<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
D & K Healthcare Resources, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
[COMPANY NAME]
- --------------------------------------------------------------------------------
(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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
October 9, 1998
DEAR FELLOW STOCKHOLDERS:
Our Annual Meeting of Stockholders will be held at The Ritz
Carlton, 100 Carondelet Plaza, St. Louis, Missouri, 63105, at 10:00 A.M., local
time, on Thursday, November 12, 1998. The Notice of Annual Meeting of
Stockholders, Proxy Statement and Proxy Card which accompany this letter outline
fully matters on which action is expected to be taken at the Annual Meeting.
We cordially invite you to attend the Annual Meeting. Even if
you plan to be present at the meeting, you are requested to date, sign and
return the enclosed Proxy Card in the envelope provided to ensure that your
shares will be voted. The mailing of an executed Proxy Card will not affect your
right to vote in person should you later decide to attend the Annual Meeting.
Sincerely,
J. HORD ARMSTRONG, III
Chairman of the Board, Chief Executive
Officer and Treasurer
8000 Maryland Avenue, Suite 920
St. Louis, MO 63105
Tel: (314) 727-3485
Fax: (314) 727-5759
<PAGE> 3
D & K HEALTHCARE RESOURCES, INC.
8000 MARYLAND AVENUE, SUITE 920
ST. LOUIS, MISSOURI 63105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 12,1998
Dear Stockholder:
The Annual Meeting of Stockholders of D & K Healthcare Resources, Inc.
(the "Company") will be held at The Ritz-Carlton Hotel, The Consulate Room, 100
Carondelet Plaza, St. Louis, Missouri, 63105, on Thursday, November 12, 1998, at
10:00 A.M., local time, for the following purposes:
1. To elect three Class III directors to hold office for a term of three
years.
2. To transact any and all other business that may properly come before
the meeting or any adjournment thereof.
These items are more fully described in the following Proxy Statement,
which is hereby made a part of this Notice. Only stockholders of record of the
Company at the close of business on September 15, 1998 are entitled to notice
of, and to vote at, the meeting or any adjournment thereof.
By order of the Board of Directors,
MARTIN D. WILSON
President, Chief Operating Officer
and Secretary
October 9, 1998
<PAGE> 4
D & K HEALTHCARE RESOURCES, INC.
8000 MARYLAND AVENUE, SUITE 920
ST. LOUIS, MISSOURI 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 12, 1998
------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the stockholders of D & K
HEALTHCARE RESOURCES, INC. (the "Company") in connection with the solicitation
of proxies for use at the Annual Meeting of Stockholders to be held at The
Ritz-Carlton Hotel, The Consulate Room, 100 Carondelet Plaza, St. Louis,
Missouri, 63105, at 10:00 A.M., local time, on Thursday, November 12, 1998, and
at all adjournments thereof (the "Annual Meeting"), for the purposes set forth
in the preceding Notice of Annual Meeting of Stockholders. The mailing address
of the Company is 8000 Maryland Avenue, Suite 920, St. Louis, Missouri 63105,
and its telephone number is (314) 727-3485.
This Proxy Statement, the Notice of Annual Meeting and the accompanying
Proxy Card were first mailed to the stockholders of the Company on or about
October 9, 1998.
The proxy reflected on the accompanying Proxy Card is being solicited
by the Board of Directors of the Company. A proxy may be revoked at any time
before it is voted by filing a written notice of revocation or a later-dated
Proxy Card with the Secretary of the Company at the principal offices of the
Company or by attending the Annual Meeting and voting the shares in person.
Attendance alone at the Annual Meeting will not of itself revoke a proxy. Proxy
Cards that are properly executed, timely received and not revoked will be voted
in the manner indicated thereon at the Annual Meeting and any adjournment
thereof.
The Company will bear the entire expense of soliciting proxies. Proxies
will be solicited by mail initially. The directors, executive officers and
employees of the Company may also solicit proxies personally or by telephone or
other means but such persons will not be specially compensated for such
services. In addition, the Company has retained D.F. King & Co. to assist in the
solicitation of proxies on its behalf for a fee of $1,000 plus reasonable
out-of-pocket expenses.
Only stockholders of record at the close of business on September 15,
1998 are entitled to notice of, and to vote at, the Annual Meeting. On such
date, there were 3,756,775 shares of the Company's Common Stock, $.01 par value
("Common Stock"), issued and outstanding.
Each outstanding share of the Common Stock is entitled to one vote on
each matter to be acted upon at the Annual Meeting. A quorum is required for
votes taken at the Annual Meeting to be deemed valid. A quorum shall be attained
if holders of a majority of the shares of Common Stock
-2-
<PAGE> 5
issued and outstanding are present at the Annual Meeting in person or by proxy.
After a quorum has been established, the vote of the holders of a majority of
the shares of Common Stock present in person or by proxy shall be required for
the election of directors or any other matter which is submitted to a vote of
stockholders at the Annual Meeting. Stockholders do not have the right to
cumulate votes in the election of directors.
Shares subject to abstentions will be treated as shares that are
present at the Annual Meeting for purposes of determining the presence of a
quorum, and as voted for purposes of determining the base number of shares
voting on a particular proposal. Accordingly, abstentions will have the same
effect as a vote withheld on the election of directors or a vote against other
matters submitted to the stockholders for a vote, as the case may be. If a
broker or other nominee holder indicates on the Proxy Card that it does not have
discretionary authority to vote the shares it holds of record on a proposal,
those shares will not be considered as present for purposes of determining a
quorum or as voted for purposes of determining the approval of the stockholders
on a particular proposal.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following persons were known to management of the Company to be the
beneficial owners of five percent or more of the Company's outstanding Common
Stock as of September 15, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
- ------------------------------------ ------------------ --------------
<S> <C> <C>
Gateway Venture Partners II, L.P. 508,270(2) 13.5%
8000 Maryland Avenue
Suite 1190
St. Louis, Missouri 63105
Massachusetts Mutual Life 265,489(3) 7.1
Insurance Company
MassMutual Corporate Investors 265,489(3) 7.1
1295 State Street
Springfield, Massachusetts 01111
J. Hord Armstrong, III 295,430(4) 7.8
8000 Maryland Avenue
Suite 920
St. Louis, Missouri 63105
Richard F. Ford 508,270(2) 13.5
8000 Maryland Avenue
Suite 1190
St. Louis, Missouri 63105
- -------------------
</TABLE>
-3-
<PAGE> 6
(1) The percentage calculations are based upon 3,756,775 shares of the
Company's Common Stock that were issued and outstanding as of September
15, 1998.
(2) Shares are owned of record by Gateway Venture Partners II, L.P. Richard
F. Ford, a director of the Company, serves as a general partner of
Gateway Associates L.P., the General Partner of Gateway Venture
Partners II, L.P., and may be deemed to beneficially own such shares.
Does not include 1,000 shares that are owned by Mr. Ford's wife, as to
which Mr. Ford has no voting or investment power and as to which Mr.
Ford disclaims beneficial ownership. See "Security Ownership By
Management."
(3) Does not include an indeterminate number of shares of Common Stock into
which shares of Pharmaceutical Buyers, Inc. held by MassMutual are
exchangeable on and after November 30, 1998. MassMutual Corporate
Investors is a closed-end investment company for which Massachusetts
Mutual Life Insurance Company serves as an investment advisor.
(4) Includes 33,333 shares issuable pursuant to stock options that are
exercisable currently or within 60 days; does not include 10,000 shares
that are owned by Mr. Armstrong's wife, as to which shares Mr.
Armstrong has no voting or investment power and as to which Mr.
Armstrong disclaims beneficial ownership. See "Security Ownership By
Management."
ITEM 1. ELECTION OF DIRECTORS
At the Annual Meeting, three individuals will be elected to serve as
Class III directors of the Company for a term of three years. Except as
otherwise directed by the stockholder on the Proxy Card, the persons named as
proxies on the accompanying Proxy Card intend to vote all duly executed proxies
received by the Board of Directors for the election of J. Hord Armstrong, III,
Richard F. Ford and Thomas F. Patton as Class III directors, each of whom is
currently a director of the Company. If for any reason Messrs. Armstrong, Ford
or Patton becomes unavailable for election, which is not now anticipated, the
persons named on the accompanying Proxy Card will vote for such substitute
nominee as designated by the Board of Directors. The Board of Directors
recommends a vote "FOR" the election of J. Hord Armstrong, III, Richard F. Ford
and Thomas F. Patton as Class III directors.
Pursuant to the stock purchase agreement under which Gateway Venture
Partners II, L.P., made its initial investment in the Company, the Company
agreed to use its best efforts to cause and maintain the election to the Board
of Directors of a representative of Gateway Venture Partners II, L.P. Richard F.
Ford, a Class III Director, currently represents Gateway Venture Partners II,
L.P. on the Board of Directors.
The name, age, principal occupation or position and other directorships
with respect to Messrs. Armstrong, Ford and Patton and the directors whose terms
of office will continue after the Annual Meeting are set forth below.
CLASS III - TO BE ELECTED FOR A TERM EXPIRING IN 2001
-4-
<PAGE> 7
J. Hord Armstrong, III, age 57, has served as Chairman of the Board, Chief
Executive Officer and Treasurer and as a director of the Company since December
1987. Prior to joining the Company, Mr. Armstrong served as Vice President and
Chief Financial Officer of Arch Mineral Corporation, a coal mining and sales
corporation, from 1981 to 1987 and as its Treasurer from 1978 to 1981. Mr.
Armstrong serves as a Trustee of the St. Louis College of Pharmacy.
Richard F. Ford, age 62, has served as a director of the Company since its
founding in December 1987. Mr. Ford has been engaged in venture capital
investing as a general partner of affiliates of Gateway Venture Partners II,
L.P. ("Gateway") in St. Louis, Missouri, since 1984. Mr. Ford also serves as a
director of Stifel Financial Corporation, CompuCom Systems, Inc. and TALX
Corporation. Pursuant to the stock purchase agreement under which Gateway made
its investment in the Company, the Company agreed to use its best efforts to
cause the election to, and maintain the membership on, the Company's Board of
Directors of a representative of Gateway. Mr. Ford currently represents Gateway
on the Board of Directors of the Company.
Thomas F. Patton, Ph.D., age 50, has served as a director of the Company
since 1997. Dr. Patton is President of the St. Louis College of Pharmacy and has
served in that capacity since June 1994. From April 1993 until January 1994 and
from January 1994 until May 1994, Dr. Patton served as Executive Director of
Pharmaceutical Research and Development and as Vice President of Pharmaceutical
Research and Development, respectively, at Dupont-Merck Pharmaceutical Co., a
manufacturer of pharmaceutical products. From March 1990 through March 1993, Dr.
Patton served as Director and Senior Director of Pharmaceutical Research and
Development at Merck and Co., Inc., a manufacturer of pharmaceutical products.
Dr Patton's career also includes tenures as Professor of Pharmaceutical
Chemistry and Pharmacy Practice at the University of Kansas, Associate Director
Control Development at the Upjohn Co., a pharmaceutical company, and Vice
President of Operations at Oread Laboratories, Inc., a pharmaceutical company.
Dr. Patton also serves as a director of Jones Pharma, Inc.
CLASS II - TO CONTINUE IN OFFICE UNTIL 2000
Bryan H. Lawrence, age 55, has served as a director of the Company since
its founding in December 1987. Since September, 1997, Mr. Lawrence has been a
member of Yorktown Partners LLC, an investment fund. Prior thereto, he was a
Managing Director of Dillon, Read & Co., Inc., an investment banking firm, for
more than the preceding five years. Mr. Lawrence also serves as a director of
Vintage Petroleum, Inc. and Transmontaigne Oil Company.
Robert E. Korenblat, age 58, has served as a director of the Company since
1997 and is the President and Chief Executive Officer of Pharmaceutical Buyers,
Inc., a Colorado-based group purchasing organization in which the Company holds
a 50% ownership interest ("PBI"). Mr. Korenblat additionally served as Vice
President of PBI from 1989 to 1991. Mr. Korenblat was elected a director of the
Company in connection with the Company's investment in PBI.
James M. Usdan, age 48, has served as a director of the Company since 1997
and formerly was the President and Chief Executive Officer of RehabCare Group,
Inc., a St. Louis-based provider
-5-
<PAGE> 8
of rehabilitation, outpatient and therapist staffing services for more than the
preceding five years. Mr. Usdan is also a director of Metro One
Telecommunications.
CLASS I - TO CONTINUE IN OFFICE UNTIL 1999
Elliot H. Stein, age 80, has served as a director of the Company since its
founding in 1987. Mr. Stein is Chairman Emeritus, Stifel Financial Corporation,
an investment banking and brokerage corporation, of which he was Chairman of the
Board from January 1986 through May 1988. Prior to such time he was President of
Scherck, Stein & Frank, Inc., a New York Stock Exchange member firm. Mr. Stein
also serves as a director of Angelica Corporation and West Indies Sugar Company.
Martin D. Wilson, age 37, has served as President and Chief Operating
Officer of the Company since January 1996, as Secretary since August 1993 and as
director since 1997. Mr. Wilson previously served as Executive Vice President,
Finance and Administration of the Company from May 1995 to January 1996, as Vice
President, Finance and Administration of the Company from April 1991 to May 1995
and as Controller of the Company from March 1988 to April 1991. Prior to joining
the Company, Mr. Wilson, a certified public accountant, was associated with KPMG
Peat Marwick, a public accounting firm.
There is currently a Class I directorship vacancy arising from J. David
McCay's resignation from the Board of Directors on September 23, 1998. The Board
intends to appoint Louis B. Susman to fill this vacancy prior to the November
12, 1998 Annual Meeting of Stockholders. Mr. Susman has served as an advisory
director of the Company since June 1998. As an advisory director, Mr. Susman is
entitled to attend and participate in meetings of the Board of Directors, but he
does not have any voting rights. Mr. Susman currently is Vice Chairman and a
Managing Director of Salomon Brothers Inc. Mr. Susman has been employed by
Salomon Brothers Inc. in various executive capacities since 1989 and also serves
as a director of Drury Inns and U.S. Can Corporation.
BOARD OF DIRECTORS AND COMMITTEES
During fiscal 1998, the Board of Directors of the Company met four times
and each of the directors attended not fewer than 75% of the meetings of the
Board of Directors and committees of which such director was a member during
fiscal 1998.
The Board of Directors has a standing Audit Committee and Stock Option and
Compensation Committee. The members of the Audit Committee are Messrs. Ford and
Stein. The Audit Committee reviews the scope of the Company's engagement of its
independent public accountant and their reports. The Audit Committee also meets
with the financial staff of the Company to review accounting procedures and
reports. The Audit Committee met one time in fiscal 1998.
The Stock Option and Compensation Committee is composed of Messrs. Ford and
Lawrence. The Stock Option and Compensation Committee is authorized to review
and make recommendations to the Board of Directors regarding the salaries
payable to corporate officers and to administer the Company's 1992 Long Term
Incentive Plan. The Stock Option and Compensation Committee met one time during
fiscal 1997.
-6-
<PAGE> 9
DIRECTORS' FEES
Non-employee directors currently receive annual retainers of $5,000 for
serving as directors and fees of $500 for each meeting of the Board attended
($250 if attended telephonically).
SECURITY OWNERSHIP BY MANAGEMENT
The following table indicates, as of September 15, 1998, the beneficial
ownership of the Company's Common Stock by each person who is a director or
nominee for director and the persons named in the Summary Compensation Table,
individually, and all directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1)(2) PERCENT(3)
---- -------------------- -------
<S> <C> <C>
J. Hord Armstrong, III(4) 295,430 7.8%
Martin D. Wilson(5) 70,866 1.8%
Dennis A. White(5) 51,000 1.3%
Edward W. McManus(6) 13,800 *
Douglas E. Linton(5) 30,000 *
Daniel E. Kreher(5) 27,000 *
Richard F. Ford(7) 508,270 13.5%
Robert E. Korenblat(8) 22,000 *
Bryan H. Lawrence(9) 32,318 *
Thomas F. Patton -0- *
Elliot H. Stein(10) 10,000 *
James M. Usdan(11) -0- *
All directors and executive officers 1,060,684 26.5%
as a group (12 persons)
- ------------------
</TABLE>
* Less than 1%.
(1) Represents sole voting and investment power unless otherwise noted.
(2) For purposes of this table, each director or executive officer is deemed to
beneficially own shares of Common Stock issuable pursuant to options,
warrants or other convertible securities that are exercisable by such
director or executive officer currently or within 60 days.
-7-
<PAGE> 10
(3) The percentage calculations are based upon 3,756,775 shares of the
Company's Common Stock that were issued and outstanding as of September 15,
1998 and, for each director or executive officer or the group, the number
of shares subject to options exercisable by such director or executive
officer or the group within 60 days.
(4) Includes 33,333 shares issuable pursuant to stock options that are
exercisable currently or within 60 days; does not include 10,000 shares
that are owned by Mr. Armstrong's wife, as to which Mr. Armstrong disclaims
beneficial ownership.
(5) Consists of shares issuable pursuant to stock options that are exercisable
currently or within 60 days.
(6) Includes 12,800 shares issuable pursuant to stock options that are
exercisable currently or within 60 days.
(7) Includes 508,270 shares owned of record by Gateway Venture Partners II,
L.P. Mr. Ford serves as a general partner of Gateway Associates L.P., the
general partner of Gateway Venture Partners II, L.P., and may be deemed to
beneficially own such shares. Does not include 1,000 shares that are owned
by Mr. Ford's wife, as to which Mr. Ford disclaims beneficial ownership.
(8) Includes 22,000 shares issuable to Mr. Korenblat upon his exchange of
capital stock of PBI; does not include 2,000 shares held in a trust by Mr.
Korenblat's wife, as to which Mr. Korenblat disclaims beneficial ownership.
(9) Does not include 4,000 shares owned by Mr. Lawrence's wife, as to which Mr.
Lawrence disclaims beneficial ownership.
(10) Does not include 80,135 shares held by irrevocable trusts for the benefit
of Mr. Stein's adult children, as to which Mr. Stein disclaims beneficial
ownership.
(11) Does not include 500 shares that are owned by Mr. Usdan's wife, as to which
Mr. Usdan disclaims beneficial ownership.
-8-
<PAGE> 11
REPORT OF THE STOCK OPTION AND COMPENSATION
COMMITTEE REGARDING EXECUTIVE COMPENSATION
GENERAL
The Company's executive compensation program is administered by the Stock
Option and Compensation Committee of the Board of Directors (the "Committee")
which is composed of Messrs. Ford and Lawrence.
The Company's executive compensation policy is designed and administered to
provide a competitive compensation program that will enable the Company to
attract, motivate, reward and retain executives who have the skills, education,
experience and capabilities required to discharge their duties in a competent
and efficient manner. The Company's compensation policy is based on the
principle that the financial rewards to the executive should be aligned with the
financial interests of the stockholders by striving to create a suitable
long-term return on their investment through earnings from operations and
prudent management of the Company's business and operations.
The Company's executive compensation strategy consists of salary and
long-term incentive compensation. The following is a summary of the policies
underlying each element.
ANNUAL COMPENSATION
The annual compensation salary for individual executive officers of the
Company is based upon the level and scope of the responsibility of the office,
the pay levels of similarly positioned executive officers among companies
competing for the services of such executives and a consideration of the level
of experience and performance profile of the particular executive officer. Based
upon its review and evaluation, the Committee makes a recommendation to the
Board of Directors of the salary to be paid to each executive officer.
LONG TERM INCENTiVE COMPENSATION
The Committee believes that long-term incentive compensation is the most
effective way of tying executive compensation to increases in stockholder value.
The Company's long-term incentive programs authorize the grant of both cash- and
stock-based awards, thereby providing a means through which executive officers
will be given incentives to continue high quality performance with the Company
over a long period of time while allowing such executive officers to build a
meaningful investment in the Company's Common Stock.
In May, 1993, the Committee initiated a program (the "Program") to provide
incentives to certain executive officers during the 1994 and 1995 fiscal years.
Under the Program, the participating executive officers each received an initial
grant of non-qualified stock options pursuant to the Company's 1992 Long Term
Incentive Plan. At the end of each of the 1994 and 1995 fiscal years, the
executive officers received additional grants of stock options, in recognition
of attainment of certain pre-tax earnings goals for the Company and satisfactory
performance evaluations from the Committee. Additionally, provided the pre-tax
earnings and performance evaluation criteria are met, grants may be accelerated
upon the Common Stock of the Company attaining certain market price levels. The
Committee determined that Mr. Armstrong, who individually owns 7.8% of the
Company's outstanding Common Stock, would not
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<PAGE> 12
receive stock option grants as incentives under the Program. The Committee may
determine to grant equity-based incentives to Mr. Armstrong in the future.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Armstrong's minimum salary for fiscal 1998 was determined by the
Committee in the same manner as is used by the Committee for executive officers
generally. The Committee believes that Mr. Armstrong's compensation is
competitive within the industry and, when combined with Mr. Armstrong's
significant ownership of the Company's Common Stock, provides incentives for
performance which are aligned with the financial interests of the stockholders
of the Company.
CODE SECTION 162(m)
The Committee has considered Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), regarding qualifying compensation paid to the
Company's executive officers for deductibility. The Committee intends to make
every effort to ensure that all compensation awarded to the Company's executives
is fully deductible for income tax purposes. The promulgation of proposed
regulations under Section 162 (m) has not required any changes in the Company's
current executive compensation program in order to maintain the deductibility of
executive compensation. The Committee may in the future deem it advisable to
take certain action to preserve the deductibility of executive compensation
under Section 162 (m).
THE STOCK OPTION AND COMPENSATION COMMITTEE
RICHARD F. FORD BRYAN H. LAWRENCE
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<PAGE> 13
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation for each of
the last three fiscal years of the executive officers of the Company whose
annual salaries and other reportable compensation exceeded $100,000 in fiscal
1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES ALL
UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUSES OPTIONS(#) COMPENSATION (1)
--------------------------- ----- ------ -------- ------- ------------
<S> <C> <C> <C> <C> <C>
J. Hord Armstrong, III 1998 $240,000 $125,000 33,333 $87,500
Chairman of the Board, Chief 1997 195,000 -- -- --
Executive Officer and Treasurer 1996 175,000 -- -- --
Martin D. Wilson, 1998 $161,667 $70,000 16,666 $21,000
President, Chief Operating 1997 113,750 -- 33,999 --
Officer and Secretary 1996 90,903 -- 12,666 --
Dennis A. White 1998 $105,000 $15,750 17,000 $15,750
Vice President, Chief Information 1997(2) 98,000 -- 17,000 --
Officer 1996 -- -- -- --
Edward W. McManus 1998 $131,000 -- -- $19,650
Vice President, Sales and 1997(2) -- -- -- --
Business Development 1996 -- -- -- --
Douglas E. Linton 1998 $112,500 $33,750 15,000 $22,500
Senior Vice President, 1997 -- -- -- --
Pharmaceutical and Specialty 1996 -- -- -- --
Services
</TABLE>
- ----------
(1) Includes contributions made to a defined contribution executive
retirement plan funded by split- dollar life insurance policies.
(2) In June 1997, the Company changed from a fiscal year ending on the
Friday closest to March 31 in each year to a fiscal year ending June 30
of each year. The Company began its first full fiscal year on the new
basis on July 1, 1997. As a result, the three months ended June 30,
1997 do not fall within fiscal 1997 or fiscal 1998. During the three
months ended June 30, 1997, Messrs. White and McManus were each granted
options to purchase 17,000 shares of Common Stock.
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<PAGE> 14
The following table sets forth information concerning stock option grants
made in fiscal 1998 to the individuals named in the Summary Compensation Table.
Options were granted at fair market value on the date of grant, vested
immediately, became exercisable six months after the date of grant and generally
expire ten years after the date of grant.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1998
INDIVIDUAL GRANTS VALUE
-------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATE OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(1)
OPTIONS IN PRICE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
J. Hord Armstrong, III 33,333 18.7% $ 6.625 8/14/07 $138,880 $351,948
Martin D. Wilson 16,666 9.4% $ 6.625 8/14/07 $ 69,438 $175,969
Dennis A. White 17,000 9.6% $ 22.500 5/15/08 $240,552 $609,606
Edward W. McManus -- -- -- -- -- --
Douglas E. Linton 15,000 8.4% $ 6.625 8/14/07 $ 62,496 $158,378
</TABLE>
- ----------
(1) Potential realizable value is calculated based on the term of the option
at the time of grant. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and
Exchange Commission. Potential realizable value does not represent the
Company's prediction of its stock price performance and does not take into
account appreciation for the fair value of the Common Stock from the date
of grant to date. There can be no assurance that the actual stock price
appreciation over the term of the option will equal or exceed the assumed
5% and 10% levels.
The following table sets forth information concerning the number of
exercisable and unexercisable stock options at June 30, 1998 as well as the
value of such stock options having an exercise price lower than the last
reported trading price on June 30, 1998 ("in-the-money" options) held by the
executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS AT FISCAL
ON VALUE FISCAL YEAR-END YEAR-END(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- --------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
J. Hord Armstrong, III -- -- 33,333/-- $495,828/--
Martin D. Wilson -- -- 65,865/5,000 $1,128,512/$88,750
Dennis A. White -- -- 34,000/17,000 $571,625/--
Edward W. McManus 4,200 $33,075 12,800/-- $203,200/--
Douglas E. Linton -- -- 15,000/-- $223,125/--
</TABLE>
- ----------
(1) Based on a price per share of $21.50, the closing sale price of the
Common Stock on June 30, 1998.
-12-
<PAGE> 15
LONG TERM PERFORMANCE AND STOCK OPTION PLANS
Pursuant to the Company's 1992 Long Term Incentive Plan (the "Incentive
Plan"), the Compensation Committee may grant to officers and key employees of
the Company and its subsidiaries (i) options to purchase shares of the Common
Stock ("Stock Options"), which may or may not qualify as incentive stock options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code, as
amended, (ii) stock appreciation rights ("SARs"), (iii) restricted shares of the
Company's Common Stock ("Restricted Stock"), and (iv) performance awards
("Performance Awards"). Pursuant to the Company's 1993 Stock Option Plan (the
"Option Plan" and, collectively with the Incentive Plan, the "Plans"), the
Compensation Committee or the full Board of Directors may grant to key employees
of the Company who are not "reporting persons" subject to Section 16 of the
Exchange Act and to certain other persons performing services for the Company
Stock Options which do not qualify as ISOs. The Board of Directors has reserved
500,000 and 350,000 shares of Common Stock, respectively, for issuance pursuant
to the Incentive Plan and the Option Plan, of which an aggregate of 626,231
shares have been issued or are subject to currently outstanding Stock Options
and 223,769 shares remain available for grant or issuance under the Plans.
The Plans are administered by the Compensation Committee. The Compensation
Committee has the authority to (i) select individuals to receive grants under
the Plans, (ii) establish the terms of grants and (iii) interpret the Plans.
Generally, Stock Options are granted to purchase shares of Common Stock at a
purchase price established by the Compensation Committee or the Board of
Directors at not less than the Fair Market Value (as defined in the Plans) of
the Common Stock on the date of grant, and the term of the Stock Option, which
shall not exceed ten years from date of grant. The Compensation Committee may
grant SARs giving the holder thereof a right to receive, at the time of
surrender, Common Stock equal in value to the difference between the Fair Market
Value of the Common Stock at the date of surrender of the SARs and the "Base
Price" established by the Committee at the time of grant, which may not be less
than Fair Market Value of the Common Stock on the date of grant. SARs may be
issued in conjunction with Stock Options. The Compensation Committee may also
issue shares of Common Stock either as a stock bonus or at a purchase price of
less than Fair Market Value, subject to any restrictions or conditions which may
be specified by the Compensation Committee at the time of grant. The
Compensation Committee may also issue Performance Awards consisting of shares of
Common Stock, monetary units payable in cash or a combination thereof. These
grants would result in the issuance, without payment therefor, of Common Stock
or the payment of cash upon the achievement of certain pre-established
performance criteria during a specified performance period not to exceed five
years.
THE STOCK OPTION AND COMPENSATION COMMITTEE
RICHARD F. FORD BRYAN H. LAWRENCE
CERTAIN TRANSACTIONS
In November 1995, the Company acquired approximately 50% of the capital
stock of PBI and Massachusetts Mutual Life Insurance Company and certain of its
affiliates (collectively, "MassMutual") concurrently acquired 30% of the
outstanding voting and nonvoting capital stock of PBI and purchased senior
secured notes and senior secured convertible notes of PBI in principal amounts
of $5.5 million and $1.3 million, respectively. MassMutual owns more than 5% of
the outstanding Common Stock of the Company. Robert E. Korenblat, a director of
the Company, is also a director, executive officer and shareholder of PBI.
Pursuant to
-13-
<PAGE> 16
its ownership of PBI capital stock, The Company received cash dividends from PBI
of $300,000 and $350,000 in fiscal 1997 and 1998, respectively.
In connection with the Company's investment in PBI, the Company entered
into an agreement pursuant to which (i) Robert Korenblat is entitled to exchange
the capital stock of PBI owned by him into shares of Common Stock, at an
exchange ratio of 6,666.67 shares of Common Stock (an aggregate of 20,000 shares
of Common Stock) for each share of PBI capital stock, and (ii) on or after
November 30, 1998, MassMutual will be entitled to exchange shares of capital
stock of PBI owned by it for shares of Common Stock, at an exchange ratio based
upon the then fair value of the Common Stock and the capital stock of PBI. In
addition, Messr. Korenblat and MassMutual may require the Company to register
under the Securities Act shares of Common Stock issuable to them (and MassMutual
may require the Company to register 530,978 shares of Common Stock currently
owned by it) or to include such shares in any registration statement the Company
proposes to file under the Securities Act, with certain exceptions. Messr.
Korenblat was elected director of the Company in connection with the Company's
investment in PBI.
In fiscal 1996, PBI entered into an Employment Agreement (the
"Employment Agreement") with Robert E. Korenblat. The Employment Agreement has
an initial term expiring on December 31, 1998 but is automatically renewable on
December 31 of each year until terminated by notice of either party, in which
case it will expire on the December 31 which is two full years after the date of
such notice. Pursuant to the Employment Agreement, Mr. Korenblat serves as
President and Chief Executive Officer of PBI with an annual base salary of not
less than $350,000, which is increased, but not decreased, each year to reflect
increases in the Consumer Price Index. The Employment Agreement also provides
for certain benefits and an annual bonus based on achievement of certain
operating profit and other goals established by PBI's Board of Directors, which
bonus may not exceed, in the aggregate, 180% of base salary. For PBI's fiscal
year ended December 31, 1997, PBI paid Mr. Korenblat a salary of $350,000 plus
bonus compensation of $70,000. The Employment Agreement also contains a
non-competition covenant pursuant to which Mr. Korenblat agrees not to compete
with PBI or the Company in the United States, Puerto Rico or any other country
where PBI may do business for a period of two years after termination of Mr.
Korenblat's employment. Mr. Korenblat is entitled to receive $50,000 each April
15 and October 15 through October 15, 1999 in consideration of his covenant not
to compete.
The Company believes that the transactions set forth above were made on
terms not less favorable to the Company than would have been obtained from
unaffiliated third parties. All future transactions (including loans) between
the Company and its officers, directors, principal stockholders and affiliates
are required to be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors and must be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
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<PAGE> 17
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for the period beginning April 2, 1993
and ending June 30, 1998, with the cumulative return of the NASDAQ Stock Market
- - U.S. Index, the Standard & Poor's Health Care Composite Index, and a peer
group of companies selected by the Company. Dividend reinvestment has been
assumed, and with respect to companies in the peer group, the returns of each
such company have been weighted to reflect relative stock market capitalization.
The peer group of companies selected by the Company is made up of the Company's
publicly held competitors in the wholesale drug industry: Bergen Brunswig
Corporation, Bindley Western Industries, Inc. Cardinal Health, Inc., Avatex
Corporation (formerly FoxMeyer Corporation) and McKesson Corporation.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------------------------------------
4/2/93 4/1/94 3/31/95 3/29/96 3/28/97 6/30/98
<S> <C> <C> <C> <C> <C> <C>
D & K HEALTHCARE RESOURCES, INC. 100.00 75.00 152.78 186.11 97.22 477.78
PEER GROUP 100.00 132.69 137.13 171.47 212.77 419.18
NASDAQ STOCK MARKET (U.S.) 100.00 107.94 120.07 163.03 181.20 283.01
S & P HEALTH CARE SECTOR 100.00 94.70 133.40 196.67 239.60 413.76
</TABLE>
-15-
<PAGE> 18
APPOINTMENT OF AUDITORS
Arthur Andersen LLP served as the Company's independent public
accountants for fiscal 1998 and has been selected by the Board of Directors to
continue in such capacity during fiscal 1999. The Board of Directors anticipates
that representatives of Arthur Andersen LLP will be present at the Annual
Meeting of Stockholders to respond to appropriate questions.
PROPOSALS OF STOCKHOLDERS
Under applicable regulations of the Securities and Exchange Commission,
all proposals of stockholders to be considered for inclusion in the proxy
statement for, and to be considered at, the 1999 Annual Meeting of Stockholders
must be received at the offices of the Company, c/o Secretary, 8000 Maryland
Avenue, Suite 920, St. Louis, Missouri 63105 by not later than June 12, 1999.
The Company's By-laws also prescribe certain time limitations and procedures
regarding prior written notice to the Company by stockholders, which limitations
and procedures must be complied with for proposals of stockholders to be
included in the Company's proxy statement for, and to be considered at, such
annual meeting. Any stockholder who wishes to make such a proposal should
request a copy of the applicable provisions of the Company's By-laws from the
Secretary of the Company.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not intend to present, nor has it been informed that other persons
intend to present, any matters for action at the Annual Meeting, other than
those specifically referred to herein. If, however, any other matters should
properly come before the Annual Meeting, it is the intention of the persons
named on the Proxy Card to vote the shares represented thereby in accordance
with their judgment as to the best interest of the Company on such matters.
J. HORD ARMSTRONG, III
Chairman of the Board, Chief Executive
Officer and Treasurer
-16-
<PAGE> 19
D & K HEALTHCARE RESOURCES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
<TABLE>
<S><C>
1. For Withhold For All
ELECTION OF THREE CLASS III DIRECTORS All All Except 2. To transact any and all other For Against Abstain
FOR A TERM OF THREE YEARS -- [ ] [ ] [ ] business, including adjournment [ ] [ ] [ ]
Nominees: J. Hord Armstrong, III, of the meeting, which may
Richard F. Ford, Thomas F. Patton properly come before the meeting
or any adjournment thereof.
_____________________________________
(Except nominee written above)
This proxy, when properly executed, will be voted
in the manner directed herein by the undersigned
[THIS AREA RESERVED FOR ADDRESSING] stockholders(s). If no direction is made, this proxy will be
voted "FOR" the election of all of the nominees for director
listed in item 1 and "FOR" the grant of discretionary
authority.
Dated _______________________________, 1998
SIGN HERE_____________________________________________________
(Please sign exactly as name appears hereon)
SIGN HERE_____________________________________________________
(Executors, administrators, trustees, etc. should so
indicate when signing)
</TABLE>
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 20
PROXY PROXY
D & K HEALTHCARE RESOURCES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J. HORD ARMSTRONG, III and MARTIN D.
WILSON, and each of them, with or without the other, proxies with full power of
substitution to vote as designated below, all shares of stock of D & K
Healthcare Resources, Inc. ("the Corporation") that the undersigned signatory
hereof is entitled to vote at the Annual Meeting of Stockholders of the
Corporation to be held at The Ritz-Carlton Hotel, the Consulate Room, 100
Carondelet Plaza, St. Louis, Missouri, on Thursday, November 12, 1998, at
10:00 a.m., and all adjournments thereof, all in accordance with and as more
fully described in the Notice and accompanying Proxy Statement for such
meeting, receipt of which is hereby acknowledged.
PLEASE MARK, SIGN AND DATE
THIS PROXY AND RETURN IT
PROMPTLY IN THE
ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
