCann and Starrett. The Stock Option and
Compensation Committee held two meetings in fiscal 1997. 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.
Starrett, Galef and Devine. The Nominating Committee held one meeting in fiscal
1997. 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 8, 1998 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>
AIM Management Group, Inc.(2)................. 1,449,800 6.9%
Putnam Investments, Inc.(3)................... 1,059,900 5.0
Brian K. Devine............................... 272,616 1.3
Andrew G. Galef(4)............................ 135,643 0.6
William M. Woodard............................ 65,932 0.3
Larry D. Asselin.............................. 48,564 0.2
Bruce C. Hall................................. 28,750 0.1
Richard C. St. Peter.......................... 28,001 0.1
Peter M. Starrett............................. 16,410 0.1
Janet D. Mitchell............................. 14,366 0.1
Richard J. Lynch, Jr.......................... 6,369 0.0
James F. McCann............................... 6,342 0.0
James M. Myers................................ 4,477 0.0
All directors and executive officers as a
group (11 persons).......................... 627,470 2.9
</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 -- 241,421 Option Shares; Mr. Galef -- 9,000 Option
Shares; Mr. Woodard -- 63,317 Option Shares; Mr. Asselin -- 47,064 Option
Shares; Mr. St. Peter -- 18,001 Option Shares; Mr. Hall -- 25,000 Option
Shares; Mr. Starrett -- 10,500 Option Shares; Ms. Mitchell -- 14,366 Option
Shares; Mr. Lynch -- 6,000 Option Shares; Mr. McCann -- 6,000 Option Shares;
and Mr. Myers -- 3,827 Option Shares.
(2) The address for AIM Management Group, Inc. is 11 Greenway Plaza, Houston,
Texas 77046. The information is as of December 31, 1997 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 March 31, 1998 and is determined through
Schedule 13G filings.
(4) 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..... 56 Chairman, President and Chief Executive Officer
Bruce C. Hall....... 53 Executive Vice President -- Operations
Richard C. St. 49 Executive Vice President -- Administration and Chief
Peter............. Financial Officer
Larry D. Asselin.... 50 Senior Vice President -- Merchandising and
Distribution
Janet D. Mitchell... 42 Senior Vice President -- Human Resources and
Administration
James M. Myers...... 40 Senior Vice President -- Finance
William M. 49 Senior Vice President -- Operations
Woodard...........
</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 held 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.
JANET D. MITCHELL, Senior Vice President, Human Resources and
Administration, joined the Company in February 1989. From 1981 to 1989, Ms.
Mitchell held various management positions in human resources with the Southland
Corporation's 7-Eleven division. From 1978 to 1981, Ms. Mitchell held various
positions with the El Torito Restaurant chain. Ms. Mitchell received a
bachelor's degree from California State University, San Diego.
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
5
<PAGE> 8
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 1997, fiscal 1996 and fiscal 1995. 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 1997 refer to the fiscal year beginning on
February 2, 1997 and ending on January 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
FISCAL YEAR NUMBER OF
COMPENSATION SECURITIES
NAME AND FISCAL ------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION(S)(1) YEAR SALARY BONUS OPTIONS COMPENSATION
------------------------ ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Brian K. Devine........................ 1997 $450,000 $458,000 100,000 $13,021(2)
Chairman, President 1996 400,000 480,000 75,000 7,990
and CEO 1995 288,500 250,000 45,000 2,880
Richard C. St. Peter................... 1997 254,000 221,616 50,000 6,442(3)
Executive Vice President -- 1996 214,300 216,646 37,500 1,872
Administration and CFO 1995 177,500 107,250 18,000 824
Larry D. Asselin....................... 1997 203,000 105,800 25,000 6,451(4)
Senior Vice President 1996 184,600 104,000 18,750 2,295
Merchandising and Distribution 1995 158,750 77,250 9,000 652
James M. Myers......................... 1997 158,000 75,080 25,000 3,153(5)
Senior Vice President 1996 117,350 50,000 3,000 1,080
Finance 1995 100,100 26,400 2,250 105
William M. Woodard..................... 1997 203,000 105,800 25,000 4,923(6)
Senior Vice President 1996 184,600 104,000 18,750 2,275
Operations 1995 158,750 77,250 9,000 652
</TABLE>
- ---------------
(1) The Summary Compensation Table does not include Bruce C. Hall, Executive
Vice President -- Operations, who was not employed by the Company prior to
April 1997. Mr. Hall's annual salary in fiscal 1997 was $225,000 per year.
In connection with Mr. Hall's employment and relocation by the Company, the
Company guaranteed repayment of a $1,950,000 real estate loan obtained by
Mr. Hall from a third party lender. As of January 31, 1998, the outstanding
balance of such loan was $1,575,000. In addition, the Company made and
continues to make certain interest payments under such loan to the lender on
Mr. Hall's behalf. Such payments are accounted for as advances to Mr. Hall
for which he is indebted to the Company for repayment. The advances are
non-interest bearing through January 31, 1998. Subsequent advances may bear
interest at a rate equal to that paid by the Company under its credit
facility. The largest aggregate amount of such advances outstanding during
fiscal 1997 was $88,500. As of April 30, 1998, the aggregate amount of such
indebtedness outstanding was $33,100.
(2) Includes (i) $4,021, representing the Company's contributions to the 401(k)
Plan (as hereinafter defined), and (ii) $9,000, representing the Company's
payment of premiums on term life insurance.
(3) Includes (i) $3,635, representing the Company's contributions to the 401(k)
Plan, and (ii) $2,807, representing the Company's payment of premiums on
term life insurance.
(4) Includes (i) $2,820, representing the Company's contributions to the 401(k)
Plan, and (ii) $3,631, representing the Company's payment of premiums on
term life insurance.
(5) Includes (i) $2,160, representing the Company's contributions to the 401(k)
Plan, and (ii) $993, representing the Company's payment of premiums on term
life insurance.
(6) Includes (i) $2,727, representing the Company's contributions to the 401(k)
Plan, and (ii) $2,196, representing the Company's payment of premiums on
term life insurance.
6
<PAGE> 9
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 1997 PER SHARE DATE 5% 10%
---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brian K. Devine.............. 100,000 15.5% $22.50 03/25/07 $1,415,013 $3,585,921
Richard C. St. Peter......... 50,000 7.7 22.50 03/25/07 707,507 1,792,960
Larry D. Asselin............. 25,000 3.9 22.50 03/25/07 353,753 896,480
James M. Myers............... 25,000 3.9 22.50 03/25/07 353,753 896,480
William M. Woodard........... 25,000 3.9 22.50 03/25/07 353,753 896,480
</TABLE>
- ---------------
(1) These options become exercisable in March 2000. 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 January 31, 1998.
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............ 60,155 $1,819,692 196,420 220,001 $2,361,891 $874,912
Richard C. St. Peter....... 38,027 734,279 -- 105,501 -- 382,134
Larry D. Asselin........... 7,253 172,899 38,063 52,751 522,668 191,074
James M. Myers............. 5,681 101,707 1,577 30,250 -- 85,154
William M. Woodard......... -- -- 54,316 27,751 776,447 191,074
</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 January 31, 1998.
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
7
<PAGE> 10
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 April 1,
1997, the Company adopted a matching provision for 50% of the first 3% of
compensation that is contributed by each participating employee. 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.
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
2,292,330 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 645,342 shares of Common Stock were granted in
1997, which vest over a three year period. Such options are exercisable at
$22.50 to $30.31 per share. Options to purchase 689,170 shares of Common Stock
at an exercise price of $17.44 per share were granted in March 1998, which will
vest in 2001. 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
non-qualified 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
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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.
PetCare Plan. In connection with the Company's acquisition of PetCare Plus,
Inc. ("PetCare") in November, 1997, the Company assumed PetCare's employee stock
option plan, which provided for the granting of incentive and non-qualified
stock options with exercise prices equal to their fair market values on their
grant dates that become exercisable over various periods and expire up to ten
years after the date of grant. The PetCare common shares under this plan were
adjusted to shares of the Company's Common Stock based in accordance with the
terms of the merger agreement with PetCare. 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 89,907 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 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 $21.38
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 1997, the Stock Option and Compensation Committee of the
Company's Board of Directors was comprised of Messrs. Galef, Lynch, McCann and
Starrett. No interlocking relationship exists or existed during fiscal 1997
between any member of the Stock Option and Compensation Committee and any member
of any other company's board of directors or compensation committee.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
The Company adopted a policy in fiscal 1997 which generally provides that
certain officers of the Company and its subsidiaries would receive certain
severance benefits (as defined) in the event of a change in control (as defined)
or within one year after a change in control, Officer's employment is
terminated; provided, however, that Officer will not be entitled to any
severance benefits if Officer's termination of employment is (i) for cause, (ii)
by reason of permanent disability (as determined by Officer's eligibility to
receive disability benefits under any Company long-term disability plan), (iii)
initiated by Officer for other than good reason (as defined) or (iv) by reason
of Officer's death.
Severance benefits include a continuation of base salary for six months or
one year (depending on the Officer's position), medical, life insurance,
disability insurance, dental and automobile benefits, if any, and pro rata of
annual bonus.
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A change in control shall be deemed to occur: (i) if any person or entity
other than persons or entities currently owning more than five percent of the
Company's securities is or becomes the "beneficial owner" (as defined in rule
13d-3 of the Securities Exchange Act of 1934), directly or indirectly, of
securities of Company representing 50% or more of the combined voting power of
Company's then outstanding securities; (ii) upon the approval by Company's
stockholders and the consummation of a Transaction; or (iii) if, during any
period, members of the incumbent Board cease for any reason to constitute at
least a majority of the Board.
Notwithstanding the foregoing, a change in control pursuant to (ii) and
(iii) above shall not be deemed to occur if immediately following the
consummation of a transaction or other event approved by the incumbent Board,
holders of Company's voting securities immediately prior to a transaction either
continue to own at least 50% of the combined voting power of Company's then
outstanding voting securities if Company survives the transaction or then own
voting securities representing at least 50% of the combined voting power of each
surviving entity after a transaction.
Good reason is defined as: (i) material change in Officer's status, title,
position or responsibilities which in the Officer's reasonable judgment
represents a substantial reduction of the status, title, position or
responsibilities in effect immediately prior to the change; (ii) the assignment
of Officer to a position which requires Officer to relocate permanently to a
site outside of San Diego County; (iii) assigning Officer any duties or
responsibilities (other than due to a promotion) which in the Officer's
reasonable judgment are inconsistent with his/her status, title, position or
responsibilities ; (iv) any removal of Officer from or failure to reappoint or
reelect Officer to his/her previously held position, except in connection with a
promotion, the termination of employment for cause, as a result of permanent
disability (as determined by Officer's eligibility to receive disability
benefits under any long-term disability plan Company may then have in effect),
as a result of Officer's death, or by Officer other than for good reason; or (v)
any material breach by Company of any provision of the termination of employment
and change in control agreements.
In the event of the occurrence of a change in control, all of Officer's
rights to exercise option(s) held by Officer at the time of the change in
control immediately vest resulting in these option(s) becoming immediately
exercisable.
COMPENSATION COMMITTEE REPORT
During 1997, the Stock Option and Compensation Committee (the "Committee")
of the Board, comprised of non-employee directors, administered the Company's
executive compensation program and policies. The Company's executive
compensation programs are designed to attract, motivate and retain the executive
talent needed to optimize shareholder value in a competitive environment. The
programs are intended to support the goal of increasing shareholder value while
facilitating the business strategies and long-range plans of the Company.
The following is the Committee's report submitted to the Board addressing
the compensation of the Company's executive officers for fiscal 1997.
COMPENSATION POLICY AND PHILOSOPHY
The Company's executive compensation policy is (i) designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers; and (ii) based on the belief that the
interests of the executives should be closely aligned with the Company's
stockholders. The Committee attempts to achieve these goals by integrating
competitive annual base salaries with (i) annual incentive bonuses based on
corporate performance measured on objectives established by the Committee for
the fiscal year and (ii) stock options through various plans. In support of this
philosophy, a meaningful portion of each executive's compensation is placed
at-risk and linked to the accomplishment of results that are expected to lead to
the creation of value for the Company's stockholders from both the short-term
and long-term perspectives. The Committee believes that cash compensation in the
form of salary and performance-based incentive bonuses provides Company
executives with short-term rewards for success in operations, and that long-term
compensation through the
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award of stock options encourages growth in management stock ownership which
leads to expansion of management's stake in the long-term performance and
success of the Company. The Committee considers all elements of compensation and
the compensation policy when determining individual components of pay.
The Board believes that leadership and motivation of the Company's
employees are critical to achieving the objective of becoming a leader in pet
food and supplies retailing in the United States. The Committee is responsible
to the Board for ensuring that its executive officers are highly qualified and
that they are compensated in a way that furthers the Company's business
strategies and which aligns their interests with those of the stockholders. To
support this philosophy, the following principles provide a framework for
executive compensation: (i) executive compensation opportunities that attract
the best talent to the Company; (ii) motivate individuals to perform at their
highest levels; (iii) reward outstanding achievement; (iv) retain those with
leadership abilities and skills necessary for building long-term stockholder
value; (v) maintain a significant portion of executives' total compensation at
risk, tied to both the annual and long-term financial performance of the Company
and the creation of incremental stockholder value; and (vi) encourage executives
to manage from the perspective of owners with an equity stake in the Company.
COMPONENTS OF EXECUTIVE COMPENSATION
The Company's compensation program for executive officers is primarily
comprised of two components: annual cash compensation and long-term incentives.
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. 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 1997 were based primarily on financial performance
measured against objectives approved by the Committee for the fiscal year. These
objectives were based on financial results and expansion 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 1997, the Company's
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, and the individuals potential to make
significant contributions to the Company. Long-term incentives granted in prior
years are also taken into consideration.
For fiscal 1997, 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 1997.
COMPENSATION FOR THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
For fiscal 1997, 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
$458,000. In addition, pursuant to Mr. Devine's employment agreement, the
Committee approved a stock option grant for Mr. Devine covering 100,000 shares
of Common Stock at an exercise price of $22.50 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.
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For a discussion of the material terms of Mr. Devine's employment
agreement, see "-- Executive Compensation and Other Information -- Employment
Agreement."
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162(m) of the Code, the amount of compensation paid to
certain executives that is deductible with respect to the Company's corporate
taxes is limited to $1 million annually. It is the current policy of the
Committee to maximize, to the extent reasonably possible, the Company's ability
to obtain a corporate tax deduction for compensation paid to executive officers
of the Company to the extent consistent with the best interests of the Company
and its stockholders.
Stock Option and Compensation
Committee
Andrew G. Galef
Richard J. Lynch, Jr.
James F. McCann
Peter M. Starrett
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>
3/17/94 100 100 100
1/28/95 112.943 94.8166 88.786
2/3/96 208.132 134.005 106.977
2/1/97 235.963 175.669 123.405
1/31/98 238.383 207.708 144.253
</TABLE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Company's financial statements for the year ended January 31, 1998 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.
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<PAGE> 15
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 1997 except that Mr. Starrett reported the purchase of 3,500 shares in
December 1997 on Form 4 after the applicable due date for such Form 4.
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 15, 1999 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 8, 1998. Upon request, the Company
will furnish the Annual Report to any stockholder.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ RICHARD C. ST. PETER
Richard C. St. Peter, Secretary
San Diego, California
May 15, 1998
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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 8,
1998 at the annual meeting of stockholders to be held on June 18, 1998 at 10:30
a.m. local time or any adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE> 17
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE.
ANNUAL MEETING OF STOCKHOLDERS
PETCO ANIMAL SUPPLIES, INC.
JUNE 18, 1998
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees as a group
[ ] WITHHOLD authority to vote for all nominees as a group
YOU MAY WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), BY LINING
THROUGH OR OTHERWISE STRIKING OUT THE NAME OF SUCH NOMINEE(S).
NOMINEES: Brian K. Devine
Peter M. Starrett
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.
THE COMPANY'S BOARD OF DIRECTORS' RECOMMENDS
A VOTE "FOR" PROPOSAL 1.
DATE
- ----------------------------------- --------------------
SIGNATURE OF STOCKHOLDER
DATE
- ----------------------------------- --------------------
SIGNATURE IF HELD JOINTLY
NOTE: (Please sign exactly as name(s) appear(s) hereon. Joint tenants must each
sign. Person signing as executors, administrators, trustees, guardians,
etc. will please so indicate when signing.)
