<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / 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
200 MILIK STREET, CARTERET NJ 07008
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 14, 1998
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 July 14, 1998, 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 29, 1998, 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
Carteret, New Jersey
June 12, 1998
<PAGE>
SUPERMARKETS GENERAL HOLDINGS CORPORATION
200 MILIK STREET, CARTERET, NJ 07008
-------------------
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 July 14, 1998 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 22 consecutive quarters. This Proxy Statement and the
accompanying proxy card were mailed to the Common Stockholder and the Preferred
Stockholders on or about June 12, 1998.
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 nine 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, 200 Milik Street, Carteret, NJ 07008,
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 29, 1998 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 22 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 January 31, 1998 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
Life Assurance Society of the United States and the Equitable Deal Flow Fund,
L.P. (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,
McLean, Mylod and Rubenstein), one was designated by the Management Investors
(Mr. Donald) and one was designated by the Equitable Investors (Mr. Gummeson).
Mr. Miller was designated by the other directors. 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 (1)
MATTHIAS BOWMAN, 49, Director of Merrill Lynch Capital Partners, Inc., ("MLCP"), an investment firm 1997
affiliated with Merrill Lynch & Co., ("ML&Co."), the financial services concern, since 1998;
Chief Executive Officer of MLCP from 1994 to 1998; Vice Chairman of Investment Banking with
ML&Co. since 1993; Managing Director of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPFS") since at least 1992. Mr. Bowman is also a Director of U.S. Foodservice Corp.
JOHN W. BOYLE, 69, 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 Chairman of United Artists Theater Circuit, Inc.
JAMES J. BURKE, JR., 46, Partner and a Director of Stonington Partners, Inc. ("SPI"), a private 1988
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 Management Corp. and United Artists Theater Circuit, Inc.
JAMES DONALD, 44, 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(3).
U. PETER C. GUMMESON, 39, Senior Vice President, Albion Alliance LLC, an asset manager specializing 1996
in private debt and equity securities (since 1996). Mr. Gummeson has also been Managing Director
of Alliance Corporate Finance Group Incorporated, an asset manager specializing in private debt
and equity securities since 1984. Both firms are affiliated with the Equitable Investors.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR OF THE
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS COMPANY SINCE
- --------------------------------------------------------------------------------------------------- ---------------
<S> <C>
STEPHEN M. McLEAN, 40, 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., Dictaphone Corporation, Merisel, Inc. and Packard Bio Science Company.
ROBERT G. MILLER, 54, Chief Executive Officer of Fred Meyer, Inc., a diversified retailer. Mr. 1997
Miller is also a Director of PacifiCorp.
ROBERT J. MYLOD, JR., 31, Principal of SPI since 1996; Associate of SPI from November 1993 to 1998
December 1995; Associate of MLCP prior thereto. Mr. Mylod was also an associate of the Investment
Banking Division of MLPFS from 1993 to 1994. Mr. Mylod is also a Director of Goss Graphic
Systems, Inc.
JERRY G. RUBENSTEIN, 68, Managing Partner, Omni Management Associates; Consultant to MLCP since 1988
1988.
</TABLE>
- ------------------------
(1) Each nominee is also a director of SMG-II and Pathmark.
(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, 39, President and Chief Operating Officer of Libra Investments, Inc., an NASD 1995
licensed broker/dealer.
STEVEN L. VOLLA, 51, Chairman of Primary Health Systems, L.P., a hospital management company, since 1995
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 44 Chairman, President and Chief Executive Officer since 1996
October 1996.(1)
RON MARSHALL 44 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. (2)
EILEEN SCOTT 45 Executive Vice President, Marketing and Distribution 1998
(since 1998); Vice President, Non-Foods Merchandising and
Pharmacy (November 1995--December 1997); Vice President,
Sales & Advertising (August 1994--November 1995);
Director of Grocery Sales prior thereto. Ms. Scott joined
Pathmark in 1969.
JOHN SHEEHAN 40 Executive Vice President--Operations (since January 1998); 1996
Senior Vice President--Operations (October 1996 to
December 1997); Director of Operations, Albertsons, Inc.,
prior thereto.
JOSEPH W. ADELHARDT 52 Senior Vice President and Controller since January 1996; 1987
Vice President and Controller prior thereto. Mr.
Adelhardt joined Pathmark in 1976.
HARVEY M. GUTMAN 52 Senior Vice President--Retail Development. Mr. Gutman 1990
joined Pathmark in 1976.
ROBERT JOYCE 52 Senior Vice President--Administration (since October 1989
1996); Executive Vice 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 Pathmark in 1963.
MARC A. STRASSLER 50 Vice President, Secretary and General Counsel. Mr. 1987
Strassler joined Pathmark in 1974.
FRANK VITRANO 42 Vice President and Treasurer since December 1996; 1996
Treasurer from July 1995 to December 1996; Director--Risk
Management prior thereto. Mr. Vitrano joined Pathmark in
1972.
MYRON D. WAXBERG 64 Vice President and General Counsel--Real Estate. Mr. 1991
Waxberg joined Pathmark in 1976.
</TABLE>
- ------------------------
(1) Member of the Company's Board of Directors.
(2) Mr. Marshall resigned effective June 1, 1998.
5
<PAGE>
BOARD OF DIRECTORS AND ITS COMMITTEES
There were five meetings of the Board of Directors of Holdings in fiscal
year 1997. 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 three meetings in fiscal year 1997,
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, Mylod and Rubenstein.
The Compensation Committee, which held three meetings in fiscal year 1997,
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 and
McLean.
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.
During fiscal 1997, each director attended at least 75% of the total of the
Board and committee meetings which he was obligated to attend except for Mr.
Boyle who attended 67% of the meetings of the Audit Committee.
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 1997.
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)
- ------------------------------- --------- ----------- ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Donald................ 1997 600,000 425,000 1,179,390 -- -- 3,632
Chairman, President and Chief 1996 193,846 1,175,000 340,021 3,400,000 100,000 16,821
Executive Officer
Ron Marshall................... 1997 306,750 202,455 -- -- -- 4,750
Executive Vice President and 1996 300,000 36,000 49,177 -- -- 5,250
Chief Financial Officer 1995 280,289 168,173 -- -- -- --
John Sheehan................... 1997 186,312 52,537 80,793 -- -- --
Executive Vice President- 1996 51,923 81,231 9,733 -- -- --
Operations
Robert Joyce................... 1997 230,062 63,267 2,195 -- -- 5,600
Senior Vice President- 1996 223,846 26,862 2,195 -- -- 5,250
Administration 1995 205,437 97,334 2,200 -- 250 5,250
Marc A. Strassler.............. 1997 163,600 81,800 3,841 -- -- 5,600
Vice President, Secretary and 1996 143,950 10,796 3,841 -- -- 5,250
General Counsel 1995 135,850 42,793 3,849 -- -- 5,250
Neill Crowley(4)............... 1997 219,746 -- -- -- -- 242,043
Executive Vice 1996 253,750 30,450 -- -- -- 5,250
President-Retail Services 1995 247,212 112,241 15,000 -- -- 4,341
Ronald Rallo(4)................ 1997 197,131 -- 4,023 -- -- 183,215
Senior Vice President- 1996 245,000 29,400 4,389 -- -- 5,250
Merchandising 1995 227,500 113,585 4,399 -- -- 5,250
</TABLE>
- ------------------------
(1) The amounts with respect to Fiscal 1997 paid to Mr. Donald was the minimum
amount payable pursuant to the Donald Agreement (as hereinafter defined).
The amounts with respect to Fiscal 1997 in this column represent bonuses
awarded to the other named executives in recognition of their efforts in
connection with Pathmark's distribution outsourcing and refinancing of its
outstanding bank indebtedness.
(2) Represents in Fiscal 1997 (i) with respect to Mr. Donald, payment of $54,390
as reimbursement for relocation expenses and forgiveness of loan payments
due to pathmark of $1,125,000; (ii) with respect to Mr. Sheehan,
reimbursement of relocation expenses; and (iii) with respect to Messrs.
Rallo, Joyce and Strassler, 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.
(3) Represents in Fiscal 1997 (i) with respect to Mr. Donald, payments of $3,632
for a term life insurance premium on Mr. Donald's life; (ii) with respect to
Mr. Rallo, payments of $5,600 representing Pathmark's matching contribution
to the SGC Savings Plan and $177,615 paid to Mr. Rallo pursuant to a
Resignation Agreement dated November 4, 1997 among Mr. Rallo, Pathmark and
SMG-II (the "Rallo Agreement"); (iii) with respect to Mr. Crowley, payments
of $5,600, representing Pathmark's matching contribution to the SGC Savings
Plan and $236,443 pursuant to a Resignation Agreement dated November 4, 1997
among Mr. Crowley, SMG-II and Pathmark (the "Crowley Agreement"); and (iv)
with respect to the other named executive officers, Pathmark's matching
contribution under the SGC Savings Plan.
(4) Messrs. Rallo and Crowley each retired on November 4, 1997.
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>
Neill Crowley......................................................................... 1,000/0
James Donald.......................................................................... 0/100,000
Robert Joyce.......................................................................... 2,420/0
Ron Marshall.......................................................................... 2,000/0
Ronald Rallo.......................................................................... 2,850/0
John Sheehan.......................................................................... 0/0
Marc Strassler........................................................................ 1,080/0
</TABLE>
- ------------------------
(1) Options shown were granted pursuant to the SMG-II 1987 Management Investors
Stock Option Plan (the Option Plan) except with respect to Mr. Donald, and
relate to shares of Class A Common Stock of SMG-II. No options were either
granted to or exercised by any of the above named executives in Fiscal 1997.
<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....................... 93,000 140,000 186,667 233,333 280,000 280,000
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
8
<PAGE>
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 1998 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. 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
1998. As of December 31, 1997, the following individuals had the number of
years of credited service indicated after their names: Mr. Donald, 1.2; Mr.
Crowley, 3.6; Mr. Rallo, 30; Mr. Joyce, 27.7; Mr. Marshall, 3.2; Mr.
Sheehan, 1.2; and Mr. Strassler, 23.8. 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. Pathmark has entered into supplemental
retirement agreements with certain key executives, including certain of the
executive officers named in the Summary Compensation Table, 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, Pathmark's qualified pension plans and
certain other plans of Pathmark, including Savings Plan balances as of March 31,
1983, (a) in the case of Messrs. Joyce, Strassler and Rallo equal to (i) 30% of
his final average Compensation based on ten years of service with Pathmark 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
($100,000 for Mr. Strassler), whichever is less, and (c) in the case of Messrs.
Crowley and Marshall, equal to 12.5% of his final average Compensation based on
5 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 bonus
payments under the Executive Incentive Plan, but excludes Pathmark company
matching contributions under the Savings Plan. If the executive leaves Pathmark
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 Pathmark.
EMPLOYMENT AGREEMENTS:
EMPLOYMENT AGREEMENT AMONG PATHMARK, SMG-II AND JAMES L. DONALD. On October
8, 1996 (the "Effective Date"), Pathmark and SMG-II entered into an employment
agreement with Mr. James L. Donald (the "Donald Agreement") 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 first full fiscal year during the term of the Donald
Agreement (Fiscal 1997), 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
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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.
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.
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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 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
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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 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.
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"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,
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 April 1, 1997, Pathmark entered into an employment agreement with Mr.
Sheehan. As of September 9, 1994, Pathmark entered into an employment agreement
with Mr. Marshall. As of June 1, 1995, Pathmark entered into an employment
agreement with Mr. Strassler 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
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<PAGE>
each Employment Agreement is automatically extended for an additional year on
(a) April 1, 1999 for Mr. Sheehan and on each successive April 1st thereafter;
(b) February 1, 1999 for Mr. Marshall and on each successive February 1st
thereafter, and (c) June 1, 1999 for Mr. Strassler 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)
$205,000 for Mr. Sheehan; (b) $309,000 for Mr. Marshall, (c) $164,800 for Mr.
Strassler, and (d) $231,750 for Mr. Joyce, which salary is subject to upward
adjustment by Pathmark. 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. Sheehan and Marshall, up to 55% and
50% of his annual base salary with respect to Messrs. Joyce and Strassler,
respectively, which percentage is subject to upward adjustment by Pathmark. Each
executive 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 four above named executives' employment is
terminated by Pathmark 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 Pathmark as long as they are receiving payments under an employment
agreement and an agreement by the executives not to disclose confidential
information.
On November 4, 1997 (the "Retirement Date"), Messrs. Crowley and Rallo each
retired as executive officers of the Company. Pursuant to the Rallo Agreement,
Mr. Rallo will be entitled to receive his base salary at the annual rate of
$252,350 per year during the period commencing November 5, 1997 and ending May
31, 1999, or the date of his death, if earlier (the "Rallo Benefit Period").
Additionally, Mr. Rallo will be entitled to receive continued health coverage
through the Rallo Benefit Period under Pathmark'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 and
benefits earned by Mr. Rallo for any calendar year during the Rallo Benefit
Period. Additionally, pursuant to the terms of the Rallo Agreement, Pathmark
made a cash lump sum payment to Mr. Rallo of $138,792 on December 15, 1997.
Pursuant to the Crowley Agreement, Mr. Crowley will be entitled to receive his
base salary at the annual rate of $288,399 per year during the period commencing
November 5, 1997 and ending July 31, 1999, or the date of his death, if earlier
(the "Crowley Benefit Period"). Additionally, Mr. Crowley will be entitled to
receive continued health coverage through the Crowley 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 and benefits earned by Mr. Crowley for any calendar
year during the Crowley Benefit Period. Additionally, pursuant to the terms of
the Crowley Agreement, Pathmark made a cash lump sum payment to Mr. Crowley of
$192,074 on April 15, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Burke, Boyle and McLean comprise the compensation committee of the
Board of Directors of SMG-II and are responsible for decisions concerning
compensation of the executive officers of Pathmark. Messrs. Burke and McLean are
directors of MLCP and 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."
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COMPENSATION OF DIRECTORS
Each director who is not employed by Holdings or one of its subsidiaries,
SPI, MLCP or the Equitable Investors or its affiliates receives an aggregate
annual retainer of $20,000 per year, plus travel expenses, for service as a
director on the Board of Directors of SMG-II and its subsidiaries, including the
Company.
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 restricted stock awards, and various benefits,
including medical and pension plans generally available to non-union full-time
associates of the Company.
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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
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") and
sales targets.
Target incentive awards for executives in Fiscal 1997 ranged from 50% to
125% of base salary and were 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
1997, the Compensation Committee authorized an incentive payment equal to 50% to
100% of maximum incentive opportunity for each named executive officer, except
the Chief Executive Officer (see Chief Executive Officer Compensation below),
based on recognition of their efforts in connection with Pathmark's distribution
outsourcing and refinancing of its outstanding bank indebtedness. The Company
did not achieve any of its predetermined financial goals for incentive purposes.
STOCK OPTION PROGRAM AND RESTRICTED STOCK AWARDS
Prior to 1998, the stock option program, which expired in November, 1997,
was the Company's long-term incentive plan for executive officers. Options
granted under the prior stock option program will remain outstanding until they
expire by their terms. Beginning in Fiscal 1998, SMG-II adopted a restricted
stock award program for its key executives. 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 1997 Restricted Stock Plan (the "RS Plan") authorizes the Compensation
Committee to award restricted stock of SMG-II to key executives. Restricted
stock is awarded based on an executive's position level and contribution to
Company results and will vest on the seventh anniversary of the date of an award
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or upon certain defined events relating to a change in control or public
offering of stock, whichever is earlier. No awards were made under this program
in the last complete fiscal year. The amount, timing and type of awards are as
the Committee, in its discretion, deems appropriate. A participant under the RS
Plan shall have, with respect to the shares of restricted Series C preferred
stock and restricted Class A common Stock of SMG-II received under an award, all
the rights of a stockholder of SMG-II, including the right to vote the shares.
CHIEF EXECUTIVE OFFICER COMPENSATION
The fiscal 1997 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 1997 base salary at a rate of
$600,000 per annum.
BONUS
Beginning with fiscal 1997, 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 received a
guaranteed minimum annual bonus of $425,000.
LOAN
In fiscal 1996, 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.
In fiscal 1996, 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.
John W. Boyle
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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 June 10, 1998, 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 61.0
ML Offshore LBO Partnership No. IX(2).................................................... 12,424.7 1.5
Barfield House
St. Julians Avenue
St. Peter Port
Guernsey
Channel Islands
ML Employees LBO Partnership No. I, L.P.(2).............................................. 12,148.6 1.5
ML IBK Positions, Inc.(3)................................................................ 21,258.9 2.7
Merchant Banking L.P. No. 1(3)........................................................... 8,119 1.0
Merrill Lynch KECALP L.P. 1987(3)........................................................ 7,344 0.9
Chemical Investments, Inc.(4)............................................................ 30,000 3.8
270 Park Avenue
New York, NY 10017
Management and other employees (including former employees of Pathmark).................. 220,644(1) 27.6
200 Milik Street
Carteret NJ 07008
SMG-II Class B Common Stock
The Equitable Life Assurance Society of the United States(5)............................. 150,000 46.9
c/o Albion Alliance LLC
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
Equitable Deal Flow Fund, L.P.(5)........................................................ 150,000 46.9
c/o Albion Alliance LLC
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
Chemical Investments, 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)
Chemical Investments, 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>
18
<PAGE>
<TABLE>
<S> <C> <C>
SMG-II Series C Preferred Stock(6)
James Donald............................................................................. 8,520 27.7
200 Milik Street
Carteret NJ 07008
Management Investors(7).................................................................. 30,770 100.00
200 Milik Street
Carteret NJ 07008
</TABLE>
- ------------------------
(1) Includes presently exercisable options granted under the Option Plan for
61,418 shares and 66,750 shares granted under the RS Plan 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
Mylod) are consultants to MLCP. Mr. Bowman is a Director 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) Chemical Investments, 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) Includes 8,520 shares of Series C Preferred Stock owned beneficially by Mr.
Donald.
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, and
SMG-II Series C Preferred Stock. As of June 10, 1998 the number of shares of
SMG-II Class A Common Stock, SMG-II Series C Preferred 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 SMG-II
COMMON STOCK SERIES C HOLDINGS PREFERRED
NAME NUMBER OF SHARES % OF CLASS PREFERRED STOCK % OF CLASS NUMBER OF SHARES
- ---------------------- ------------------- --------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Mathias Bowman(1)..... -- -- -- -- --
John W. Boyle(2)...... 3,000 * -- -- --
James J. Burke,
Jr.(1).............. -- -- -- -- --
James Donald.......... 19,851 2.5 8,520 27.7 --
Robert Miller......... -- -- -- -- --
Neill Crowley(2)...... 1,000 * -- -- --
U. Peter C. Gummeson.. -- -- -- -- --
Robert J. Mylod,
Jr.................. -- -- -- -- --
Stephen M. McLean(1).. -- -- -- -- --
Ron Marshall(2)....... 2,000 * -- -- --
Ronald Rallo(2)....... 3,250 * -- -- 966
Jerry G.
Rubenstein(2)....... 2,500 * -- -- --
Robert Joyce(2)....... 6,950 * 1,250 4.1 --
Marc Strassler(2)..... 5,180 * 1,250 4.1
John Sheehan.......... 7,500 * 2,500 8.1
James B. Upchurch..... -- -- -- -- --
Steven L. Volla....... -- -- -- -- --
Directors and
executive officers
as a group(1)(2).... 70,651 8.8 20,010 65.1 966
<CAPTION>
NAME % OF CLASS
- ---------------------- ---------------
<S> <C>
Mathias Bowman(1)..... --
John W. Boyle(2)...... --
James J. Burke,
Jr.(1).............. --
James Donald.......... --
Robert Miller......... --
Neill Crowley(2)...... --
U. Peter C. Gummeson.. --
Robert J. Mylod,
Jr.................. --
Stephen M. McLean(1).. --
Ron Marshall(2)....... --
Ronald Rallo(2)....... *
Jerry G.
Rubenstein(2)....... --
Robert Joyce(2)....... --
Marc Strassler(2).....
John Sheehan..........
James B. Upchurch..... --
Steven L. Volla....... --
Directors and
executive officers
as a group(1)(2).... *
</TABLE>
- ------------------------
* Less than 1%
19
<PAGE>
(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. Crowley, 1,000; Mr.
Marshall, 2,000; Mr. Joyce, 2,420; Mr. Rallo, 2,850; Mr. Rubenstein, 1,000;
Mr. Strassler, 1,080 and Mr. Boyle, 3,000 and all directors and executive
officers as a group, 42,461.
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 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 May 15, 1998, Mr. Donald
remained indebted to the Company in the amount of $2,812,500.
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
20
<PAGE>
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 May 15, 1998, Mr.
Rubenstein remained indebted to Holdings in the amount of $100,000.
By Order of the Board of Directors
Marc A. Strassler
SECRETARY
21
<PAGE>
PROXY SUPERMARKETS GENERAL PREFERRED STOCK
HOLDINGS CORPORATION
PROXY FOR ANNUAL MEETING OF PREFERRED STOCKHOLDERS, JULY 14, 1998
(THE SOLICITATION OF THIS PROXY IS MADE ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned hereby appoints James Donald, Frank Vitrano 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 Tuesday, July 14, 1998 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>
<CAPTION>
<S> <C>
In the absence of specific directors noted below, it is understood that the undersigned's shares of Please mark
Preferred Stock will be voted in favor of proposal No. 1. Receipt of the copy of the Annual Report on your votes as /X/
Form 10-K, Notice of Annual Meeting of Stockholders and Proxy Statement dated June 12, 1998 is hereby indicated in
acknowledged. this example
Item 1 -- Proposal to elect James B. Upchurch FOR WITHHELD
and Stephen L. Volla as directors / / / /
If you 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.
- -----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
