SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] 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 240.14a-11(c) or 240.14a-12
Smith's Food & Drug Centers, Inc.
(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)(4) and 0-11.
(1)Title of each class of securities to which transaction applies: Not
Applicable.
(2)Aggregate number of securities to which transaction applies: Not Applicable.
(3)Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11: Not Applicable.
(4)Proposed maximum aggregate value of transaction: Not Applicable.
(5)Total fee paid: Not Applicable.
[ ]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: Not Applicable.
(2)Form, Schedule or Registration Statement No.: Not Applicable.
(3)Filing party: Not Applicable.
(4)Date Filed: Not Applicable.
<PAGE>
[LOGO]
1550 South Redwood Road, Salt Lake City, Utah 84104
Notice of Annual Meeting of Stockholders
To Be Held on April 23, 1997
To the Stockholders of
SMITH'S FOOD & DRUG CENTERS, INC.
The 1997 Annual Meeting of the Stockholders (the "Annual Meeting") of Smith's
Food & Drug Centers, Inc. (the "Company"), will be held in the Flamengo Ballroom
of the Rio Suite Hotel & Casino, I-15 and Flamingo, Las Vegas, Nevada on
Wednesday, April 23, 1997, at 9:00 a.m., Pacific Time, for the following
purposes:
1.To elect three directors to serve until the 2000 Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified;
2.To approve the Smith's Food & Drug Centers, Inc. Directors' Deferred
Compensation Plan, to be effective as of May 1, 1997, as described herein;
3.To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for 1997; and
4.To transact such other business as may properly come before the Annual
Meeting and any postponements and/or adjournments thereof.
The close of business on February 27, 1997 has been fixed by the Board of
Directors of the Company as the record date (the "Record Date") for the
determination of the stockholders entitled to notice of, and to vote at, the
Annual Meeting.
We hope all stockholders who can do so will attend the Annual Meeting in
person. Whether or not you plan to attend, we urge you to complete and sign the
enclosed proxy card(s) and return it in the enclosed postage-prepaid envelope.
Returning your proxy will not deprive you of your right to attend the meeting
and vote your shares in person.
If you own any shares of Class A Common Stock, Class B Common Stock, or Series
I Preferred Stock, please sign and return all proxy cards provided to you for
each type of stock owned by you as of the Record Date.
By Order of the Board of Directors,
\s\ Michael C. Frei
MICHAEL C. FREI
Secretary
Salt Lake City, Utah
April 9, 1997
<PAGE>
[LOGO]
1550 South Redwood Road, Salt Lake City, Utah 84104
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
April 23, 1997
This Proxy Statement is furnished to the stockholders of Smith's Food & Drug
Centers, Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies in the form enclosed herewith for use at the 1997 Annual
Meeting of Stockholders (the "Annual Meeting") of the Company to be held in the
Flamengo Ballroom of the Rio Suite Hotel & Casino, I-15 and Flamingo, Las Vegas,
Nevada on Wednesday, April 23, 1997, at 9:00 a.m., Pacific Time, for the
following purposes:
1.To elect three directors to serve until the 2000 Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified;
2.To approve the Smith's Food & Drug Centers, Inc. Directors' Deferred
Compensation Plan, to be effective as of May 1, 1997, as described herein;
3.To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for 1997; and
4.To transact such other business as may properly come before the Annual
Meeting and any postponements and/or adjournments thereof.
The approximate date on which this Proxy Statement and accompanying form of
proxy were first sent to the Company's stockholders was April 9, 1997.
This solicitation is made on behalf of the Board of Directors of the Company
(the "Board of Directors"). Costs of the solicitation will be borne by the
Company. In addition to solicitation by mail, the directors, officers and
employees of the Company and its affiliates may also solicit proxies by
telephone, telegraph, fax or personal interview. Such directors, officers and
employees will not be additionally compensated for any such solicitation but may
be reimbursed for out-of-pocket expenses in connection therewith. The Company
will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to stockholders.
Holders of record of the Company's Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), and the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common Stock", and together with the Class A
Common Stock, the "Common Stock"), and the Company's Series I Preferred Stock,
par value $.01 per share (the "Series I Preferred Stock"), as of the close of
business on February 27, 1997 (the "Record Date") are entitled to receive notice
of, and to vote at, the Annual Meeting.
Holders of record on the Record Date will be entitled to one vote for each
share of Class B Common Stock and ten votes for each share of Series I Preferred
Stock or Class A Common Stock. For each of the proposals, all outstanding
shares of Class A Common Stock, Class B Common Stock and Series I Preferred
Stock will vote together as a single class.
As of the Record Date, the Company had issued and outstanding 11,529,922
shares of Class B Common Stock, 4,272,308 shares of Class A Common Stock, and
9,956,747 shares of Series I Preferred Stock.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted at the Annual Meeting FOR the
nominees named below for election as directors, FOR the approval of the Smith's
Food & Drug Centers, Inc. Directors' Deferred Compensation Plan and FOR the
selection of Ernst & Young LLP as the Company's independent auditors. With
respect to any other business which may properly come before the Annual Meeting
and be submitted to a vote of stockholders, proxies received by the Board of
Directors will be voted in accordance with the best judgment of the designated
proxy holders. A stockholder may revoke his or her proxy at any time before
exercise by delivering to the Secretary of the Company a written notice of such
revocation, by filing with the Secretary of the Company a duly executed proxy
bearing a later date, or by voting in person at the Annual Meeting.
The presence in person or by proxy at the Annual Meeting of the holders of at
least a majority of the votes entitled to be cast at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Shares
represented by proxies that reflect abstentions or "broker non-votes" (i.e.,
shares held by a broker or nominee which are represented at the Annual Meeting,
but with respect to which such broker or nominee is not empowered to vote on a
particular proposal) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. Directors will be
elected by a favorable vote of a plurality of the total votes of the shares of
Common Stock and Series I Preferred Stock voting together as a single class,
present in person or represented by proxy at the Annual Meeting, provided that a
quorum is present. All other proposals to come before the Annual Meeting
require the approval of a majority of the total votes of the shares of Common
Stock and Series I Preferred Stock voting together as a single class, present in
person or represented by proxy at the Annual Meeting. Therefore, as to any
particular proposal, including the election of directors, abstentions will have
the same effect as a vote against that proposal and broker non-votes will not be
counted as votes for or against the proposal, and will not be included in
counting the number of votes necessary for approval of the proposal.
The principal executive offices of the Company are located at 1550 South
Redwood Road, Salt Lake City, Utah 84104. The Company's telephone number is
(801) 974-1400.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
General
Pursuant to a resolution adopted by the Board of Directors on May 17, 1996,
the Board of Directors is comprised of seven members divided into three classes
serving staggered terms of three years each. At the 1996 Annual Meeting of
Stockholders on May 23, 1996, the stockholders elected the following directors:
Jeffrey P. Smith, Ronald W. Burkle, Allen R. Rowland, Fred L. Smith, Linda
McLoughlin Figel, Bruce Karatz and Bertram R. Zweig. Pursuant to the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Amended and Restated Bylaws (the "Bylaws"), the term of
office of one class of directors expires each year and at each annual meeting
the successors of the class whose term is expiring in that year are elected to
hold office for a term of three years and until their successors are elected and
qualified. The current terms of three directors expire in 1997, and the current
terms of two directors expire in each of 1998 and 1999.
In the absence of instructions to the contrary, the persons named as proxy
holders in the accompanying proxy intend to vote in favor of the election of the
three nominees designated below, all of whom are currently directors of the
Company, to serve until the 2000 Annual Meeting of Stockholders of the Company
and until their respective successors are elected and qualified. The Board of
Directors expects that each of the nominees will be available to serve as a
director, but if any such nominee should become unavailable for election, it is
intended that the shares represented by the proxy will be voted for such
substitute nominee as may be designated by the Board of Directors.
Nominees for Election as Director
Present Position
Name Age With The Company Director Since
---- --- ---------------- --------------
Jeffrey P. Smith 47 Chairman of the Board 1971
Ronald W. Burkle 44 Director and Chief 1996
Executive Officer
Allen R. Rowland 52 Director, President and 1996
Chief Operating Officer
Jeffrey P. Smith has been a director of the Company since 1971. He has been
Chairman of the Board of the Company since 1988 and Chief Executive Officer from
1988 until May 1996. He served as Chief Operating Officer and President of the
Company from 1984 to 1988.
Ronald W. Burkle has been a director and the Chief Executive Officer of the
Company since May 1996. Prior to May 1996, Mr. Burkle was Chairman of the Board
of Smitty's Supermarkets, Inc. ("Smitty's") and a director of Smitty's Super
Valu, Inc. ("SSV") since 1994 and Chairman of the Board of SSV since October
1995 until Smitty's merged into the Company in May 1996 (the "Merger"). Mr.
Burkle co-founded The Yucaipa Companies ("Yucaipa"), a private investment group
specializing in the acquisition and management of supermarket chains, in 1986
and has served as director and Chairman of the Board of Food 4 Less Holdings,
Inc. ("Food 4 Less"), whose principal operating subsidiary is Ralphs Grocery
Company ("Ralphs"), and Chairman of the Board and Chief Executive Officer of its
predecessor, Food 4 Less Supermarkets, Inc. since 1987. Mr. Burkle served as
Chief Executive Officer of Dominick's Supermarkets, Inc. from 1995 to January
1996 and since March 1995 has served as its Chairman of the Board. Mr. Burkle
also serves as a director of Kaufman and Broad Home Corporation. Before
founding Yucaipa, Mr. Burkle held a number of supermarket executive positions
and was a private investor in Southern California.
Allen R. Rowland has been President and Chief Operating Officer since joining
the Company in January 1996. From 1989 to 1996, he served as a Senior Vice
President/Regional Manager of Albertson's Inc. From 1982 to 1989, he was a Vice
President/Division Manager with the Florida and Texas Divisions of Albertson's
Inc.
Directors Continuing in Office
Director Term
Name Age Since Expires
---- -------- ----- -------
Linda McLoughlin Figel 33 1996 1998
Bruce Karatz 51 1996 1999
Fred L. Smith 49 1968 1998
Bertram R. Zweig 62 1996 1999
Linda McLoughlin Figel joined Yucaipa in 1989 and became a general partner in
1991. Prior to that time, she was employed by Bankers Trust Company in its
Structured Finance Group. Ms. Figel also serves as a director of Dominick's
Supermarkets, Inc.
Bruce Karatz has been the Chairman of the Board of Kaufman and Broad Home
Corporation since July 1993 and its President, Chief Executive Officer and a
director since 1986. Mr. Karatz is also a director of Honeywell, Inc., National
Golf Properties, Inc. and a Trustee of the National Park Foundation and the RAND
Corporation.
Fred L. Smith has been a director of the Company since 1968. From 1988 to
1996, he was President of Fred Smith's Honda Automobiles of Palm Springs, an
auto dealership, and President of Fred Smith's Jaguar/Rolls Royce of Rancho
Mirage, an auto dealership.
Bertram R. Zweig is a partner in the Los Angeles office of Jones, Day, Reavis
& Pogue. Mr. Zweig was with Jones, Day from 1962 to 1978, and rejoined the firm
in 1995. Between August 1992 and June 1995, Mr. Zweig was a partner with the
law firm of Graham and James, and from January 1988 to July 1992 he was a
partner with the law firm of Stroock & Stroock & Lavan. He is a member of the
Board of Directors of Wedbush Corporation, the parent of Wedbush Morgan
Securities, Inc., a regional investment banking firm in Los Angeles. Mr. Zweig
is a member of the Board of Directors of Aquatic Water Systems Incorporated.
Jeffrey P. Smith and Fred L. Smith are brothers.
Board Meetings and Committees
The Board of Directors held nine meetings during fiscal 1996. All directors
attended at least 75% of all meetings of the Board of Directors and of all
committees on which such person served during such period. The Board of
Directors has an Executive Committee, an Audit Committee and a Compensation
Committee.
Executive Committee. Prior to May 23, 1996, the Executive Committee consisted
of Jeffrey P. Smith (chair), Robert D. Bolinder, Richard D. Smith, and Kenneth
A. White. Messrs. Rowland (chair), Jeffrey P. Smith and Burkle currently serve
on the Executive Committee. Subject to the Company's conflict of interest
policies and certain other limitations, the Executive Committee has been granted
all powers and authority of the Board of Directors in the management of the
business and affairs of the Company. The Executive Committee held no meetings
in fiscal 1996. The Executive Committee serves as the nominating committee for
the Board of Directors and, although there are no formal procedures for
stockholders to recommend nominations, the Executive Committee will consider any
recommendations from stockholders. Recommendations should be sent to Michael C.
Frei, Secretary, Smith's Food & Drug Centers, Inc., 1550 South Redwood Road,
Salt Lake City, Utah 84104.
Audit Committee. Prior to May 23, 1996, the Audit Committee consisted of
Allen P. Martindale (chair), DeLonne Anderson and Duane Peters. Messrs.
Anderson and Peters were appointed to the Audit Committee at the January 25,
1996 meeting of the Board of Directors, filling vacancies created by the
resignations of Rodney H. Brady (resigned January 5, 1996) and Alan R. Hoefer
(resigned January 19, 1996). Messrs. Jeffrey P. Smith (chair) and Zweig and Ms.
Figel currently serve on the Audit Committee. The Audit Committee makes
recommendations concerning the engagement of independent auditors, reviews with
independent auditors the plans and results of the audit engagement, approves
professional services provided by the independent auditors, reviews the
independence of the independent auditors, considers the range of audit and non-
audit fees, and reviews the adequacy of the Company's internal accounting
controls. The Audit Committee held two meetings in 1996.
Compensation Committee. Prior to May 23, 1996, the Compensation Committee
consisted of Douglas Tigert (chair), Duane Peters and Ray Rose. Messrs. Karatz
(chair) and Fred L. Smith currently serve on the Compensation Committee. The
Compensation Committee, which did not meet during 1996, administers the stock
option and stock purchase plans of the Company on behalf of the Board of
Directors and determines compensation for executive officers of the Company.
Director Compensation
Other than employees of the Company and affiliates of Yucaipa, directors
receive an annual retainer of $25,000 for their service as directors.
Additionally, directors who are not also employees of the Company or affiliates
of Yucaipa receive $2,500 for each Board of Directors meeting attended.
Directors who are members of committees of the Board of Directors and are not
employees of the Company or affiliates of Yucaipa receive $1,000 for each
committee meeting attended. If approved by the stockholders of the Company,
pursuant to Smith's Food & Drug Centers, Inc. Directors' Deferred Compensation
Plan, directors of the Company may elect to defer any such annual retainers and
meeting fees until retirement or other specified date or event and to receive
such deferred compensation in the form of cash or shares of Class B Common
Stock. See "Smith's Food & Drug Centers, Inc. Directors Deferred Compensation
Plan." The Company anticipates that it will continue to reimburse all directors
for their out-of-pocket expenses incurred in connection with attending meetings
of the Board of Directors.
Limitation of Liability and Indemnification Matters
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law") gives Delaware corporations broad powers to
indemnify their present and former directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with threatened, pending or
completed actions, suits or proceedings to which they are parties or are
threatened to be made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions; gives a director or
officer who successfully defends an action the right to be so indemnified; and
permits a corporation to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other rights to which those indemnified
may be entitled under any Bylaw, agreement, vote of stockholders or otherwise.
As permitted by Section 145 of the Delaware Corporation Law, Article IX of the
Certificate of Incorporation and Section 3.15 of the Bylaws provide for the
indemnification by the Company of its directors, officers, employees and agents
against liabilities and expenses incurred in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents.
Article VIII of the Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware Corporation Law, as the same exists or may
hereafter be amended, a director of the Company shall not be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director.
It is the Company's practice to indemnify its directors and executive officers
in addition to the indemnification provided for in the Certificate of
Incorporation and Bylaws. The Company has entered into indemnification
agreements with some if its directors and intends to enter into similar
agreements with the balance of its directors. Such agreements, among other
things, will indemnify the Company's directors and executive officers for
certain expenses (including attorneys' fees) and all losses, claims,
liabilities, judgments, fines and settlement amounts incurred by such person
arising out of or in connection with such person's service as a director or
officer of the Company to the fullest extent permitted by applicable law.
Vote Required
The election of each director requires the affirmative vote of a plurality of
the votes of the shares of Common Stock and Series I Preferred Stock voting
together as a single class, present in person or represented by proxy at the
Annual Meeting. The Board of Directors recommends that stockholders vote FOR
each of the directors nominated in Proposal No. 1.
PROPOSAL NO. 2:
APPROVAL OF SMITH'S FOOD & DRUG CENTERS, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
General
On January 17, 1997, the Board of Directors adopted, subject to stockholder
approval, the Smith's Food & Drug Centers, Inc. Directors' Deferred Compensation
Plan (the "Plan") described herein. The stockholders are asked to approve the
adoption of the Plan.
The Company desires to implement the Plan effective as of May 1, 1997. The
purpose of the Plan is to attract and retain individuals of outstanding
competence as members of the Board of Directors, by permitting such individuals
to elect (i) to defer any compensation in connection with their service on the
Board of Directors until retirement or some other specified date or event and
(ii) to receive any such deferred compensation in the form of cash or shares of
Class B Common Stock, and thus in the latter case, benefit directly from the
Company's growth, development and financial success. The maximum number of
shares of Class B Common Stock issuable under the Plan is 100,000.
The following is a description of the material provisions of the Plan, a copy
of which is set forth in Appendix A to this Proxy Statement. Unless otherwise
defined, capitalized terms used herein have the meanings ascribed to them in the
Plan. The summary which follows is not intended to be complete and reference
should be made to the Plan for a complete statement of its terms and provisions.
Administration
The Plan will be administered by the Compensation Committee of the Board of
Directors. The Compensation Committee will have all powers necessary to carry
out the provisions of the Plan including, without limitation, the power to
delegate administrative matters to other persons and to interpret the Plan in a
manner consistent with its express provisions.
Eligibility and Participation
Any member of the Board of Directors who receives an annual retainer and
meeting fees ("Compensation") is eligible to participate in the Plan. Any
eligible member of the Board of Directors (a "Participant") may participate in
the Plan with respect to any Plan Year by executing an irrevocable deferral
election with respect to his or her Compensation for such Plan Year. A separate
election must be made to defer Compensation for each Plan Year. If no election
is made by a Participant with respect to a given Plan Year, such Participant
will receive Compensation in cash. See "Election of Directors-Director
Compensation."
Form of Election
A Participant may elect to defer all or part of his or her Compensation with
respect to any Plan Year until some later date or event by making a timely
deferral election which shall specify, among other things, (i) the percentage
of Compensation that is to be deferred under the Plan, (ii) the date of the
event on which payment of such deferred Compensation is to commence (which,
other than death, disability or involuntary termination, must be at least two
years from the date of the deferral election) and (iii) whether such payment is
to be paid out in a single lump sum or in approximately equal annual
installments over a period not to exceed fifteen (15) years.
In addition, a Participant may elect to receive all or part of his or her
deferred Compensation for each Plan Year in the form of shares of Class B Common
Stock rather than cash. See "-Deferral Accounts".
Deferral Accounts
If a Participant elects to defer Compensation, the Company will establish a
separate bookkeeping account (a "Deferral Account") for each Participant with
respect to each Plan Year in order to record the deferrals and additions of such
Participant for such Plan Year. Each Participant's Deferral Account will be
credited in the form of cash or shares of Class B Common Stock or both, as
applicable, with the amount of Compensation deferred by such Participant by a
quarterly crediting on the last day of each July, October, January, and April in
the amount of Compensation that would have been payable by the Company to such
Participant in such quarter. If a participant elects to receive all or part of
his or her deferred Compensation in the form of Class B Common Stock, the amount
of Compensation credited quarterly to his or her account shall be the number of
shares of Class B Common Stock which can be purchased with 110% of the
Compensation so deferred at the median of the high and low trading prices of the
Class B Common Stock as quoted on the New York Stock Exchange Composite
Transactions plus the dollar amount of any part of such Compensation that was
not equal to the purchase price of a full share of Class B Common Stock. The
Participant's Deferral Account shall also be increased on the last day of each
July, October, January and April prior to distribution by (i) the amount
obtained by multiplying the cash Deferral Account balance as of the first day of
such quarter by one-fourth of the average prime rate as published in The Wall
Street Journal in effect as of the first day of such quarter, and (ii) the
amount determined by multiplying the number of shares of Class B Common Stock in
the Participant's account at the beginning of such quarter by the dividends, if
any, payable upon a share of Class B Common Stock to a stockholder of record
during such quarter. The Participant's Deferral Account will be reduced by any
payments made to the Participant or his or her beneficiary, estate or
representative.
Miscellaneous Provisions
Notwithstanding any other provision in the Plan, a Participant (or beneficiary
designated by a Participant) may withdraw an amount of cash or stock from his or
her Deferral Account upon a finding by the Board of Directors in its sole
determination that an unanticipated emergency that is caused by an event beyond
the control of such Participant (or beneficiary) has occurred and that such
emergency would result in severe financial hardship to such Participant (or
beneficiary). In the event of the death of any Participant, the balance in the
Participant's Deferral Account will be paid or distributed to the Participant's
beneficiary within thirty (30) days after the date of such death. The Company
may amend or terminate the Plan at any time by action of the Board of Directors,
subject to the rights of Participants thereunder.
Federal Income Tax Consequences
Participants who elect to defer their Compensation generally will recognize
income and the Company generally will be entitled to a deduction for the amount
of such deferred Compensation at the time it is actually paid to the
Participant. If a Participant elects to receive his or her Compensation in the
form of shares of Class B Common Stock, the Participant generally will recognize
ordinary income when such shares are transferred to the Participant and the
Company generally will be entitled to a deduction for the amount equal to the
fair market value of such shares at the date of transfer.
Vote Required
Stockholder approval of Proposal No. 2 requires the affirmative vote of the
holders of a majority of the shares of Common Stock and Series I Preferred Stock
voting together as a single class, present in person or by represented by proxy
at the Annual Meeting. The Board of Directors recommends that stockholders vote
FOR Proposal No. 2.
PROPOSAL NO. 3:
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the independent
auditors to examine the accounts of the Company for the 1997 fiscal year. Ernst
& Young LLP has served as the Company's independent auditors since prior to
1970. In the event that ratification of this selection of auditors is not
approved by the stockholders, management will review its future selection of
auditors.
A member of Ernst & Young LLP is expected to be in attendance at the Annual
Meeting with the opportunity to make a statement and respond to questions.
Vote Required
Stockholder approval of Proposal No. 3 requires the affirmative vote of the
holders of a majority of the shares of Common Stock and Series I Preferred Stock
voting together as a single class, present in person or represented by proxy at
the Annual Meeting. The Board of Directors recommends that stockholders vote
FOR Proposal No. 3.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information regarding ownership of the
Company's voting securities as of February 27, 1997 with respect to (i) each
director of the Company; (ii) each Named Executive Officer (as defined below);
(iii) all directors and executive officers of the Company as a group; and (iv)
each person known by the Company to be a beneficial owner of five percent or
more of any class of the Company's voting securities.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of all
Title of Beneficial Percent Votes of all Classes
Name and Address of Beneficial Owner Class<F2> Ownership<F3> of Class of Stock
- ------------------------------------ -------- ------------ -------- --------------------
<S> <C> <C> <C> <C>
Jeffrey P. Smith Class A 1,523,306<F4> 35.7% 31.1%
c/o Smith's Food & Drug Centers, Inc. Class B 5,141 *<F1>
1550 South Redwood Road Preferred 3,253,623<F5> 32.7
Salt Lake City, UT 84104
Dee Glen Smith Marital Trust I Class A 224,287<F6> 5.2 22.6
c/o Ida W. Smith Preferred 3,253,623<F6> 32.7
1066 North East Capital Blvd.
Salt Lake City, UT 84103
University of Utah Preferred 2,267,731 22.8 14.7
c/o Treasurer
University of Utah
407 Park Building
Salt Lake City, UT 84112
Corporation of the President of the Church Preferred 2,000,010 20.1 13.0
of Jesus Christ of Latter-Day Saints
50 East North Temple
Salt Lake City, UT 84150
Fred L. Smith Class A 928,827<F7> 21.7 6.0
c/o Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, UT 84104
Utah State University Preferred 833,646 8.4 5.4
Mr. Chuck Bell c/o Shirley Keyes
Logan, UT 84123
Richard D. Smith Class A 711,537<F8> 16.7 4.6
c/o Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, UT 84104
Trust for the Children of Jeffrey P. Smith Class A 560,353<F6> 13.1 3.6
c/o Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, UT 84104
Trust for the Children of Fred L. Smith Class A 560,353<F9> 13.1 3.6
c/o Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, UT 84104
Trust for the Children of Richard D. Smith Class A 540,952<F10> 12.7 3.5
c/o Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, UT 84104
City of Hope Preferred 500,006 5.0 3.3
1500 East Duarte Road
Duarte, CA 91010
Weber State Development Foundation Preferred 496,000 5.0 3.2
Miller Administration Building
Ogden, UT 84408
Ronald W. Burkle Class B 2,251,814<F11> 19.5 1.5
c/o The Yucaipa Companies
1000 Santa Monica Boulevard
5th Floor
Los Angeles, CA 90067
Kenneth A. Martindale Class A 51,899<F12> 1.2 *<F1>
Class B 9,104<F13> *<F1>
Abel T. Porter Class A 26,321 *<F1> *<F1>
Class B 150 *<F1>
James W. Hallsey Class A 16,248<F14> *<F1> *<F1>
Allen R. Rowland Class B 962 *<F1> *<F1>
Robert D. Bolinder Class A 423 *<F1> *<F1>
Bertram R. Zweig Class B 250 *<F1> *<F1>
Linda McLoughlin Figel _ _<F11> *<F1> *<F1>
Bruce Karatz _ _ *<F1> *<F1>
All directors and executive officers Class A 2,628,268 61.5 39.7
as a Group (15 Persons) Class B 2,272,188 19.7
Preferred 3,253,623 32.7
<FN>
<F1>Less than one-percent.
<F2>As used in this table "Preferred" refers to the Series I Preferred Stock.
<F3>Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise set forth in the footnotes to this table. Each
share of Class A Common Stock is convertible at any time at the option of the
holder into one share of Class B Common Stock.
<F4>Includes 560,353 shares which are held of record by a trust of which Jeffrey
P. Smith is the trustee and of which his children are beneficiaries, and 224,287
shares held of record by a trust for benefit of Ida W. Smith and of which Mr.
Smith is trustee.
<F5>Such shares are held of record by a trust for the benefit of Ida W. Smith
and of which Jeffrey P. Smith is trustee.
<F6>Included in the shares shown for Jeffrey P. Smith.
<F7>Includes 659,046 shares which are held of record by four trusts of which
Fred L. Smith is trustee and of which his children are beneficiaries, and 17,073
shares held of record by Mr. Smith's wife.
<F8>Includes 711,537 shares which are held of record by four trusts of which
Richard D. Smith is trustee and of which his children and the children of
Jeffrey P. Smith are beneficiaries.
<F9>Included in the shares shown for Fred L. Smith.
<F10>Included in the shares shown for Richard D. Smith.
<F11>Such shares are held of record by the following four partnerships of which
Yucaipa is the general partner: Yucaipa SSV Partners, L.P. (1,340,772 shares);
Yucaipa Smitty's Partners, L.P. (300,667 shares); Yucaipa Smitty's Partners II,
L.P. (136,793 shares); and Yucaipa Arizona Partners, L.P. (273,582 shares). Mr.
Burkle is a limited partner in two of those partnerships and is also the
controlling general partner of Yucaipa. Linda McLoughlin Figel is a limited
partner in Yucaipa SSV Partners, L.P. Share amounts and percentages for Yucaipa
do not include shares issuable upon exercise of the Yucaipa Warrant issued to
purchase 1,842,505 shares of non-voting Class C Common Stock, par value $.01 per
share, of the Company (the "Class C Common Stock"). See "Certain Relationships
and Related Transactions - Yucaipa Warrant".
<F12>Includes 3,396 shares held of record by two children of Mr. Martindale and
of which Mr. Martindale is custodian.
<F13>Includes 4,656 shares held of record by two children of Mr. Martindale and
of which Mr. Martindale is custodian
<F14>Includes 485 shares held of record by a child of Mr. Hallsey and of which
Mr. Hallsey is custodian.
</FN>
</TABLE>
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of each of the
executive officers of the Company.
Name Age Position
----- --- --------
Jeffrey P. Smith 47 Chairman of the Board
Ronald W. Burkle 44 Chief Executive Officer
Allen R. Rowland 52 President, Chief Operating Officer
Richard C. Bylski 57 Senior Vice President, Human Resources
Michael C. Frei 50 Senior Vice President, General Counsel
and Secretary
James W. Hallsey 54 Senior Vice President, Regional Manager,
Southwest Region
Kenneth A. Martindale 37 Senior Vice President, Sales and Procurement
Abel Porter 38 Senior Vice President, Regional Manager,
Intermountain Region
Matthew G. Tezak 41 Senior Vice President, Chief Financial
Officer
Fred F. Urbanek 61 Senior Vice President, Facility Engineering
Wade S. Williams 38 Senior Vice President, Corporate Development
In addition to Jeffrey P. Smith, Ronald W. Burkle, and Allen R. Rowland whose
biographies appear above, the following persons are executive officers of the
Company:
Richard C. Bylski has been Senior Vice President, Human Resources of the
Company since 1992. He served as Vice President, Human Resources of the Company
from 1985 to 1992.
Michael C. Frei joined the Company in 1990 as Senior Vice President, General
Counsel and Secretary. Prior to that time, Mr. Frei served as Vice President
and General Counsel of Price Development Company, a commercial real estate
developer, since 1981.
James W. Hallsey has served as Senior Vice President, Regional Manager,
Southwest Region since 1995. He rejoined the Company in 1994 as Senior Vice
President, Special Projects after serving most of 1994 as Senior Vice President
at McKesson Drug Company, a pharmacy company. In 1993, Mr. Hallsey retired as a
director of the Company (a capacity in which he served since 1985) and Senior
Vice President, Corporate Nonfoods Director (a capacity in which he served since
1992). From 1980 to 1992 he served as Vice President, Corporate Nonfoods
Director of the Company.
Kenneth A. Martindale has served as Senior Vice President, Sales and
Procurement of the Company since 1995. He served as Vice President,
Merchandising, California Region from 1991 to 1995. From 1984 to 1991, he
served as a district manager in the Intermountain Region.
Abel T. Porter has served as Senior Vice President, Regional Manager,
Intermountain Region of the Company since 1996. He served as Vice President,
Sales and Operations, Intermountain Region from 1993 to 1996. From 1992 to 1993
he served as Senior Vice President, Regional Manager, Intermountain Region and
from 1991 to 1992 Mr. Porter served as Vice President, Regional Manager,
Intermountain Region.
Matthew G. Tezak has been Senior Vice President and Chief Financial Officer of
the Company since 1993. He served as Senior Vice President, Finance and
Treasurer from 1992 to 1993 and Vice President, Finance and Treasurer from 1987
to 1992. Mr. Tezak, a certified public accountant, joined the Company in 1979
as Assistant Controller.
Fred R. Urbanek has been Senior Vice President, Facility Engineering of the
Company since 1992. He served as Vice President, Facility Engineering of
Smith's from 1985 to 1992.
Wade S. Williams has been Senior Vice President, Corporate Development since
January 1997. He served as Vice President, Store Development from 1996 to 1997
and Real Estate Manager from 1991 to 1996.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation of (i)
all individuals serving as the Company's chief executive officer during fiscal
1996, (ii) the other four most highly compensated executive officers of the
Company who were serving as executive officers at the end of fiscal 1996 and
(iii) Robert D. Bolinder (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term
----------------------------------- Compensation
----------------
Fiscal Securities
Year Underlying All Other
Name and Principal Position Ended Salary Bonus Other<F1> Options/SARs(#) Compensation
- --------------------------- ------ ------ ----- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey P. Smith<F2> 1996 $306,626 $2,000,000<F3>
Chairman of the Board of Directors 1995 704,206 $502,670
1994 684,112 516,000
Ronald W. Burkle<F4>
Chief Executive Officer 1996
1995
1994
Allen R. Rowland<F5>
President and Chief Operating Officer 1996 470,000 250,000 125,000
1995
1994
James W. Hallsey 1996 187,355 314,012 $595,000
Senior Vice President and 1995 181,900 64,580
Regional Manager, Southwest Region 1994 40,800 80,800 35,000
Kenneth A. Martindale 1996 169,840 277,070 425,000
Senior Vice President, 1995 141,475 243,136
Sales and Procurement 1994 129,479 220,000
Abel Porter 1996 154,062 323,287 425,000
Senior Vice President and Regional 1995 133,825 251,681
Manager, Intermountain Region 1994 130,000 270,000
Robert D. Bolinder<F6> 1996 349,296 212,180 467,500
1995 339,111 194,875
1994 333,310 200,000
<FN>
<F1>As part of the recapitalization and merger, the Company purchased 50% of the
outstanding management stock options of the Company at a price per share of
Common Stock covered by such options equal to $36.00 per share minus the
exercise price per share.
<F2>Mr. Smith served as Chief Executive Officer from 1988 until May 1996.
<F3>Severance payment to Jeffrey P. Smith as chief executive officer.
<F4>Mr. Burkle has served as Chief Executive Officer since May 1996. Mr. Burkle
provides services to the Company pursuant to a Management Services Agreement
(the "Management Services Agreement") between Yucaipa and the Company. During
fiscal 1996, Mr. Burkle, Ms. Figel and other Yucaipa personnel received 200,000
shares of Class B Common Stock as management fees payable under the Management
Services Agreement, a portion of which prepays such management fees for fiscal
1997 and fiscal 1998. Such payments to Yucaipa are not reflected in the table
set forth above. See "Certain Relationships and Related Transactions --
Management Services Agreement."
<F5>Mr. Rowland was appointed President and Chief Operating Officer in January
1996.
<F6>Mr. Bolinder served as Executive Vice President, Corporate Planning and
Development from 1993 to December 1996.
</FN>
</TABLE
</TABLE>
<TABLE>
Option/SAR Grants in the Last Fiscal Year
The following table sets forth the information concerning grant of stock
options to the Named Executive Officers during fiscal 1996.
<CAPTION>
Individual Grants
--------------------------------------
Percentage of
Number of Total Potential Realizable Value at Assumed
Securities Options/SARs Annual Rates of Stock Price Appreciation
Underlying Granted to Exercise for Option Term<F1>
Options/SARs Employees in or Base Expiration -------------------------------------------
Name<F1> Granted Fiscal Year Price Date 0%($) 5%($) 10%($)
- -------- ------------ ------------ -------- ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey P. Smith
Ronald W. Burkle
Allen R. Rowland 125,000<F2> 100% $15.00 01/28/06 $1,812,500 $2,612,515 $3,548,409
James W. Hallsey
Kenneth A. Martindale
Abel Porter
Robert D. Bolinder
<FN>
<F1>The potential realizable value is determined based upon hypothetical
increases in the Common Stock price over the market price of the Common Stock on
the date of grant. The 5% and 10% assumed annual rates of appreciation are
suggested by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the future Common Stock price.
There can be no assurance that any of the values reflected in the table will be
achieved. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent upon a number of factors, including the future
performance of the Common Stock, overall market conditions and the timing of
option exercises, if any.
<F2>50% of such stock options vest on January 28, 1999 and the remaining 50%
vest on January 28, 2001.
</FN>
</TABLE>
Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option
Value
The following table sets forth the number of shares covered by stock options
held by the Named Executive Officers as of the end of fiscal 1996, and the
value of "in-the-money" stock options as of the end of fiscal 1996.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options/SARs Options/SARs
at Fiscal at Fiscal
Shares year End(#) Year End($)
Acquired on Value Exercisable/ Exercisable/
Name(1) Exercise Realized Unexercisable Unexercisable(2)
- ------- ----------- -------- -------------- -----------------
Jeffrey P. Smith 0/0 0/0
Ronald W. Burkle 0/0 0/0
Allen R. Rowland 0/125,000 0/$3,703,125
James W. Hallsey 0/35,000 0/$1,036,875
Kenneth A. Martindale 0/25,000 0/$740,625
Abel Porter 0/25,000 0/$740,625
Robert D. Bolinder 27,500 $192,775 0/0 0/0
(1)Except as set forth in the table, no Named Executive Officer held any stock
options as of the end of fiscal 1996.
(2)Calculated on the basis of the closing price per share for the Class B Common
Stock on the New York Stock Exchange of $29 5/8 on December 27, 1996, the
last trading day in fiscal 1996.
Ten-Year Option/SAR Repricings
The following table sets forth information concerning the adjustment of the
amount in total.
<TABLE>
<CAPTION>
Length of
Original
Number of Option
Securities Market Price Exercise Term
Underlying at Stock at Price at Time Remaining
Options/ Time of of Repricing as Date of
SARs Repricing or or New Exercise Repricing or
Name<F1> Date<F2> Repriced Amendment<F3> Amendment Price Amendment
- -------- ------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey P. Smith
Ronald W. Burkle
Allen R. Rowland
James Hallsey 05/23/96 35,000 $28 3/8 $19.00 $15.00 5.3 years
Kenneth A. Martindale 05/23/96 25,000 28 3/8 19.00 15.00 6.2 years
Abel Porter 05/23/96 25,000 28 3/8 19.00 15.00 5.1 years
Robert D. Bolinder 05/23/96 27,500 28 3/8 19.00 15.00 Exercisable
<FN>
<F1>Except as set forth in the table, no Named Executive Officer had options
repriced during fiscal 1996.
<F2>The options were repriced upon consummation of the Recapitalization.
<F3>The New York Stock Exchange suspended trading on May 23, 1996 as a result of
the Recapitalization. This price represents the closing price on that date
prior to the suspension.
</FN>
</TABLE>
Pension Plan and Other Retirement, Death and Disability Arrangements
Pension Plan. The Company sponsors a retirement plan (the "Pension Plan") for
its nonunion employees, including executive officers, which is funded entirely
by the Company's contributions. An employee's monthly benefit under the Pension
Plan is determined by multiplying a fixed dollar amount by the number of years
of the employee's employment. The fixed dollar amount, which has varied from
year to year, is currently $30 per month and is not subject to reduction for
social security benefits. The fixed dollar amount is adjusted from time to time
on the basis of a number of factors, including the other compensation and
benefits offered to the Company's employees generally, the Company's overall
budget and earnings and pension benefits offered by comparable employers. As of
the end of fiscal 1996, the estimated annual amounts payable following
retirement to Messrs. Jeffrey P. Smith, Rowland, Hallsey, Martindale, Porter and
Bolinder, under the Pension Plan were $4,764, $5,040, $8,400, $14,328, $13,884
and $2,520, respectively.
Additional Retirement Benefits. As of the end of fiscal 1996, the Company has
entered into agreements with nine of its executive officers, including each of
the Named Executive Officers except for Messrs. Burkle and Rowland, which
provide that if the officer serves in his present position or a higher position
with the Company through age 65, such officer or his beneficiary will receive,
following such officer's retirement or death, fixed equal monthly payments over
a ten-year period totaling $100,000.
Supplemental Compensation Agreements. The Company has entered into agreements
with Mr. Hallsey and four other current executive officers which provide for
monthly cash payments following the officer's disability or death, or upon
reaching a date specified in the agreement (the "Payment Date"). The agreements
provide that if the employee becomes disabled while employed by the Company and
before the Payment Date, the employee is entitled to receive fixed monthly
payments for the duration of the disability or for a period of twenty years,
whichever period is shorter. The agreements also provide that if the employee
dies while employed by the Company and before the Payment Date, or if he dies
after the Payment Date, his beneficiary is entitled to receive fixed monthly
payments for a period of twenty years. Unless the employee dies prior to the
Payment Date, he is entitled to receive monthly payments for a period of twenty
years beginning on the Payment Date. The payment of benefits under the
agreements is subject to forfeiture if the employee accepts employment prior to
the Payment Date with a company in the food or drug business (either wholesale
or retail) without the prior written consent of the Company. In the event of a
change in control of the Company, defined as either a sale of substantially all
of the assets of the Company or the sale of 51% of the Company's outstanding
capital stock to an entity other than one owned and controlled by the Smith
family, the Company must purchase a fully paid insurance annuity for the benefit
of the employees that will fully vest the employees in their benefits under the
agreements. Mr. Hallsey and all executive officers as a group are entitled to
receive maximum monthly payments of $6,250 and $34,375, respectively, under the
supplemental compensation agreements, subject to pro rata reduction in the event
that employment ceases prior to the Payment Date other than as a result of death
or disability. The Company has purchased cost-recovery life insurance to cover
its obligations under these agreements.
Stock Option Plan. The Company's Amended and Restated 1989 Stock Option Plan,
as amended (the "1989 Plan"), authorizes the Compensation Committee to grant
options to key employees for the purchase of shares of Class B Common Stock.
The options may be either incentive stock options ("ISOs") within the meaning of
Section 422 of the Code, or nonqualified stock options. Pursuant to the 1989
Plan, while the aggregate number of such shares available for grant shall not
exceed 10% of the number of shares of Class B Common Stock which are authorized,
the number of outstanding and unexercised options shall not exceed 10% of the
total number of Class A Common Stock and Class B Common Stock outstanding as of
the close of trading on the last trading day of the Company's immediately
preceding fiscal year. The 1989 Plan is administered by the Compensation
Committee, the members of which cannot receive options under the 1989 Plan.
Subject to the terms of the 1989 Plan, the Compensation Committee has sole
discretion, without reference to any specific criteria, to determine the
employees of the Company to whom, and the time or times at which, options will
be granted; the designation of each option as either an ISO or a nonqualified
stock option; the per share exercise price and the duration of each option; the
number of shares subject to each option; the rate and manner of exercise of each
option; and any other restrictions placed on each option. ISOs may not be
granted to any employee who, at the time the option is granted, beneficially
owns stock of the Company representing more than 10% of the voting power of the
Company.
Compensation Committee Interlocks and Insider Participation
The current Compensation Committee of the Company consists of Bruce Karatz
and. Fred L. Smith. Mr. Smith is a former officer of the Company. Mr. Karatz
is not a present or former officer or employee of the Company or is not engaged
in any transaction described under "Certain Relationships and Related
Transactions."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that might
incorporate this Proxy Statement or future filings with the Securities and
Exchange Commission (the "Commission"), in whole or in part, the following
report and the Performance Graph which follows shall not be deemed to be
incorporated by reference into any such filings.
The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation policies. In addition, the Compensation Committee,
pursuant to authority delegated by the Board of Directors, reviews and approves
on an annual basis the compensation policies applicable to the Chief Executive
Officer and the other executive officers of the Company.
The objectives of the Company's executive compensation program are to:
Support the achievement of desired performance by the Company.
Provide compensation that will attract and retain superior talent and
reward performance.
Align the executive officers' personal interests and financial
remuneration with the success of the Company by basing a significant
portion of their compensation upon Company performance.
The executive compensation program provides an overall level of compensation
opportunity that is competitive within the retail food and drug industry,
including those companies which compete directly with the Company in its
regions, as well as companies outside the industry with which the Company may
compete for executive talent. Companies are selected for the purpose of
comparing compensation practices on the basis of a number of factors relative to
the Company, such as their size and complexity, the nature of their businesses,
the regions in which they operate, the structure of their compensation programs
(including the extent to which they rely on bonuses and other contingent forms
of compensation) and the availability of compensation information. In reviewing
the compensation practices of other companies, the Compensation Committee
considers the fact that the compensation structures of most peer companies tend
to be significantly different than those of the Company in a number of respects,
particularly in such areas as the amount of bonus relative to salary paid by
such companies, their use of stock appreciation rights and stock options, the
time period over which stock options vest and the nature and amount of pension
benefits made available to executive officers. For these reasons, although the
Compensation Committee has considered the compensation policies of certain
companies which are among the Company's peer group in the Performance Graph
below, the Compensation Committee does not believe that all such companies are
comparable to the Company for the purpose of setting the compensation for the
Company's executive officers. The Compensation Committee uses its discretion to
set executive compensation at levels warranted by external, internal and
individual circumstances. Actual compensation levels may be greater or less
than average compensation levels in other companies based upon annual and long-
term performance of the Company and each individual executive officer's
performance.
The Company's executive officer compensation program is comprised of base
salary, cash bonus compensation, long-term incentive compensation in the form of
stock options, and other benefits such as those available through the Company's
medical and defined contribution plans.
Base Salary. Base salary levels for the Company's executive officers are set
such that the overall cash compensation package for executive officers,
including bonus opportunity, compares favorably to companies with which the
Company competes for executive talent. In determining salaries, the
Compensation Committee also takes into account a number of factors, which
primarily include individual experience and performance, the officer's level of
responsibility, the cost of living and historical salary levels. The measures
of individual performance considered include, to the extent applicable to an
individual executive officer, a number of quantitative and qualitative factors
such as the Company's historical and recent financial performance (including
such measures as gross margin, net income, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), same-store sales, customer count, cost
savings and market share), the individual's achievement within his or her
responsibility of particular financial (such as sales, gross margin, pre-tax
income and EBITDA) and non-financial (such as store openings, site acquisitions
or other specific tasks) goals, and other contributions made by the officer to
the Company's success. The Compensation Committee has not found it practicable,
and has not attempted, to assign relative weights to the specific factors
considered in determining base salary levels, and the specific factors used may
vary among officers. As is typical for most companies, payment of base salary
amounts generally is not conditioned upon the achievement of any specific, pre-
determined performance targets.
Cash Bonus. The Company's cash bonus program in effect for fiscal 1996
includes all executive officers. Its purpose is to provide a direct financial
incentive in the form of an annual cash bonus to executive officers to achieve
or exceed budgeted EBITDA for the year of the individual's area of
responsibility. Officers may receive cash bonuses ranging from 100% to 0% of
the maximum. For fiscal 1996, the cash bonus paid to each officer was equal to
the maximum bonus amount determined to be available for such officer less any
reductions (calculated on a sliding scale) based upon a comparison of actual
EBITDA for the officer's operating area to budgeted EBITDA. The annual amount
budgeted for EBITDA for the 1996 fiscal year was approved by the Board of
Directors of the Company. Any adjustments to the amount of budgeted EBITDA were
reviewed by the Board. At the beginning of the 1996 fiscal year, the
Compensation Committee established the maximum amount of bonus payable for such
year for each executive officer. In reviewing the amount, the Compensation
Committee considered a number of factors including each officer's overall
compensation package, bonus and other compensation opportunities at competing
companies and the officer's level of responsibility. The Compensation Committee
also established a formula for payment of bonuses based on the extent of
achievement of the Board-approved budgets. The Company believes that as
compared to other companies in its industry, the Company pays a relatively
higher portion of total executive compensation in the form of bonus rather than
salary and equity-based compensation.
The Company's cash bonus program in effect for fiscal 1997 was modified to
include an incentive for increasing sales. The cash bonuses to be paid will be
based upon two factors: (1) the comparison of actual EBITDA to budgeted EBITDA
for the officer's operating area and (2) the comparison of changes to actual
same store sales to targeted same store sales for the officer's operating area.
Additionally, the payment of cash bonuses will occur quarterly rather than
annually.
Stock Option Plan. The Company's 1989 Plan authorizes the Compensation
Committee to grant stock options to executives and key managers. Grants of
options are made in amounts commensurate with the individual's responsibility
and at a level calculated to be competitive within the retail food and drug
industries as well as a broader group of companies of comparable size and
complexity. Option grants are made from time to time and, depending upon the
circumstances, typically are not made to each executive officer during each
year. Options granted to executive officers typically do not vest until ten
years after the grant date, and do not include any specific, pre-determined
performance targets as a condition to vesting or granting. The Company believes
that such long-term grants serve the primary objective of retaining executives
and key managers, while also aligning executive and shareholder interests by
creating a strong and direct link between compensation and stockholder return
and by enabling executives and key managers to develop and maintain a
significant, long-term ownership interest in the Company's Common Stock. During
1996, 125,000 options were granted to Mr. Rowland. Grants of additional stock
options to the Named Executive Officers may be considered in future periods by
the Compensation Committee.
As part of the recapitalization of the Company consummated in May 1996 (the
"Recapitalization"), the Company purchased 50% of its outstanding options for
$36.00 per share less the exercise price of $19.00. One of the purposes of the
1989 Plan is to align the interests of the officer with those of a stockholder
by treating the option holder as a stockholder. Since the Recapitalization
included a tender offer and subsequent purchase by the Company of 50% of the
outstanding Common Stock for $36.00 per share, the Compensation Committee
determined that the option holders should be treated the same.
Since the Company's initial public offering in 1989, the Company has granted
all stock options at an exercise price of $19.00 per share, which was the
initial public offering price for the Company's Class B Common Stock. The
Compensation Committee determined that despite the nominal compensation expense
incurred by the Company in granting stock options below the then-current market
value of the Class B Common Stock, this policy promotes morale among executive
officers while providing adequate incentives to maximize shareholder value,
given that typically no portion of the Company's stock options become
exercisable until ten years from the date of grant. In considering the changes
to the Company's capital structure as a result of the Recapitalization, the
Compensation Committee adjusted the exercise price on all options outstanding
after May 23, 1996 from $19.00 per share to $15.00 per share. This decrease in
the exercise price was determined by the Compensation Committee to be
appropriate in order to maintain the option holder's value earned.
Benefits. The Company provides medical and pension benefits to the executive
officers that are generally available to the Company's employees. The Company
also provides certain executive officers with supplemental retirement, death and
disability benefits, as more fully described under the caption, "Pension Plan
and Other Retirement, Death and Disability Arrangements." The benefits
available under such arrangements generally are the same for each of the
Company's executive officers except to the extent benefits are payable based
upon the length of an officer's employment with the Company.
Chief Executive Officer Compensation. Mr. Jeffrey P. Smith served as chief
executive officer of the Company from 1988 until May 23, 1996. His compensation
was reviewed and approved independently by the Compensation Committee. The
Compensation Committee members determined his compensation based upon the
factors applicable to the Company's other executive officers, which are
described in detail above, as well as a number of additional qualitative and
quantitative factors appropriate to his position as the Company's principal
executive.
The Compensation Committee also noted that during fiscal 1996, Mr. Smith
supervised the closure of the California region. Southern California's very
difficult competitive environment and the continuing recession in that market
prevented the Company from earning an adequate return on its investment in the
California region. The Company's large distribution center in Riverside,
California was subleased effective January 29, 1996. Of the Company's 34
operating stores in California, 23 have been sold or leased to various
supermarket companies. Mr. Smith also negotiated a merger agreement with
Smitty's Supermarkets, Inc. in which the Company acquired 26 stores in the
Phoenix and Tucson areas. The merger was designed to increase the Company's
presence in those areas and provide certain economy of scale efficiencies. Mr.
Smith also directed the Recapitalization of the Company. As part of the
Recapitalization, the Company purchased 50% of its outstanding Common Stock for
$36.00 in cash per share, repaid certain amounts of Company indebtedness, and
obtained new financings consisting of $575 million principal amount of 11 1/4%
senior subordinated notes due 2007 and $805 million principal amount of secured
bank term loans. Proceeds from the new debt were used to finance the stock
purchase, repay certain existing indebtedness and pay premiums related to early
repayment of such indebtedness.
Upon the resignation of Mr. Smith as chief executive officer on May 23, 1996,
Mr. Smith received a severance package valued at $2.0 million. The Compensation
Committee determined that the severance package was appropriate considering Mr.
Smith's many years of service to the Company and the successful consummation of
the transactions described above.
Mr. Burkle serves as chief executive officer of the Company without receiving
any compensation beyond the compensation paid to Yucaipa under the Management
Services Agreement. See "Certain Relationships and Related Transactions -
Management Services Agreement". Additionally, Mr. Burkle does not participate
in any of the compensation plans that apply to the other executive officers of
the Company.
Bruce Karatz
Fred L. Smith
Members of the Compensation Committee
of the Board of Directors
Stock Performance Graph
The graph below compares the five year cumulative total stockholder return on
the Class B Common Stock of the Company compound with the cumulative total
return on the Standard & Poor's 500 Index and a peer group of nine companies in
the Company's industry over the period. In accordance with guidelines of the
Commission, the stockholder return for each entity in the peer group index has
been weighted on the basis of market capitalization as of the beginning of each
fiscal year set forth on the graph. The stock price performance shown on the
graph below is not necessarily indicative of future price performance.
[Performance Chart Filed on Form SE]
(1) 1996 does not reflect the effect of the recapitalization of the Company
consummated on May 23, 1996.
(2) The selected peer group consists of the following companies: Fred Meyer,
Inc.; Giant Food, Inc.; Great Atlantic & Pacific Tea Co.; Hannaford Brothers
Co.; Kroger Co.; Quality Food Centers, Inc.; Safeway, Inc.; Vons Companies,
Inc.; and Weis Markets, Inc. Such companies have been selected for the peer
group on the basis of, among other factors, the similarity of their business
to that of the Company and their market capitalization relative to that of
the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, as amended, requires the Company's officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities, to file reports of ownership and changes of
ownership with the Commission and each exchange on which the Company's
securities are registered. Officers, directors and greater than ten percent
stockholders are required by Commission regulations to furnish the Company with
copies of all ownership forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain persons that no such forms were required
for those persons, the Company believes that, during the 1996 fiscal year its
officers, directors and greater than ten percent stockholders complied with
applicable Section 16 filing requirements, except for the following. The
initial statement of beneficial ownership was filed late for Bruce Karatz, Abel
Porter, John T. Standley, Bertram R. Zweig, the Kenneth A. and Sherry L. White
Charitable Remainder Trust, and the Richard and Karen Bylski Charitable
Remainder Unitrust. One statement of changes in beneficial ownership was
inadvertently filed late on behalf of Jeffrey P. Smith, the Dee Glen Smith
Marital Trust and the trusts for the children of Fred L. Smith. Amended
statements were filed to correct previously reported or inadvertently omitted
transactions on behalf of Allen P. Martindale, Kenneth A. Martindale, Fred L.
Smith, Matthew G. Tezak, Kenneth A. White, and the Allen Phillip Martindale and
Barbara Jane Trip Martindale Trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Services Agreement
On May 23, 1996, the Company entered into a five-year management services
agreement (the "Management Services Agreement") with Yucaipa. The Management
Services Agreement provides for the payment of an annual fee to Yucaipa in the
amount of $1.0 million per year. In addition, the Company may retain Yucaipa in
an advisory capacity in connection with certain acquisition or sale
transactions, debt and equity financings, or any other services not otherwise
covered by the Management Services Agreement, for which the Company will pay
Yucaipa additional compensation in an amount to be agreed upon by the Company
and Yucaipa (and approved by a majority of the Company's disinterested
directors). During fiscal 1996, Yucaipa received 200,000 shares of Class B
Common Stock as management fees payable under the Management Services Agreement,
a portion of which prepays such management fees for fiscal 1997 and fiscal 1998.
During the term of the Management Services Agreement, Ronald W. Burkle, the
managing general partner of Yucaipa, has the right and has elected to serve as
the Chief Executive Officer of the Company and has all rights and
responsibilities customarily vested in a Chief Executive Officer. Mr. Burkle
does not receive any compensation for serving in such capacity beyond the
management fees paid to Yucaipa under the Management Services Agreement. The
Management Services Agreement may be terminated at any time by the Company upon
90 days' written notice, provided that Yucaipa will be entitled to the greater
of (x) $5 million, or (y) twice the total fees that would have been earned by
Yucaipa under the then remaining term of the Management Services Agreement,
unless the Company terminates for cause pursuant to the terms of the Management
Services Agreement. Yucaipa may terminate the agreement if the Company fails to
make a payment due thereunder, or upon a Change of Control (as generally defined
in the Management Services Agreement to include certain mergers and asset sales,
and acquisitions of beneficial ownership of 40% or more of the Company's
outstanding voting securities by persons other than Yucaipa). Upon any such
termination, Yucaipa will be entitled to full payment of the annual fee for the
remaining term of the agreement.
Yucaipa Warrant
The Company issued warrants (the "Warrants") to Yucaipa to purchase 1,842,555
shares of Class C Common Stock. The initial exercise price of the Warrants is
$50.00 per share. One-half of the Warrants are designated "Series A Warrants"
and are exercisable at the election of Yucaipa on or prior to May 23, 2000, and
one-half of the Warrants are designated "Series B Warrants" and are exercisable
at the election of Yucaipa on or prior to May 23, 2001. The foregoing
expiration dates will each be extended by five years in the event that, prior to
such respective dates, the market price of Class B Common Stock equals or
exceeds the exercise price (as adjusted from time to time) for a period of not
less than 60 consecutive trading days. The cashless exercise provisions of the
Warrants allow the holder to elect to exercise the Warrants without the payment
of cash consideration, provided that the Company will withhold from the shares
otherwise issuable upon such exercise a number of shares having a fair market
value as of the exercise date equal to the aggregate exercise price. The Class
C Common Stock to be issued to Yucaipa upon exercise of the Warrants will be
identical in all respects to the Class B Common Stock, except that the Class C
Common Stock will be non-voting. Shares of Class C Common Stock will be
convertible into an equal number of shares of Class B Common Stock following the
transfer of such shares by Yucaipa to any person or entity not affiliated with
Yucaipa. The number of shares to be issued upon exercise of the Warrants and
the exercise price are each subject to adjustment under standard anti-dilution
provisions.
Registration Rights Agreement
Upon consummation of the Merger, the Company entered into a registration
rights agreement (the "Registration Rights Agreement") with Jeffrey P. Smith,
Yucaipa, and certain holders of Smitty's Common Stock who received Class B
Common Stock as consideration in the Merger (collectively, the "Holders").
Under the terms of the Registration Rights Agreement, each of (i) Yucaipa and
the holders of Smitty's Common Stock who received Class B Common Stock in the
Merger, and their transferees, as a group (the "Yucaipa Holder Group"), and (ii)
Jeffrey P. Smith and his affiliates and transferees, as a group (the "Smith
Holder Group"), is entitled to require the Company to effect a registration
under the Securities Act (a "Demand Registration") of all or a portion (but not
less than 20%) of the Registrable Securities (as defined in the Registration
Rights Agreement) held by such Holders, subject to certain limitations. Upon
such demand, the Company shall give prompt notice thereof to each registered
holder of Registrable Securities and shall prepare, file and use its best
efforts to cause to become effective a registration statement in respect of all
Registrable Securities requested to be included therein. Each of the Smith
Holder Group and the Yucaipa Holder Group is entitled to two Demand
Registrations. Notwithstanding the foregoing, the Company is not required to
effect more than one Demand Registration during any six-month period.
The Company is obligated to pay certain expenses associated with registration
of the Registrable Securities, regardless of whether any registration statement
required by the Registration Rights Agreement becomes effective, and the
reasonable fees and expenses of any party to the Registration Rights Agreement
who participates in any registration effected thereunder. In addition, the
Company shall provide customary securities law indemnification to any party who
participates in any registration effected under the Registration Rights
Agreement.
In November 1996, Yucaipa exercised a Demand Registration and the Company
filed a registration statement of Form S-3 (the "Shelf Registration Statement")
pursuant to Rule 415 under the Securities Act on behalf of the Yucaipa Holder
Group in order to register the shares of Class B Common Stock received by the
holders of Smitty's Common Stock as consideration in the Merger. Fees paid by
the Company in connection with the Shelf Registration Statement for the fiscal
year ended December 28, 1996 were approximately $55,000.
Other Transactions with Yucaipa or its Affiliates
Pursuant to the Recapitalization Agreement, Yucaipa received a success fee of
$15 million upon consummation of the Recapitalization.
In December 1995, the Company entered into an agreement to sublease its
Riverside, California distribution center and dairy processing plant to Ralphs,
an affiliate of Yucaipa. Pursuant to the sublease, Ralphs will pay the Company
annual rent of approximately $8.8 million for the remaining 23-year term of the
lease. In connection with such transaction, Ralphs purchased certain inventory,
fixtures and equipment from the Company for an aggregate purchase price (net of
certain offsetting payments) of approximately $8.7 million. As part of the
closure of the California region, in January 1996 the Company entered into
agreements to lease or sublease certain of its real property located in
California, including eight operating stores and one non-operating store, to
Ralphs. In addition, the Company sells certain manufactured products to Ralphs.
The total cash received in fiscal 1996 for these transactions was approximately
$33.5 million.
CEO's Severance Agreement
In May 1996, the Company and Jeffrey P. Smith, the Chairman of the Board of
the Company, reached an agreement regarding the termination of his employment as
Chief Executive Officer of the Company. Although Mr. Smith resigned as the
Chief Executive Officer, he continued as Chairman of the Board after the
consummation of the Recapitalization. Mr. Smith and the Company agreed to
provide Mr. Smith, as a severance payment, with the ownership of the Company
airplane after the consummation of the Merger. The airplane has an appraised
value of approximately $2 million.
Other Transactions
In January 1996, Alan R. Hoefer, a former director of the Company, received
consulting fees from the Company in an aggregate amount equal to $250,000 in
connection with certain financial consulting services rendered by him in 1995.
The Company believes that the terms of the foregoing transactions were no less
favorable to the Company than those which could have been obtained from
unaffiliated third parties.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING
Any stockholder intending to submit to the Company a proposal for inclusion in
the Company's proxy materials relating to the 1998 Annual Meeting of
Stockholders of the Company must submit such proposal so that it is received by
the Company no later than Friday, November 28, 1997.
OTHER MATTERS
The Company is not aware of any matters that may be presented for action by
the stockholders at the Annual Meeting other than those set forth above. If any
other matter shall properly come before the Annual Meeting, the persons named in
the accompanying form of proxy intend to vote thereon in accordance with their
best judgment.
The Company's Annual Report to Stockholders, including the Company's audited
financial statements for the year ended December 28, 1996, is being mailed
herewith to all stockholders of record. THE COMPANY WILL PROVIDE WITHOUT CHARGE
TO ANY PERSON SOLICITED HEREBY, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 28,
1996 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH REQUESTS SHOULD BE
DIRECTED TO MICHAEL C. FREI, SECRETARY, SMITH'S FOOD & DRUG CENTERS, INC., 1550
SOUTH REDWOOD ROAD, SALT LAKE CITY, UTAH 84104.
STOCKHOLDERS ARE URGED TO IMMEDIATELY MARK, DATE, SIGN AND RETURN THE ENCLOSED
PROXY IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
Appendix A
Smith's Food & Drug Centers, Inc.
Directors' Deferred Compensation Plan
SECTION 1. Establishment and Purpose. Smith's Food & Drug Centers, Inc. (the
"Company") hereby establishes effective as of May 1, 1997, a plan known as the
Smith's Food & Drug Centers, Inc. Directors' Deferred Compensation Plan (the
"Plan"). The purpose of the Plan is to attract and retain certain individuals
of outstanding competence as members of the Board of Directors of the Company by
permitting such individuals to elect to defer all or a portion of their
compensation from the Company to a later date or event.
SECTION 2. Definitions. As used in this Plan, the following terms shall have
the indicated meanings:
(a) Board. The Board of Directors of the Company.
(b) Committee. The Compensation Committee of the Board.
(c) Common Stock. The Company's Class B Common Stock, par value $.01 per
share.
(d) Company. Smith's Food & Drug Centers, Inc.
(e) Compensation. The annual retainer and all fees (excluding any reimbursed
expenses) directly payable to a Director in his/her capacity as a member of the
Board in any fiscal year.
(f) Director. Any member of the Board who directly receives Compensation in
his/her capacity as a member of the Board.
(g) Participant. Any Director who becomes a participant in the Plan as
provided in Section 3 of the Plan.
(h) Plan. Smith's Food & Drug Centers, Inc. Directors' Deferred Compensation
Plan, as it may be amended from time to time.
(i) Plan Year. Each 12 month period as to which an election is made to defer
Compensation in accordance with the provisions of Section 4 of the Plan. Such
12 month period shall be from each May 1st to the following April 30th.
(j) Retirement. Any termination or resignation from membership on the Board,
including the reaching of any mandatory retirement age.
SECTION 3. Eligibility and Participation.
(a) All Directors shall be eligible to participate in the Plan. A Director
may become a Participant for any Plan Year by executing an irrevocable deferral
election (in the form attached hereto or on such other form as may be prescribed
by the Committee) with respect to his/her Compensation for such Plan Year.
Except as provided in Section 3(b), such election shall be executed on or before
the day following the day of the annual meeting of shareholders.
(b) With respect to an individual who first becomes eligible to participate
in the Plan after the beginning of a Plan Year by reason of an election or
appointment to the Board, such individual may become a Participant for the
remainder of such Plan Year by executing an irrevocable deferral election with
respect to his/her Compensation as soon as practicable, but in any event within
thirty (30) days of the date such individual becomes a Director. A Director, at
the time the Plan becomes effective, may become a Participant for the remainder
of such Plan Year by executing such a form within 30 days following upon
approval of the Plan.
SECTION 4. Deferral Election.
(a) As a condition of participation under the Plan, a Director must agree to
defer all or part of his/her Compensation for any Plan Year. An election made
under this Plan with respect to Compensation shall relate only to Compensation
for the succeeding Plan Year, or to Compensation for the remainder of a Plan
Year if Section 3(b) applies, and a separate election must be made in order to
defer Compensation during any subsequent Plan Year. In the event of a failure
to make a timely election to defer Compensation for any Plan Year, no portion of
the Participant's Compensation for such Plan Year may be deferred under this
Plan.
(b) Each deferral election shall designate:
(1)the percentage of Compensation that is to be deferred under this Plan;
(2)the percentage of deferred Compensation that is to bear interest and the
percentage that is to be invested in Common Stock until paid or distributed as
the case may be;
(3)the date of the event on which payment of deferred Compensation is to
commence, provided, however, that any date or event (other than death,
disability or involuntary termination of directorship) shall be at least two
years from the date of the deferral election;
(4)the method of distribution of deferred Compensation; provided, however,
that the portion of deferred Compensation that is to bear interest will be
distributed in cash and the portion of deferred Compensation that is to be
invested in Common Stock will be distributed in shares of Common Stock; and
(5)the beneficiary to receive any payment or distribution if the
Participant dies before receiving all amounts to which he/she is entitled under
the Plan.
SECTION 5. Participant's Account.
(a) The Company shall establish bookkeeping accounts to record the deferrals
and additions under this Plan. Each Participant shall have a separate account
for each Plan Year, and each account shall be increased and decreased as
provided in this Section 5.
(b) During the Plan Year, each Participant's account shall be credited with
the amount of Compensation deferred by each Participant by a quarterly crediting
on the last day of each July, October, January and April during the Plan Year of
the amount of Compensation, which would have been payable to such Participant in
such quarter (determined without regard to such Participant's deferral election
under Section 4).
(c) If crediting with interest is elected, the Participant's account shall be
credited as of the last day of each July, October, January and April during the
Plan Year with (i) the amount of Compensation so deferred; and (ii) the dollar
amount obtained by multiplying the cash balance as of the first day of such
quarter by one-fourth of the average prime rate as published in The Wall Street
Journal in effect as of the first day of such quarter. That portion of each
Participant's account that is interest bearing shall continue to bear interest
in accordance with this Section 5(c) until payment of all cash amounts has been
made pursuant to Section 7, including during any installment payment period
which may have been elected by the Participant or approved by the Committee
under Section 7(c).
(d) If investment in Common Stock is elected as of the last day of each July,
October, January and April during the Plan Year (i) the Company shall issue
stock certificates to the trust described in Section 6 for the account of the
Participant, in a share amount which shall be equal to the number of full shares
of Common Stock which can be purchased with 110% of the dollar amount of the
Compensation so deferred at the median of the high and low trading prices of the
Common Stock as quoted on the New York Stock Exchange Composite Transactions on
such date as reported in The Wall Street Journal (or if there is no reported
sale on such date, on the last preceding date on which any reported sale
occurred); and (ii) the Participant's cash deferral account shall be credited
with the dollar amount of any part of such deferred Compensation that was not
equal to the purchase price of a full share of Common Stock. The cash portion
of a Participant's account representing a fractional share shall bear interest
as set forth in Section 5(c) until a full share of Common Stock can be allotted
to such account as of the last day of a quarter.
(e) If investment in Common Stock is elected, the Participant's account shall
be credited as of the last day of each July, October, January and April with any
dividend payable to stockholders, which shall be an amount determined by
multiplying the dividends paid, either in cash or property (other than shares of
Common Stock) upon a share of Common Stock to a stockholder of record during
such quarter, by the number of shares in the Participant's account at the
beginning of such quarter. Such dividend amounts in a Participant's account
shall be converted to Common Stock in the manner described in Section 5(d)
above. That portion of each Participant's account that is invested in Common
Stock shall continue to be credited with respect to any dividends paid to the
stockholders of the Company in accordance with this Section 5(e) until
distribution of all share amounts has been made pursuant to Section 7, including
during any installment payment period which may have been elected by the
Participant or approved by the Committee under Section 7(c).
(f) In the event of any change in the shares of Common Stock upon which the
share amounts hereunder are based, by reason of a merger, consolidation,
reorganization, recapitalization, stock dividend, stock split-up, combination or
exchange of shares, or other change in the corporate structure, the number of
shares and any related dividends credited to each Participant's account shall be
appropriately adjusted by the Committee.
(g) The Participant's account shall be reduced by any payments or
distributions made to the Participant or his/her beneficiary, estate or
representative.
SECTION 6. Funding Prohibitions. All entries in a Participant's account
shall be bookkeeping entries only and shall not represent a special reserve or
otherwise constitute a funding of the Company's unsecured promise to pay any
amounts or make any distributions hereunder. All payments to be made under this
Plan shall be paid from the general funds of the Company or by distributing
previously unissued or treasury shares of Common Stock. The maximum amount of
Common Stock issuable under the Plan shall be 100,000 shares.
Participants and their beneficiaries shall have no right, title or interest in
or to any investments which the Company may make to aid it in meeting its
obligations under this Plan. All such assets shall be the property solely of
the Company and shall be subject to the claims of the Company's unsecured
general creditors. To the extent a Participant or any other person acquires a
right to receive payments from the Company under this Plan, such right shall be
no greater than the right of any unsecured general creditor of the Company and
such person shall have only the unsecured promise of the Company that such
payments shall be made. The Company, however, shall establish a so called
"rabbi trust" and place in such trust all assets attributable to this Plan.
SECTION 7. Payment.
(a) The payment of cash amounts and the distribution of Common Stock amounts
credited to a Participant's account shall be made in the manner and at the time
or times specified herein. All payments of cash shall be made by Company to the
Participant by check. All distributions of Common Stock shall be by share
certificates representing the number of whole shares of Common Stock then due to
the Participant.
(b) When a Participant makes a deferral election for a Plan Year, he/she
shall also elect the time at which or the event (such as Retirement) after which
payment of the amounts credited to his/her account established for such Plan
Year shall commence. Subject to the second paragraph of Section 7(c) below,
once made, such election of time of commencement of payment or distribution for
such Plan Year shall be irrevocable. Payment or distribution of amounts credited
to the Participant's account for such Plan Year shall commence within thirty
(30) days of the date or the occurrence of the event specified by the
Participant in such election and shall be made in accordance with the other
provisions of this Plan.
(c) When a Participant makes a deferral election with respect to a Plan Year
he/she shall also elect to have the balance of his/her account paid out or
distributed in one of two methods: (i) a single lump sum or (ii) approximately
equal annual installments (calculated on the basis of the amounts in the
Participant's account and the amounts to be accrued during the installment
payment period) over a period of years (selected by the Participant) not to
exceed fifteen. Subject to the second paragraph of this Section 7(c), once
made, such election of payment/distribution method shall be irrevocable.
Notwithstanding any other provision of this Plan to the contrary, a
Participant or beneficiary may withdraw an amount of cash and/or Common Stock
from his/her account upon a finding by the Committee in its sole discretion that
an unanticipated emergency that is caused by an event beyond the control of such
Participant or beneficiary has occurred and that such emergency would result in
severe financial hardship to such Participant or beneficiary if early withdrawal
were not permitted. The amount which may be withdrawn pursuant to this Section
7(c) shall not exceed the amount necessary to meet such financial hardship as
determined by the Committee in its sole discretion. The Committee shall have
the right to require such Participant or beneficiary to submit such
documentation as it deems appropriate for the purpose of determining the
existence, cause and extent of such financial hardship.
(d) Distributions of shares of Common Stock in a Participant's account will
be made by delivery of an equal number of shares of Common Stock.
(e) Notwithstanding any provision of this Plan to the contrary, in the event
of the death of any Participant, the amounts in the Participant's account shall
be paid or distributed to the Participant's beneficiary as designated on the
Participant's deferral election form in a single lump sum or in a single
distribution of shares of Common Stock, as the case may be, within thirty (30)
days after the date of such death.
Each Participant shall designate a beneficiary to whom any amounts in
his/her account under this Plan shall be payable or distributable on his/her
death. A Participant may also designate an alternate beneficiary to receive
such distribution in the event that the designated beneficiary cannot receive
the distribution for any reason. In the event no designated or alternate
beneficiary can receive such payment or distribution for any reason, the payment
or distribution will be made to the Participant's estate. Each Participant may
at any time change any beneficiary designation. A change of beneficiary
designation must be made in writing and delivered to the Committee or its
delegate. The interest of any beneficiary who dies before the Participant will
terminate unless otherwise specified by the Participant.
SECTION 8. Administration. The Plan shall be administered by the Committee.
The Committee shall have all powers necessary to carry out the provisions of the
Plan, including without limitation, the power to delegate administrative matters
to other persons and to interpret the Plan in a manner consistent with its
express provisions.
SECTION 9. Miscellaneous.
(a) Termination of the Plan. The Company may at any time by action of its
Board terminate this Plan. Upon termination of the Plan, no further deferrals
will be permitted, and each Participant's Compensation will be paid thereafter
on a non-deferred basis. Each Participant's accounts as they then exist will be
maintained, credited and distributed pursuant to the provisions of this Plan and
the Participant's elections.
(b) Amendment. The Company may at any time amend this Plan in any respect,
(i) in the case of amendments which have a material effect on the cost to the
Company of maintaining the Plan, by action of its Board, or (ii) with respect to
any other amendments, by action of the Committee; provided, however, that no
such amendment shall adversely effect the right of Participants or their
beneficiaries to any amounts credited or to be credited to the Participants'
accounts with respect to any Plan Year which has commenced prior to the adoption
of any such amendment.
(c) No Alienation of Benefits. To the extent permitted by law, Participants
and beneficiaries shall not have the right to alienate, anticipate, commute,
sell, assign, transfer, pledge, encumber or otherwise convey the right to
receive any distributions under this Plan, and any distributions under this Plan
or rights thereto shall not be subject to the debts, liabilities, contracts,
engagements or torts of Participants or beneficiaries nor to attachment,
garnishment or execution, nor shall they be transferable by operation of law in
the event of bankruptcy or insolvency. Any attempt, whether voluntary or
involuntary, to effect any such action shall be null, void and of no effect.
(d) No Right to Continue as a Director. Nothing contained herein shall be
construed as conferring upon a Director the right to continue as a member of the
Board or to continue his/her current or any other rate of Compensation.
(e) Headings. The headings of paragraphs are included solely for convenience
of reference and shall not control the meaning or interpretation of any of the
provisions of the Plan.
(f) Compliance with Laws. This Plan and the issuance and delivery of shares
of Common Stock and the payment of money under this Plan are subject to
compliance with all applicable federal and state laws, rules and regulations
(including, but not limited to, state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, this Plan shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
(g) General Restrictions. The issuance of Common Stock or the delivery of
certificates for such shares to Participants under the Plan or the sale of such
shares by Participants shall be subject to the requirement that, if at any time
the General Counsel or Secretary of the Company shall reasonably determine, in
his or her discretion, that the listing, registration or qualification of such
Common Stock upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental body, is necessary or desirable as a
condition of, or in connection with, the issuance or sale of such shares,
payment or delivery shall not take place unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not reasonably acceptable to the General Counsel or Secretary.
(h) Governing Law. The Plan shall be construed and administered under the
laws of the State of Utah, without regard to the conflicts of laws principles
thereof.
<PAGE>
[Form of Front of Proxy Cart]
PROXY
Annual Meeting of Stockholder April 23, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SMITH'S FOOD & DRUG CENTERS, INC.
1550 SOUTH REDWOOD ROAD
SALT LAKE CITY, UTAH 84104
The undersigned stockholder of Smith's Food & Drug Centers, Inc. Does
hereby nominate, constitute and appoint Allen R. Rowland, Matthew G. Tezak and
Michael C. Frei or any of them, the true and lawful proxies, agents and
attorneys of the undersigned, with full power of substitution, to vote for the
undersigned all of the common stock of said corporation standing in the name of
the undersigned on its books at the close of business on February 27, 1996 at
the Annual Meeting of Stockholders to be held at the Flamengo Ballroom of the
Rio Suite Hotel & Casino, I-15 and Flamingo, Las Vegas, Nevada on April 23,
1997, at 9:00 a.m., Pacific Time, or any adjournment thereof, with all of the
powers which would be possessed by the undersigned if personally present as
follows on the reverse side.
CONTINUED AND TO BE SIGNED ON OTHER SIDE.
<PAGE>
[Form of Back of Proxy Card]
IF NO CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF MANAGEMENT'S THREE NOMINEES AS DIRECTORS. Please mark votes as in
this example: [X]
1. Election of Directors:
Nominees: Jeffrey P. Smith, Ronald W. Burkle and Allen R. Rowland
[ ] FOR [ ] WITHHOLD
[ ] ____________________________________
FOR all nominees except as noted above
2. To approve the Smith's Food & Drug Centers, Inc. Directors' Deferred
Compensation Plan:
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for fiscal 1997:
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and the Proxy Statement furnished therewith.
NOTE: Please sign name exactly as your name (or names) appear on the stock
certificate. When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If more than one trustee, all should sign.
All joint owners must sign.
Signature__________________________________ Date_______________
Signature__________________________________ Date_______________
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
