SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
SUPERMARKETS GENERAL HOLDINGS CORPORATION
...........................................................................
(Name of Registrant as Specified in Its Charter)
............................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title or 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:*
............................................................................
4) Proposed maximum aggregate value of transaction:
............................................................................
* Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / 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>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
301 BLAIR ROAD, P.O. BOX 5301, WOODBRIDGE, N.J. 07095
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 8, 1995
To the Stockholders of
Supermarkets General Holdings Corporation:
Notice is Hereby Given that an Annual Meeting (the "Annual Meeting") of the
Common Stockholder and the holders (the "Preferred Stockholders") of the $3.52
Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock") of
Supermarkets General Holdings Corporation, a Delaware corporation, will be held
on June 8, 1995, at 3 P.M., local time, at the offices of the Company located at
200 Milik Street, Carteret, NJ 07008 for the following purposes:
1) For the Common Stockholder to consider and vote upon the election of
eight members of the Board of Directors to serve until the election of their
successors at any meeting of stockholders for the purpose of electing
directors; and
2) For the Preferred Stockholders to consider and vote upon the election
of two members of the Board of Directors to serve until either the election
of their successors at any meeting of stockholders for the purpose of
electing directors or upon the termination of the voting rights of the
Preferred Stockholders upon the payment in full of all accumulated dividends
on the Preferred Stock.
Only Stockholders of record at the close of business on April 15, 1995, the
record date for the Annual Meeting, are entitled to receive notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
To ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed prepaid envelope,
whether or not you plan to attend the Special Meeting. Your proxy may be revoked
in the manner described in the accompanying Proxy Statement at any time before
it has been voted at the Annual Meeting.
By Order of the Board of Directors,
Marc A. Strassler
Secretary
Woodbridge, New Jersey
May 3, 1995
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
301 BLAIR ROAD, P.O. BOX 5301, WOODBRIDGE, N.J. 07095
-------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
-------------------
This Proxy Statement and the accompanying proxy card are furnished in
connection with the solicitation of proxies by the Board of Directors of
Supermarkets General Holdings Corporation ("Holdings" or the "Company") for use
in the Annual Meeting of the sole holder (SMG-II Holdings Corporation, the
"Common Stockholder" or "SMG-II") of the Class A common stock, par value $.01
per share (the "Common Stock") and the holders (the "Preferred Stockholders" and
together with the Common Stockholder the "Stockholders") of the $3.52 Cumulative
Exchangeable Redeemable Preferred Stock (the "Preferred Stock") of the Company
(the "Annual Meeting") to be held on June 8, 1995 and at any adjournment(s)
thereof, at the time and place set forth in the accompanying Notice of Annual
Meeting. The purpose of the Annual Meeting is for the Common Stockholder to
elect eight directors (the "Common Directors") and the Preferred Stockholders to
elect two additional directors (the "Preferred Directors") to the Board of
Directors of the Company. The Preferred Stockholders have the right to elect two
additional directors because the Company has not paid quarterly dividends on the
Preferred Stock for ten consecutive quarters. This Proxy Statement and the
accompanying proxy card were mailed to the Common Stockholder and the Preferred
Stockholders on or about May 8, 1995.
VOTING AND REVOCATION OF PROXIES
All holders of shares of Common Stock and Preferred Stock which are
represented at the Annual Meeting by properly executed proxies received prior to
or at the Annual Meeting, and not revoked, will be voted at the Annual Meeting
in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR the election by the
Common Stockholder of each of the eight Nominees and by the Preferred
Stockholders of each of the two additional nominees for the Board of Directors
nominated by the Company. There are no matters, other than the election of the
Preferred Directors by the Preferred Stockholders that may properly be presented
by the Preferred Stockholders for consideration at the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the taking of the vote at the
Annual Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a subsequent proxy relating to the same Common Stock
or Preferred Stock and delivering it to the Secretary of the Company before the
Annual Meeting or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice revoking a proxy should be sent to:
Supermarkets General Holdings Corporation, 301 Blair Road, P.O. Box 5301,
Woodbridge, N.J. 07095, Attention: Secretary, or hand delivered to the Secretary
at or before the taking of the vote at the Annual Meeting.
RECORD DATE; VOTING AT THE ANNUAL MEETING
The Board has fixed April 15, 1995 as the Record Date for the determination
of Stockholders entitled to notice of and to vote at the Annual Meeting.
Accordingly, only holders of record of Common Stock or Preferred Stock on the
Record Date will be entitled to notice of and to vote at the Annual Meeting or
at any adjournments or postponements thereof. As of the Record Date, the Common
Stock of the Company outstanding and entitled to vote at the Annual Meeting
consisted of 1,075,000 shares, all held by the Common Stockholders and the
Preferred Stock of the Company outstanding and entitled
<PAGE>
to vote at the Annual Meeting consisted of 4,890,671 shares, held by
approximately 1,000 holders of record. The Common Stockholder is obligated,
under the terms of the SMG-II Stockholders Agreement (as hereinafter defined),
to re-elect the current directors of the Board of Directors. Each holder of
record of Preferred Stock on the Record Date is entitled to cast one vote per
share of Preferred Stock on each nominee properly nominated for the vote of
Preferred Stockholders, exercisable in person or by properly executed proxy, at
the Annual Meeting. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding Preferred Stock entitled to vote is
necessary to constitute a quorum at the Annual Meeting for the purpose of
electing two additional directors.
The By-Laws of the Company provide that a vote of the majority of the
Preferred Stock, present in person or proxy at the Annual Meeting, is required
to elect the two additional nominees to the Board as Preferred Directors.
Abstentions and broker non-votes will have the effect of a negative vote.
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board. All expenses of
this solicitation, including the cost of preparing and mailing this Proxy
Statement, will be borne by the Company. In addition to solicitation by use of
the mails, proxies may be solicited by directors, officers and employees of the
Company in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of Preferred Stock held of record by such custodians, nominees and fiduciaries,
and the Company may reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
INTRODUCTION
Pursuant to the Certificate of Stock Designation for the Preferred Stock
(the "Certificate of Designation"), the Company was required to pay cash
dividends to the Preferred Stockholders at an annual rate of $3.52 per share
beginning on January 15, 1993. Such dividends are cumulative and have accrued
since that time. The Certificate of Designation provides that the Preferred
Stock is non-voting, except that if an amount equal to six quarterly dividends
is in arrears in whole, or in part, the Preferred Stockholders voting as a class
are entitled to elect an additional two members to the Board of Directors of the
Company. The Company is currently in arrears on the payment of ten quarterly
dividends, and therefore the Preferred Stockholders presently have the right to
elect two additional members to the Board of Directors.
The Annual Meeting to which this proxy statement relates is being called by
a proper officer of the Company at the written request of certain Preferred
Stockholders.
The Company is a wholly-owned subsidiary of the Common Stockholder, SMG-II
Holdings Corporation, a privately held company, a majority of whose capital
stock is held by affiliates of Merrill Lynch & Co. (the "ML Investors" or
"Merrill Lynch Investors"). Merrill Lynch & Co. ("ML & Co.") is a financial
services holding company providing investment and financing, real estate,
insurance and related services. The Company's primary business activity is the
management of its operating subsidiaries, Pathmark Stores, Inc. ("Pathmark") and
Plainbridge, Inc. ("Plainbridge").
ANNUAL REPORT
A copy of the Annual Report of the Company on Form 10-K for the fiscal year
ended January 28, 1995 accompanies this Proxy Statement.
2
<PAGE>
(A) DIRECTORS OF THE COMPANY
The following table sets forth the name, principal occupation or employment
at the present time and during the last five years, and the name and principal
business of any corporation or other organization in which such occupation or
employment is or was conducted, of the directors of the Company, all of whom are
citizens of the United States. Each individual named below is a director of both
the Company and Pathmark, except for Mr. Rubenstein, who is a director of the
Company only.
Pursuant to a stockholders agreement among SMG-II and its stockholders dated
as of February 4, 1991 (the "SMG-II Stockholders Agreement"), the Merrill Lynch
Investors are entitled to designate seven directors, the Management Investors
are entitled to designate three directors and the Equitable Investors are
entitled to designate one director to Holdings' Board of Directors. Currently,
five of the persons serving as directors were designated by the Merrill Lynch
Investors (Messrs. Burke, Michas, Khanna, McLean and Rubenstein), two were
designated by the Management Investors (Messrs. Futterman and Cuti) and one was
designated by the Equitable Investors (Ms. Penny). In accordance with said
agreement, each of the aforementioned individuals will be re-elected to the
Board of Directors of the Company by the vote of the Common Stockholder of the
Company at the Annual Meeting. No family relationship exists between any
director or nominee and any other director or nominee or executive officer of
the Company. See "Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
DIRECTOR OF THE
COMPANY
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE(1)
- ------------------------------------------------------------------------------ ---------------
<S> <C>
JACK FUTTERMAN, 61, Chairman and Chief Executive Officer of the Company.(2) 1986
ANTHONY J. CUTI, 49, President of the Company.(2) 1993
JAMES J. BURKE, JR., 43, Partner and a Director of Stonington Partners, Inc. 1988
("SPI"), a private investment firm, since July 1994, and a Director of
Merrill Lynch Capital Partners, Inc. ("MLCP") since 1987; Partner of MLCP
from 1993 to 1994; President and Chief Executive Officer of MLCP from 1987
to 1993. Mr. Burke was also a Managing Director of Merrill Lynch & Co. ("ML
& Co.") until 1994. Mr. Burke is also a Director of Amstar Corp., Ann Taylor
Stores Corp., Borg-Warner Security Corp., Education Management Corp., United
Artists Theatre Circuit, Inc., Wherehouse Entertainment, Inc. and World
Color Press, Inc.
ALEXIS P. MICHAS, 37, Partner and a Director of SPI since July 1994, and a 1994
Director of MLCP since 1989; Partner of MLCP from 1993 to 1994; Senior Vice
President of MLCP from 1989 to 1993; Managing Director of Investment Banking
Division of ML & Co. from 1991 to 1994; Director in the Investment Banking
Division of ML & Co. from 1990 to 1991. Mr. Michas is also a Director of
Amstar Corporation, Blue Bird Corporation, Borg-Warner Automotive, Inc.,
Borg-Warner Security Corp. and Eckerd Corporation.
STEPHEN M. McLEAN, 37, Partner and a Director of SPI, since July 1994; Partner 1987
of MLCP from 1993 to 1994; Senior Vice President of MLCP from 1987 to 1993;
Managing Director of the Investment Banking Division of ML & Co. until 1994.
Mr. Mclean is also a Director of CMI Industries, Inc. and Ithaca Holdings,
Inc.
SUNIL C. KHANNA, 38, Principal of SPI since July 1994; Principal of MLCP from 1987
1993 to 1994; Vice President of MLCP until 1993; a Director of the
Investment Banking Division of ML & Co. from 1993 to 1994, and a Vice
President thereof prior thereto. Mr. Khanna is also a Director of Ithaca
Holdings, Inc.
SUSAN C. PENNY, 45, Senior Vice President, Alliance Corporate Finance Group 1994
Incorporated--Investment Advisors (since July 1993); Senior Vice President,
Equitable Capital Management Corp.--Investment Advisors prior thereto. Ms.
Penny is also a director of Selmer Industries, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
JERRY G. RUBENSTEIN, 64, Managing Partner, Omni Management Associates. Mr. 1988
Rubenstein is also a director of Esstar, Inc.; Consultant to MLCP since
1988.
</TABLE>
- ------------
(1) Includes service with a predecessor of Pathmark.
(2) Prior positions are reflected under "--Executive Officers".
(B) NOMINEES FOR PREFERRED DIRECTORS OF THE COMPANY
The following table sets forth the name, principal occupation or employment
at the present time and during the last five years, and the name and principal
business of any corporation or other organization in which such occupation or
employment is or was conducted of the persons nominated to be elected Preferred
Directors of the Company by the Preferred Stockholders, all of whom are citizens
of the United States.
Name, Age, Principal Occupation and Other Directorships
JAMES B. UPCHURCH, 36, President and Chief Operating Officer of Libra
Investments, Inc., an NASD licensed broker/dealer since June 1991; President,
Upchurch & Company, Inc. from February 1991 to May 1991; Senior Vice President,
Investments, Columbia Savings & Loan Association, prior thereto.
STEVEN L. VOLLA, 48, Chairman and Chief Executive Officer of Primary Health
Systems, L.P., a hospital management company, since June 1994; Chairman,
President and Chief Executive Officer of American Health Care Management, Inc.,
prior thereto. Mr. Volla is also a director of Foothill Group, Inc.
(C) EXECUTIVE OFFICERS
The following table sets forth the name, principal occupation or employment
at the present time and during the last five years, and the name of any
corporation or other organization in which such occupation or employment is or
was conducted, of the executive officers of the Company, all of whom are
citizens of the United States unless otherwise indicated and serve at the
discretion of the Board of Directors of the Company. The executive officers of
the Company listed below were elected to office for an indefinite period of
time. No family relationship exists between any executive officer and any other
executive officer or director of the Company. All current executive officers now
hold identical positions with the Company and Pathmark, except for Messrs.
Crowley and Rallo, who are executive officers of Pathmark only.
<TABLE>
<CAPTION>
OFFICER OF THE
COMPANY
NAME AGE POSITIONS AND OFFICE SINCE(1)
- -------------------- --- --------------------------------------------- --------------
<S> <C> <C> <C>
JACK FUTTERMAN 61 Chairman and Chief Executive Officer (since 1986
September 1989); President from September
1989 to August 1993); Vice Chairman prior
thereto. Mr. Futterman joined the Company in
1973.(2)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
OFFICER OF THE
COMPANY
NAME AGE POSITIONS AND OFFICE SINCE(1)
- -------------------- --- --------------------------------------------- --------------
<S> <C> <C> <C>
ANTHONY J. CUTI 49 President (since August 1993) and Chief 1990
Financial Officer (from October 1990 to
September 1994); Executive Vice President
(from October 1990 to August 1993); Vice
President--Bristol-Myers Squibb Co. (from
January 1990 to September 1990); Vice
President of Finance Operations and Chief
Financial Officer, Bristol-Myers
International Group, a division of
Bristol-Myers Co., prior thereto.(2)
NEILL CROWLEY 52 Executive Vice President--Marketing since May 1994
1994; Executive Vice President-- Marketing
and Store Support, The Vons Companies, Inc.
(a supermarket chain) from 1991 to 1994;
President, Skaggs Alpha Beta (a supermarket
chain), Texas division, prior thereto.
RON MARSHALL 41 Executive Vice President and Chief Financial 1994
Officer since October 1994. Senior Vice
President and Chief Financial Officer of
Dart Group Corporation (a diversified
retailer) from 1991 to September 1994. Vice
President and Chief Financial Officer of
Barnes and Noble Bookstores, Inc., prior
thereto.
HARVEY M. GUTMAN 49 Senior Vice President--Retail Development of 1990
the Company (since December 1991); Vice
President--Retail Development of the Company
(from October 1990 to December 1991); Vice
President--Grocery/Frozen Sales &
Merchandising, Pathmark division (from
January 1990 to September 1990); Vice
President--Non-Foods/Pharmacy Sales &
Merchandising, Pathmark division prior
thereto. Mr. Gutman joined the Company in
1976.
ROBERT JOYCE 49 Senior Vice President--Operations (Since 1989
March 1995); Senior Vice President--
Administration (from October 1990 to
February 1995); Senior Vice President Human
Resources (from April 1990 to October 1990);
Vice President--Human Resources (from
October 1989 to April 1990); Mr. Joyce
joined the Company in 1963.
RONALD RALLO 57 Senior Vice President--Merchandising (since 1993
July 1993); Senior Vice President--
Merchandising Pathmark division (from
September 1992 to July 1993); Senior Vice
President--Perishable Merchandising,
Pathmark division (from February 1991 to
September 1992); Vice President--Dairy, Deli
and Bakery Sales and Merchandising, Pathmark
division prior thereto. Mr. Rallo joined the
Company in 1962.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
OFFICER OF THE
COMPANY
NAME AGE POSITIONS AND OFFICE SINCE(1)
- -------------------- --- --------------------------------------------- --------------
<S> <C> <C> <C>
JOSEPH W. ADELHARDT 48 Vice President and Controller (since March 1987
1990); Controller prior thereto. Mr.
Adelhardt joined the Company in 1976.
MAUREEN MCGURL 47 Vice President--Human Resources. Ms. McGurl 1984
joined the Company in 1973.
MARC A. STRASSLER 46 Vice President, Secretary and General Counsel 1987
(since December 1991); Secretary and General
Counsel prior thereto. Mr. Strassler joined
the Company in 1974.
MYRON D. WAXBERG 61 Vice President and General Counsel--Real 1991
Estate (since December 1991); General
Counsel--Real Estate prior thereto. Mr.
Waxberg joined the Company in 1976.
</TABLE>
- ------------
(1) Includes service with Supermarkets General Corporation.
(2) Member of the Company's Board of Directors.
BOARD OF DIRECTORS AND ITS COMMITTEES
There were four meetings of the Board of Directors of Holdings in fiscal
year 1994. During fiscal year 1994, each Director attended at least 75% of the
aggregate of the total number of Board meetings held while he or she was a
Director, except for Ms. Penny, who attended 67% of the Board of Directors'
meetings held while she was a Director. In fiscal year 1994, Holdings had an
Audit Committee and a Compensation Committee.
The Audit Committee, which held two meetings in fiscal year 1994, recommends
the firm to be appointed as independent accountants to audit the financial
statements of SMG-II and its subsidiaries, discusses the scope and results of
the audit with the independent accountants, reviews with management and the
independent accountants the Company's interim and year-end operating results,
considers the adequacy of the internal accounting controls and audit procedures
of the Company and reviews the non-audit services to be performed by the
independent accountants. The members of the Audit Committee are Messrs. Khanna
and Rubenstein.
The Compensation Committee, which held four meetings in fiscal year 1994,
reviews and recommends the compensation arrangements for top management of the
Company, including salaries, bonuses and, if directed by the Board, grants of
options to purchase shares under the Company's Management Investors Stock Option
Plan. The members of the Compensation Committee are Messrs. Burke, McLean and
Khanna.
Each Committee member attended at least 75% of the aggregate of the total
number of meetings of the Committees of which he was a member, held while he was
a Committee member.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than ten percent
beneficial owners were complied with during fiscal year 1994.
6
<PAGE>
EXECUTIVE COMPENSATION.
The following table summarizes compensation paid by the Company (including
its subsidiaries) for services rendered during fiscal 1994, 1993 and 1992 by the
Chief Executive Officer and four most highly compensated executives of the
Company other than the Chief Executive Officer and one additional individual for
whom disclosure would have been provided but for the fact that said individual
was not serving as an executive officer at the end of fiscal year 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION FY SALARY ($) BONUS ($) ($)(1) SARS (2) ($)(3)
- ------------------------------------ ------ ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Futterman...................... 1994 491,346 92,127 -- -- 5,250
Chairman and Chief Executive 1993 462,539 138,762 -- -- 8,254
Officer 1992 431,385 419,510 -- 3,000 8,010
Anthony J. Cuti..................... 1994 306,750 57,516 -- -- 5,250
President 1993 280,250 76,260 -- 3,000 8,254
1992 255,000 198,450 -- 1,000 8,010
Ronald Rallo(4)..................... 1994 200,385 30,058 4,265 -- 5,250
Senior Vice President-- 1993 177,500 42,600 4,311 750 8,098
Merchandising
Robert Joyce........................ 1994 169,125 21,141 2,133 -- 5,250
Senior Vice President--Operations 1993 151,350 30,270 2,156 750 7,559
1992 135,000 87,075 1,999 1,300 6,871
Harvey Gutman....................... 1994 168,712 21,089 3,733 -- 5,250
Senior Vice President--Retail 1993 150,126 30,025 3,774 750 7,467
Development 1992 132,600 85,995 3,500 1,300 6,798
Jules Borshadel(5).................. 1994 236,741 1,400,000 -- -- 5,250
President of Rickel division of 1993 286,750 216,583 -- 500 8,254
Plainbridge 1992 246,827 148,096 -- 1,000 8,010
</TABLE>
- ------------
(1) Represents payments as reimbursement for interest paid to Holdings for a
loan of less than $60,000 from Holdings in connection with the purchase of
SMG-II Class A Common Stock and includes an amount sufficient to pay any
income taxes resulting therefrom after taking into account the value of any
deduction available as a result of the payment of such interest and taxes.
(2) Stock options shown were granted pursuant to the Management Investors 1987
Stock Option Plan of SMG-II (the "Plan") and relate to shares of Class A
Common Stock of SMG-II.
(3) Represents Pathmark's matching contribution to the SGC Savings Plan (the
"Savings Plan").
(4) Mr. Rallo became an executive officer of Pathmark in October 1993.
(5) Mr. Borshadel left the Company's employ on November 4, 1994 in connection
with the sale of the Rickel business. Pursuant to an agreement with Mr.
Borshadel, the Company paid him a bonus of $1,400,000 upon the completion of
said sale.
None of the executive officers named in the above Summary Compensation Table
was granted stock options in the fiscal year ended January 28, 1995.
7
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS/SARS
AT FY-END (#)
EXERCISABLE/
NAME UNEXERCISABLE
- ----------------------------------------------------------------------------- -------------
<S> <C>
Jack Futterman............................................................... 13,000/0
Anthony J. Cuti.............................................................. 5,383/417
Robert Joyce................................................................. 2,000/250
Ronald Rallo................................................................. 2,600/250
Harvey Gutman................................................................ 2,350/250
Jules Borshadel.............................................................. 2,640/0
</TABLE>
- ------------
(1) Options shown were granted pursuant to the Plan and relate to shares of
Class A Common Stock of SMG-II. No options were exercised in Fiscal 1994.
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------
FINAL AVERAGE PAY 10 15 20 25 30 35
- ----------------------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000..................... $20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000
200,000..................... 26,667 40,000 53,333 66,667 80,000 80,000
225,000..................... 30,000 45,000 60,000 75,000 90,000 90,000
250,000..................... 33,333 50,000 66,667 83,333 100,000 100,000
300,000..................... 40,000 60,000 80,000 100,000 120,000 120,000
350,000..................... 46,667 70,000 93,333 116,667 140,000 140,000
450,000..................... 60,000 90,000 120,000 150,000 180,000 180,000
500,000..................... 66,667 100,000 133,333 166,667 200,000 200,000
550,000..................... 73,333 110,000 146,667 183,333 220,000 220,000
600,000..................... 80,000 120,000 160,000 200,000 240,000 240,000
650,000..................... 86,667 130,000 173,333 216,667 260,000 260,000
700,000..................... 93,333 140,000 186,667 233,333 280,000 280,000
750,000..................... 100,000 150,000 200,000 250,000 300,000 300,000
</TABLE>
- ------------
(1) The table above illustrates the aggregate annual pension benefits payable
under the SGC Pension Plan and Excess Benefit Plan (collectively, the
"Pension Plans"). The retirement benefit for individuals with 30 years of
credited service is 40% of the individual's average compensation during his
or her highest five compensation years in the last ten years before
retirement, less one-half of the social security benefit received. The
retirement benefit is reduced by 3.33% for every year of credited service
less than 30. Covered compensation under the Pension Plans includes all cash
compensation subject to withholding plus amounts deferred under the Savings
Plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended, and as to individuals identified in the Summary Compensation Table,
would be the amount set forth in that table under the headings "Salary" and
"Bonus". The table shows the estimated annual benefits an individual would
be entitled to receive if normal retirement at age 65 occurred in January
1995 after the indicated number of years of covered employment and if the
average of the participant's covered compensation for the five years out of
the last ten years of such employment yielding the highest such average
equalled the amounts indicated. The estimated annual benefits are based on
the assumption that the individual will receive retirement benefits in the
form of a single life annuity (married participants may elect a joint
survivorship option) and are before applicable deductions for social
security benefits in effect as of January 1995. As of December 31, 1994, the
following individuals had the number of years of credited service indicated
after their names: Mr. Futterman, 21.6; Mr. Cuti, 3.0; Mr. Joyce, 30; Mr.
Rallo, 30 and Mr. Gutman, 18.8. All of Mr. Borshadel's credited service was
transferred to his new employer which is responsible for Mr. Borshadel's
pension. As described below in "Compensation Plans and
Arrangements--Supplemental Retirement Agreements", each of the named
executives is party to a Supplemental Retirement Agreement with Pathmark
except
(Footnotes continued on following page)
8
<PAGE>
(Footnotes continued from preceding page)
for Mr. Borshadel whose Supplemental Retirement Agreement has been fully
assumed by the purchaser of the Rickel business.
COMPENSATION PLANS AND ARRANGEMENTS
Supplemental Retirement Agreements. The Company has entered into
supplemental retirement agreements with certain key executives, including the
current executive officers named in the Summary Compensation Table, which
provide that the executive will be paid upon termination of employment after
attainment of age 60 a supplemental pension benefit in such an amount as to
assure him or her an annual amount of pension benefits payable under the
supplemental retirement agreement, the Company's qualified pension plans and
certain other plans of the Company, including Savings Plan balances as of March
31, 1983, (a) in the case of Mr. Futterman, equal to (i) $475,000 or (ii) his
base salary on the date of his retirement, death or disability, whichever is
greater, (b) in the case of Mr. Cuti equal to 30% of his final average
Compensation (as hereinafter defined) based on ten years of service with the
Company and increasing 1% per year for each year of service thereafter to a
maximum of 40% of his final average Compensation based on 20 years of service
and (c) in the cases of Messrs. Rallo, Joyce and Gutman, equal to (i) 30% of his
final average Compensation (as hereinafter defined) based on ten years of
service with the Company and increasing 1% per year for each year of service
thereafter, to a maximum of 40% of his final average Compensation based on 20
years of service, or (ii) $150,000, whichever is less. "Compensation" includes
base salary and payments under the Executive Incentive Plan, but excludes
Company matching contributions under the Savings Plan and cash awards under Old
Supermarkets' former Long-Term Incentive Plan. If the executive leaves the
Company prior to completing 20 years of service (other than for disability), the
supplemental benefit would be reduced proportionately. Should the executive die,
the surviving spouse then receiving or, if he or she was not then receiving a
supplemental pension benefit, the spouse would be entitled to a benefit equal to
two-thirds of the benefit to which the executive would have been entitled,
provided the executive has attained at least ten years of service with the
Company. Mr. Cuti's agreement credits him with ten years of service over and
above his actual service.
Employment Agreements. As of August 1, 1993, the Company and Pathmark
entered into an employment agreement with Mr. Futterman (the "1993 Employment
Agreement"). The 1993 Employment Agreement is for an initial term of three
years, which term is automatically extended for an additional year on the second
anniversary of the commencement of the term and on each successive anniversary
thereafter. Under the 1993 Employment Agreement, Mr. Futterman is entitled to a
minimum annual base salary of $500,000. The 1993 Employment Agreement also
provides that Mr. Futterman shall be eligible to receive an annual bonus of up
to 75% of his annual base salary and shall be provided the opportunity to
participate in pension and welfare plans, programs and arrangements that are
generally made available to executives of Pathmark, or as may be deemed
appropriate by the Compensation Committee of the Board of Directors of SMG-II.
As of August 1, 1993, the Company entered into an employment agreement (the
"August Agreement", together with the 1993 Employment Agreement, the "Employment
Agreements") with Mr. Cuti. The August Agreement is for an initial term of three
years, which term is automatically extended for an additional year on the second
anniversary of the commencement of the term and on each successive anniversary
thereafter. Under the August Agreement, Mr. Cuti is entitled to a minimum annual
base salary of $313,500. The August Agreement also provides that he shall be
eligible to receive an annual bonus of up to 75% of his annual base salary and
shall be provided the opportunity to participate in pension and welfare plans,
programs and arrangements that are generally made available to executives of
Pathmark or as may be deemed appropriate by the Compensation Committee of the
Board of Directors of SMG-II.
In the event one of the above named executives' employment is terminated by
the Company without Cause (as defined in the Employment Agreements), or by the
executive for Good Reason (as defined in the Employment Agreements) prior to the
termination of the applicable Employment
9
<PAGE>
Agreement, such executive will be entitled to continue to receive his base
salary, plus bonus (if earned) and continued coverage under health and insurance
plans for the two year period commencing on the date of such termination or
resignation, reduced by any compensation or benefits which the executive is
entitled to receive in connection with his employment by another employer during
said period. In addition, if Mr. Futterman's employment is terminated by the
Company without Cause or by him for Good Reason on or after a Change in Control,
he will then be entitled to receive such benefits for a three year period, and
his base salary shall be the greater of his base salary at the annual rate in
effect immediately prior to such termination of resignation of $500,000.
Under the 1993 Employment Agreement, a Change in Control means (a) the
acquisition by a Third Party (as hereinafter defined) of beneficial ownership of
more than 30% of the issued and outstanding voting common stock of SMG-II,
Holdings or the Company or (b) the acquisition of all or substantially all of
the assets of the Company by a Third Party; provided, however, that no Change in
Control will be deemed to occur as long as (i) the ML Investors, (ii) the
management employees of the Company, or (iii) the ML Investors, in combination
with the management employees of the Company, beneficially own, directly or
indirectly, more than 50% of the voting common stock of the Company. "Third
Party" shall mean any person other than the Company, Holdings or SMG-II, each of
the ML Investors, or The Equitable Life Assurance Society of the United States
and its affiliates. For purposes of the 1993 Employment Agreement, "person" and
"beneficial ownership" shall have the meanings assigned to such terms under
Section 13(d) of the Exchange Act, as amended, and "affiliate" of any first
person shall mean a second person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such first person.
The Employment Agreements contain agreements by the executives not to
compete with the Company as long as they are receiving payments under an
Employment Agreement and an agreement by the executives not to disclose
confidential information.
Mr. Borshadel had an employment contract identical in all material respects
to Mr. Cuti's. As part of the sale, the purchaser of the Rickel business has
fully assumed all obligations under Mr. Borshadel's contract.
DIRECTOR'S FEES
Directors of the Company are not currently compensated for their services as
such. However, Mr. Rubenstein receives an annual fee of $20,000 from Plainbridge
for sitting on its Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Burke, Khanna and McLean comprise the compensation committee of the
Board of Directors of SMG-II, and were responsible for decisions concerning
compensation of the executive officers of the Company. Messrs. Burke and McLean
are directors of MLCP and they, along with Mr. Khanna, have been retained by
MLCP as consultants. MLCP is an indirect wholly-owned subsidiary of ML & Co. See
"Security Ownership of Certain Beneficial Ownership and Management."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of non-employee directors and is responsible for developing
and making recommendations to the Board with respect to the Company's executive
compensation policies. The Compensation Committee, pursuant to authority
delegated by the Board, determines on an annual basis the compensation to be
paid to the Chief Executive Officer and certain other executive officers of the
Company and its subsidiaries.
10
<PAGE>
The objectives of the Company's executive compensation program are to:
. Provide compensation that will attract and retain superior talent and
reward individual performance.
. Support the achievement of desired Company performance goals.
. Align the executive officers' interests with the interests of the
Company by placing a portion of pay at risk with payout dependent upon
corporate performance.
The executive compensation program is designed to provide an overall level
of compensation opportunity that is above the median level of the market
contingent on achieving superior levels of performance. Base salaries are
generally at or around the labor market median. Annual and long-term incentive
targets are established so that compensation is greater or less than the market
average depending on corporate and individual performance. The Compensation
Committee will use its discretion to set executive compensation where in it's
judgement, circumstances warrant it.
Competitive pay levels are determined by reviewing compensation levels of
food retail and supermarket industries, as well as with a broader group of
companies of comparable size and complexity. The Company uses survey data from
several compensation consulting firms to determine these pay levels.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long-term incentive compensation in
the form of stock options, and various benefits, including medical and pension
plans generally available to non-union full-time associates of the Company.
BASE SALARY
Salary levels for executive officers, are determined by:
. evaluating each position's responsibilities and accountabilities, as
compared to other positions within the Company, and
. comparing to salaries at companies in the food retail and supermarket
industries and at other comparable companies as previously described.
Each year, a formal performance review is conducted and salary increases are
granted to reward performance under the Company's "Pay for Performance" program.
Increases to salary are influenced by 1) individual performance against
established goals, 2) an associate's position within his/her established salary
range, and 3) budgetary guidelines.
These salary increase guidelines are set each year, taking into account
published salary planning information from compensation consultants, economic
data available from the Bureau of Labor Statistics, surveys of selected food
retail and supermarket chains with whom we routinely share compensation data,
competitive position against the market, and expected Company financial
performance.
To determine increases to the salaries of certain executive officers, the
Committee follows the "Pay for Performance" concept and considers changes in
responsibilities and any equity issues that may exist.
ANNUAL INCENTIVE COMPENSATION
The Executive Incentive Plan ("EIP") is the Company's annual incentive
program for executive officers. The purpose of the plan is to provide a direct
financial incentive in the form of an annual cash award to executives who
achieve pre-established individual performance goals and/or the Company
financial goals. Goals for Company and business unit performance are set near
the beginning of each fiscal year and are measured based on Earnings Before
Interest, Taxes, Depreciation, Amortization and LIFO charges ("EBITDA").
Target incentive awards for executives range from 31.25% to 75% of base
salary and are set at a competitive level as previously discussed and depends on
the level of each position based on an
11
<PAGE>
evaluation of its responsibilities and accountabilities and its contribution to
Company results. Individual performance is taken into account in determining
bonuses. Although no award was earned under the EIP, the Compensation Committee
authorized an incentive payment equal to 25% of maximum incentive opportunity
for each named executive officer, including the Chief Executive Officer. The
Compensation Committee authorized this payment in recognition of the favorable
level of operating cash flow achieved compared to the Company's key competitors
and compared to the prior year's results.
STOCK OPTION PROGRAM AND INVESTMENT OPPORTUNITY
The stock option program is the Company's long-term incentive plan for
executive officers. The objectives of the program are to align executive and
Company long-term interests by creating a strong and direct link between
executive pay and financial results, and to encourage executives to develop and
maintain a significant, long-term stock ownership position in the Company.
The 1987 Management Investor Stock Option Plan authorizes the Compensation
Committee to award stock options, either incentive or non-qualified, to key
executives at an option price which equals the fair market value of the
Company's Common Stock on the date of grant. Options are awarded based on an
executive's position level and contribution to Company results. Options have
ten-year terms. The amount, timing and type of awards are as the Committee, in
its discretion, deems appropriate.
In addition, certain executives are given the opportunity to invest in the
Company directly through the purchase of shares of Common Stock. Certain
executives can participate in a low-interest loan program to help finance stock
purchases.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Futterman's base pay is below the base compensation paid to chief
executives of many similar companies in the supermarket industry as reported in
published industry compensation surveys.
Mr. Futterman's salary has been and continues to be below the established
Company salary range minimum for his position.
Mr. Futterman has been Chief Executive Officer since 1989. At the beginning
of fiscal 1994, Mr. Futterman's salary was $475,000. Effective June 5, 1994, Mr.
Futterman received a 5.26% merit increase to $500,000 in light of his base
salary being under Company minimum, and under median of comparative companies.
As indicated above, Mr. Futterman received an incentive payment equal to 25%
of his maximum incentive opportunity (75% of base salary).
In 1994 no stock options were awarded to Mr. Futterman.
The Compensation Committee
Stephen M. McLean, Chairman
James. J. Burke, Jr.
Sunil C. Khanna
12
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Since February 4, 1991, all shares of the Holdings Common Stock are held by
SMG-II. All shares of SMG-II Capital stock are subject to the terms and
provisions of the SMG-II Stockholders Agreement. See Certain Relationships and
Related Transactions. As of April 1, 1995, the number of shares of (a) SMG-II
(i) Class A Common Stock, (ii) Class B Common Stock, (iii) Series A Preferred
Stock, and (iv) Series B Preferred Stock and (b) Holdings Preferred Stock
beneficially owned by the persons known by management of the Company to be the
beneficial owners of more than 5% of the outstanding shares of any class as
"beneficial ownership" has been defined under Rule 13d-3, as amended, under the
Securities Exchange Act of 1934, are set forth in the following table:
<TABLE>
<CAPTION>
NUMBER % OF
NAME OF SHARES CLASS
- --------------------------------------------------------------------- --------- --------
<S> <C> <C>
SMG-II Class A Common Stock
Merrill Lynch Capital Appreciation Partnership No. IX, L.P.(2)..... 488,704.8 67.5
ML Offshore LBO Partnership No. IX(2).............................. 12,424.7 1.7
Barfield House
St. Julians Avenue
St. Peter Port
Guernsey
Channel Islands
ML Employees LBO Partnership No. I, L.P.(2)........................ 12,148.6 1.7
ML IBK Positions, Inc.(3).......................................... 21,258.9 2.9
Merchant Banking L.P. No. 1(3)..................................... 8,119 1.1
Merrill Lynch KECALP L.P. 1987(3).................................. 7,344 1.0
CBC Capital Partners, Inc.(4)...................................... 30,000 4.1
270 Park Avenue
New York, NY 10017
Management and other employees (including former employees of
Pathmark)........................................................ 144,947 (1) 20.0
301 Blair Road
Woodbridge, NJ 07095
SMG-II Class B Common Stock
The Equitable Life Assurance Society of the United States(5)....... 114,000 35.6
c/o Alliance Corporate Finance Group Incorporated
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
Equitable Deal Flow Fund, L.P.(5).................................. 150,000 46.9
c/o Alliance Corporate Finance Group Incorporated
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
Equitable Variable Life Insurance Company(5)....................... 36,000 11.3
c/o Alliance Corporate Finance Group Incorporated
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
CBC Capital Partners, Inc.(4)...................................... 20,000 6.2
SMG-II Series A Preferred Stock(6)
Merrill Lynch Capital Appreciation Partnership No. B-X, L.P.(2).... 133,043 56.2
ML Offshore LBO Partnership No. B-X(2)............................. 40,950 17.3
MLCP Associates, L.P. No. II(2).................................... 1,740 .7
ML IBK Positions, Inc.(3).......................................... 46,344.5 19.6
Merchant Banking L.P. No. IV(3).................................... 3,779 1.6
Merrill Lynch KECALP L.P. 1989(3).................................. 7,000 3.0
Merrill Lynch KECALP L.P. 1991(3).................................. 3,874.5 1.6
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER % OF
NAME OF SHARES CLASS
- --------------------------------------------------------------------- --------- --------
<S> <C> <C>
SMG-II Series B Preferred Stock(6)
CBC Capital Partners, Inc.(4)...................................... 12,500 6.9
Equitable Variable Life Insurance Company(5)....................... 20,192 11.2
The Equitable Life Assurance Society of the United States(5)....... 63,942 35.4
Equitable Deal Flow Fund, L.P.(5).................................. 84,135 46.5
Holdings Preferred Stock(7)(8)
Fidelity Management & Research Company(9).......................... 680,248 13.9
82 Devonshire Street
Boston, MA 02109
Sun America, Inc................................................... 641,785 13.1
1 Sun America Center
Century City
Los Angeles, CA 90067-6022
Massachusetts Financial Services Company(10)....................... 591,925 12.1
500 Boylston Street
Boston, MA 02116
State Street Research & Management Company(12)..................... 415,818 8.5
One Financial Center, 38th Floor
Boston, MA 02111
IDS Financial Services Inc.(11).................................... 359,972 8.0
80 South 8th Street
Minneapolis, MN 55440
</TABLE>
- ------------
(1) Includes presently exercisable options granted under the Plan for 71,772
shares of SMG-II Class A Common Stock held by Management Investors and 500
shares of SMG-II Class A Common Stock that SMG-II has agreed to sell to two
of the Company's employees, including 250 shares to Mr. Cuti. Does not
include 39,120 options to purchase shares of SMG-II Class A Common Stock
granted to non-management employees of the Company, which options are not
exercisable until a public offering of SMG-II Common Stock occurs. See
Table on page 15.
(2) MLCP and its affiliates are the direct or indirect managing partners of ML
Offshore LBO Partnership No. IX, Merrill Lynch Capital Appreciation
Partnership No. IX, L.P., ML Employees LBO Partnership No. 1, L.P., Merrill
Lynch Capital Appreciation Partnership No. B-X, L.P., ML Offshore LBO
Partnership No. B-X and MLCP Associates, L.P. No. II. Such entities and
those disclosed in footnote (3) below, are referred to herein as the
"Merrill Lynch Investors" or ML Investors. The address of such entities is
c/o Merrill Lynch Capital Partners, Inc., in care of Stonington Partners,
Inc., 767 Fifth Avenue, New York, New York 10153. MLCP is an indirect
wholly owned subsidiary of ML&Co. The partners and principals of SPI
including Messrs. Burke, Michas, McLean and Khanna) are consultants to
MLCP.
(3) Merchant Banking L.P. No. 1, Merchant Banking L.P. No. IV, Merrill Lynch
KECALP L.P. 1987, Merrill Lynch KECALP L.P. 1989, Merrill Lynch KECALP L.P.
1991 and ML IBK Positions, Inc. are indirectly controlled by ML&Co. The
address of such entities is c/o James Caruso, Merrill Lynch & Co., Inc.,
World Financial Center, South Tower, New York, New York 10080-6123.
(4) CBC Capital Partners, Inc. is a wholly owned subsidiary of Chemical Banking
Corp.
(5) Such entities are referred to herein as the "Equitable Investors". The
Equitable Investors are separate purchasers who are affiliates of each
other.
(6) SMG-II Series A Preferred Stock and SMG-II Series B Preferred Stock are
collectively referred to herein as "SMG-II Preferred Stock". SMG-II
Preferred stock may be converted into an equivalent number of shares of
common stock of SMG-II in accordance with its terms.
(7) Voting rights are limited to the election of two directors to the Board of
Holdings.
(8) The information with respect to Massachusetts Financial Services Company
and IDS Financial Services, Inc. was derived from investment information
contained in Forms N-30D filed with the Commission. The information with
respect to State Street Research & Management Company was derived from
investment information contained in the Annual Reports filed with the
Commission. The information with respect to Fidelity Management & Research
Company was derived from investment information in Forms N-30D and Annual
Reports filed with the Commission.
(footnotes continued on following page)
14
<PAGE>
(footnotes continued from preceding page)
(9) Shares of Holdings Preferred Stock are owned by five funds managed by
Fidelity Management & Research Company. Such shares are owned of record as
follows: 249,727 shares by Fidelity Capital & Income Fund, 243,979 shares
by Fidelity Spartan High Income Fund, 100,562 shares by Fidelity
Equity-Income Fund, 41,600 shares by Fidelity Asset Manager, and 33,480
shares by Fidelity Advisor High Yield Fund.
(10) Shares of Holdings Preferred Stock are owned by two funds managed by
Massachusetts Financial Services Company. Such shares are owned of record
as follows: 569,098 shares by MFS High Income Fund and 22,827 shares by MFS
Multimarket Income Trust.
(11) Shares of Holdings Preferred Stock are owned by two funds managed by
American Express Financial Advisors. Such shares are owned of record as
follows: 275,000 shares by IDS Extra Income Fund and 120,972 shares by IDS
Bond Fund.
(12) Shares of Holdings Preferred Stock are owned by two funds managed by State
Street Research and Management Company. Such shares are owned of record as
follows: 23,631 by MetLife-State Street Equity Income Fund and 392,187
shares by MetLife State Street High Income Fund.
No officer or director claims beneficial ownership of any share of Holdings
Common Stock or of SMG-II stock other than SMG-II Class A Common Stock. The
number of shares of SMG-II Class A Common Stock and Holdings Preferred Stock
beneficially owned by each director, by each nominee for director, by each of
the five highest compensated executive officers and by all directors and all
current and executive officers as a group is as follows:
<TABLE>
<CAPTION>
SMG-II CLASS A
COMMON STOCK HOLDINGS PREFERRED
NAME NUMBER OF SHARES % OF CLASS NUMBER OF SHARES % OF CLASS
- ------------------- ---------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C>
James J. Burke,
Jr.(1) ............ -- -- -- --
Anthony J.
Cuti(2)............ 5,633 * -- --
Jack Futterman(2).. 23,000 3.2 -- --
Harvey Gutman(2)... 2,700 * -- --
Robert Joyce(2).... 2,700 * -- --
Sunil C. Khanna.... 700 * -- --
Stephen M.
McLean(1).......... -- -- -- --
Alexis P.
Michas(1).......... -- -- -- --
Susan C. Penny .... -- -- -- --
Ronald Rallo(2).... 3,000 * 966 *
Jerry G.
Rubenstein(2)...... 2,500 * -- --
James B. Upchurch.. -- -- -- --
Steven L. Volla.... -- -- -- --
Directors and
Executive
Officers as a
group(1)(2)........ 48,016 6.6 966 *
</TABLE>
- ------------
* Less than 1%
(1) Does not include 550,000 shares of SMG-II Class A Common Stock or 236,731.5
shares of SMG-II Series A Preferred Stock owned beneficially by a group of
which MLCP is a part. Messrs. Burke, McLean and Michas, directors of MLCP,
disclaim beneficial ownership in all such shares.
(2) Includes 250 shares of SMG-II Class A Common Stock that SMG-II has agreed to
sell to Mr. Cuti and presently exercisable options granted under the Plan to
purchase shares of SMG-II Class A Common Stock, as follows: Mr. Cuti, 5,383;
Mr. Futterman, 13,000; Mr. Gutman, 2,350; Mr. Joyce, 2,000; Mr. Rallo, 2,600
and Mr. Rubenstein, 1,000, and all directors and officers as a group,
31,466.
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1990, Jerry G. Rubenstein, a Director, borrowed from the Company
$100,000 in order to help finance his purchase of Company Class A Common Stock.
Subsequently, such shares of Company Class A Common Stock were exchanged for
shares of SMG-II Class A Common Stock. The foregoing indebtedness to the Company
is evidenced by a full recourse promissory note (the "Recourse Note"). The
Recourse Note is for a term of ten years and bears interest at the rate of 8.02%
per annum, payable annually. Except as otherwise provided in the Recourse Note,
no principal on such recourse loan shall be due and payable until the tenth
anniversary of the date of issue of such Recourse Note. Under the terms of the
agreement pursuant to which the shares of Company Class A Common Stock were
exchanged for shares of SMG-II Class A Common Stock, the Company is obligated to
pay to each Management Investor who pays interest on his Recourse Note (except
under certain circumstances) an amount equal to such interest, plus an amount
sufficient to pay any income taxes resulting from the above described payment
after taking into account the value of any deduction available to him as a
result of the payment of such interest or taxes (the "Reimbursement Amount"). As
of April 1, 1995, Mr. Rubenstein remained indebted to the Company in the amount
of $100,000.
During Fiscal 1994, the Company retained ML & Co. to advise it in connection
with its sale of its Rickel Home Center business. Also, in the current fiscal
year, the Company has engaged ML & Co. to act as financial adviser in certain
matters. The Company believes that the terms of the transactions referred to
under this paragraph were no less favorable than those obtainable in
transactions with unrelated persons. See "Security Ownership of Certain
Beneficial Owners and Management."
In connection with the sale of its Rickel Home Center business, one of the
Company's subsidiaries used approximately $71.3 million of the sale proceeds to
partially prepay certain indebtedness, including accrued interest and debt
premium, held by the Equitable Investors. Ms. Penny, a director of the Company,
is an executive officer of a subsidiary of the Equitable Life Assurance Society
of the United States. See "Security Ownership of Certain Beneficial Owners and
Management".
The holders of SMG-II Preferred Stock are a party with the holders of SMG-II
Common Stock to a stockholders agreement (the "SMG-II Stockholders Agreement"),
which, among other things, restricts the transferability of SMG-II capital stock
and relates to the corporate governance of SMG-II and Holdings. Among other
provisions, the SMG-II Stockholders Agreement requires a vote of at least 80% of
the members of the Board of Directors to cause the Company to conduct any
business other than that engaged in by the Company in February of 1991 and the
approval of stockholders representing 66 2/3% of the number of shares of SMG-II
voting capital stock voting together as a single class for SMG-II to enter into
any Significant Transaction (as defined), including certain mergers, sales of
assets, acquisitions, sales or redemptions of stock, the amendment of the
certificate of incorporation or by-laws or the liquidation of SMG-II. The SMG-II
Stockholders Agreement also provides that SMG-II must obtain the prior written
consent of the Equitable Investors with respect to certain of these transactions
and that the Equitable Investors have certain preemptive rights with respect to
the sale of capital stock of Holdings or the Company.
The SMG-II Stockholders Agreement also contains an agreement of the
stockholders of SMG-II with respect to the composition of SMG-II's and Holdings'
Boards of Directors. Under this agreement, the Merrill Lynch Investors will be
entitled to designate up to seven directors, the Management Investors will be
entitled to designate up to three directors and the Equitable Investors will be
entitled to designate one director to both of SMG-II's and Holdings' Boards of
Directors. Such agreement furthermore entitles the Merrill Lynch Investors to
designate a majority of Holdings' Board of Directors at all times. Since
Holdings owns all of the outstanding shares of Common Stock, by having the
ability to designate a majority of Holdings' Board of Directors, the Merrill
Lynch Investors will have the ability to control the Company. The Merrill Lynch
Investors are controlled by ML&Co.
In addition to the foregoing, the SMG-II Stockholders Agreement contains
terms restricting the transfer of SMG-II Common Stock and SMG-II Preferred Stock
(collectively, the "SMG-II Stock") by the stockholders of SMG-II, and providing
to the stockholders of SMG-II rights of first offer with respect to resales of
SMG-II Stock, rights of first refusal with respect to certain issuances of
shares of SMG-II Stock, certain rights to demand or participate in registrations
of shares of SMG-II Stock under the Securities Act and certain "tag-along"
rights.
By Order of the Board of Directors
Marc A. Strassler
Secretary
16
