<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:
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[ ] 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 17, 1999,
at 10:30 a.m., for the following purposes:
1. To elect one director for a three-year term to expire at the 2002 Annual
Meeting of Stockholders. The present Board of Directors of the Company
has nominated and recommends for election as director the following
person:
Andrew G. Galef
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 7, 1999 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/ JAMES M. MYERS
James M. Myers, Secretary
San Diego, California
May 14, 1999
<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 17, 1999, 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 14, 1999.
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 7, 1999 will be
entitled to vote at the meeting. As of that date, 21,074,305 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, one
nominee for director is to be elected as a Class II director. The nominee is
Andrew G. Galef. The two Class I and two Class III directors have two years and
one year, respectively, remaining on their terms of office. If no contrary
indication is made, proxies in the accompanying form are to be voted for Mr.
Galef or, in the event Mr. Galef is not a candidate or is unable to serve as
director at the time of the election (which is not currently expected), for any
nominee who shall be designated by the Board of Directors to fill such vacancy.
Mr. Galef is a member of the present Board of Directors.
Information Regarding Directors
Set forth below is certain information concerning the nominee to the Board
of Directors, as well as those directors whose terms of office are continuing
after the meeting.
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<PAGE> 4
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
For a Three-Year Term Expiring at the
2002 Annual Meeting of Stockholders
<TABLE>
<CAPTION>
Name Age Present Position With The Company
---- --- ---------------------------------
<S> <C> <C>
Andrew G. Galef................... 66 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.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
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. ............ 47 Director
James F. McCann................... 47 Director
</TABLE>
RICHARD J. LYNCH, JR. has served as a Director since May 1997. From 1988 to
1998, Mr. Lynch served as President and Chief Operating Officer and a director
of The Sports Authority, a publicly held retailer of sporting goods. 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.
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.
Term Expiring at the
2001 Annual Meeting of Stockholders
<TABLE>
<CAPTION>
Name Age Present Position With The Company
---- --- ---------------------------------
<S> <C> <C>
Brian K. Devine................... 57 Chairman, President and Chief
Executive Officer
Peter M. Starrett................. 51 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
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<PAGE> 5
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, and the National Retail Federation. 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 Peter Starrett Associates, a retail advisory firm he founded in
August 1998. Prior to that, Mr. Starrett was President of Warner Bros. Studio
Stores Worldwide and was employed by Warner Bros. from 1990 to 1998. Before
joining Warner Bros., Mr. Starrett held various executive positions with May
Department Stores and Federated Department Stores, including serving as Chairman
and Chief Executive Officer of Federated's Specialty Store Division. Mr.
Starrett also serves as a Director of Guitar Center, Inc., a publicly held
retailer of musical instruments, Advance Auto, Inc., The Pantry, Inc., and AFC
Enterprises, Inc. Mr. Starrett is a graduate of Harvard Business School and the
University of Denver.
Certain Committees of the Board; Meetings
The Board of Directors held six meetings during the fiscal year ended
January 30, 1999. 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 Starrett. The Audit Committee held three meetings in fiscal
1998. 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 one meeting in fiscal 1998. 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
1998. 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 or the grant of options at an exercise price equal to
85% of the fair market value of the shares subject to the option in lieu of
cash. Outside directors also 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.
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<PAGE> 6
Recommendation of the Board of Directors
The Board of Directors unanimously recommends a vote FOR the nominee listed
above. Proxies solicited by the Company will be so voted unless stockholders
specify otherwise on their proxy cards.
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the shares of Common Stock as of May 7, 1999 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>
Massachusetts Financial Services Company(2)... 2,620,195 12.4%
ICM Asset Management, Inc.(3)................. 2,283,000 10.8
David L. Babson and Company, Inc.(4).......... 2,185,800 10.4
Wellington Management Company LLP(5).......... 1,705,100 8.1
Brian K. Devine............................... 377,616 1.8
Andrew G. Galef(6)............................ 149,257 *
William M. Woodard............................ 86,182 *
Larry D. Asselin.............................. 80,814 *
Richard C. St. Peter.......................... 75,501 *
Bruce C. Hall................................. 72,500 *
Peter M. Starrett............................. 33,198 *
Richard J. Lynch, Jr.......................... 19,044 *
James F. McCann............................... 18,997 *
Janet D. Mitchell............................. 17,366 *
James M. Myers................................ 10,027 *
All directors and executive officers as a
Group (11 persons).......................... 940,502 4.3
- ---------------
* Less than one percent.
</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 -- 316,421 Option Shares; Mr. Galef -- 21,552 Option
Shares; Mr. Woodard -- 82,067 Option Shares; Mr. Asselin -- 65,814 Option
Shares; Mr. St. Peter -- 55,501 Option Shares; Mr. Hall -- 37,500 Option
Shares; Mr. Starrett -- 22,165 Option Shares; Mr. Lynch -- 18,552 Option
Shares; Mr. McCann -- 18,552 Option Shares; Ms. Mitchell -- 17,366 Option
Shares; and Mr. Myers -- 6,827 Option Shares.
(2) The address for Massachusetts Financial Services Company is 500 Boylston
Street, Boston, Massachusetts 02116. The information is as of December 31,
1998 and is determined through Schedule 13G filings.
(3) The address for ICM Asset Management, Inc. is 601 W. Main Ave., Ste. 600,
Spokane, Washington 99201. The information is as of December 31, 1998 and
is determined through Schedule 13G filings.
(4) The address for David L. Babson and Company, Inc. is One Memorial Drive,
Cambridge, Massachusetts 02142-1300. The information is as of March 31, 1999
and is determined through Schedule 13G filings.
(5) The address for Wellington Management Company LLP is 75 State Street,
Boston, Massachusetts 02109. The information is as of December 31, 1998 and
is determined through Schedule 13G filings.
4
<PAGE> 7
(6) Includes (i) 22,618 shares of Common Stock held by Andrew G. Galef Living
Trust, (ii) 6,456 shares of Common Stock held by Bronya Galef, Mr. Galef's
wife, and (iii) 1,062 shares of Common Stock owned by the AGC Family
Partnership. Mr. Galef disclaims beneficial ownership of the shares owned by
Bronya Galef and AGC Family Partnership.
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................ 57 Chairman, President and Chief Executive Officer
Bruce C. Hall.................. 54 Executive Vice President -- Operations
Janet D. Mitchell.............. 43 Senior Vice President -- Human Resources and
Administration
James M. Myers................. 41 Senior Vice President and Chief Financial Officer
William M. Woodard............. 50 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.
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 stores. From 1978 to 1981, Ms. Mitchell held various
training and employment 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 and Chief Financial Officer, joined
the Company in May 1990. From 1996 to 1998, Mr. Myers served as Senior Vice
President, Finance and prior to that as Vice President, Finance and 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.
5
<PAGE> 8
Executive Compensation
The following table sets forth certain summary information concerning
compensation earned by or paid to or awarded to the Company's Chief Executive
Officer and the four other most highly compensated executive officers of the
Company in fiscal 1998, fiscal 1997 and fiscal 1996. Also included are Messrs.
St. Peter and Asselin, who are former executive officers of the Company. 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 1998 refer to the fiscal year
beginning on February 1, 1998 and ending on January 30, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Fiscal Year Number of
Compensation Securities
Fiscal ------------------- Underlying All Other
Name and Principal Position(s) Year Salary Bonus Options Compensation
------------------------------ ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Brian K. Devine........................ 1998 $450,000 $112,500 100,000 $ 16,451(1)
Chairman, President and CEO 1997 450,000 450,000 100,000 13,021
1996 400,000 458,000 75,000 7,990
Bruce C. Hall.......................... 1998 253,450 203,200(2) 50,000 9,961(2)
Executive Vice
President -- Operations 1997 186,000 59,800 87,500 2,916
1996 -- -- -- --
Richard C. St. Peter................... 1998 195,400 -- 50,000 475,122(3)
Former Executive Vice President -- 1997 254,000 203,200 50,000 6,442
Administration and CFO 1996 214,300 221,616 37,500 1,872
Larry D. Asselin....................... 1998 144,050 17,500 25,000 96,174(4)
Former Senior Vice President 1997 203,000 101,500 25,000 6,451
Merchandising and Distribution 1996 184,600 105,800 18,750 2,295
Janet D. Mitchell...................... 1998 134,400 16,900 25,000 3,470(5)
Senior Vice President, Human 1997 103,800 21,000 4,000 1,871
Resources and Administration 1996 98,400 35,300 3,000 954
James M. Myers......................... 1998 184,900 25,400 25,000 5,712(6)
Senior Vice President and 1997 158,000 79,000 25,000 3,153
Chief Financial Officer 1996 117,350 75,080 3,000 1,080
William M. Woodard..................... 1998 203,000 25,400 25,000 9,344(7)
Senior Vice President Operations 1997 203,000 101,500 25,000 4,923
1996 184,600 105,800 18,750 2,275
</TABLE>
- ---------------
(1) Includes (i) $7,451, 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.
(2) Mr. Hall joined the Company in April 1997 and his bonus for fiscal 1998 was
determined in connection with his hiring arrangement. All other compensation
includes (i) $4,367, representing the Company's contributions to the 401(k)
Plan, and (ii) $5,594, representing the Company's payment of premiums on
term life insurance. Mr. Hall was not employed by the Company prior to April
1997. In connection with Mr. Hall's employment and relocation by the
Company, the Company guaranteed repayment of a real estate loan obtained by
Mr. Hall from a third party lender. As of January 30, 1999, the loan had
been paid off. In addition, the Company made certain interest payments under
such loan to the lender on Mr. Hall's behalf. Such payments were accounted
for as advances to Mr. Hall for which he repaid the Company, and bore
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 1998 was $55,800. As of January 30, 1999, there was no such
indebtedness outstanding.
6
<PAGE> 9
(3) Includes (i) $4,160, representing the Company's contributions to the 401(k)
Plan, (ii) $5,760, representing the Company's payment of premiums on term
life insurance, and (iii) $465,202 of severance and other compensation paid
in connection with separation from the Company.
(4) Includes (i) $3,022, representing the Company's contributions to the 401(k)
Plan, (ii) $5,276, representing the Company's payment of premiums on term
life insurance, and (iii) $87,876 of severance and other compensation paid
in connection with separation from the Company.
(5) Includes (i) $2,508, representing the Company's contributions to the 401(k)
Plan, and (ii) $962, representing the Company's payment of premiums on term
life insurance.
(6) Includes (i) $4,093, representing the Company's contributions to the 401(k)
Plan, and (ii) $1,619, representing the Company's payment of premiums on
term life insurance.
(7) Includes (i) $4,064, representing the Company's contributions to the 401(k)
Plan, and (ii) $5,280, 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>
Individual Grants(1) Potential Realizable Value
---------------------------------------------------- at Assumed Annual Rates
Number of % of Total of Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise or Option Term(2)
Options Employees in Base Price Expiration ---------------------------
Name Granted Fiscal 1998 Per Share Date 5% 10%
---- ---------- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Brian K. Devine............. 100,000 14.0% $17.44 03/18/08 $1,096,782 $2,779,487
Bruce C. Hall............... 50,000 7.0 17.44 03/18/08 548,396 1,389,743
Richard C. St. Peter........ 50,000 7.0 17.44 03/18/08 548,396 1,389,743
Larry D. Asselin............ 25,000 3.5 17.44 03/18/08 274,198 694,872
Janet D. Mitchell........... 25,000 3.5 17.44 03/18/08 274,198 694,872
James M. Myers.............. 25,000 3.5 17.44 03/18/08 274,198 694,872
William M. Woodard.......... 25,000 3.5 17.44 03/18/08 274,198 694,872
</TABLE>
- ---------------
(1) These options become exercisable in March 2001. 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.
7
<PAGE> 10
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 30, 1999.
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........... -- -- 241,421 275,000 -- --
Bruce C. Hall............. -- -- 25,000 112,500 -- --
Richard C. St. Peter...... -- -- 18,001 137,500 -- --
Larry D. Asselin.......... -- -- 47,064 68,750 -- --
Janet D. Mitchell......... -- -- 14,366 32,000 -- --
James M. Myers............ -- -- 3,827 53,000 -- --
William M. Woodard........ -- -- 63,317 68,750 -- --
</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 30, 1999. At January 30, 1999, none
of the options held by executive officers of the Company were in-the-money.
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 April 1,
1998, the Company adopted a matching provision for 50% of the first 6% 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 nine investment options.
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<PAGE> 11
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
2,924,559 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 714,950 shares of Common Stock were granted in
1998, which vest over a three year period. Such options are exercisable at
$17.44 to $18.44 per share. Options to purchase 636,500 shares of Common Stock
at an exercise price of $7.31 per share were granted on March 18, 1999, which
will vest in 2002. 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 PFW common shares under
this plan were adjusted to shares of the Company's Common Stock in accordance
with the terms of 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 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 110,981 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 amend-
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<PAGE> 12
ment 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. In addition, 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). In lieu of cash, such fees may be paid at the election of
the director through the grant of options exercisable on the date of grant at an
exercise price equal to 85% of the fair market value of the shares subject to
the option or, up to 50% of such fees may be paid in the form of Common Stock.
Pursuant to the Directors Plan, options for 35,221 shares were granted during
fiscal 1998 that are exercisable at a range of $4.78 to $17.44 per share. In
February and March 1999, options for 20,100 shares were granted under the
Directors Plan that were immediately exercisable at a range of $6.22 to $7.31
per share.
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 1998, 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 1998
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 has adopted a policy which generally provides that certain
officers of the Company and its subsidiaries would receive certain severance
benefits in the event of a Change in Control (as defined), or within one year
after a Change in Control, or if the officer's employment is terminated;
provided, however, that the officer will not be entitled to any severance
benefits if the officer's termination of employment is (i) for Cause (as
defined), (ii) by reason of permanent disability (as determined by the officer's
eligibility to receive disability benefits under any Company long-term
disability plan), (iii) initiated by the officer for other than Good Reason (as
defined) or (iv) by reason of the 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
portion of annual bonus.
In addition, upon a Change in Control, all of the officer's rights to
exercise option(s) held by the officer at the time of the Change in Control
immediately vest resulting in the option(s) becoming immediately exercisable.
COMPENSATION COMMITTEE REPORT
During 1998, 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
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<PAGE> 13
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 1998.
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 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 1998 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 1998, the Company's
performance partially met the objectives set by the Committee, resulting in
limited incentive bonus compensation to the executive officers named in the
Summary
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<PAGE> 14
Compensation Table, except for Mr. Hall whose bonus was determined in connection
with his hiring arrangement.
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 1998, 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 1998.
Compensation for the Chairman and Chief Executive Officer
For fiscal 1998, Mr. Devine's base salary, as well as his annual cash
incentive opportunity and stock option awards, were determined by the Committee
pursuant to his employment agreement. Based on partial 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 a limited
incentive bonus to him of $112,500. 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 $17.44 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."
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
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<PAGE> 15
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>
PETCO Animal Supplies, Nasdaq Retail Trade The Nasdaq Stock Market
Inc. Stocks (U.S. Companies)
---------------------- ------------------- -----------------------
<S> <C> <C> <C>
3/17/94 100.0000 100.0000 100.0000
1/28/95 112.9430 89.5922 95.3698
2/3/96 208.1320 100.5050 135.5290
2/1/97 235.9630 123.4370 175.7910
1/31/98 238.3830 144.0290 207.6920
1/30/99 78.0494 176.0600 325.0240
</TABLE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Company's financial statements for the year ended January 30, 1999 have
been audited by KPMG LLP. Representatives of KPMG 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> 16
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 1998 except that each of the non-employee directors filed a Form 5 with
respect to the grant of options under the Directors Plan after the applicable
due date for such Form 5.
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 16, 2000 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 7, 1999. Upon request, the Company
will furnish the Annual Report to any stockholder.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JAMES M. MYERS
James M. Myers, Secretary
San Diego, California
May 14, 1999
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<PAGE> 17
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 James M. Myers,
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 7, 1999 at the annual meeting of stockholders to be held on June 17, 1999
at 10:30a.m. local time or any adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE> 18
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE.
ANNUAL MEETING OF STOCKHOLDERS
PETCO ANIMAL SUPPLIES, INC. JUNE 17, 1999
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
1. ELECTION OF DIRECTOR
[ ] FOR the nominee
[ ] WITHHOLD authority to vote for the nominee
NOMINEE: Andrew G. Galef
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
- ----------------------------------- --------------------
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.)
