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 Filed by a Party other than the Registrant Check the
appropriate box:
X Preliminary Proxy Statement
Confidential, for the use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
AMERICAN DRUG COMPANY
(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):
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>
AMERICAN DRUG COMPANY
9 West 57th Street
New York, NY 10019
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 10, 1999
To The Stockholders:
The Annual Meeting of Stockholders of American Drug Company (the
"Company") will be held at the offices of the Company, 903 Murray Road, East
Hanover, New Jersey on August 10, 1999, at 10:30 a.m., local time, for the
following purposes:
1. To elect seven Directors to serve until the next Annual Meeting and
until their respective successors are elected and qualify.
2. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation, as amended, to change the name of the Company to
Five Star Products, Inc.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record as of the close of business on July 9, 1999
are entitled to receive notice of and to vote at the meeting. A list of such
stockholders shall be open to the examination of any stockholder during ordinary
business hours, for a period of ten days prior to the meeting, at the principal
executive offices of the Company, 903 Murray Road, East Hanover, NJ 07936.
By Order of the Board of Directors
Lydia M. DeSantis
Secretary
East Hanover, NJ
July 15, 1999
If you do not expect to be present at the meeting, please fill in, date
and sign the enclosed Proxy and return it promptly in the enclosed return
envelope.
<PAGE>
AMERICAN DRUG COMPANY
9 West 57th Street,
New York, NY 10019
July 15, 1999
East Hanover, NJ
PROXY STATEMENT
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of American Drug Company, a Delaware corporation the "Company"), for
use only at the Annual Meeting of Stockholders to be held at the offices of the
Company, 903 Murray Road, East Hanover, New Jersey on the 10th day of August,
1999 at 10:30 a.m., local time, and at any adjournments thereof. The approximate
date on which this Proxy statement and the accompanying Proxy were first given
or sent to security holders was July 15, 1999.
Each Proxy executed and returned by a stockholder may be revoked at any
time thereafter, by written notice to that effect to the Company, attention of
the Secretary, prior to the Annual Meeting, or to the Chairman of, or the
Inspectors of Election, in person, at the Annual Meeting, or by the execution
and return of a later-dated Proxy, except as to any matter voted upon prior to
such revocation.
The Proxies in the accompanying form will be voted in accordance with
the specifications made and where no specifications are given, such Proxies will
be voted FOR the seven nominees for election as directors named herein and FOR
the approval of the amendment to the Company's Certificate of Incorporation, as
amended, to change the name of the Company to Five Star Products, Inc. (the
"Name Change"). In the discretion of the proxy holders, the Proxies will also be
voted FOR or AGAINST such other matters as may properly come before the meeting.
The management of the Company is not aware that any other matters are to be
presented for action at the meeting. Although it is intended that the Proxies
will be voted for the nominees named herein, the holders of the Proxies reserve
discretion to cast votes for individuals other than such nominees in the event
of the unavailability of any such nominee. The Company has no reason to believe
that any of the nominees will become unavailable for election. The Proxies may
not be voted for a greater number of persons than the number of nominees named.
The election of directors will be determined by a plurality of the votes of the
shares of common stock, par value $.01 per share (the "Common Stock") present in
person or represented by proxy at the Annual Meeting and entitled to vote on the
election of directors. Approval of the Name Change will require the affirmative
vote of the majority of outstanding shares of Common Stock. Accordingly, an
abstention or a broker "non-vote" (which results when a broker holding shares
for a beneficial owner has not received timely voting instructions on certain
matters from such beneficial owner) will have the same effect on the outcome of
the vote as a negative vote with respect to the approval of the Name Change.
<PAGE>
VOTING SECURITIES
The Board of Directors has fixed the close of business on July 9, 1999
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Annual Meeting. The issued and outstanding stock of
the Company on July 9, 1999 consisted of 13,020,155 shares of Common Stock, each
entitled to one vote. A quorum of the stockholders is constituted by the
presence, in person or by proxy, of holders of record of Common Stock
representing a majority of the number of votes entitled to be cast.
PRINCIPAL STOCKHOLDERS
The following table set forth the number of shares of Common Stock
beneficially owned as of July 1, 1999, by each person who is known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock
Beneficial Ownership
Number of Percentage
Name and Address of Beneficial Owner Common Shares of Class(1)
GP Strategies Corporation 4,830,104(2) 37%
9 West 57th Street
New York, NY 10019
Jerome I. Feldman 5,424,740(3) 41%
GP Strategies Corporation
9 West 57th Street
New York, NY 10019
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(1) The percentage of class calculation for Common Stock assumes for each
beneficial owner that (i) all options are exercised in full only by the
named beneficial owner and (ii) no other options are exercised.
(2) GP Strategies has entered into a Voting Agreement which limits its
ability, to a certain degree, to control the affairs of the Company.
See "Certain Relationships and Related Transactions - GP Strategies'
Capital Stock Interest."
(3) Includes (i) 4,830,104 shares of Common Stock beneficially owned by GP
Strategies, (ii) 93,463 shares of Common Stock held by Mr. Feldman
(iii), 1,173 shares of Common Stock which are held by certain members
of Mr. Feldman's family and (iv) 500,000 shares of Common Stock
issuable upon exercise of currently exercisable stock options held by
Mr. Feldman. Mr. Feldman disclaims beneficial ownership of the shares
owned by GP Strategies and his family.
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of July 1, 1999, beneficial
ownership of shares of Common Stock of the Company by each director, each of the
named executive officers and all directors and executive officers as a group.
Total Number of Shares
of Common Stock Percent of
Beneficially Owned Class(1)
Jerome I. Feldman 5,424,740(2) 41%
Richard T. Grad 224,883(3) 1.7%
Charles Dawson 207,308(3) 1.6%
Bruce Sherman 207,308(3) 1.6%
Steven Schilit 207,308(3) 1.6%
Scott N. Greenberg 129,150(3) *
Michael Feldman 26,411(3) *
All directors and executive
officers as a group (9 persons) 1,891,265(3) 14.0%
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* The number of shares owned is less than one percent of the outstanding shares
of Common Stock.
(1) The percentage of class calculation assumes for each beneficial owner
and directors and executive officers as a group that (i) all options
are exercised in full only by the named beneficial owner or members of
the group and (ii) no other options are exercised by any other
stockholder.
(2) See footnote 2 to Principal Stockholders table.
(3) Includes (i) 194,883, 4,150 and 1,441 shares of Common Stock held by
Messrs. Grad, Greenberg and Michael Feldman, respectively, 192,308
shares of Common Stock held by each of Messrs. Dawson, Sherman, and
Schilit and 1,140,092 shares for all executives and officers as a
group, (ii) 30,000, 125,000 and 25,000 shares of Common Stock issuable
upon exercise of currently exercisable stock options held by Messrs.
Grad, Greenberg and Feldman, respectively, 15,000 shares of Common
Stock issuable upon exercise of currently exercisable stock options
held by each of Messrs. Dawson, Sherman , Schilit and (iii) 500,000
shares for all directors and executives officers as a group.
<PAGE>
ELECTION OF DIRECTORS
Seven directors will be elected at the meeting to hold office until the
next Annual Meeting of Stockholders and until their respective successors are
elected and qualify. Martin M. Pollak, the former President of the Company will
not be standing for re-election The By-Laws of the Company permit the Board of
Directors to fix the number of directors at no less than three nor more than
fifteen persons, and the Board of Directors has fixed the number of directors at
seven persons. The Proxies solicited by this proxy statement may not be voted
for a greater number of persons than the number of nominees named. It is
intended that these Proxies will be voted for the following nominees, but the
holders of these Proxies reserve discretion to cast votes for individuals other
than the nominees for director named below in the event of the unavailability of
any such nominee. The Company has no reason to believe that any of the nominees
will become unavailable for election. Set forth below are the names of the
nominees, the principal occupation of each, the year in which first elected a
director of the Company and certain other information concerning each of the
nominees.
Jerome I. Feldman has been Chairman of the Board of the Company since
1994. In 1959 he founded GP Strategies Corporation ("GPS"), a global provider of
performance improvement services and products, and since June 3, 1999 has been
its Chairman of the Board, President and Chief Executive Officer and a Director.
Prior thereto he was President and Chief Executive Officer and a Director. He
has been a director of GSE Systems, Inc., ("GSE"), a company engaged in the
business of real time simulation and process automation in the power and process
industries since 1994 and Chairman of the Board of GSE since 1997. Mr. Feldman
is also a Chairman of the New England Colleges Fund and a Trustee of Northern
Westchester Hospital. Age 70
Richard T. Grad has been President and Chief Executive Officer and a
director of the Company since September 1998 and President of Five Star Group,
Inc. ("Five Star"), a distributor of home decorating, hardware and finishing
products, since 1985. Age 61
Charles Dawson has been Vice President and a director of the Company
since September 1998, Vice President of Merchandising of Five Star since 1993
and Merchandising Manager from 1992. Age 43
Bruce Sherman has been Vice President and a director of the Company
since September 1998 and Vice President of Sales of Five Star since 1993. He is
a member of the New York and New Jersey Paint and Decorating Association. Age 46
Steven Schilit has been Vice President and a director of the Company
since September 1998, Executive Vice President of Five Star since 1993 and since
1981 has held several executive positions with Five Star. He has been a director
of United Paint Sundry Distributors, a buying group, since 1996. Age 52
<PAGE>
Scott N. Greenberg has been a director of the Company since September
1998, a director of GPS since 1987 and Executive Vice President and Chief
Financial Officer since June 1998 and since 1985 has held several executive
positions. He has been a director of GSE since April 1999. Age 42
Michael D. Feldman is being nominated as a director of the Company for
the first time. He has served as Executive Vice President and a director of
Avenue Entertainment Group, Inc., an independent entertainment company, since
1997, Vice President of GPS since June 1999 and Director of International
Business Development of GPS since 1995. Age 31
The Company does not currently pay compensation to directors for
service in that capacity.
Board of Directors
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of the Company, although it
is not involved in day-to-day operating details. Members of the Board are kept
informed of the Company's business by various reports and documents sent to them
as well as by operating and financial reports made at Board and Committee
meetings. The Board held three meetings in 1998 through unanimous written
consent.
Executive Committee
The Executive Committee, consisting of Jerome I. Feldman, Richard T.
Grad and Charles Dawson, meets on call and has authority to act on most matters
during the intervals between Board meetings. The committee held two meetings in
1998 through unanimous written consent.
EXECUTIVE COMPENSATION
The following table and notes present the compensation paid by the
Company and subsidiaries to its President and Chief Executive Officer.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation Stock All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ---- ------- ----- ----------- ------------
<S> <C> <C> <C> <C>
Richard T. Grad 1998 47,594(1) -0- - 1,943(2)
President, Chief Executive Officer
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</TABLE>
(1) Mr. Grad became the Chief Executive Officer of the Company effective
September 30, 1998 and the above compensation relates to the period
September 30, 1998 through December 31, 1998.
(2) Includes $911 as a matching contribution made by the Company to the 401(k)
Savings Plan and $1,032 for Group Term Life Insurance paid by the Company
for the period September 30, 1998 though December 31, 1998.
OPTION GRANTS IN 1998
No options were granted in 1998 to the named executive officer pursuant
to the 1994 Stock Option Plan of the Company.
Board Report on Executive Compensation
During the year ended December 31, 1998, the Company did not have a
Compensation Committee. Accordingly, the full Board of Directors is responsible
for determining and implementing the compensation policies of the Company.
The Board's executive compensation policies are designed to offer
competitive compensation opportunities for all executives which are based on
personal performance, individual initiative and achievement, as well as
assisting the Company in attracting and retaining qualified executives. The
Board also endorses the position that stock ownership by management and
stock-based compensation arrangements are beneficial in aligning management's
and shareholders' interests in the enhancement of shareholder value.
Compensation paid to the Company's executive officers generally
consists of the following elements: base salary, annual bonus and long-term
compensation in the form of stock options and the 401(k) Savings Plan. The
compensation for the other executive officers of the Company is determined by a
consideration of each officer's initiative and contribution to overall corporate
performance and the officer's managerial abilities and performance in any
special projects that the officer may have undertaken. Competitive base salaries
<PAGE>
that reflect the individual's level of responsibility are important elements of
the Company's executive compensation philosophy. Subjective considerations of
individual performance are considered by the Compensation Committee in
establishing annual bonuses and other incentive compensation.
The Company has certain broad-based employee benefit plans in which all
employees, including the named executives, are permitted to participate on the
same terms and conditions relating to eligibility and subject to the same
limitations on amounts that may be contributed. In 1998, the Company also made
matching contributions to the 401(k) Savings Plan for those participants.
Mr. Grad's Compensation
In reviewing Mr. Grad's performance in 1998 and determining appropriate
compensation, the Board took the following major accomplishments into
consideration:
oThe purchase by the Company and the sale by Five Star to the Company
of substantially all operating assets of Five Star.
oThe transformation of the Company into a leading distributor in the
United States of home decorating, hardware and finishing products.
oThe entering into a $25,000,000 credit facility by Five Star with a
group of banks.
Mr. Grad was the driving force behind the Company's transformation into
a leading distributor in the United States of home decorating, hardware and
finishing products through the purchase by the Company and the sale by Five Star
of substantially all of the operating assets of Five Star. Mr. Grad, together
with his senior management team have taken several steps to reduce the Company's
traditional operations from both a business and cost perspective. The Board
considered Mr. Grad's integral role in the above-described transactions as well
as his significant contribution to the Company's financial progress.
Certain Transactions
Transactions with GP Strategies
On September 30, 1998, a newly formed wholly owned subsidiary of the
Company, Five Star purchased from JL Distributors, Inc. ("JL"), a wholly owned
subsidiary of GPS, substantially all of the operating assets of JL. The assets
were purchased for approximately $16,476,000 in cash and a $5,000,000 unsecured
senior note. The unsecured senior note payable to GPS bears interest at the rate
of 8% payable quarterly, with the principal due on September 30, 2003.
<PAGE>
As of January 1, 1994, the Company and GPS entered into a three-year
Management Services Agreement pursuant to which certain direct and indirect
services will be provided to the Company by GPS. The services to be provided by
GPS include legal, tax, accounting, insurance and employee benefit
administration services. The Company pays GPS a fee of $10,000 per month during
the term of the agreement. The Agreement is automatically renewable for
successive one-year terms. The Agreement was renewed for 1998 and 1999.
Five Star leases 250,000 square feet in New Jersey and 110,000 square
feet in Connecticut. Five Star's operating lease for the New Jersey facility
expires in March 2007 and the annual rent is approximately $886,000 and the
lease for the Connecticut facility expires in February 2001 and the annual rent
is approximately $380,000. The Company's New York office space is provided by
GPS pursuant to the Management Services Agreement. GPS has guaranteed the leases
for the New Jersey and Connecticut facilities.
GPS holds approximately 4,830,104 shares of Common Stock, representing
approximately 37% of the Common Stock issued and outstanding on July 1, 1999
(without taking into account outstanding options and warrants). The Company's
by-laws do not provide for cumulative voting. GPS has entered into a Voting
Agreement pursuant to which it has agreed that, for a period of three years from
August 31, 1998 it will vote its shares of Common Stock (i) such that not more
than 50% of the Company's directors will be officers or directors of GPS; and
(ii) on all matters presented to a vote of stockholders, other than the election
of directors, in the same manner and in the same proportion as the remaining
stockholders of the Company vote. See "Principal Stockholders."
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION, AS AMENDED
On July 1, 1999, the Board of Directors approved, subject to
stockholder approval submitted hereby, a proposal to amend Article First of the
Certificate of Incorporation, as amended, to effect the Name Change.
The Board of Directors believes that the Name Change is necessary to
align the Company's corporate identity more with its wholly-owned operating
subsidiary Five Star Group, Inc. ("Five Star"). The name change is consistent
with the transformation of the Company into a distributor of home decorating,
hardware and finishing products.
<PAGE>
VOTE REQUIRED
In order to effect the Name Change, the Certificate of Incorporation
must be amended, which requires, under Delaware law, the affirmative vote of
holders of a majority of the outstanding shares of Common Stock.
The Board of Directors recommends that you vote for the proposal to
amend the Certificate of Incorporation, as amended, to effect the Name Change.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the Company's 2000
proxy statement provided they are received by the Company no later than January
13, 2000, and are otherwise in compliance with applicable Securities and
Exchange Commission regulations.
GENERAL
Since the Company did not have a class of equity securities registered
pursuant to Section 12 of the Exchange Act of 1934 until April 30, 1999,
disclosure as to compliance with Section 16(a) of the Exchange Act and a
performance graph are not required.
So far as is now known, there is no business other than that described
above to be presented for action by the stockholders at the meeting, but it is
intended that the proxies will be voted upon any other matters and proposals
that may legally come before the meeting and any adjournments thereof in
accordance with the discretion of the persons named therein.
COST OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. It is
expected that the solicitations will be made primarily by mail, but regular
employees or representatives of the Company may also solicit proxies by
telephone or telegraph and in person, and arrange for brokerage houses and other
custodians, nominees and fiduciaries to send proxy material to their principals
at the expense of the Company.
Lydia M. DeSantis
Secretary
<PAGE>
AMERICAN DRUG COMPANY
COMMON STOCK Annual Meeting of Stockholders PROXY
To Be Held August 10, 1999
This proxy is solicited on behalf of the Board of Directors
Revoking any such prior appointment, the undersigned, a stockholder of AMERICAN
DRUG COMPANY hereby appoints Jerome I. Feldman and Richard T. Grad, and each of
them, attorneys and agents of the undersigned, with full power of substitution,
to vote all shares of the Common Stock of the undersigned in said Company at the
Annual Meeting of Stockholders of said Company to be held at the offices of the
Company, 903 Murray Road, East Hanover, New Jersey on August 10, 1999 on at
10:30 a.m. local time, and at any adjournments thereof, as fully and effectually
as the undersigned could do if personally present and voting, hereby approving,
ratifying and confirming all that said attorneys and agents or their substitutes
may lawfully do in place of the undersigned as indicated below.
This proxy when properly executed will be voted as directed. If no direction is
indicated, this proxy will be voted for proposal (1), (2) and (3).
1. Election of Directors: Jerome I. Feldman, Richard T. Grad, Charles Dawson,
Scott N. Greenberg, Steven Schilit, Bruce Sherman and Michael Feldman.
For Withhold For All Except
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below)
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<PAGE>
2. Upon the proposal to amend the Company's Certificate of Incorporation, as
amended, to change the name of the Company to Five Star Products, Inc.
For Against Abstain
3. Upon any other matters which may properly come before the meeting or any
adjournments thereof.
Please sign exactly as name appear below.
Dated , 1999
Signature
Signature if held jointly
Please mark, sign, date and return the proxy card promptly
using the enclosed envelope. When shares are held by joint
tenants both should sign. When signing as attorney, as
executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If
a partnership please sign name by authorized person.
