<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
SUPERMARKETS GENERAL HOLDINGS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(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>
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 13, 1997
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 13, 1997, at 4:00 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
nine 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 May 5, 1997, 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 Annual 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 13, 1997
<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 13, 1997 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 nine 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 17 consecutive quarters. This Proxy Statement and the
accompanying proxy card were mailed to the Common Stockholder and the Preferred
Stockholders on or about May 13, 1997.
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 of Directors has fixed May 5, 1997 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 Stockholder and
the Preferred Stock of the Company outstanding and entitled 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
<PAGE>
(as hereinafter defined), to re-elect the Common 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 Preferred 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 of Directors 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 of Directors. 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 17 quarterly
dividends, and therefore the Preferred Stockholders presently have the right to
elect two Preferred Directors.
The Annual Meeting to which this proxy statement relates is being called by
a proper officer of the Company.
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 subsidiary, Pathmark Stores, Inc. ("Pathmark").
ANNUAL REPORT
A copy of the Annual Report of the Company on Form 10-K for the fiscal year
ended February 1, 1997 accompanies this Proxy Statement.
2
<PAGE>
(A) DIRECTORS OF THE COMPANY
The following table sets forth the name, age, 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 each nominee for election as a
director.
Pursuant to a stockholders agreement among SMG-II and its stockholders dated
as of February 4, 1991 as amended (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, six of the persons serving as directors were designated by
the Merrill Lynch Investors (Messrs. Bowman, Boyle, Burke, Khanna, McLean and
Rubenstein), one was designated by the Management Investors (Mr. Donald) and one
was designated by the Equitable Investors (Mr. Gummeson). One, Mr. Miller, was
designated by the three investor groups. By having the ability to designate a
majority of Holdings' Board of Directors, the Merrill Lynch Investors have the
ability to control the Company. 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 or before 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
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS COMPANY SINCE
- --------------------------------------------------------------------------------------------------- ---------------
<S> <C>
NOMINEES TO BE ELECTED BY COMMON STOCKHOLDER
MATTHIAS BOWMAN, 48, Chief Executive Officer of Merrill Lynch Capital Partners, Inc., ("MLCP"), an 1997
investment firm affiliated with Merrill Lynch & Co., ("ML&Co."), the financial services concern,
since 1994; Vice Chairman of Investment Banking with ML&Co. since 1993; Managing Director of
Merrill Lynch, Pierce, Fenner & Smith Incorporated since at least 1992. Mr. Bowman is also a
Director of Rykoff-Sexton, Inc.
JOHN W. BOYLE, 68, Chairman and Chief Executive Officer of the Company from March 1996 to October 1996
1996 (Retired); Vice Chairman (retired), Eckerd Corporation, a drug store chain, between 1983 and
1995. Mr. Boyle is also a Director of United Artists Theater Circuit, Inc.(1)
JAMES J. BURKE, JR., 45, Managing Partner and a Director of Stonington Partners, Inc. ("SPI"), a 1988
private investment firm, since 1993, and a Director of 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 ML&Co. until 1994. Mr. Burke is also a Director of Ann Taylor Stores Corp.,
Borg-Warner Security Corp., Education Managment Corp. and United Artists Theater Circuit, Inc.
JAMES DONALD, 43, Chairman, President and Chief Executive Officer of the Company (since October 1996
1996); Senior Vice President and General Manager, Safeway, Inc., Eastern Division from February
1994 until October 1996; Vice President-Marketing, Wal-mart Corp. prior thereto(2).
U. PETER C. GUMMESON, 38, Managing Director of Alliance Corporate Finance Group, Incorporated, an 1996
investment firm affiliated with the Equitable Life Assurance Society of the United States (the
"Equitable") and an investment officer of the Equitable.
SUNIL C. KHANNA, 40, Principal of SPI since 1993; Principal of MLCP from 1993 to 1994; Vice 1987
President of MLCP from 1989 to 1993; a Director of the Investment
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR OF THE
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS COMPANY SINCE
- --------------------------------------------------------------------------------------------------- ---------------
Banking Division of ML&Co. from 1993 to 1994, and a Vice President thereof prior thereto. Mr.
Khanna is also a Director of Rykoff-Sexton, Inc.
<S> <C>
STEPHEN M. McLEAN, 39, Partner and a Director of SPI since 1993; Partner of MLCP from 1993 to 1994; 1987
Senior Vice President of MLCP from 1987 to 1993; Director of MLCP since 1987; Managing Director
of the Investment Banking Division of ML&Co. until 1994. Mr. McLean is also a Director of CMI
Industries, Inc. and Dictaphone Corporation.
ROBERT G. MILLER, 53, Chairman and Chief Executive Officer of Fred Meyer, Inc., a diversified 1997
retailer. Mr. Miller is also a Director of PacifiCorp.
JERRY G. RUBENSTEIN, 67, Managing Partner, Omni Management Associates; Consultant to MLCP since 1988
1988.
</TABLE>
- ------------------------
(1) Mr. Boyle was retained on March 20, 1996 to act as the Company's interim
Chairman and Chief Executive Officer. He resigned said position on October
7, 1996.
(2) Mr. Donald was elected as Chairman, President and Chief Executive Officer of
the Company effective October 8, 1996.
(B) NOMINEES FOR PREFERRED DIRECTORS OF THE COMPANY
The following table sets forth the name, age, 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.
<TABLE>
<CAPTION>
DIRECTOR OF THE
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS COMPANY SINCE
- --------------------------------------------------------------------------------------------------- ---------------
<S> <C>
JAMES B. UPCHURCH, 38, President and Chief Operating Officer of Libra Investments, Inc., an NASD 1995
licensed broker/dealer.
STEVEN L. VOLLA, 50, Chairman and Chief Executive Officer of Primary Health Systems, L.P., a 1995
hospital management company, since June 1994; Chairman, President and Chief Executive Officer of
American Health Care Management, Inc., prior thereto.
</TABLE>
(C) EXECUTIVE OFFICERS
The following table sets forth the name, age, 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 serve at
the discretion of the Board of Directors of the Company. The executive officers
of the Company
4
<PAGE>
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.
<TABLE>
<CAPTION>
OFFICER OF
THE
COMPANY
NAME AGE POSITIONS AND OFFICE SINCE
- --------------------------------- --- ---------------------------------------------------------- ------------
<S> <C> <C> <C>
JAMES DONALD 43 Chairman, President and Chief Executive Officer since 1996
October 1996(1)
NEILL CROWLEY 54 Executive Vice President--Retail Services since October 1994
1996; Executive Vice President-- Distribution since May
1995; Executive Vice President--Marketing from May 1994
to May 1995; Executive Vice President--Marketing and
Store Support, The Vons Companies, Inc. (a supermarket
chain) prior thereto.
RON MARSHALL 43 Executive Vice President and Chief Financial Officer since 1994
October 1994. Senior Vice President and Chief Financial
Officer of Dart Group Corporation (a diversified
retailer) prior thereto.
JOSEPH W. ADELHARDT 50 Senior Vice President and Controller since January 1996; 1987
Vice President and Controller prior thereto. Mr.
Adelhardt joined the Company in 1976.
HARVEY M. GUTMAN 51 Senior Vice President--Retail Development. Mr. Gutman 1990
joined the Company in 1976.
ROBERT JOYCE 51 Senior Vice President (since October 1996); Executive Vice 1989
President--Operations (from January 1996 to October 1996;
Senior Vice President--Operations--from March 1995 to
January 1996; Senior Vice President-- Administration
prior thereto. Mr. Joyce joined the Company in 1963.
RONALD RALLO 59 Senior Vice President--Merchandising (since October 1996); 1993
Executive Vice President-- Merchandising (from May 1995
to October 1996); Senior Vice President--Merchandising
from July 1993 to May 1995); Senior Vice President--
Merchandising Pathmark division (from September 1992 to
July 1993); Senior Vice President-- Perishable
Merchandising, Pathmark division prior thereto. Mr. Rallo
joined the Company in 1962.
MARC A. STRASSLER 49 Vice President, Secretary and General Counsel. Mr. 1987
Strassler joined the Company in 1974.
MYRON D. WAXBERG 63 Vice President and General Counsel--Real Estate Mr. 1991
Waxberg joined the Company in 1976.
</TABLE>
- ------------------------
(1) Member of the Company's Board of Directors.
5
<PAGE>
BOARD OF DIRECTORS AND ITS COMMITTEES
There were five meetings of the Board of Directors of Holdings in fiscal
year 1996. The Board of Directors of Holdings does not have Committees, but
SMG-II has an Audit Committee (the "Audit Committee") and a Compensation
Committee (the "Compensation Committee") which, pursuant to authority delegated
by the Board of Directors, acts on behalf of the Company. See "Compensation
Committee Report on Executive Compensation."
The Audit Committee, which held two meetings in fiscal year 1996, 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. Boyle,
Khanna and Rubenstein.
The Compensation Committee, which held two meetings in fiscal year 1996,
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 SMG-II's Management Investors Stock Option
Plan. The members of the Compensation Committee are Messrs. Boyle, Burke, McLean
and Khanna. Mr. Boyle joined the Committee on January 10, 1997.
Neither the Company's Board of Dirctors nor SMG-II's Board of Directors has
a nominating committee or committee performing functions similar to those of a
nominating commitee.
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 1996.
6
<PAGE>
EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------------
-------------------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSATION STOCK AWARDS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2) (#)(3) ($)(4)
- ---------------------------------- --------- ----------- ----------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Donald(5)................ 1996 193,846 1,175,000 340,021 3,400,000 100,000 16,821
Chairman, President and Chief
Executive Officer
Jack Futterman(6)................. 1996 70,673 -- -- -- -- 2,545,000
Retired Chairman, President and 1995 526,442 332,658 -- -- -- 5,250
CEO 1994 491,346 92,127 -- -- -- 5,250
John W. Boyle(5).................. 1996 -- -- -- -- 3,000 388,980
Retired Interim Chairman,
President and CEO
Ron Marshall...................... 1996 300,000 36,000 49,177 -- -- 5,250
Executive Vice President and 1995 280,289 168,173 -- -- -- --
Chief Financial Officer 1994 89,904 53,942 -- -- 2,000 --
Neill Crowley..................... 1996 253,750 30,450 -- -- -- 5,250
Executive Vice President- Retail 1995 247,212 112,241 -- -- -- 4,341
Services 1994 168,712 21,089 -- -- 1,000 --
Ronald Rallo...................... 1996 245,000 29,400 4,389 -- -- 5,250
Senior Vice President- 1995 227,500 113,585 4,399 -- -- 5,250
Merchandising 1994 200,385 21,141 4,265 -- -- 5,250
Robert Joyce...................... 1996 223,846 26,862 2,195 -- -- 5,250
Senior Vice President 1995 205,437 84,650 2,200 -- 250 5,250
1994 169,125 21,141 2,133 -- -- 5,250
</TABLE>
- ------------------------
(1) Represents (i) with respect to Mr. Donald, payment of $58,771 to Mr. Donald
as reimbursement of legal expenses in connection with the negotiation of his
employment agreement and forgiveness of a loan payment due to the Company of
$281,250; (ii) with respect to Mr. Marshall, reimbursement of relocation
expenses; and (iii) with respect to Messrs. Rallo and Joyce, payments as
reimbursement for interest paid to Holdings for loans each 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 deductions
available as a result of the payment of such interest and taxes.
(2) Includes accumulated dividends of $1,039,440 with respect to an award of
8,520 restricted shares of SMG-II Series C Preferred Stock.
(3) Stock options shown were granted (i) to Mr. Donald pursuant to the
Employment Agreement dated October 8, 1996 among the Company, SMG-II and Mr.
Donald (the "Donald Agreement"); and (ii) to Messrs. Boyle, Marshall,
Crowley and Joyce pursuant to the Management Investors 1987 Stock Option
Plans of SMG-II (the "Plan"). All options relate to shares of SMG-II Class A
Common Stock.
(4) Represents (i) with respect to Mr. Donald, payments of $11,756 on behalf of
Mr. Donald for temporary housing and $5,065 for a term life insurance
premium on Mr. Donald's life; (ii) with respect to Mr. Futterman, payments
of $4,594 representing the Company's matching contribution to the SGC
Savings Plan, $2,128,150 paid to Mr. Futterman pursuant to a Retirement
Agreement dated March 20, 1996 among Mr. Futterman, the Company and SMG-II
(the "Retirement Agreement"), and $412,256 paid pursuant to Mr. Futterman's
Supplemental Retirement Agreement; (iii) with
7
<PAGE>
respect to Mr. Boyle, payments of $288,980 representing a consulting fee for
acting as the Company's interim Chief Executive Officer payable pursuant to
a Consulting Agreement dated March 20, 1996 between the Company and Mr.
Boyle, and a completion bonus of $100,000 in connection with the
identification and hiring of Mr. Donald as Chief Executive Officer; and (iv)
with respect to the other four-named executive officers, the Company's
matching contribution under the SGC Savings Plan.
(5) Mr. Donald was employed by the Company on October 8, 1996 as Chairman,
President and CEO replacing Mr. Boyle who acted as interim Chairman and CEO
from March 20, 1996 to October 7, 1996.
(6) Mr. Futterman retired on March 20, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED
------------------------------------------------------------ ANNUAL RATES OF STOCK
% OF TOTAL PRICE
OPTIONS/ APPRECIATION FOR OPTION
SARS GRANTED EXERCISE OR TERM
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION ------------------------
NAME GRANTED (#) IN FISCAL YEAR (S/SH) DATE 5% ($) 10% ($)
- ----------------------------- ------------- --------------- --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
James L. Donald.............. 100,000 95.7 (1) (2) 6,288,946 15,937,425
John W. Boyle................ 3,000(3) 2.9 100 5/02/06 188,668 478,123
</TABLE>
- ------------------------
(1) The stock option to purchase an aggregate of 100,000 shares of SMG-II Class
A Common Stock granted to Mr. Donald by SMG-II consists of component A
("Option Component A") covering 50,000 shares of SMG-II Class A Common Stock
and component B ("Option Component B") covering the remaining 50,000 shares
of Common Stock. Subject to the vesting terms described below, Option
Component A has an initial per share exercise price of $100 per share. The
per share exercise price of Option Component A will increase to $125 per
share on the first day of the Fiscal Year beginning in calendar year 2000
("Fiscal Year 2000") and to $150 per share on the first day of the Fiscal
Year beginning in calendar year 2001 ("Fiscal Year 2001"). Subject to the
vesting terms described below, Option Component B has an initial per share
exercise price of $100 per share. The per share exercise price of Option
Component B will increase to $150 per share on the first day of the Fiscal
Year beginning in calendar year 1999; to $250 per share on the first day of
Fiscal Year 2000; and to $350 per share on the first day of Fiscal Year
2001. Mr. Donald will vest in 25% of the Option Component A and in 25% of
the Option Component B on the Effective Date and on each of the first
through third anniversaries of the Effective Date, provided that the
Optionee is in the employ of the Company on each such date. Upon the
Occurrence of a Minimum IPO (as defined below) while the Optionee is in the
employ of the Company, the entire Option shall immediately and fully vest.
In addition, the Option will immediately and fully vest upon the occurrence
of a Change in Control occurring prior to a Termination Event. Except for
purposes of tag-along rights and piggyback rights under the Stockholders
Agreement, the Option shall not be exercisable (even though the Option or a
portion thereof is vested) unless and until it becomes exercisable in
accordance with the following provisions:
(i) The Exercisable Percentage (as defined below) of each component of the
Option will become exercisable if the ML Investors (as defined in the
Stockholders Agreement) have a Realization
Event (as defined below) in respect of the SMG-II Class A Common Stock at
a per share price in excess of the amounts (the "Target Prices") set
forth below:
8
<PAGE>
<TABLE>
<CAPTION>
TARGET PRICE PER TARGET PRICE PER
SHARE/OPTION SHARE/OPTION COMPONENT
PERIOD OF TIME COMPONENT A B
- ---------------------------------------------------- ----------------- -------------------------
<S> <C> <C>
Prior to 2/1/00..................................... $ 100 $ 150
2/1/00 to 1/31/01................................... $ 125 $ 250
2/1/01 and after.................................... $ 150 $ 350
</TABLE>
(ii) Notwithstanding the above, if the ML Investors have a Realization Event
for more than 15% of the shares of SMG-II Class A Common Stock
beneficially owned by them on the date Mr. Donald is granted an Option at
a per share price in excess of the Target Price described above
applicable to the date when such Realization Event occurs, then the
components of the Option for which such Target Prices have been achieved
shall become immediately vested and exercisable and the exercise price
shall not thereafter increase.
(2) The Option will expire on October 8, 2001 to the extent not previously
exercised (the "Expiration Date"); provided, however, that the Expiration
Date for the portion of Option Component A and Option Component B which is
vested prior to such Expiration Date will be extended until October 8, 2003
if such vested portion of Option A and Option B, as the case may be, has not
become exercisable by such initial Expiration Date. During the period of
such extension, the per share exercise price of Option Component A and
Option Component B, as the case may be (to the extent not previously
exercised), will increase at the end of each month during such extension
period at an annual rate of 10%.
(3) Options shown were granted pursuant to the Plan, and relate to shares of
Class A Common Stock of SMG-II. Options are fully vested and exercisable at
the time of grant, provided that no exercise may occur unless a registration
statement has been filed under the Securities Act of 1933 with respect to
the shares subject to the option or the Compensation Committee of the Board
of Directors of SMG-II determines that an exemption from registration is
available.
9
<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>
John W. Boyle................................................................................ 3,000/0
Jack Futterman............................................................................... 13,000/0
James Donald................................................................................. 0/100,000
Neill Crowley................................................................................ 1,000/0
Ron Marshall................................................................................. 2,000/0
Ronald Rallo................................................................................. 2,850/0
Robert Joyce................................................................................. 2,500/0
</TABLE>
- ------------------------
(1) Options shown were granted pursuant to the Plan (except with respect to Mr.
Donald) and relate to shares of Class A Common Stock of SMG-II. No options
were exercised in Fiscal 1996 by any of the above named executives.
<TABLE>
<CAPTION>
PENSION PLAN TABLE(1)
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
400,000................................ 53,333 80,000 106,667 133,333 160,000 160,000
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
1997 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
equaled the amounts indicated.
10
<PAGE>
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 1997. As of December 31, 1996, the following individuals had the
number of years of credited service indicated after their names: Mr.
Futterman, 22.8; Mr. Crowley, 1.5; Mr. Rallo, 30, Mr. Joyce, 26.7 and Mr.
Marshall, 1.0. Neither Mr. Donald nor Mr. Boyle had any credited service. As
described below in "Compensation Plans and Arrangements--SUPPLEMENTAL
RETIREMENT AGREEMENTS", certain of the named executives is party to a
Supplemental Retirement Agreement with Pathmark.
COMPENSATION PLANS AND ARRANGEMENTS
SUPPLEMENTAL RETIREMENT AGREEMENTS. The Company has entered into
supplemental retirement agreements with certain key executives, including
certain of the executive officers named in the Summary Compensation Table, and
set forth below, which provide that said executive officers 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 $525,000, (b) in the case of Messrs. Joyce and Rallo equal to (i) 30%
of his final average Compensation 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, and (d) in the case of Messrs. Crowley and
Marshall, equal to 12.5% of his final average Compensation based on five years
of service with the Company and increasing 2.5% per year for each year of
service thereafter to a maximum of 35% of his final average Compensation based
on 14 years of service. "Compensation" includes base salary and payments under
the Executive Incentive Plan, but excludes Company matching contributions under
the Savings 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, provided the executive has attained at
least ten years of service with the Company.
EMPLOYMENT AGREEMENTS:
EMPLOYMENT AGREEMENT AMONG PATHMARK, SMG-II AND JAMES L. DONALD. On October
8, 1996 (the "Effective Date"), the Company entered into the Donald Agreement
with Mr. James L. Donald pursuant to which Mr. Donald was elected Chairman,
President and Chief Executive Officer for a term of five years. The Donald
Agreement provides Mr. Donald with an initial annual base salary of $600,000 and
provides that he shall participate in the Pathmark Executive Incentive Plan,
under which Mr. Donald may earn an annual bonus of up to 125% of his annual
salary based on performance targets that are set by the Board. For the partial
fiscal year commencing on the Effective Date and ending on February 1, 1997, the
Donald Agreement guaranties Mr. Donald a minimum bonus of $175,000 and, for the
first full fiscal year during the term of the Donald Agreement, Mr. Donald shall
receive a minimum annual bonus of $425,000. Furthermore, under the Donald
Agreement, Dr. Donald is guaranteed an annual bonus for each of the second,
third, and fourth full fiscal years of the term of at least 25% of his base
salary. The Donald Agreement provides Mr. Donald with the right to defer up to
50% of his annual bonus and salary, which shall be held in a grantor trust
established by the Company. During the term of the Donald Agreement, in addition
to the base salary, bonus eligibility and other customary annual benefits and
perquisites that the Company generally provides to the executive officers, the
Company will provide Mr. Donald with a company car and term life insurance in
the amount of $4.5 million during the first year and $3.2 million thereafter.
The Company also reimbursed Mr. Donald for the legal expenses incurred by him
the negotiation of the Donald Agreement. Mr. Donald also received a one-time
signing bonus of $1 million, which is being amortized over the term of the
Donald Agreement.
11
<PAGE>
Furthermore, Dr. Donald received an equity package (the "Equity Strip"),
consisting of 8,520 restricted shares of a new series of SMG-II Preferred Stock
with a stated value of $200 per share and 19,851 restricted shares of SMG-II
Class A Common Stock, the terms of which are set forth in the stock award
agreement (the "Stock Award Agreement". The Equity Strip, which as of the
Effective Date was valued by the Company at $3.4 million, based upon an
independent appraisal, will vest in its entirety upon the occurrence of an
Employment-Related Event, as defined in the Stock Award Agreement, and will be
forfeited in its entirety upon the occurrence of a Termination Event, as defined
in the Donald Agreement. The valuation of $3.4 million is being amortized by the
Company over the term of the Donald Agreement. The Preferred Stock ranks pari
passu with the existing SMG-II convertible preferred stock and will accrue
dividends at a rate of 10% per annum. The Preferred Stock will be convertible
into Common Stock on a one-for-one basis. As of the Effective Date, the
Preferred Stock had accumulated dividends of approximately $122 per share.
In addition, Mr. Donald received a stock option (the "Option") to purchase
an aggregate of 100,000 shares of SMG-II Class A Common Stock. The Option
consists of component A ("Option Component A") covering 50,000 share of SMG-II
Class A Common Stock and component B ("Option Component B") covering the
remaining 50,000 shares of SMG-II Class A Common Stock. Any terms used herein
not otherwise defined shall have the meanings assigned to them in the Donald
Agreement. Option Component A shall have an initial per share exercise price of
$100 per share. The per share exercise price of Option Component A will increase
to $125 per share on the first day of the Fiscal Year beginning in a calendar
year 2000 ("Fiscal Year 2000") and to $150 per share on the first day of the
Fiscal Year beginning in calendar 2001 ("Fiscal Year 2001"). Option Component B
will have an initial per share exercise price of $100 per share. The per share
exercise price of Option Component B will increase to $150 per share on the
first day of the Fiscal Year beginning in the calendar year of 1999; to $250 per
share on the first day of Fiscal Year 2000; and to $350 per share on the first
day of Fiscal 2001. The Option will expire on the fifth anniversary of the
Effective Date to the extent not previously exercised (the "Expiration Date");
provided, however, that the Expiration Date for the portion of Option Component
A and Option Component B which is vested (as explained below) immediately prior
to such Expiration Date will be extended until the seventh anniversary of the
Effective Date if such vested portion of Option Component A and Option Component
B, as the case may be, has not become exercisable by such initial Expiration
Date. During the period of such extension, the per share exercise price of
Option Component A and Option Component B, as the case may be (to the extent not
previously exercised), will increase at the end of each month during such
extension period at an annual rate of 10%. Mr. Donald will vest in 25% of Option
Component A and in 25% of Option Component B on the Effective Date and on each
of the first through third anniversaries of the Effective Date, provided the
Optionee is in the employ of Pathmark on each such date. Upon the occurrence of
a Minimum IPO (as defined below) while the Optionee is in the employ of the
Company, the entire Option shall immediately and fully vest. In addition, the
Option will immediately and fully vest upon the occurrence of Change in Control
(as defined below) occurring prior to the Termination Event (as defined below).
If Mr. Donald's employment with the Company shall end as a result of a
Termination Event, then, as of the applicable date of termination, the entire
Option (whether or not then vested) will be immediately and irrevocably
forfeited.
Except for purposes of tag-along rights under Article V of the Stockholders
Agreement and the piggyback rights under Article VI of the Stockholders
Agreement, the Option shall not be exercisable (even though the Option or a
portion thereof is vested) unless and until it becomes exercisable in accordance
with the following provisions:
(i) The Exercisable Percentage (as defined below) of each component of the
Option will become exercisable if the ML Investors (as defined in the
Stockholders Agreement) have a Realization
12
<PAGE>
Event (as defined below) in respect of the Common Stock at a per share
price in excess of the amounts (the "Target Prices") set forth below:
<TABLE>
<CAPTION>
TARGET PRICE PER TARGET PRICE PER
SHARE/OPTION SHARE/OPTION COMPONENT
PERIOD OF TIME COMPONENT A B
- ------------------------------------------------------------------------ ----------------- -------------------------
<S> <C> <C>
Prior to 2/1/00......................................................... $ 100 $ 250
2/1/00 to 1/31/01....................................................... $ 125 $ 250
2/1/01 and after........................................................ $ 150 $ 350
</TABLE>
(ii) Notwithstanding the above, if the ML Investors have a Realization Event
for more than 15% of the shares of Common Stock beneficially owned by
them on the date of grant and Option at a per share price in excess of
the Target Price described above applicable to the date when such
Realization Event occurs, then the components of the Option for which
such Target Prices have been achieved shall become immediately vested and
exercisable and the exercise price shall not thereafter increase.
In the event that Mr. Donald becomes entitled to any tag-along rights under
Section 5.6 or registration rights under Section 6.2 of the Stockholders
Agreement, he will be permitted to exercise his sale or transfer rights with
respect to the portion of the Option for which the Target Price has been met.
For purposes of Section 5.6(b) of the Stockholders Agreement, 100% of the
portion of the Option for which the Target Amount has been realized will be
considered exercisable in order to determine the number of shares to be included
under Section 5.6(b) of the Stockholders Agreement. If, prior to the Expiration
Date, the Board determines that it is necessary or desirable to list, register
or qualify the shares of Common Stock subject to the Option, and if such
listing, registration or qualification is delayed beyond the Expiration Date,
the vested and exercisable portion of the Option will remain exercisable until
30 days after such listing, registration, or qualification is accomplished.
Pursuant to the Donald Agreement, the Company lent Mr. Donald $4.5 million
(the "Loan") evidenced by 16 separate promissory notes. Under the terms of each
note, if Mr. Donald is in full employment of the Company on a quarterly
anniversary of the Effective Date, Mr. Donald's obligation to pay such note
maturing on such date will be forgiven as to principal, but not any then accrued
and unpaid interest. In the event his employment ends at any time during the
term of the Donald Agreement prior to a Change in Control as a result of a
Termination Event, each note will become immediately due and payable as to all
outstanding principal and all accrued and unpaid interest. These notes bear
interest at a blended rate of approximately 6%. The Loan is on a full recourse
basis and secured by the Equity Strip, the Option and any shares acquired upon
exercise of the Option.
In the event of Mr. Donald's Involuntary Termination, Pathmark will pay him
(w) the full amount of any accrued but unpaid base salary, plus a cash payment
(calculated on the basis of the base salary then in effect) for all unused
vacation time which Mr. Donald may have accrued as of the date of Involuntary
Termination; (x) the amount of any earned but unpaid Annual Bonus for any Fiscal
Year of Pathmark ended on or prior to the date of Involuntary Termination; (y)
any unpaid reimbursement for business expenses; and (z) a severance amount equal
to four times Mr. Donald's annual rate of salary, based upon the annual rate
then in effect immediately prior to the date of termination, payable in monthly
installments over 24 months. In addition, in the event of an Involuntary
Termination, Mr. Donald and his eligible dependents shall continue to be
eligible to participate in the medical, dental, health and life insurance plans
applicable to Mr. Donald immediately prior to the Involuntary Termination on the
same terms and conditions in effect immediately prior to such Involuntary
Termination until the earliest to occur of (i) the end of the 24-month period
after the date of termination, (ii) the date Mr. Donald becomes eligible to be
covered under the benefit plans of a subsequent employer and (iii) the date Mr.
Donald breaches any of the protective covenants described below. Furthermore, in
the event of an Involuntary Termination, the Equity Strip will automatically and
without the need for further action or consent by Pathmark become fully vested
in the manner provided by the Stock Award Agreement, and the Option will
continue to
13
<PAGE>
remain outstanding to the extent provided by the Option Agreement. All notes not
previously delivered to Mr. Donald will automatically and without the need for
further action or consent by Pathmark be delivered by the escrow agent to Mr.
Donald marked "Paid in Full" upon payment by Mr. Donald of any then accrued but
unpaid interest on the Loan. During the 30 day period beginning 6 months after a
Change in Control, Mr. Donald shall be eligible to resign from the Company for
no stated reason and receive all the amounts listed in clauses (w), (x), (y),
and (z) above. Any such resignation in such 30-day period following a Change in
Control shall be treated as an Involuntary Termination for all purposes of this
Agreement.
In the event Mr. Donald's employment ends at any time during the term as a
result of a Termination Event, the Company shall pay him only the amounts
decried in clauses (w), (x) and (y) above, and Mr. Donald will immediately
forfeit the Equity Strip and the Option. In addition, each note will become
immediately due and payable as to all outstanding principal and all accrued and
unpaid interest if Mr. Donald's employment ends prior to a Change in Control as
a result of a Termination Event.
Although, in the event of an Involuntary Termination, Mr. Donald has no duty
to mitigate the severance amount by seeking new employment, any severance amount
payable during the second year of the severance period shall be reduced by any
compensation or benefits Mr. Donald earns in connection with any employment by
another employer.
The Donald Agreement includes protective covenants that prohibit Mr. Donald
from engaging (i) in any activity in competition with Pathmark, or any parent or
subsidiary thereof or (ii) in soliciting employees or customers of Pathmark, or
any parent or subsidiary thereof, during his term of employment and up to two
years thereafter. The Donald Agreement also includes a confidentiality clause
which prohibits Mr. Donald from disclosing any confidential information
regarding Pathmark.
The following definitions apply to the terms of the Donald Agreement:
"CAUSE" means the termination of Mr. Donald's employment with Pathmark
because of (i) his willful an repeated failure (other than by reason of
incapacity due to physical or mental illness) to perform the material duties
of his employment after notice from Pathmark of such failure and his
inability or unwillingness to correct such failure within 30 days of such
notice, (ii) his conviction of a felony or plea of no contest to a felony or
(iii) perpetration by Mr. Donald of a material dishonest act or fraud
against Pathmark or any parent or subsidiary thereof; provided however,
that, before Pathmark may terminate Mr. Donald for Cause, the Board shall
deliver to him a written notice of Pathmark's intent to terminate him for
Cause, including the reasons for such termination, and Pathmark must provide
him an opportunity to meet once with the Board prior to such termination.
"CHANGE IN CONTROL" means the acquisition by a person (other than a person
or group of persons that beneficially owns an equity interest in SMG-II or
Pathmark on the Effective Date or any person controlled thereby) of more
than 50% control of the voting securities of SMG-II as a result of a sale of
voting securities after the Effective Date by the persons who, on the
Effective Date, have a beneficial interest in such voting securities, but
shall not include any change in the ownership of Pathmark or SMG-II
resulting from a public offering.
"COMMON STOCK" means SMG-II Class A Common Stock, par value $0.01 per share.
"EXERCISABLE PERCENTAGE" means (i) in connection with a Third Party Sale,
the percentage of the shares of Common Stock subject to the Option that Mr.
Donald is entitled to sell pursuant to the exercise of his "tag-along"
rights under the Stockholders Agreement and (ii) in connection with a Public
Offering, the percentage of the shares of Common Stock then beneficially
owned by the ML Investors (as defined in the Stockholders Agreement) which
are sold in the Public Offering.
"GOOD REASON" means Mr. Donald's resignation because of (i) the failure of
Pathmark to pay any material amount of compensation to Mr. Donald when due,
(ii) a material adverse reduction or material adverse diminution in Mr.
Donald's titles, duties, positions or responsibilities with Pathmark,
14
<PAGE>
including, but not limited to, failure by Pathmark to elect Mr. Donald to
the office of Chief Executive Officer, or (iii) any other material breach by
Pathmark of the Donald Agreement. In order to assert Good Reason, Mr. Donald
must provide written notification of his intention to resign within 30
business days after he knows or has reason to know the occurrence of any
such event. After Mr. Donald provides such written notice to Pathmark,
Pathmark shall have 15 days from the date of receipt of such notice to
effect a cure of the condition constituting Good Reason.
"INVOLUNTARY TERMINATION" means (i) the termination of Mr. Donald's
employment by Pathmark other than for Cause or disability or (ii) Mr.
Donald's resignation of employment with Pathmark for Good Reason.
"MINIMUM IPO" means a Public Offering of the Common Stock after the Date of
Grant at the conclusion of which the aggregate price for all the shares of
Common Stock having been sold to the public in such Public Offering, plus
the aggregate offering price for all shares of Common Stock sold in all
prior Public Offerings of Common Stock occurring after the date that Mr.
Donald is granted any Option, exceeds $50 million.
"PREFERRED STOCK" shall mean a new series of convertible preferred stock
that will be issued for purposes of the Donald Agreement.
"PUBLIC OFFERING" means a public offering of the Common Stock pursuant to an
effective registration statement under the Securities Act.
"REALIZATION EVENT" means the receipt by the ML Investors (as defined in the
Stockholders Agreement) of cash or property from an unrelated third party as
consideration for the sale of shares of Common Stock then beneficially owned
by the ML Investors. For purposes of the Donald Agreement, any property
other than cash received by the ML Investors in the Realization Event will
have the value ascribed to such property by the parties to such sale.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS AGREEMENT" shall mean the Stockholders Agreement, dated as of
February 4, 1991, as amended, among SMG-II and its stockholders.
"TERMINATION EVENT" shall mean Mr. Donald's resignation without Good Reason
or a termination by Pathmark for Cause.
"THIRD PARTY SALE" means a sale of Common Stock subject to Section 5.6 of
the Stockholders Agreement.
OTHER EXECUTIVE AGREEMENTS
As of May 23, 1994, the Company entered into an employment agreement with
Mr. Crowley. As of September 9, 1994, the Company entered into an employment
agreement with Mr. Marshall. As of June 1, 1995, the Company entered into an
employment agreement with Mr. Rallo and Mr. Joyce, respectively. The four above
mentioned employment agreements are hereinafter referred to collectively as the
"Employment Agreements". Each of the Employment Agreements is for an initial
term of two years. The term of each Employment Agreement is automatically
extended for an additional year on (a) August 1, 1997 for Mr. Crowley and on
each successive August 1st thereafter; (b) February 1, 1998 for Mr. Marshall and
on each successive February 1st thereafter, and (c) June 1, 1997 for Mr. Rallo
and Mr. Joyce and on each successive June 1st thereafter. Under the terms of his
respective Employment Agreement, each executive is entitled to a minimum annual
base salary of (a) $280,000 for Mr. Crowley; (b) $300,000 for Mr. Marshall, (c)
$245,000 for Mr. Rallo, and (d) $225,000 for Mr. Joyce, which salary is subject
to upward adjustment by the Company. The Employment Agreements also provide that
each executive shall be entitled to receive an annual bonus of up to 66% of his
annual base salary with respect to Messrs. Crowley and Marshall and up to 55% of
his annual base salary with respect to Messrs. Joyce and Rallo, and shall be
15
<PAGE>
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 four 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 Agreement,
such executive will be entitled to continue to receive his base salary and
continued coverage under health and insurance plans for the period commencing on
the date of such termination or resignation through the date of applicable
Employment Agreement would have expired had it not been automatically renewed
but for said 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.
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.
On March 20, 1996 (the "Retirement Date"), Mr. Futterman retired as Chairman
and Chief Executive Officer of the Company. Pursuant to the Retirement
Agreement, Mr. Futterman will be entitled to receive his base salary at the
annual rate of $525,000 per year during the period, commencing on the day
following the Retirement Date and ending on July 31, 1998, or the date of his
death, if earlier (the "Benefit Period"), plus the bonus or bonuses attributable
to the financial targets set forth for the Company under its Executive Incentive
Plan ("EIP") that he would have earned (a maximum of 75% of base salary) had his
employment continued through the Benefit Period, subject to the Company reaching
the applicable financial targets set under the EIP or any other bonus plan;
provided however, that the minimum bonus paid for each fiscal year of the
Company ending during the Benefit Period, subject to the Company reaching the
applicable financial targets set under the EIP or any other bonus plan, shall
not be less than 25% of the 75% target amount. Additionally, Mr. Futterman will
be entitled to receive continued health coverage through the Benefit Period
under the Company's health and insurance plans applicable to him immediately
prior to the Retirement Date. Each of the above described payments and benefits
shall be reduced by any compensation or benefits he is entitled to receive in
connection with any employment by another employer during the Benefit Period;
provided, however, that such reduction shall not apply to the first $100,000 of
compensation and benefits earned by Mr. Futterman for any calendar year during
the Benefit Period. The Retirement Agreement also provides that Mr. Futterman
shall be entitled to be reimbursed by the Company for secretarial and office
expenses incurred by him during the two year period beginning September 1, 1996,
up to $30,000 per year (or an aggregate reimbursement of $60,000). Additionally,
pursuant to the terms of the Retirement Agreement, the Company made a cash lump
sum payment to Mr. Futterman of $1.5 million on April 1, 1996.
The Company retained John W. Boyle, a Director of the Company, to act as its
interim Chairman and Chief Executive Officer for the period of March 20, 1996
through October 7, 1996 (the 'Transition Period"). Under the terms of the
consulting arrangement between the Company and Mr. Boyle, the Company paid Mr.
Boyle a consulting fee of $41,667 per month plus living and travel expenses
during the Transition Period. In addition, Mr. Boyle received a completion bonus
of $100,000 when Mr. Donald commenced employment with the Company.
COMPENSATION OF DIRECTORS
Each director who is not employed by the Company or one of its subsidiaries,
MLCP, SPI or the Equitable Investors or its affiliates receives an annual
retainer of $20,000 per year, plus travel expenses.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to January 10, 1997, Messrs. Burke, Khanna and McLean comprised the
Compensation Committee 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." On January
10, 1997, Mr. Boyle became a member of the Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation 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 of Directors, 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.
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 its
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.
17
<PAGE>
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
Compensation 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's
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"), sales
targets and debt levels.
Target incentive awards for executives in Fiscal 1996 ranged 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 evaluation of its
responsibilities and accountabilities and its contribution to Company results.
Individual performance is taken into account in determining bonuses. For Fiscal
1996, the Compensation Committee authorized an incentive payment equal to 20% of
maximum incentive opportunity for each named executive officer, except the Chief
Executive Officer (see Chief Executive Officer Compensation below), based on
individual performance goals. The Company did not achieve any of its
predetermined financial goals for incentive purposes.
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 served as Chief Executive Officer of the Company for part of
fiscal 1996, resigning from that position on March 20, 1996. Mr. Futterman was
compensated in the same manner as other executive officers of the Company.
18
<PAGE>
Mr. Boyle served as interim Chief Executive Officer from March 20, 1996 to
October 7, 1996, after Mr. Futterman resigned, and was compensated as a
consultant at the negotiated rate of $41,667 per month.
On October 8, 1996, James L. Donald joined the Company as Chief Executive
Officer. Prior to joining the Company, Mr. Donald Was Corporate Senior Vice
President and Eastern Division General Manager for Safeway, Inc.
The fiscal 1996 compensation for Mr. Donald was set forth in the Donald
Agreement. The compensation elements under the Donald Agreement include base
salary, bonus, a loan and long-term incentives. These compensation elements were
extensively negotiated between Mr. Donald and the Board prior to his employment
with the Company and reflect the Board's judgment as to a competitive total
compensation program that would be necessary to engage Mr. Donald as the Chief
Executive Officer of the Company, and to compensate him for amounts forfeited or
foregone as a result of his resignation from his prior employer.
BASE SALARY
The Donald Agreement sets Mr. Donald's fiscal 1996 base salary at a rate of
$600,000 per annum.
BONUS
For fiscal 1996, pursuant to the terms of the Donald Agreement, Mr. Donald
was paid a guaranteed annual bonus of $175,000. Beginning with the first full
fiscal year of his employment with the Company, Mr. Donald's annual bonus will
be paid pursuant to the EIP based on the achievement of targets set by the Board
for all executive officers, provided however that for fiscal 1997 Mr. Donald is
guaranteed a minimum annual bonus of $425,000. In addition, Mr. Donald received
a one-time signing bonus of $1,000,000.
LOAN
The Company also gave Mr. Donald a $4.5 million secured loan which will be
forgiven as to principal, but not as to interest, in quarterly increments during
a period of five years, provided that he remains employed by the Company.
LONG-TERM INCENTIVES
The long-term incentives for Mr. Donald are divided into two components:
stock options and restricted stock. The restricted stock vests at the end of the
term of the Donald Agreement and under certain other limited circumstances. The
restricted stock grant is designed to provide Mr. Donald with an incentive to
remain employed by the Company and will generally be forfeited if he resigns or
is terminated.
Mr. Donald received a stock option to purchase shares of SMG-II Common
Stock. The stock option is divided equally into two components that have an
initial exercise price of $100 and $150 per share, respectively. The exercise
price for each component will increase over time according to a schedule
included in the Donald Agreement. The stock option grant is intended to provide
Mr. Donald with an incentive to enhance shareholder equity value.
Stephen M. McLean, Chairman
James. J. Burke, Jr.
Sunil C. Khanna
John W. Boyle
19
<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 May 5, 1997, the number of shares of Holdings
Preferred Stock and SMG-II (i) Class A Common Stock, (ii) Class B Common Stock,
(iii) Series A Preferred Stock, (iv) Series B Preferred Stock and (v) Series C
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 65.2
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 1.6
ML IBK Positions, Inc.(3).................................................................. 21,258.9 2.8
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 4.0
270 Park Avenue
New York, NY 10017
Management and other employees (including former employees of Pathmark).................... 169,419(1) 22.6
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
SMG-II Series B Preferred Stock(6)
CBC Capital Partners, Inc.(4).............................................................. 12,500 7.0
The Equitable Life Assurance Society of the United States.................................. 84,134 46.5
Equitable Deal Flow Fund, L.P.(5).......................................................... 84,135 46.5
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
SMG-II Series C Preferred Stock(6)........................................................... 8,520 100.0
James Donald
301 Blair Road
Woodbridge, NJ 07095
Holdings Preferred Stock(7)(8)
Fidelity Management & Research Company(9).................................................. 978,425 20.0
82 Devonshire Street
Boston, MA 02109
Sun America, Inc........................................................................... 300,785 6.2
1 Sun American 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(11)............................................. 453,540 9.3
One Financial Center, 38th Floor
Boston, MA 02111
IDS Financial Services, Inc.(12)........................................................... 275,000 5.6
80 South 8th Street
Minneapolis, MN 55440
Van Kampen American Capital(13)............................................................ 331,251 6.8
2800 Post Oak Blvd.
Houston, Texas 77056
</TABLE>
- ------------------------
(1) Includes presently exercisable options granted under the Plan for 76,943
shares of SMG-II Class A Common Stock held by Management Investors.
(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 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, McLean and
Khanna) are consultants to MLCP. Mr. Bowman is Chief Executive Officer of
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 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 an affiliate of Chase Manhattan Corp.
(5) The Equitable Investors are separate purchasers who are affiliates of each
other.
(6) 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 State Street Research & Management Company,
IDS Financial Services, Inc., Massachusetts Financial Services Company, Van
Kampen American Capital and Fidelity Management & Research Company was
derived from investment information filed with the Securities and Exchange
Commission in 1996.
(9) To the best of the Company's knowledge, shares of Holdings Preferred Stock
are owned by five funds managed by Fidelity Management & Research Company.
Such shares are owned of record as follows: 366,933 shares by Fidelity
Capital & Income Fund, 324,488 shares by Fidelity Spartan High Income Fund,
100,562 shares by Fidelity Equity-Income Fund, 70,123 shares by Fidelity
Asset Manager, and 116,319 shares by Fidelity Advisor High Yield Fund.
(10) To the best of the Company's knowledge, 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.
21
<PAGE>
(11) To the best of the Company's knowledge, shares of Holdings Preferred Stock
are owned by one fund managed by State Street Research and Management
Company. Such shares are owned of record as follows: 453,540 shares by State
Street Research High Income Fund.
(12) To the best of the Company's knowledge, shares of Holding Preferred Stock
are owned by one fund managed by American Express Financial Advisors. Such
shares are owned of record as follows: 275,000 shares by IDS Extra Income
Fund.
(13) To the best of the Company's knowledge, shares of Holdings Preferred Stock
are owned of record by one fund managed by Van Kampen American Capital.
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, except
Mr. Donald who claims beneficial ownership of 8,520 (100%) shares of SMG-II
Series C Preferred Stock. As of May 5, 1997 the number of shares of SMG-II Class
A Common Stock and Holdings Preferred Stock beneficially owned by each director,
by each of the executive officers named in the Summary Compensation Table and by
all directors 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>
Mathias Bowman(1).................................. -- -- -- --
John W. Boyle(2)................................... 3,000 * -- --
James J. Burke, Jr.(1)............................. -- -- -- --
James Donald....................................... 19,851 2.6 -- --
Jack Futterman(2).................................. 23,000 3.0 -- --
Neill Crowley(2)................................... 1,000 * -- --
U. Peter C. Gummeson............................... -- -- -- --
Sunil C. Khanna.................................... 700 * -- --
Stephen M. McLean(1)............................... -- -- -- --
Ron Marshall(2).................................... 2,000 * -- --
Ronald Rallo(2).................................... 3,250 * 966 *
Jerry G. Rubenstein(2)............................. 2,500 * -- --
Robert Joyce(2).................................... 3,200 * -- --
James B. Upchurch.................................. -- -- -- --
Steven L. Volla.................................... -- -- -- --
Directors and named executive officers as a
group(1)(2)...................................... 66,011 8.8 966 *
</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 Bowman, directors of MLCP,
disclaim beneficial ownership in all such shares.
(2) Includes presently exercisable options granted under the Plan to purchase
shares of SMG-II Class A Common Stock, as follows: Mr. Futterman, 13,000;
Mr. Crowley, 1,000; Mr. Marshall, 2,000; Mr. Joyce, 2,500; Mr. Rallo, 2,850,
Mr. Rubenstein, 1,000; and Mr. Boyle, 3,000 and all directors and executive
officers as a group, 31,110.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The holders of SMG-II Preferred Stock are a party with the holders of SMG-II
Common Stock to 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 1991 and the approval of stockholders
representing 66 2/3% of the number of shares of SMG-II voting
22
<PAGE>
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'
Board 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. By having the
ability to designate a majority of Holdings' Board of Directors, the Merrill
Lynch Investors 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.
In October 1996, pursuant to the Donald Agreement, James L. Donald, an
Officer and Director, was provided by Pathmark with a four-year loan of $4.5
million. The foregoing indebtedness to Pathmark is evidenced by 16 full recourse
promissory notes for $281,250 each bearing interest at the short-term or
intermediate-term federal rate in effect as of the date of each note (blended
rate of approximately 6%) and secured by the Equity Strip and the Option. Under
the Donald Agreement, one promissory note will be forgiven at the end of each
quarter of a year during which Mr. Donald remains employed by Pathmark. In the
event that Mr. Donald resigns his employment without Good Reason or is
terminated for Cause or in the event of his death, the outstanding portion of
the loan will become immediately due and payable. As of April 1, 1997, Mr.
Donald remained indebted to the Company in the amount of $4,218,750.
The Company retained John W. Boyle, a Director of the Company, to act as its
interim Chairman and Chief Executive Officer for the Transition Period. Under
the terms of the consulting arrangement between the Company and Mr. Boyle, the
Company paid Mr. Boyle a consulting fee of $41,667 per month ($288,980 in the
aggregate) plus living and travel expenses during the Transition Period. In
addition, Mr. Boyle received a completion bonus of $100,000 when Mr. Donald
commenced employment with the Company.
In March 1990, Jerry G. Rubenstein, a Director, borrowed from Holdings
$100,000 in order to help finance his purchase of Holdings' Class A Common
Stock. Subsequently, such shares of Holdings' Class A Common Stock were
exchanged for shares of SMG-II Class A Common Stock. The foregoing indebtedness
to Holdings 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 Holdings' 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. As of April 1, 1997, Mr.
Rubenstein remained indebted to Holdings in the amount of $100,000.
By Order of the Board of Directors
Marc A. Strassler
SECRETARY
23
<PAGE>
PROXY SUPERMARKETS GENERAL PREFERRED STOCK
HOLDINGS CORPORATION
PROXY FOR ANNUAL MEETING OF PREFERRED STOCKHOLDERS, JUNE 13, 1997
(THE SOLICITATION OF THIS PROXY IS MADE ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned hereby appoints James Donald, Ron Marshall and Marc
Strassler, or a majority of them, with full power of substitution and
revocation, as proxies to represent the undersigned at the Annual Meeting of
Preferred Stockholders of Supermarkets General Holdings Corporation to be
held at 200 Milik Street, Carteret, New Jersey, on Friday, June 13, 1997 at
4:00 P.M. local time, and at any adjournment thereof, and to vote the shares
of Preferred Stock the undersigned would be entitled to vote if personally
present.
Change of Address
__________________________________________
__________________________________________
__________________________________________
(If you have written in the above space, please
mark the corresponding box on the reverse side
of this card)
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE DATE, SIGN AND MAIL THIS PROXY TODAY
- -------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<PAGE>
<TABLE>
<S> <C>
In the absence of specific directors noted below, it is understood that the Please mark /X/
undersigned's shares of Preferred stock will be voted in favor of proposal your votes as
No. 1. Receipt of the copy of the Annual Report on Form 10-K, Notice of Annual indicated in
Meeting of Stockholders and Proxy Statement dated May 13, 1997 is hereby this example
acknowledged.
Item 1 - Proposal to elect James B. Upchurch FOR WITHHOLD
and Steven L. Volla as directors / / / /
If your wish to vote the election of directors and withhold authority to vote for
any of the individual nominees, enter the name(s) of such nominee(s) below.
____________________________________________________________________________
WILL ATTEND / /
MEETING
CHANGE OF / /
ADDRESS ON
REVERSE SIDE
SIGNATURE____________________________SIGNATURE__________________________ DATE_____________________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
</TABLE>
- -------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
