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 ss. 240.14a-11(c) or ss. 240.14
Schultz Sav-O Stores, 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:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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SCHULTZ SAV-O STORES, INC.
2215 Union Avenue
Sheboygan, Wisconsin 53081
Dear Fellow Shareholder:
You may notice that the enclosed proxy statement has been written in a
somewhat different style from years past. Recently, the Securities and Exchange
Commission adopted new rules that require certain information to be presented in
a style the SEC calls "Plain English," which is designed to make such
information easier to read. While these new SEC rules do not require proxy
statements to be written in Plain English, we have decided to use the Plain
English style in our proxy statement because we feel that the idea behind Plain
English is good. We want our shareholders to have access to information about us
and our future in a more direct and understandable way. For these reasons, we
are also writing our annual report on Form 10-K in the same Plain English style.
We feel the more you understand our company, the more you will want to
participate in our exciting future!
Please read our enclosed proxy statement. We welcome your comments on
our efforts.
Sincerely,
SCHULTZ SAV-O STORES, INC.
John H. Dahly
Executive Vice President,
Chief Financial Officer and Secretary
Sheboygan, Wisconsin
April 1, 1999
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[GRAPHIC OMITTED]
SCHULTZ SAV-O STORES, INC.
2215 Union Avenue
Sheboygan, Wisconsin 53081
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1999
Dear Fellow Shareholder:
We invite you to attend our 1999 annual meeting of shareholders on
Wednesday, May 12, 1999 at 3:00 p.m. at the John Michael Kohler Arts Center,
located at 608 New York Avenue, Sheboygan, Wisconsin. As we describe in our
accompanying proxy statement, which we have written in "Plain English" in the
hope that you will find it more readable than our past proxy statements, if you
held shares of our common stock on March 24, 1999, you will be entitled to vote
at the annual meeting on the following matters:
1. the election of three directors;
2. our proposed increase in the number of shares issuable under our
1995 Equity Incentive Plan;
3. our board of directors' selection of independent public accountants
for 1999; and
4. any other business that may properly come before our annual meeting.
We have enclosed a proxy card and our 1998 annual report along with
this proxy statement. Your vote is important, no matter how many shares you own.
Even if you plan to attend our annual meeting, please complete, date and sign
the proxy card and mail it as soon as you can in the envelope provided. If you
attend the annual meeting, you can revoke your proxy and vote your shares in
person if you like.
Thank you for your continued support. We look forward to
seeing you at our annual meeting.
Sincerely,
SCHULTZ SAV-O STORES, INC.
John H. Dahly
Executive Vice President,
Chief Financial Officer and Secretary
Sheboygan, Wisconsin
April 1, 1999
<PAGE>
FREQUENTLY ASKED QUESTIONS
Q: Why did I receive this proxy Statement?
Our board of directors has sent you this proxy statement to ask for your
vote, as a Schultz shareholder, on certain matters to be voted on at our
upcoming annual shareholders' meeting.
Q: What am I voting on?
You will vote on:
o the re-election of three directors;
o our proposed increase in the number of shares available for grants
under our equity incentive plan; and
o the ratification of our board's choice of Arthur Andersen LLP as our
independent public accountants for 1999.
Our board of directors is not aware of any other matter that will be
presented for your vote at the annual meeting.
Q: Do I need to attend the annual meeting in order to vote?
No. You can vote either in person at the annual meeting or by completing
and mailing the enclosed proxy card.
Q: Who is entitled to vote?
You are entitled to vote if you owned shares as of the close of business on
the March 24, 1999 record date. You will be entitled to one vote per share
for each share of our common stock you owned on the record date.
Q: Who will count the votes?
Firstar Trust Company, our transfer agent and registrar, will count the
votes and act as inspector of elections at the annual meeting.
Q: How many shares of Schultz's stock are entitled to vote?
A total of 6,570,179 shares of common stock will be entitled to vote at the
annual meeting.
Q: What constitutes a quorum?
A "quorum" refers to the number of shares that must be in attendance at a
meeting to lawfully conduct business. A majority of the shares of our
common stock entitled to be cast will represent a quorum. As a result, at
least 3,285,090 shares must be present at the annual meeting before we can
take the actions called for at the meeting.
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Q: What happens if I sign and return my proxy card but do not mark my vote?
If you return a signed proxy card without indicating whether you wish to
vote for or against the proposals, James H. Dickelman and John H. Dahly, as
proxies, will vote your shares:
o to elect the board's nominees for directors;
o to approve our proposed increase in the equity incentive plan; and
o to ratify our board's selection of Arthur Andersen as independent
public accountants for 1999.
Q: What percentage of Schultz's votes do directors and officers own?
Approximately 17.6% of our shares, as of the record date, are controlled by
our directors and officers. See page 8 for more details.
Q: Who are the largest shareholders?
Investors holding 5% of more of our outstanding common stock are:
1. Our Retirement Savings Plan for employees - 17.6%
2. Franklin Resources, Inc. - 9.0%
3. Delaware Management Holdings Co., Inc. - 6.6%
4. Neuberger Berman, LLC - 6.6%
5. Dimensional Fund Advisors, Inc. - 5.9%
6. FMR Corp. - 5.7%
7. Mr. James H. Dickelman, our Chief Executive Officer, including shares
he can acquire upon exercise of stock options - 5.6%
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ELECTION OF DIRECTORS
Director Nominees
At the annual meeting, shareholders will elect three directors to hold
office until the annual meeting held in 2002. Our board's nominees are John H.
Dahly, Martin Crneckiy, Jr. and R. Bruce Grover, each current,
shareholder-elected directors. James H. Dickelman and John H. Dahly, as proxies,
intend to vote for the election of all of the board's nominees. They will also
vote for another person that the board may recommend in the event that a nominee
becomes unable to serve as a director before the annual meeting.
Under Wisconsin law, shareholders elect directors by a plurality of the
votes cast. This means that the nominees receiving the largest number of votes,
even if less than a majority, will be elected as directors. Any shares that do
not vote, whether by abstention, broker non-vote or otherwise, will not affect
the election of directors.
Our board of directors recommends a vote for John H. Dahly, Martin
Crneckiy, Jr. and R. Bruce Grover.
Retirement of Howard C. Dickelman
On January 28, 1999, our board of directors regretfully accepted the
retirement of Howard C. Dickelman as a director, effective immediately after our
annual meeting. We have all benefited from Mr. Dickelman's distinguished
leadership and remarkable foresight for 53 years. His presence as a voting
member of the board will be sorely missed, but he has agreed to continue to
serve as a director emeritus upon his retirement.
Current Board Composition, Meetings and Committees
The table set forth on the opposite page lists certain information
about our board of directors and the board committees on which our directors
serve, as well as how many times the board and each committee met in 1998.
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<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------
Stock
Executive Nominating Audit Compensation Option
Board Member Board Committee Committee Committee Committee Committee
------------ ----- --------- --------- --------- --------- ---------
- - --------------------------------------------------------------------------------------------------------------------------
Class I - Nominees for Terms to Expire in 2002
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John H. Dahly (58), a director x x x
since 1984; Executive Vice
President, Chief Financial Officer
and Secretary
- - --------------------------------------------------------------------------------------------------------------------------
Martin Crneckiy, Jr. (53), a x x x x x*
director since 1989; Executive Vice
President and Chief Financial
Officer of The Vollrath Company,
LLC - a manufacturer of stainless
steel and plastic wares and light
equipment for the international
food service industry
- - --------------------------------------------------------------------------------------------------------------------------
R. Bruce Grover (63), a director x x* x x* x
since 1989; President and Chief
Executive Officer of Vinyl Plastics,
Inc. - a manufacturer of solid vinyl
floor products, custom extruded
sheets and sound barrier materials
for automotive applications
- - --------------------------------------------------------------------------------------------------------------------------
Class II - Directors Whose Terms Expire in 2000
- - --------------------------------------------------------------------------------------------------------------------------
Howard C. Dickelman (80), a x x x x x
director since 1959; retired, former
Chairman of the Board
- - --------------------------------------------------------------------------------------------------------------------------
Michael Houser (47), a director x x
since 1992; Executive Vice
President - Marketing and
Merchandising
- - --------------------------------------------------------------------------------------------------------------------------
Class III - Directors Whose Terms Expire in 2001
- - --------------------------------------------------------------------------------------------------------------------------
James H. Dickelman (51), a x* x* x
director since 1978; Chairman of
the Board, President and Chief
Executive Officer
- - --------------------------------------------------------------------------------------------------------------------------
William K. Jacobson (48), a x x
director since 1996; Senior Vice
President - Retail Operations and
Development and Assistant
Secretary
- - --------------------------------------------------------------------------------------------------------------------------
Steven R. Barth (40), a director x x x* x
since 1998; Partner in the law firm
of Foley & Lardner
- - --------------------------------------------------------------------------------------------------------------------------
Meetings Held in 1998 9 0 1 2 2 2
- - --------------------------------------------------------------------------------------------------------------------------
* Denotes Chairman
</TABLE>
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All of our directors have held the positions indicated on the preceding
page for at least the last five years, except that William K. Jacobson was our
Vice President - Franchise Operations prior to January 1996, our Senior Vice
President - Franchise Operations from January 1996 until March 1996 and our
Senior Vice President - Retail Operations from March 1996 until June 1998, and
that Michael R. Houser was our Senior Vice President - Marketing and
Merchandising prior to January 1998. James H. Dickelman is the son of Howard C.
Dickelman.
The Executive Committee. The Executive Committee acts on behalf of the
board between board meetings, except with respect to matters upon which
Wisconsin law does not allow a committee to act.
The Nominating Committee. The Nominating Committee's functions include:
o recommending criteria for board members;
o determining prospective candidates for board membership;
o recommending candidates for each of the board's committees; and
o reviewing our compensation policies for board members who are not
full-time employees.
The Audit Committee. The Audit Committee's principal functions include:
o annually recommending a firm of independent public accountants to
act as our auditing firm for the coming year;
o reviewing areas of financial risk that could have a material
adverse effect on our results of operations and financial
condition with our principal accounting officers and independent
public accountants;
o reviewing annual audit plans with our principal accounting
officers and independent public accountants;
o reviewing our policies as to officers' conflicts of interest with
our principal accounting officers and independent public
accountants;
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o reviewing plans to engage our independent public accountants for
any non-audit professional services; and
o reviewing, in consultation with our principal accounting officers
and independent public accountants, financial reporting and
auditing practices of comparable companies that differ from our
own.
The Compensation Committee. The Compensation Committee:
o evaluates and sets cash compensation levels for our officers; and
o reviews and establishes the employee benefits we offer to our
officers.
The Stock Option Committee. The Stock Option Committee has the
responsibility to:
o evaluate and grant stock options and other equity incentives to
our employees; and
o administer our equity incentive plans.
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<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
We describe in the following table certain information, as of the
record date, regarding the beneficial ownership of our common stock held by:
o each person or entity that we know beneficially owns more than 5%
of our common stock;
o each of our directors and those of our executive officers who are
named in the Summary Compensation Table on page 15 under "Summary
Compensation Information;" and
o all of our directors and officers as a group.
We believe that all of the people listed below have sole voting and
investment power over the listed shares, except as indicated otherwise in the
accompanying footnotes.
Name of Individual or Entity Shares Percentage(1)
---------------------------- ------ ------------
Schultz Sav-O Stores Retirement Savings Plan(2) 1,156,866 17.6%
Franklin Resources, Inc.(3) 592,500 9.0%
Delaware Management Holdings Co., Inc.(4) 434,714 6.6%
Neuberger Berman, LLC(5) 433,350 6.6%
Dimensional Fund Advisors, Inc.(6) 386,450 5.9%
FMR Corp.(7) 372,100 5.7%
James H. Dickelman(8) 377,778 5.6%
Howard C. Dickelman(9) 243,660 3.7%
John H. Dahly(10) 154,802 2.3%
Michael R. Houser(11) 123,800 1.9%
William K. Jacobson(12) 99,351 1.5%
Kenneth S. Folberg(13) 38,645 *
Martin Crneckiy, Jr. 6,600 *
Steven R. Barth 5,375 *
R. Bruce Grover 3,600 *
All directors and officers as a group (13 persons)(14) 1,249,349 17.6%
- - ---------------------------
* Indicates less than 1%
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(1) For individuals who hold rights to acquire shares of stock upon exercise of
stock options, the percentages indicated reflect inclusion of certain of
these shares as described in the appropriate footnotes below, as well as
the increase in the total number of shares of common stock outstanding that
would result from their exercise of those options.
(2) We obtained the share amount listed from the amended Schedule 13G, dated
February 11, 1999, filed with the Securities and Exchange Commission. The
listed shares were held by Marshall & Ilsley Trust Company, as trustee for
our Retirement Savings Plan. Retirement Savings Plan participants have
investment power over the listed shares held by the Retirement Savings Plan
that are allocated to their accounts. A Plan Administrative Committee,
consisting of James H. Dickelman, John H. Dahly, William K. Jacobson and
Armand C. Go, administers the Retirement Savings Plan and shares voting
power for the shares listed with the participants in the Retirement Savings
Plan in that the committee is entitled to vote shares when participants
have provided no voting instructions. The address of M&I is 1000 North
Water Street, Milwaukee, Wisconsin 53202. The address for the individual
members of the Plan Administrative Committee is c/o Schultz Sav-O Stores,
Inc., 2215 Union Avenue, Sheboygan, Wisconsin 53081. See "Executive
Compensation--Report on Executive Compensation."
(3) We obtained the share amount listed from the amended Schedule 13G, dated
February 2, 1999, filed with the SEC. The address of Franklin Resources,
Inc. is 777 Mariners Island Boulevard, 6th Floor, San Mateo, California
94404.
(4) We obtained the share amount listed from the amended Schedule 13G, dated
February 5, 1999, filed with the SEC. The address of Delaware Management
Holdings Co., Inc. is One Commerce Square, 2005 Market Street,
Philadelphia, Pennsylvania 19103.
(5) We obtained the share amount listed from the amended Schedule 13G, dated
February 5, 1999, filed with the SEC. The address of Neuberger Berman, LLC
is 605 Third Avenue, New York, New York 10158.
(6) We obtained the share amount listed from the amended Schedule 13G, dated
February 12, 1999, filed with the SEC. The address of Dimensional Fund
Advisors, Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401.
(7) We obtained the share amount listed from the amended Schedule 13G, dated
February 1, 1999, filed with the SEC. The address of FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.
(8) The share amount listed includes (a) 109,495 shares allocated to Mr.
Dickelman's account in the Retirement Savings Plan as of December 31, 1998;
(b) 186,000 shares covered by stock options that will be exercisable within
60 days following the record date; (c) 19,022 shares held by Mr. Dickelman
as trustee for his minor children; and (d) 17,661 shares held as joint
tenant with his wife. The share amount does not include the following
shares as to which Mr. Dickelman disclaims beneficial ownership: (a)
243,060 shares held by the Howard Dickelman Revocable Trust; (b) 16,830
shares held by the Dorothy J. Dickelman Revocable Trust; (c) 8,611 shares
held by Mr. Dickelman's adult son; and (d) 3,605 shares held by Mr.
Dickelman's adult daughter.
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(9) The share amount does not include 16,830 shares held by the Dorothy J.
Dickelman Revocable Trust as to which Mr. Dickelman disclaims beneficial
ownership.
(10) The share amount listed includes (a) 31,718 shares allocated to Mr. Dahly's
account in the Retirement Savings Plan as of December 31, 1998 and (b)
87,450 shares covered by stock options that will be exercisable within 60
days following the record date. The share amount does not include 1,476
shares held by Mr. Dahly's wife to which Mr. Dahly disclaims beneficial
ownership.
(11) The share amount listed includes (a) 28,055 shares allocated to Mr.
Houser's account in the Retirement Savings Plan as of December 31, 1998;
(b) 83,250 shares covered by stock options that will be exercisable within
60 days following the record date; and (c) 1,080 shares held as joint
tenant with his wife.
(12) The share amount listed includes (a) 40,851 shares allocated to Mr.
Jacobson's account in the Retirement Savings Plan as of December 31, 1998
and (b) 58,500 shares covered by stock options that will be exercisable
within 60 days following the record date.
(13) The share amount listed includes (a) 8,445 shares allocated to Mr.
Folberg's account in the Retirement Savings Plan as of December 31, 1998
and (b) 30,200 shares covered by stock options that will be exercisable
within 60 days following the record date.
(14) The share amount listed includes 534,650 shares issuable under stock
options exercisable within 60 days of the record date and 304,478 shares
beneficially held by current directors and executive officers in the
Retirement Savings Plan as of December 31, 1998, but excludes 273,582
shares as to which beneficial ownership is disclaimed by certain of such
individuals. See footnotes 8, 9 and 10 above.
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<PAGE>
EXECUTIVE COMPENSATION
Report on Executive Compensation
Our board's Compensation Committee evaluates and establishes the
compensation of our executive officers. The committee's executive compensation
policies and practices generally reflect our efforts to attract, motivate and
retain our executive officers by providing a total compensation package based on
corporate and personal performance and which is competitive within our industry.
Executive officers' compensation is comprised of salary, stock option grants,
corporate contributions to our Retirement Saving Plan and cash bonuses under our
Officer Annual Incentive Plan. The annual incentive plan is intended to motivate
our executive officers to achieve annual corporate financial performance goals
for the economic benefit of all shareholders by rewarding executive officers,
individually and as a team, for the achievement of such goals. The annual
incentive plan provides for the establishment of an annual variable bonus pool
based on our achievement of certain specified levels of economic value added for
the year then ended. For purposes of the annual incentive plan, economic value
added is determined by calculating the difference between our annual net
earnings after tax and a pre-established target threshold investment return,
based on our weighted average cost of capital. We deposit 10% of the resulting
economic value added in the incentive pool, together with 5% of any increase in
the current year's economic value added over the prior year's economic value
added. We then distribute 50% of the resultant total incentive pool to all
executive officers, pro rata, according to relative salary levels and 50% based
on each officer's relative achievement of pre-established individual and group
performance goals, as determined by the Compensation Committee. We established a
total bonus pool of approximately $421,000 in 1998 under the annual incentive
plan, with approximately $384,000 contributed as a result of our economic value
added amount for 1998 and approximately $37,000 as a result of the increase of
1998 economic value added over our 1997 economic value added.
In 1998, based on the unanimous recommendation of the Compensation
Committee, our board adopted an amendment to the annual incentive plan to
further recognize and reward, and further motivate management to achieve, our
goal of increasing revenue. As a result, beginning in 1999, in addition to any
bonus pool that would otherwise be created under the annual incentive plan, for
each 1% incremental increase in our net revenues over the prior year, we will
add an additional $25,000 to the incentive bonus pool otherwise created under
the annual incentive plan. Had this provision been in effect during 1998, we
would have added an additional $62,500 to the bonus pool as a result of our
realizing a 2.5% increase in 1998 revenue over 1997 revenue. In early 1999, in
order to provide more incentive compensation for the achievement of individual
goals and objectives, our board further amended the annual incentive plan to
provide that, beginning in 1999, we will distribute 25% - instead of 50% - of
the total incentive pool to all executive officers, pro rata, according to
relative salary levels and 75% - instead of 50% - based on each officer's
relative achievement of pre-established individual and group performance goals,
as determined by the Compensation Committee.
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The Compensation Committee adjusts each executive officer's salary,
including the salary of James H. Dickelman, our Chairman of the Board, President
and Chief Executive, at the end of each fiscal year for the forthcoming fiscal
year. The committee establishes objective performance criteria for each of the
officers that the committee considers in its salary adjustment decisions and
bonus allocations. The committee also analyzes and evaluates our relative
revenues, earnings, return on sales, cost and expense levels, and balance-sheet
strength for the year then ending compared to historical results, as well as to
the current trends and results within our industry. Based on such analysis and
evaluation, for 1998, the committee determined Mr. Dickelman's and the other
executives' salaries, in conjunction with the other elements of each such
executive's base compensation package, to fall generally within a range of the
estimated average salaries and compensation packages of similarly situated
executives at other comparable food wholesalers and retailers, including several
companies included in our stock performance peer group index. For executive
officers other than Mr. Dickelman, the committee considered the compensation
recommendations of Mr. Dickelman. In raising the salary levels of executive
officers, including Mr. Dickelman, and in allocating discretionary bonuses for
1998 out of the bonus pool for other executives, the committee considered
specifically our outstanding earnings, earnings per share and earnings as a
percentage of sales increases in 1998 compared to 1997 results and budgeted
expectations for 1998 compared to 1997 results. Additionally, despite a flat
food price inflation environment, difficult industry and local competitive
market conditions and reporting only a 52-week fiscal year in 1998 compared to a
53-week fiscal year in 1997, for the third consecutive year our annual revenues
increased from the prior year. Fiscal 1998 net earnings and earnings per share
set new records and were 11.5% and 16.0%, respectively, ahead of last year. We
have recorded 24 consecutive quarters of increased net earnings over the prior
year's comparable quarter. Also, the Compensation Committee took into account
the increase in our ratio of net earnings as a percentage of sales from 1.61% in
1997 to 1.76% in 1998. Our ratio of net earnings as a percentage of sales is
among the highest in the wholesale grocery industry. The committee also
considered the completion of our repositioning efforts in the Appleton
marketplace, which involved opening a new store, buying two stores from a
competitor, remodeling and remerchandising the stores and successfully replacing
our two small, noncompetitive units in that market. Also, the amount of cash
dividends per share paid to shareholders increased by over 11.0% in 1998 from
the amount paid in 1997. The committee based Mr. Dickelman's bonus amount of
$121,000 for 1998 on his pro-rata share of the bonus pool established under the
annual incentive plan and on his achievement of individual and group financial
and other goals and objectives established at the beginning of 1998 by the
committee. These goals and objectives included specified targeted levels of
revenues, earnings and economic value added, all of which were exceeded. Other
established goals and objectives considered by the committee that were achieved
by our management team under the leadership of Mr. Dickelman included our
successful expansion of our franchise territory from 52 counties in a
three-state area, to 128 counties in a five-state area including all of
Wisconsin, southeastern Minnesota, eastern Iowa, northern Illinois and the upper
peninsula of Michigan. This expansion should provide us with growth
opportunities for the Piggly Wiggly banner.
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Our Stock Option Committee - which includes all of the members of the
Compensation Committee, except Steven R. Barth - generally grants stock options
annually to executive officers shortly after the end of each year. The committee
bases option grants principally on the executive officer's relative position at
the company, his existing and anticipated ability to directly impact corporate
performance, compensation, seniority, grants made in the past, options held and
stock ownership. Each executive officer's individual initiatives and
achievements over the prior year also affect the level of such officer's option
grants. In January 1999, the Stock Option Committee extended option grants to a
broader group of key employees recommended by our board's Executive Committee to
reward superior performance and corporate contributions by those specified
individuals. Our 1995 Equity Incentive Plan is intended to promote our best
interests and those of our shareholders by providing key employees with the
opportunity to acquire or increase their ownership interests in the company and
thereby develop a stronger incentive to put forth maximum effort for our
continued success and growth. We have historically granted options at 100% of
our common stock's fair market value on the date of grant, with a term not to
exceed seven years and vesting in increments of one-third on each of the first,
second and third anniversaries of the grant date. Since the economic value of
stock options is inherently dependent upon the level of future market price
appreciation of the underlying common stock, stock options granted by the Stock
Option Committee will only provide executive officers with value to the extent
the market price of our common stock increases above the option exercise price
on the grant date. Thus, the Stock Option Committee believes that stock option
grants help better align the economic interests of our management with its
shareholders. Under our 1995 Equity Incentive Plan, the Stock Option Committee
has the additional flexibility to grant other types of equity-based incentive
awards including stock appreciation rights, restricted stock and performance
shares. However, the Stock Option Committee has, to date, continued its
historical practice of granting only stock options on terms substantially
identical to past practice.
Our Retirement Savings Plan is a qualified profit sharing plan that
provides for supplemental income at retirement for all of our eligible - 1,000
hours or more per year - salaried employees. The retirement benefits provided by
the Retirement Savings Plan for each participant are based upon the value of the
participant's account balance at retirement. The Retirement Savings Plan
requires us to make an annual basic contribution which, when added to
forfeitures for the year, is equal to 5% of the participant's salary for the
year. We may also make an additional discretionary contribution as determined by
our board. We allocate basic contributions to each participant's account on the
basis of the participant's eligible compensation, compared to the compensation
of all participants for such year. We allocate discretionary contributions in
the same way, except that our contributions to Social Security benefits are
taken into account in the allocation of discretionary contributions. Our
discretionary contribution to the Retirement Savings Plan in 1998 was
approximately 9.4% of each participant's eligible compensation. The Retirement
Savings Plan permits pretax employee contributions pursuant to Internal Revenue
Code Section 401(k). We provide a 25% matching contribution on pretax employee
contributions up to 4% of pay. Most of our executive officers - including all of
the named executives officers set forth below - have typically invested all, or
a
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substantial portion, of their annual Retirement Savings Plan allocations in
shares of our common stock. At the end of 1998, our nine current executive
officers, as a group, held 304,478 shares, or approximately 4.6% of the total
outstanding common stock on the record date, in their accounts under the
Retirement Savings Plan. See "Stock Ownership of Management and Others."
We also maintain an Executive Benefit Restoration Plan, which is a
supplemental benefit pension plan intended to provide benefits otherwise denied
to participants under the Retirement Savings Plan by reason of limitations
imposed by the Internal Revenue Code. The Executive Benefit Restoration Plan
provides benefit accruals on pay in excess of the amount able to be recognized
by the Retirement Savings Plan equivalent to the rate of our basic and
discretionary contributions made under the Retirement Savings Plan for the year.
We believe that our stock option plans have been adopted, and are being
administered, in accordance with the requirements of Internal Revenue Code
Section 162(m). Given the levels of compensation and benefits provided currently
to our named executive officers, we do not otherwise believe it is necessary to
further conform or adjust our compensation policies, plans or practices to
comply with the $1 million executive compensation deductibility cap imposed by
Internal Revenue Code Section 162(m).
By the Compensation Committee: By the Stock Option Committee:
R. Bruce Grover, Chairman Martin Crneckiy, Jr., Chairman
Howard C. Dickelman Howard C. Dickelman
Martin Crneckiy, Jr. R. Bruce Grover
Steven R. Barth
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<PAGE>
Summary Compensation Information
The table below describes the compensation paid for the last three
years to our Chief Executive Officer and to our four officers, other than the
Chief Executive Officer, who we paid the highest compensation during 1998.
<TABLE>
Summary Compensation Table
Annual Stock Option
Name and Fiscal Compensation Grants All Other
Principal Positions Year Salary Bonus (shares)(1) Compensation(2)
------------------- ---- ------ ----- ------------ --------------
<S> <C> <C> <C> <C> <C>
James H. Dickelman 1998 $300,000 $121,000 45,000 $71,315
Chairman of the Board, 1997 $275,000 $ 96,759 45,000 $56,914
President and Chief Executive Officer 1996 $247,500 $ 59,060 39,000 $51,358
Michael R. Houser 1998 $156,000 $ 68,000 18,000 $31,191
Executive Vice President - 1997 $143,000 $ 52,289 18,000 $29,522
Marketing and Merchandising 1996 $130,000 $ 32,236 16,800 $20,036
John H. Dahly 1998 $156,000 $ 63,000 18,000 $30,952
Executive Vice President, 1997 $145,520 $ 51,202 18,000 $24,461
Chief Financial Officer and Secretary 1996 $136,000 $ 32,453 18,000 $21,054
William K. Jacobson 1998 $ 94,300 $ 41,000 13,500 $15,522
Senior Vice President - Retail 1997 $ 89,000 $ 32,544 13,500 $12,664
Operations and Development 1996 $ 84,000 $ 20,045 12,000 $18,039
and Assistant Secretary
Kenneth S. Folberg 1998 $ 92,800 $ 36,000 12,000 $14,790
Vice President - 1997 $ 86,700 $ 29,308 10,500 $12,155
Logistics and Labor Relations 1996 $ 81,000 $ 18,950 9,600 $11,051
- - ---------------------
(1) Granted at 100% fair market value on the date of grant. See footnote (1) to the table set forth under "Stock
Options--Option Grants in 1998" below for additional information.
(2) For Mr. Dickelman, Mr. Houser and Mr. Dahly, amounts set forth for 1998 under this column represent (a) benefit accruals of
$51,068, $10,944 and $10,705, respectively, under our Executive Benefit Restoration Plan, and (b) our contributions of
$20,247 to the Retirement Savings Plan for each such officer. For Mr. Jacobson and Mr. Folberg, the amounts represent our
contributions to our Retirement Savings Plan. See "Severance and Change in Control Arrangements" below with respect to
certain severance arrangements between us and certain of the named executive officers in the event that we experience a
"change of control."
</TABLE>
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<PAGE>
Stock Options
We have two stock option plans currently in place: our 1990 Stock
Option Plan and our 1995 Equity Incentive Plan. Currently, we are granting
options to our employees only under the 1995 plan. The following table lists the
option grants under the 1995 plan that we made during 1998, as well as certain
other information relating to those grants.
<TABLE>
Option Grants In 1998
<CAPTION>
Percentage of
Shares Total Options
Underlying Granted to All Exercise Grant Date
Options Employees in Price (per Present
Name Granted(1) 1998 share)(2) Expiration Date Value(3)
- - ---- ---------- ---- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
James H. Dickelman 45,000 29.7% $15.00 January 29, 2005 $204,750
Michael R. Houser 18,000 11.9% $15.00 January 29, 2005 $ 81,900
John H. Dahly 18,000 11.9% $15.00 January 29, 2005 $ 81,900
William K. Jacobson 13,500 8.9% $15.00 January 29, 2005 $ 61,425
Kenneth S. Folberg 12,000 7.9% $15.00 January 29, 2005 $ 54,600
- - ---------------------
(1) The options reflected in the table are nonqualified stock options under the Internal Revenue Code and were granted on January
29, 1998. The exercise price of each option granted was equal to 100% of the fair market value of our common stock on the date
of grant, as determined by our Stock Option Committee. The options become exercisable in increments of one-third on each of the
first, second and third anniversaries of the grant date; provided, however, that no options may be exercised more than seven
years after the date of grant. The options are subject to early vesting in the event of the optionee's death, disability or
retirement. Under the stock option agreements evidencing the options, upon a "change of control" of the company (as defined in
such stock option agreements), all options then outstanding will become immediately exercisable in full for the remainder of
their term and each optionee will have the right, for a period of 30 days, to require us to purchase his outstanding options
for cash at an aggregate "acceleration price" for all shares of common stock then subject to such options, provided that at
least six months has elapsed since the grant date.
(2) The exercise price of options may be paid in cash, by delivering previously issued shares of common stock or any combination
thereof.
(3) The option values presented are based on the Black-Scholes pricing model, adapted for use in valuing stock options. The actual
value, if any, that an optionee may realize upon exercise will depend on the excess of the market price of our common stock
over the option exercise price on the date the option is exercised. There is no assurance that the actual value realized by an
optionee upon the exercise of an option will be at or near the value estimated under the Black-Scholes model. The estimated
values under the Black-Scholes model are based on arbitrary assumptions as to variables such as interest rates, stock price
volatility and future dividend yield, including the following: (a) an assumed United States Treasury bond rate of 5.54%; (b)
stock price volatility of 24.16% (based on 36-month stock price history ending January 31, 1998); and (c) a current dividend
yield of 1.90%.
</TABLE>
16
<PAGE>
Set forth below is certain information about the cash values realized
by named executive officers who exercised stock options during 1998 and the
number and value of unexercised stock options held by named executive officers
as of the end of 1998.
<TABLE>
1998 Year-End Value Table
<CAPTION>
Number of Number of Shares Value of Unexercised
Shares Underlying Options at End of In-the-Money Options at End
Acquired Upon Value Fiscal 1998 Of Fiscal 1998 (2)
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- - ---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James H. Dickelman 27,000 $319,410 143,000 88,000 $1,385,730 $350,400
Michael R. Houser 0 - 65,650 35,600 $ 648,018 $142,560
John H. Dahly 0 - 69,450 36,000 $ 685,968 $144,960
William K. Jacobson 0 - 45,500 26,500 $ 446,337 $105,720
Kenneth S. Folberg 0 - 19,500 22,200 $ 158,305 $ 85,010
- - --------------------------
(1) The dollar value reflects the difference between the fair market value of the underlying shares at the time of exercise and the
applicable exercise price of the options exercised.
(2) The dollar values reflect the difference between the fair market value of the underlying shares of common stock at the end of
fiscal 1998 and the various applicable exercise prices of the named executive officers' outstanding options. The dollar values
do not reflect any options that had an exercise price in excess of the fair market value of the underlying shares at the end of
fiscal 1998. The fair market value at the end of fiscal 1998 was $16.50, the closing sale price per share on December 31, 1998,
the last trading day of the fiscal year.
</TABLE>
Director Compensation
Our directors who are also our employees receive no additional
compensation for serving on the board. We compensate our non-employee directors
- - - other than those whom we pay professional fees - by paying:
o an annual cash retainer of $1,500;
o $300 for each attended board meeting and committee meeting not
held in conjunction with a board meeting; and
o an annual grant of 300 shares of the our common stock.
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<PAGE>
Severance and Change of Control Arrangements
We have severance agreements with James H. Dickelman, Michael R.
Houser, John H. Dahly and William K. Jacobson that provide that, following a
"change of control" of the company (as defined in the severance agreements),
such executive officer will be employed:
o for three years in the same position;
o performing equivalent duties; and
o at the same location as immediately prior to the change of
control.
During the employment period, each such officer would be entitled to:
o receive a salary equal to his compensation rate in effect at the
date of the change of control - subject to increase by the board
of directors' Compensation Committee; and
o inclusion in benefit plans available to employees of comparable
status.
If the officer elects to terminate his employment within one year after
the change of control or if, at any time during the employment period, the
officer's employment is terminated other than for "cause" as defined in the
severance agreements - or the officer's disability, or if the officer's duties
are changed substantially without his written consent and the officer terminates
his employment as a result, the officer would be entitled to receive:
o a lump sum payment equal to the officer's base salary for the
greater of the remainder of the employment period or one year;
o the actuarially determined present value of the benefit accruals
that would have been made through the end of the employment
period under our retirement plans applicable to the officer; and
o along with his eligible dependents, coverage under medical
benefit plans through the end of the employment period.
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<PAGE>
Additionally, upon a "change of control" of the company:
o stock options granted to the named executive officers will have
become fully exercisable; and
o the optionee will then have the right to require the company to
purchase his outstanding options for cash at an aggregate
"acceleration price" for all shares of common stock subject to
such options.
Compensation Committee and Stock Option Committee Interlocks and Insider
Participation
Howard C. Dickelman, a retired former executive officer of the company,
has been a member of our Compensation Committee and our Stock Option Committee
for many years.
STOCK PERFORMANCE INFORMATION
The line graph appearing on the next page compares the total return on
our common stock during the last five years with the total return of:
o companies in the Wilshire 5000 Index; and
o companies in a peer group of food retailers and wholesalers which
includes: Arden Group, Inc., Delchamps, Inc., Marsh Supermarkets,
Inc., Nash Finch Co., RichFood Holdings, Inc., and Seaway Food
Town, Inc. We have selected this peer group in good faith, and
the shareholder returns of each of the companies have been
weighted, based on each company's relative market capitalization
as of the beginning of each period. The following graph only
reflects the performance of Delchamps, Inc. until November 1997,
when Delchamps' shares ceased to be publicly traded.
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<PAGE>
Comparison of Five-Year Total Shareholder Returns
(on a dividend reinvested basis)
[GRAPHIC OMITTED]
12/31/93 12/30/94 12/29/95 12/27/96 1/2/98 12/31/98
-------- -------- -------- -------- ------ --------
Company Index $100 $128 $197 $192 $330 $353
Wilshire 5000 Index $100 $100 $136 $165 $217 $268
Peer Group Index $100 $ 89 $131 $164 $199 $166
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<PAGE>
PROPOSAL TO AMEND OUR 1995 EQUITY INCENTIVE PLAN
We designed our 1995 Equity Incentive Plan, which our shareholders
approved on May 10, 1995, to promote our best interests and those of our
shareholders by providing key employees with the opportunity to acquire, or
increase their, proprietary interest in the company. By providing this
opportunity, we hope to promote continuity of management and increased incentive
and personal interest in the welfare of the company by those key employees who
are primarily responsible for shaping or carrying out our long-range plans and
securing our continued growth and financial success.
As of March 24, 1999, 694,300 shares had been issued or reserved for
issuance pursuant to outstanding options under the plan, leaving only 55,700
shares available for future grants. In order to preserve the benefits of the
plan, our board of directors has voted, subject to approval by shareholders, to
increase the total number of shares that can be issued under the 1995 Equity
Incentive Plan from 750,000 shares to 1,250,000 shares.
Administration of the Plan
The plan is administered by our board's Stock Option Committee,
provided that the committee consists of no less than two nonemployee directors.
The committee has the authority under the plan to:
o establish rules for the administration of the plan;
o select the key employees to whom we grant awards;
o determine the types of awards we will grant and the number of
shares covered by such awards;
o set the terms and conditions of such awards; and
o cancel, suspend or amend awards to the extent permitted by the
terms of the plan.
The Stock Option Committee's determinations as to interpretation of the plan are
final.
Currently, a maximum of 750,000 shares may be covered by awards under
the plan. If any shares subject to awards under the plan are forfeited or if an
award terminates, such shares will be available for the granting of new awards
under the plan. Shares delivered when an award is exercised may be either shares
held by us in treasury or shares that have never previously been issued.
21
<PAGE>
Eligibility
All of our key employees, including executive officers and
employee-directors, are eligible to receive grants under the plan.
Types of Awards
The plan authorizes the grant of:
o stock options, either:
o incentive stock options, qualified for special tax treatment
under Section 422 of the Internal Revenue Code, or
o nonqualified stock options;
o stock appreciation rights;
o restricted stock; and
o performance shares.
Terms of Awards
Options. The Stock Option Committee determines the exercise price of
options granted under the plan, provided that the exercise price may not be less
than 100% of the fair market value of our common stock at the date of grant. The
committee also determines the term of all options, which may not be longer than
7 years. Options granted under the plan become exercisable in accordance with a
vesting schedule determined by the committee. Options may be exercised by
payment of the exercise price in cash or other property having equivalent value,
or by tendering previously issued shares of our common stock. To date,
nonqualified stock options are the only type of grant the Stock Option Committee
has made under the plan.
Stock Appreciation Rights. Stock appreciation rights allow the grantee
the right to receive - either in cash or in shares of our common stock - the
excess of the fair market value of shares of our common stock over the grant
price established by the Stock Option Committee, which may not be less than 100%
of the fair market value of our common stock on the date of the grant. The grant
price, term, methods of exercise, methods of payment and other terms and
conditions of stock appreciation rights are determined by the committee. To
date, no stock appreciation rights have been granted under the plan.
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<PAGE>
Restricted Stock. The plan allows us to grant stock to key employees,
which may be subject to restrictions as determined by the Stock Option
Committee, such as restrictions on the right to vote or to receive dividends
with respect to such stock. At the time of grant, the committee determines the
times at which such restrictions will lapse. No more than 75,000 shares of
restricted stock may be granted to any key employee under the plan. To date, no
restricted stock has been granted under the plan.
Performance Shares. The Stock Option Committee may also grant
performance shares to key employees, which do not allow the employee to vote as
a shareholder, but which may be exchanged for unrestricted shares of common
stock when the performance goals established by the committee are met. To date,
no performance shares have been granted under the plan.
Adjustments
To ensure that the benefits of an award under the plan are not unfairly
diminished or increased, the Stock Option Committee has the authority to adjust
the number of shares of common stock covered by the plan and the number of
shares covered by individual grants under the plan whenever a stock split or
similar recapitalization event occurs.
Limits on Transferability
In order to preserve the incentive nature of the plan, awards under the
plan may only be transferred by the grantee to family members or trusts or other
entities established for their benefit, or upon his or her death.
Certain Federal Income Tax Consequences Relating to Stock Options
The grant of stock options under the plan will create no income tax
consequences to us or to the key employee.
A key employee who receives a nonqualified stock option will generally
recognize ordinary income at the time of exercise in an amount equal to the
excess of the fair market value of the our common stock at such time over the
exercise price. We are entitled to a corresponding deduction at the time of
exercise. A subsequent sale of the shares acquired by the key employee at the
time of exercise will give rise to capital gain or loss for the key employee if
the amount realized from the sale is different than the key employee's tax basis
- - - i.e., the fair market value of the shares at the time of exercise. Such
capital gain or loss will be long-term or short-term, depending on the length of
time between the date of exercise and the date of sale.
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<PAGE>
A key employee who receives an incentive stock option will recognize no
gain or loss upon the exercise of his or her option. A key employee will
generally have a capital gain or loss when he or she sells shares acquired upon
exercise of an incentive stock option, but we will have no corresponding
deduction. However, if the key employee fails to hold the shares acquired upon
exercise of an incentive stock option until at least two years after the grant
date and at least one year after the date of exercise, the key employee will
recognize ordinary income, at the time the shares are sold, equal to the gain
realized or the excess of the fair market value of the shares at the date of
exercise over the exercise price, whichever is less. In such event, we would
then enjoy a corresponding deduction. Any additional gain realized by the key
employee over the fair market value at the time of exercise will be taxed as
capital gain.
To date, the committee has only granted nonqualified stock options
under the plan. None of the existing grants under the plan are contingent on the
approval by shareholders of this proposal.
Vote Required
A majority of shares present and voting at the annual meeting must vote
for the proposed amendment to the plan for it to be approved. Therefore,
abstentions will have the effect of a vote against the proposal. Broker
non-votes will not be counted as voting at the meeting and will, therefore, have
no impact of the voting. James H. Dickelman and John H. Dahly, as proxies,
intend to vote for the proposed amendment to the plan.
Our board of directors recommends a vote for the proposed amendment to
our 1995 Equity Incentive Plan to increase the number of shares that we may
issue under the plan from 750,000 shares to 1,250,000 shares.
24
<PAGE>
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
AND OTHER MATTERS
Our Independent Public Accountants
Our board has reappointed Arthur Andersen LLP to serve as our
independent public accountants for 1999. Arthur Andersen has served as our
independent public accountants for many years. We expect that representatives of
Arthur Andersen will be at the annual meeting and will have a chance to make a
statement if they would like to do so. They will also be available to respond to
your questions. James H. Dickelman and John H. Dahly, as proxies, intend to vote
for ratification of the board of directors' reappointment of Arthur Andersen as
our independent public accountants for 1999.
Our board of directors recommends a vote for ratification of its
selection of Arthur Andersen LLP as our independent public accountants for 1999.
Miscellaneous
We expect that the election of directors, the proposed increase in our
1995 Equity Incentive Plan and ratification of our selection of 1999 independent
public accountants to be the only matters that will be presented for shareholder
consideration at the annual meeting. Other matters may properly come before the
annual meeting and the proxies named in the accompanying proxy will vote on them
in accordance with their best judgment.
We will bear the cost of soliciting proxies. We expect to solicit
proxies mainly by mail. Some of our employees may also solicit proxies
personally and by telephone. We do not anticipate that we will retain anyone to
solicit proxies or that we will pay compensation to anyone for that purpose. We
will, however, reimburse brokers and other nominees for their reasonable
expenses in communicating with the persons for whom they hold common stock.
If you would like to receive a copy of our 1998 annual report on Form
10-K - without exhibits please write to our Secretary at 2215 Union Avenue,
Sheboygan, Wisconsin 53081, and we will provide you with a copy free of charge.
25
<PAGE>
If you wish to include a proposal in our proxy statement for the 2000
annual meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
you should forward your proposal to our Secretary by December 3, 1999. If you
submit a proposal other than pursuant to Rule 14a-8 less than 45 days in advance
of the 2000 meeting, your proposal will be considered untimely under our by-laws
and we will not be required to present your proposal at the 2000 annual meeting.
If the board chooses to present your proposal despite its untimeliness, the
people named in the proxies solicited by the board of directors for the 2000
annual meeting will have the right to exercise discretionary voting power with
respect to your proposal.
SCHULTZ SAV-O STORES, INC.
John H. Dahly
Executive Vice President,
Chief Financial Officer and Secretary
Sheboygan, Wisconsin
April 1, 1999
