<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Service Merchandise Company, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
Service Merchandise Company, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title 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:
(4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[SERVICE MERCHANDISE LOGO]
7100 SERVICE MERCHANDISE DRIVE
BRENTWOOD, TENNESSEE 37027
MAILING ADDRESS:
P. O. BOX 24600
NASHVILLE, TENNESSEE 37202-4600
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, APRIL 20, 1994
---------------------
Notice is hereby given that the Annual Meeting of Shareholders of SERVICE
MERCHANDISE COMPANY, INC. (hereinafter called the "Company"), will be held at
the offices of the Company located at 7100 Service Merchandise Drive, Brentwood,
Tennessee, on Wednesday, April 20, 1994 at 10:00 a.m., local time, for the
following purposes:
(1) To elect two Class II directors to serve for a term of three years
and until their successors are duly elected and qualified;
(2) To consider and act upon a proposal to approve the selection of
Deloitte & Touche as the Company's independent public accountants for
fiscal year 1994; and
(3) To transact such other business as may properly be brought before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 1, 1994 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting.
Your attention is directed to the Proxy Statement accompanying this notice
for a more complete statement regarding matters to be acted upon at the Annual
Meeting.
By Order of the Board of Directors
GLEN A. BODZY,
Secretary
Brentwood, Tennessee
March 18, 1994
YOUR REPRESENTATION AT THE ANNUAL MEETING IS IMPORTANT. TO ENSURE YOUR
REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. SHOULD YOU DESIRE TO REVOKE
YOUR PROXY, YOU MAY DO SO AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT AT ANY
TIME BEFORE IT IS VOTED.
<PAGE> 3
SERVICE MERCHANDISE COMPANY, INC.
7100 SERVICE MERCHANDISE DRIVE
BRENTWOOD, TENNESSEE 37027
MAILING ADDRESS:
P. O. BOX 24600
NASHVILLE, TENNESSEE 37202-4600
---------------------
PROXY STATEMENT
---------------------
The accompanying proxy is solicited by the Board of Directors of Service
Merchandise Company, Inc., for use at the Annual Meeting of Shareholders to be
held on April 20, 1994, and any adjournments thereof, notice of which meeting is
attached hereto.
The purposes of the Annual Meeting are: to elect two Class II directors; to
approve the selection of Deloitte & Touche as the Company's independent public
accountants, and to transact such other business as may properly be brought
before the Annual Meeting or any adjournment thereof.
A shareholder who signs and returns a proxy in the accompanying form may
revoke the same at any time before the authority granted thereby is exercised by
attending the Annual Meeting and electing to vote in person, by filing with the
Secretary of the Company a written revocation or by duly executing a proxy
bearing a later date. Unless so revoked, the shares of the Company's common
stock (the "Common Stock") represented by the proxy will be voted at the Annual
Meeting. Where a choice is specified on the Proxy, the shares represented
thereby will be voted in accordance with such specifications. If no
specification is made, such shares will be voted FOR the election of the two
Class II director nominees and FOR the approval of the selection of Deloitte &
Touche as the Company's independent public accountants.
The Board of Directors knows of no other matters which are to be brought to
a vote at the Annual Meeting. However, if any other matter does come before the
Annual Meeting, the persons appointed in the Proxy or their substitutes will
vote in accordance with their best judgment on such matters.
The Board of Directors has fixed the close of business on March 1, 1994 as
the record date for the Annual Meeting. On that date, the Company had
outstanding ( ) shares of Common Stock. Only record holders of the
Common Stock at the close of business on that date will be entitled to vote at
the Annual Meeting. Holders of the Common Stock will be entitled to one vote for
each share of Common Stock so held, which may be given in person or by proxy
duly authorized in writing.
<PAGE> 4
The directors shall be elected by a plurality of the votes cast in the
election by the holders of the Common Stock represented and entitled to vote at
the Annual Meeting.
The selection of Deloitte & Touche as the Company's independent public
accountants for fiscal year 1994 shall be approved by the plurality of the votes
cast by the holders of the Common Stock represented and entitled to vote at the
Annual Meeting.
Pursuant to rules promulgated by the Securities and Exchange Commission
(the "SEC"), boxes and a designated blank space are provided on the proxy card
for shareholders to mark if they wish to vote "for," "against" or "withhold
authority (abstain)" to vote for one or both director nominees, and to vote
"for," "against" or "abstain" from voting on the proposal to approve the
selection of Deloitte & Touche to serve as the Company's independent public
accountants. Under Tennessee law and the Company's charter and bylaws, an
abstention or withholding of authority to vote will have no effect on the
outcome of the election of directors or the approval of the selection of the
Company's independent public accountants, as both are determined by the number
of votes cast. Shares represented at the meeting by proxies containing
instructions to abstain, or withholding authority to vote, will nonetheless be
counted as present for purposes of determining whether a quorum exists at the
meeting.
A broker non-vote occurs when a broker holding shares registered in street
name is permitted to vote, in the broker's discretion, on routine matters
without receiving instructions from the client, but is not permitted to vote
without instructions on non-routine matters, and the broker returns a proxy card
with no vote (the "non-vote") on the non-routine matter. Under Tennessee law and
the Company's charter and bylaws, broker non-votes will have no impact on the
election of directors or the approval of the selection of independent public
accountants, but shares represented by a proxy card marked with a non-vote would
be counted as present for purposes of determining the existence of a quorum.
Under New York Stock Exchange rules, both the election of directors and the
selection of independent public accountants are routine matters on which a
broker has the discretion to vote if instructions are not received from the
client at least 10 days prior to the meeting.
The cost of solicitation of proxies will be borne by the Company, including
expenses in connection with preparing, assembling and mailing this Proxy
Statement. Such solicitation will be made by mail, and may also be made by the
Company's officers, directors and regular employees personally or by telephone
or telegram. No officers, directors or regular employees will receive additional
compensation for soliciting proxies. The Company may reimburse brokers,
custodians and nominees for their expenses in sending proxies and proxy material
to beneficial owners. The Company has also retained D. F. King & Co., a firm of
professional proxy solicitors, to aid in the solicitation at a fee of $7,000
plus reimbursement of normal expenses.
This Proxy Statement and the Company's Annual Report to Shareholders have
been mailed on or about March 18, 1994 to all shareholders of record on March 1,
1994.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Company's charter provides for a classified Board of Directors. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. The directors
are classified with respect to the time for which they shall hold office by
dividing them into three classes. At each annual meeting, directors of the class
whose term of office expires in that year are elected for a three-year term. The
terms of the two Class II directors, R. Maynard Holt and James E. Poole, expire
upon the election and qualification of new directors at the Annual Meeting. The
Board of Directors has designated
2
<PAGE> 5
R. Maynard Holt and James E. Poole as the two nominees for reelection as Class
II directors for a term expiring at the annual meeting in 1997 and when their
successors shall have been elected and qualified. Both of the nominees are
currently Class II directors of the Company and were previously elected by the
shareholders.
Unless contrary instructions are received, it is intended that the shares
represented by proxies solicited by the Board of Directors will be voted in
favor of the election as directors of both of the Class II nominees named
herein. If for any reason either nominee is not available for election, the
persons named in the form of proxy have advised the Company that they will vote
for such substitute nominee or nominees as the Board of Directors of the Company
may propose. The Board of Directors has no reason to expect that either of these
nominees will fail to be candidates at the Annual Meeting, and therefore does
not at this time have any substitute nominee under consideration. The
information relating to the two nominees and the four directors continuing in
office set forth herein has been furnished to the Company by such nominees and
directors.
<TABLE>
<CAPTION>
YEAR
FIRST YEAR TERM
NAME, AGE, POSITION(S) BECAME A BUSINESS EXPERIENCE DURING TO
WITH THE COMPANY DIRECTOR PAST FIVE YEARS EXPIRE IN
- ------------------------------ --------- -------------------------------------- ----------
<S> <C> <C> <C>
CLASS II NOMINEES STANDING FOR REELECTION:
R. Maynard Holt, 54 1971 President of R. Maynard Holt & Co., 1997
Director business consulting and stock market
software firm located in Nashville,
Tennessee; independent business
consultant from June 1987 to
February 1990.
James E. Poole, 69 1983 President of Poole Enterprises, Inc., 1997
Director Nashville, Tennessee; President of
Lynwood Enterprises, Inc.,
Nashville, Tennessee, from October
1985 to January 1991.
CURRENT DIRECTORS WHOSE TERMS HAVE NOT EXPIRED AND WHO ARE THEREFORE NOT UP FOR REELECTION:
Raymond Zimmerman, 61 1960 Chairman of the Board, President and 1995
Chairman of the Board, Chief Executive Officer of the
President and Chief Company; Director of The Limited
Executive Officer Stores, Columbus, Ohio.
Harold Roitenberg, 67 1990 President of Roitenberg Investments, 1995
Director Inc., Minneapolis, Minnesota.
Richard P. Crane, Jr., 54 1975 Practicing Attorney; Partner, Crane, 1996
Director Rayle & Lennemann, Santa Monica,
California.
Charles V. Moore, 54 1972 President and Director of Trainer, 1996
Director Wortham & Company, Inc., Investment
Counselors, New York, New York.
</TABLE>
The Company has a Compensation Committee for the purpose of setting
executive officers' salaries, formulating bonuses for the Company's management,
reviewing and approving compensation policies, plans and programs for officers
and other key employees, reviewing and approving salary and other compensation
of the officers of the Company and other key employees, making recommendations
to the Board with respect to the compensation of directors and administering the
Company's stock-based incentive plans. The members of the Committee are Charles
V. Moore, Chairman, James E. Poole and Harold Roitenberg. The Committee held
four meetings during the fiscal year ended January 1, 1994.
3
<PAGE> 6
The Company has an Audit Committee for the purposes of recommending the
Company's auditors, reviewing the scope of their engagement, consulting with
such auditors, reviewing the results of the audit examination prior to
finalization thereof, acting as a liaison between the Board and internal
auditors and reviewing various Company policies, including those relating to
accounting and internal control matters. The members of the Committee are R.
Maynard Holt, Chairman, Richard P. Crane, Jr., Charles V. Moore, James E. Poole
and Harold Roitenberg. During the fiscal year ended January 1, 1994, there were
four meetings of the Audit Committee.
The Company has a Nominating Committee for the purpose of recommending
nominees for election as directors to the Board of Directors. The Nominating
Committee held two meetings during the fiscal year ended January 1, 1994. The
members of the Nominating Committee are Raymond Zimmerman, Chairman, Harold
Roitenberg and James E. Poole. The Nominating Committee makes recommendations to
the Board with regard to qualified nominees for election as directors of the
Company, considers other matters pertaining to the size and composition of the
Board and designates members of the Board's committees. The Nominating Committee
gives appropriate consideration to qualified persons recommended by shareholders
for nomination as director, provided such recommendations are accompanied by
sufficient information to permit the Committee to evaluate the qualifications
and experience of the nominee.
During the fiscal year ended January 1, 1994, the Board of Directors held
four regular meetings and two special meetings. All incumbent directors attended
more than 75% of the aggregate number of meetings of the Board and Committees of
the Board on which they serve.
4
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
MANAGEMENT'S STOCK OWNERSHIP
The following table sets forth as of January 31, 1994 certain information
regarding the beneficial ownership of Common Stock by all directors of the
Company, the Company's Chief Executive Officer and the four most highly
compensated officers of the Company other than the Chief Executive Officer, and
by all such directors and officers as a group. Except as otherwise indicated,
each director or officer has sole voting and investment power over the shares of
Common Stock listed as beneficially owned by him.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY OF
NAME OWNED CLASS(1)
---------------------------------------------------- --------------- ----------
<S> <C> <C>
Raymond Zimmerman................................... 5,652,414(2)
1,892,654(3)
566,280(4)
---------------
8,111,348(5) 8.2%
Richard P. Crane, Jr................................ 9,123(6)(7)
Charles V. Moore.................................... 94,908(6)(7)(8)
James E. Poole...................................... 10,389(6)(7)
R. Maynard Holt..................................... 6,951(6)(7)(9)
Harold Roitenberg................................... 18,826(6)(10)
S.P. Braud, III..................................... 251,419(11)
Frank X. Bisceglia.................................. 73,336(12)
Glen A. Bodzy....................................... 262,391(13)
Charles Septer...................................... 109,715(14)(15)
All directors and executive officers as a group (13
persons).......................................... 9,004,086(16) 9.1%
</TABLE>
- ---------------
(1) Percentages representing less than 1% of the outstanding shares of Common
Stock are not shown.
(2) Includes currently exercisable options to acquire 601,875 shares, 504,176
shares owned of record by Mrs. Zimmerman, 400,312 shares owned of record by
RAZ Investments Co., a general partnership with Mr. Zimmerman and Mrs.
Zimmerman sharing voting power and investment power as the two general
partners and 10,118 shares held by the trustee under the Service
Merchandise Savings and Investment Plan.
(3) Represents 1,380,910 shares owned of record by Mr. Zimmerman as trustee for
five nieces, 456,967 shares as to which Mr. Zimmerman is trustee under the
will of Mary K. Zimmerman and 54,777 shares owned of record by Mrs.
Zimmerman as trustee or custodian for children or grandchildren and a
grandniece.
(4) Represents 405,000 shares owned of record by the Raymond Zimmerman Family
Foundation and 161,280 shares owned of record by the Zimmerman Foundation.
(5) The address for Mr. Zimmerman is 7100 Service Merchandise Drive, Brentwood,
Tennessee 37027.
(6) Includes 188 restricted shares of Common Stock granted under the Directors'
Equity Plan, held by the Company until restrictions lapse on April 21,
1994.
(7) Includes currently exercisable options to acquire 450 shares granted under
the Directors' Equity Plan.
(8) Includes 9,280 shares owned by Mr. Moore as custodian for two minor
children.
(9) Includes 937 shares owned of record by Mr. Holt as Trustee for the R.
Maynard Holt Profit Sharing Plan, a qualified profit sharing plan under the
Internal Revenue Code, 2,000 shares owned by Mr. Holt's wife and 2,000
shares owned by Mr. Holt's mother.
(10) Includes 17,812 shares owned by Roitenberg Investments, Inc., which is 100%
owned by Mr. Roitenberg.
(11) Includes currently exercisable options to acquire 600 shares.
(12) Includes currently exercisable options to acquire 9,570 shares.
(13) Includes currently exercisable options to acquire 9,062 shares.
(14) Includes currently exercisable options to acquire 8,462 shares.
(15) Includes 3,877 shares held by Mr. Septer's wife and 2,262 shares under
currently exercisable options held by Mr. Septer's wife.
(16) Includes currently exercisable options to acquire 2,346 shares, not
detailed above.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN PERSONS
To the best knowledge of the Company, as of December 31, 1993, other than
Raymond Zimmerman, whose security ownership is listed in the preceding table,
the only other beneficial owner of more than 5% of the outstanding shares of
Common Stock is set forth in the following table.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER OF
OF BENEFICIAL OWNER OF SHARES CLASS
- ------------------------------------ ------------- -------
<S> <C> <C>
Forstmann-Leff Associates Inc.(1) 6,080,725 6.1%
55 East 52nd Street
New York, NY 10055
</TABLE>
- ---------------
(1) According to its Schedule 13G, Forstmann-Leff Associates Inc., a New York
corporation, is a registered investment adviser under Section 203 of the
Investment Advisers Act of 1940 (the "Act"). Of the 6,080,725 shares of
Common Stock beneficially owned by Forstmann-Leff Associates Inc.,
1,177,613 are beneficially owned by FLA Asset Management, Inc., and 539,587
are beneficially owned by Stamford Advisers Corp. FLA Asset Management,
Inc. is a registered investment adviser under the Act and a subsidiary of
Forstmann-Leff Associates Inc. Stamford Advisers Corp. is a registered
investment adviser under the Act. Forstmann-Leff Associates Inc. shares
investment and/or voting power with Stamford Advisers Corp. over Stamford
Advisers Corp.'s accounts.
6
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information as to annual, long-term or other
compensation during fiscal years 1993, 1992 and 1991 for the Company's Chief
Executive Officer and the persons who, in fiscal 1993, were the other four most
highly compensated executive officers of the Company (such five officers
collectively, the "Named Officers").
<TABLE>
<CAPTION>
ALL OTHER
COMPEN-
LONG-TERM COMPENSATION SATION(1)(2)
ANNUAL COMPENSATION AWARDS ($)
----------------------------------------------- -------------------------- ------------
OTHER RESTRICTED
ANNUAL STOCK
SALARY BONUS COMPENSATION(2) AWARDS(3) OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#)
- ---------------------------- ---- -------- -------- --------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Raymond Zimmerman........... 1993 $750,000 -- -- -- -- $9,162
Chairman, President 1992 750,000 -- $ 54,488(4) -- 150,000 8,547
and CEO 1991 750,000 -- n/a $ 66,253 37,500 n/a
S.P. Braud, III............. 1993 312,468 -- -- -- -- 4,497
Vice President 1992 300,456 -- -- -- 3,000 4,364
1991 288,860 $ 64,896 n/a -- -- n/a
Frank X. Bisceglia.......... 1993 295,256 -- -- -- 20,000 4,497
Div. Sr. Vice President 1992 283,920 -- -- -- 3,000 4,364
Hardlines Merchandising 1991 273,000 61,390 n/a -- -- n/a
Glen A. Bodzy............... 1993 290,524 -- -- -- 20,000 4,497
Vice President, General 1992 279,344 -- -- -- 3,000 4,364
Counsel and Secretary 1991 268,580 59,268 n/a -- -- n/a
Charles Septer.............. 1993 284,492 -- -- -- 20,000 4,497
Div. Sr. Vice President 1992 273,572 -- -- -- 3,000 4,364
Jewelry Merchandising 1991 260,520 58,572 n/a -- -- n/a
</TABLE>
(1) Represents Company contributions to defined contribution plan in the amount
of $4,497 and $4,364 for each Named Officer in fiscal 1993 and 1992,
respectively, and $4,665 and $4,183 in fiscal 1993 and 1992, respectively,
in premiums paid by the Company with respect to $12,041,040 in life
insurance policies on the life of Raymond Zimmerman. Pursuant to split
dollar agreements with respect to these policies, the Company is the owner
of the policies, pays the premiums of approximately $115,296 per year and,
upon the payment of the policy proceeds, will receive, net of any tax
liability, an amount equal to the aggregate premiums paid by the Company.
The remaining policy proceeds will be paid to Mr. Zimmerman's designated
beneficiaries. Mr. Zimmerman does not have any interest in the cash
surrender value of the policy. Either party may terminate the respective
agreements at any time on thirty days' written notice.
(2) Compensation that would otherwise be included in this column for fiscal 1991
has been omitted pursuant to the phase-in provisions of the new executive
compensation rules promulgated by the SEC. Compensation that would
otherwise be included under "Other Annual Compensation" for each of the
Named Officers in fiscal 1993 and for each of the Named Officers in 1992
other than Raymond Zimmerman was less than the lesser of $50,000 or 10% of
their annual salary for such year.
(3) Outstanding restricted stock awards at January 1, 1994 are as follows:
<TABLE>
<CAPTION>
NUMBER OF VALUE
NAME SHARES (AS OF 1/1/94)
--------- ----------------
<S> <C> <C>
S.P. Braud, III.............................................................. 30,045 $300,450
Frank X. Bisceglia........................................................... 29,903 $299,030
Glen A. Bodzy................................................................ 28,209 $282,090
Charles Septer............................................................... 28,212 $282,120
</TABLE>
Dividends are payable on restricted stock when and if paid on unrestricted
stock. No dividends were paid in fiscal 1993. Mr. Zimmerman's restricted
stock award in April 1991 vested in April 1992.
(4) Other Annual Compensation for Mr. Zimmerman in fiscal 1992 includes $22,313
in payment of personal legal expenses.
7
<PAGE> 10
OPTION/SAR GRANTS TABLE
The following table provides information as to options granted to the five
Named Officers during fiscal 1993. No separate stock appreciation rights
("SAR's") were granted during fiscal 1993.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
- ---------------------------------------------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------------------- ----------- ------------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Raymond Zimmerman................. -- -- -- -- -- --
S.P. Braud, III................... -- -- -- -- -- --
Frank X. Bisceglia................ 20,000 1.81% $ 10.125 4/21/03 $127,300 $322,700
Glen A. Bodzy..................... 20,000 1.81% 10.125 4/21/03 127,300 322,700
Charles Septer.................... 20,000 1.81% 10.125 4/21/03 127,300 322,700
</TABLE>
- ---------------
(1) Options were granted on April 21, 1993 and vest 20% annually over five
years. There are no criteria for vesting other than continued employment
through the vesting dates and no other material terms of the options except
as disclosed under "Change in Control Provisions under the Company's 1989
Employee Stock Incentive Plan."
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table provides information as to options exercised or held by
the five Named Officers during fiscal 1993. None of the Named Officers has been
granted separate SAR's.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
NUMBER OF AND/OR SARS AT OPTIONS/SARS
SHARES FY-END(#) AT FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ----------- ------------------- --------------------
<S> <C> <C> <C> <C>
Raymond Zimmerman.......................... -- -- 601,875/120,000 $ 3,823,406/$0
S.P. Braud, III............................ 126,799 $ 938,561 600/14,419 0/66,527
Frank X. Bisceglia......................... 8,969 55,201 9,570/34,364 42,872/66,225
Glen A. Bodzy.............................. -- -- 9,062/33,686 40,445/62,468
Charles Septer............................. 11,881 63,875 8,462/33,691 40,445/62,493
</TABLE>
DIRECTORS COMPENSATION
In fiscal 1993, directors not otherwise employed as officers of the Company
received fees of $5,000 per quarter. Each such director received an additional
fee of $2,000 per meeting for attendance at certain special meetings. Mr. Holt,
Chairman of the Audit Committee, received an additional $1,000 for the year.
Under the Directors Deferred Compensation Plan, implemented in 1991,
directors have the option of deferring receipt of their fees until a period
following their service as director or until retirement age.
Under the Company's 1991 Director's Equity Plan, each director who is not
an employee of the Company is entitled to receive 188 restricted shares of the
Company's Common Stock annually, on the date of the Annual Meeting of
Shareholders. The initial grant was made on May 1, 1991. Each director is
immediately
8
<PAGE> 11
entitled to vote the granted shares and receive any dividends or other
distributions declared on the shares. Vesting of the shares occurs one year from
the date of the grant. The restricted shares will vest immediately upon a
director's death or disability or on the date a "change in control" is deemed to
occur under the Company's 1989 Employee Stock Incentive Plan.
Each non-employee director also receives on the date of the Annual Meeting
of Shareholders, options to purchase 750 shares of the Company's Common Stock.
The options are exercisable in 20% installments beginning one year from the date
of grant. The exercise price is the market value of the Company's Common Stock
on the date of grant. The options expire 10 years from the date of grant. The
options become immediately exercisable on a director's death or disability or on
the date a "change in control" is deemed to occur under the Company's 1989
Employee Stock Incentive Plan.
EMPLOYMENT AGREEMENTS
The Company has Employment Agreements (the "Agreements") with the five
Named Officers. The Agreements with the Named Officers were entered into in 1988
and provide for payment of their base salary at the time ($550,004 for Raymond
Zimmerman, $241,280 for S.P. Braud, III, $225,004 for Frank X. Bisceglia,
$225,004 for Glen A. Bodzy and $200,044 for Charles Septer), subject to increase
at the discretion of the Board of Directors. The base salary in effect at any
time may only be decreased if the base salary of other officers in comparable
positions is also being reduced as a general matter. The Agreements also provide
that the Named Officers will be entitled to annual incentive compensation at the
discretion of the Board of Directors and will be eligible to participate in
benefit plans, including stock option plans, generally available to officers and
key employees. Mr. Zimmerman agreed in 1992 that, for a period of five years,
(a) his annual base salary would be frozen at its then current level of
$750,000, (b) he would receive no annual incentive compensation and (c) he would
be eligible to receive long-term incentive compensation in the form of stock
options, restricted stock awards and other equity-based rights to provide value
that is largely contingent upon increases in the value of the Company's stock.
The Agreements provide that upon termination of employment for any reason other
than "cause," the individual will receive his base salary for the balance of the
term of the Agreement, which will generally be for a period of not less than one
nor more than two years because of automatic renewal provisions in the
Agreements.
The Agreements extend for a rolling three year period (on each anniversary
of the date of the Agreements, the expiration date is automatically extended for
an additional year unless the Company acts to terminate this automatic renewal
position). The Agreements provide that Named Officers will not engage in various
activities competitive with the business of the Company for a period of one year
after termination of employment.
In 1993, Mr. Braud elected to take early retirement effective in April 1994
and the term of employment under his Agreement will end at that time. In
connection with his early retirement, the Company has agreed to accelerate the
vesting of 30,045 shares of restricted stock granted to him in August 1989 from
February 1995 to April 1994.
The Company also has indemnification agreements with each of its directors
and executive officers providing for contractual rights of indemnification to
the fullest extent permitted by Tennessee law.
CHANGE IN CONTROL PROVISIONS UNDER THE COMPANY'S 1989 EMPLOYEE STOCK INCENTIVE
PLAN
Under the Company's 1989 Employee Stock Incentive Plan, SAR's and limited
SAR's outstanding for at least six months, and any stock options which are not
then exercisable, will become fully exercisable and
9
<PAGE> 12
vested. Likewise, the restrictions and deferral limitations applicable to
restricted stock, deferred stock, stock purchase rights and other stock-based
awards will lapse and such shares and awards will be deemed fully vested. Stock
options, SAR's, limited SAR's, restricted stock, deferred stock, stock purchase
rights and other stock-based awards will, unless otherwise determined by the
Compensation Committee in its sole discretion, be cashed out on the basis of the
change in control price as defined in the plan.
PENSION PLAN
The Company's pension plan (the "Pension Plan"), which is qualified under
Section 415(a) of the Internal Revenue Code of 1986, as amended, includes all
full-time employees who are at least age twenty-one with one year of qualified
service as defined by the Pension Plan. Directors who are not officers or
employees of the Company do not participate in the Pension Plan. In 1989, the
Pension Plan was changed to an account balance plan which bases benefits on
annual service credits and annual interest credits for each participant. At
retirement, the account balance may, at the participant's election, be
actuarially converted into a monthly pension. Participants in the Pension Plan
as of January 1, 1989, are provided certain minimum benefits reflecting the
provisions of the prior Pension Plan based on compensation received during 1988.
Annual service credits ranging from 3% to 5% are based on each
participant's years of service at the beginning of the current year and applied
to total compensation, which includes base wages, salaries, and bonuses before
deferrals pursuant to the Company's savings plan. Annual interest credits will
be based on interest rate indices prescribed in the Pension Plan. The account
balances of participants were credited with interest at the annual rate of 6%
during 1993.
The estimated annual benefits payable to Raymond Zimmerman, Frank X.
Bisceglia, Glen A. Bodzy and Charles Septer under the Pension Plan upon
retirement at normal retirement age are approximately $115,641, $82,298, $80,899
and $56,513, respectively. The estimated annual benefit payable to S.P. Braud,
III at his anticipated early retirement date of April 30, 1994 is $45,784. These
estimates assume continued compensation at the present amounts (subject to the
$150,000 limit as discussed below) until normal or anticipated retirement age
and continued crediting of interest at the current rate, and disregarding
probable future cost-of-living increases to the limit on the amount of
compensation that may be taken into account.
All benefits provided under the Pension Plan are subject to annual
limitations as specified under Section 415 of the Internal Revenue Code of 1986,
as amended. Benefits were limited to $115,641 during 1993. In addition,
compensation considered under the Pension Plan during 1994 and all future years
is limited to $150,000.
EXECUTIVE SECURITY PROGRAM (ESP)
The Company maintains a non-qualified supplemental retirement plan which
covers certain management employees hired or promoted to their job level prior
to February 28, 1989. The plan provides salary continuation and/or death
benefits equal to two times the participant's annual salary at retirement or at
age 65 if the former employee participating in the ESP completed 20 years of
vesting service prior to termination. Salary continuation benefits are paid from
the general assets of the Company. There are approximately 332 active employees
covered. Seventeen retirees currently receive benefits and four terminated
vested participants are entitled to a future benefit. The Company maintains
Corporate Owned Life Insurance (COLI) policies purchased on participants covered
by the plan prior to the Tax Reform Act of 1986. The Company continues to
maintain COLI policies following termination or retirement of covered employees.
10
<PAGE> 13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") sets executive officers'
salaries, formulates bonuses for the Company's management and administers the
Company's stock-based incentive plans. The members of the Committee are all
non-employees of the Company, although Mr. Poole served as President and Chief
Operating Officer of the Company from October 1983 to May 1984. The Committee
reviews the Company's executive compensation policies when the financial results
of the prior fiscal year become available. The policies are reviewed in light of
their overall consistency, in the subjective view of the Committee, with the
Company's financial performance, its business plan and its position within the
retail industry, as well as the compensation policies of similar companies in
the retail business as discussed further below. The compensation of individual
executives is then evaluated by the Committee in accordance with its established
executive compensation policies. At its meeting on February 24, 1993, the
Committee adopted a statement of policy concerning compensation of the Company's
executive officers. This statement of policy set forth the following primary
objectives:
- to attract and retain talented executives by providing a compensation
program that is competitive with the compensation provided to executives
at companies of comparable size and position in the retail business, while
maintaining compensation within levels consistent with the Company's
business plan, financial objectives and operating performance;
- to provide appropriate incentives for executives to work towards the
achievement of the Company's annual performance targets established in the
Company's business plan; and
- to more closely align the interests of executives with those of
shareholders and the long-term interests of the Company by providing
long-term incentive compensation in the form of stock options, restricted
stock or other equity-based long-term incentive compensation.
In reviewing the comparability of the Company's overall levels of base
executive compensation, the Committee looks to a variety of sources. The Company
participates in externally prepared compensation surveys, the most comprehensive
of which is the Retail Management Compensation Study prepared by Management
Compensation Services ("MCS"), a subsidiary of Hewitt Associates, a nationally
recognized management consulting firm. The Retail Management Compensation Study
provides data on compensation practices of other retailers with annual revenues
of at least $3 billion, by job classification category. Secondly, the Company
requested MCS to prepare a specific analysis of participating retail companies
which are included in the Composite Index Average shown in the performance graph
on page 14. The Company also reviews compensation information disclosed in
current proxy statements for all companies included in the Composite Index
Average.
The survey and proxy data is used to obtain an overall perspective on base
retail executive compensation. However, the Committee also takes into account
other factors, which in its subjective judgment, affect the comparability of
this data to the Company. These factors include differences in: the Company's
mix of product offerings, the Company's catalog store format versus other
selling concepts, the number of stores and employees, organizational structure
levels of executive responsibility and corporate cultures. Analysis of the MCS
survey data and the current proxy statements of the companies included in the
Composite Index Average revealed that the Company's levels of executive base
compensation fell within the mid-range of companies included in the survey data
or in the Composite Index Average.
11
<PAGE> 14
COMPENSATION OF EXECUTIVES OTHER THAN THE CHIEF EXECUTIVE OFFICER. The
Company offers its executive officers base salary, annual incentive compensation
and long-term compensation, determined in accordance with the general principles
set forth below.
BASE COMPENSATION. In determining annual base compensation adjustments
for each executive, the Committee predicates its decision on a subjective
assessment of the individual executive's performance in light of that
executive's job responsibilities. During fiscal 1993, executive officers,
other than the Chief Executive Officer ("CEO"), received base compensation
increases in recognition of individual performance ranging from 4% to 6%,
excluding increases related to changes in job responsibilities such as
promotions.
ANNUAL INCENTIVE COMPENSATION. The Company's annual incentive (bonus)
compensation for executive officers is determined by achievement of a
pre-determined, Company-wide financial target for net income (exclusive of
extraordinary items, cumulative effect of changes in accounting principle
and other like items), established at the beginning of each fiscal year in
conjunction with the Company's annual business plan. Executives receive a
bonus based on whether, and to what extent, the Company, as a whole,
achieves the target. Bonuses are paid to executive officers based on the
following percentages of their base salary, which percentages were
determined based upon the subjective judgment of the Committee:
<TABLE>
<CAPTION>
ACHIEVEMENT OF TARGET PERCENTAGE BONUS
- --------------------- ----------------
<S> <C>
less than 100% none
100% 6.7-10%
110% 10-15%
125% 15-22.5%
150% 20-30%
</TABLE>
For fiscal 1993, the established targeted net income, before
extraordinary items and cumulative effect of change in accounting
principle, was $101.3 million. The target was not met; accordingly, no
bonus compensation was awarded.
LONG-TERM INCENTIVE COMPENSATION. The Company uses stock options and
restricted stock awards as the primary vehicles for long-term incentive
compensation. In connection with the Company's recapitalization and
initiation of its original five-year business plan in 1989, restricted
stock awards were granted. These awards vest in their entirety in February
1995 and are not contingent upon any performance or other criteria other
than continued employment through the vesting date. In connection with Mr.
Braud's retirement effective April 30, 1994, the Committee, based on its
subjective evaluation of the contributions of Mr. Braud to the Company's
performance over the years, determined to accelerate the vesting of Mr.
Braud's restricted stock from February 1995 to April 1994.
In fiscal 1993, the Company granted options to purchase 20,000 shares
of the Company's Common Stock to each of Messrs. Bisceglia, Bodzy and
Septer, and options to purchase an aggregate of 100,000 shares of the
Company's Common Stock to other executive officers, excluding the CEO.
Options to purchase an aggregate of 937,679 shares were granted during 1993
to approximately 750 other employees of the Company, including store and
distribution center managers as well as various levels of corporate
management. The size of the option grant to each executive officer was
determined by the Committee based upon a subjective assessment of such
executive's performance and his or her respective level in the
organization. The Committee does not consider the number of shares
beneficially owned by executive officers other than the CEO when making
such grants. The exercise price of each option equaled the fair market
value of the Company's Common Stock as of the date of grant. The options
vest at a rate of 20%
12
<PAGE> 15
annually for five years, and are not contingent upon any performance or
other criteria other than continued employment through the vesting dates.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Committee believes
compensation of the CEO should be more closely linked to the performance of the
Company's stock than compensation of other executive officers. In accordance
with this philosophy, the CEO and the Committee agreed in 1992 that, for a
period of five years, (a) his annual base salary would be frozen at its then
current level of $750,000, (b) he would receive no annual incentive
compensation, and (c) he would be eligible to receive long-term incentive
compensation in the form of stock options, restricted stock awards and other
equity-based rights to provide value that is largely contingent upon increases
in the market value of the Company's Common Stock. Grants of such long-term
incentive compensation would be made in amounts which reflect the fact that his
base salary has been frozen and he has agreed to forego any annual incentive
compensation. The Committee anticipates that such awards of long-term incentive
compensation will be considered annually, concurrent with awards to other
executive officers, and will generally consist of the same types of rights as
awards to other executive officers. Awards will be based in part upon the
Committee's judgment that such awards are merited in light of performance in the
market price of the Company's stock. The Committee also takes into account the
fact that the CEO already beneficially owns 8.2% of the Company's outstanding
shares of Common Stock. During 1993, the CEO did not receive any grants of stock
options or other long-term incentive compensation.
FEDERAL INCOME TAX DEDUCTIBILITY LIMITATIONS. The Committee believes it is
appropriate to take into account the $1,000,000 limit on the deductibility of
executive compensation for federal income tax purposes enacted as part of the
1993 Ombibus Budget Reconciliation Act ("OBRA") and to seek to qualify the
Company's long-term compensation awards as performance-based compensation
excluded from the $1,000,000 limit. Because compensation under the Company's
stock incentive plans is currently excluded from the $1,000,000 limit under the
transition rules contained in the proposed Treasury regulations under OBRA and
none of the Company's executive officers has received other compensation that
could potentially exceed the applicable limits under OBRA, the Company has not
yet taken any action to qualify its stock incentive plans as performance-based
compensation.
<TABLE>
<S> <C> <C>
Charles V. Moore, Chairman James E. Poole Harold Roitenberg
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James E. Poole, who currently serves on the Compensation Committee of the
Board of Directors, served as President of the Company from October 1983 until
May 1984.
13
<PAGE> 16
PERFORMANCE GRAPH
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
SERVICE MERCHANDISE COMPANY, INC.
S & P MIDCAP 400 AND COMPOSITE INDEX AVERAGE
<TABLE>
<CAPTION>
SERVICE MER- COMPOSITE
MEASUREMENT PERIOD CHANDISE S&P MIDCAP INDEX AVERAGE
(FISCAL YEAR COVERED) COMPANY, INC. 400 INDEX
<S> <C> <C> <C>
1988 100.00 100.00 100.00
1989 140.62 135.54 127.70
1990 91.88 128.61 127.25
1991 201.57 193.03 207.44
1992 407.80 216.03 250.72
1993 281.24 246.17 243.22
</TABLE>
The above graph compares the performance of the Common Stock of Service
Merchandise Company, Inc. with that of the S & P MidCap 400 and a composite
index comprised of three published S & P retail group indices: Department
Stores, General Merchandise Chains and Specialty (the "Composite Index
Average"). The three groups include Dayton Hudson Corp., Dillard Department
Stores, May Department Stores, Mercantile Stores, Nordstrom, K Mart, J.C.
Penney, Sears, Roebuck & Company, Wal-Mart Stores, Woolworth Company, Circuit
City Stores, Home Depot, Lowe's, Melville Corp., Pep Boys -- Manny, Moe and
Jack, Blockbuster, Price/Costco Inc., Tandy Corp. and Toys R Us.
The comparison of total return on investment (change in year-end stock
price plus reinvested dividends) for each of the periods assumes that $100 was
invested on January 3, 1988 in each of Service Merchandise Company, Inc. Common
Stock, the S & P MidCap 400 and the Composite Index Average with investment
weighted on the basis of market capitalization.
14
<PAGE> 17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1990, The Service Merchandise Foundation, a private charitable
foundation (the "Foundation"), was formed, and thereafter, the Internal Revenue
Service approved the Foundation's application for tax-exempt status. As a
charitable contribution in 1990, the Company granted the Foundation an option to
purchase 1,875,000 shares of Common Stock at $2.20 per share, the market price
at that time. The option is exercisable in whole or in part from the date of
grant until October 15, 2000. Under applicable Internal Revenue Service rulings,
the stock option may not be exercised directly by the Foundation. The Foundation
may sell all or a part of the option to other not-for-profit third parties which
may then exercise the option directly. The Trustee of the Foundation is Raymond
Zimmerman, and the members of the Trust Committee administering the Foundation
(the "Committee") are Raymond Zimmerman, Arlene Zimmerman, S. P. Braud, III,
Joel Gordon and Harold Roitenberg, who may be deemed to control the disposition
of the option by virtue of their power to decide to whom to sell such option.
Each of the members of the Committee disclaims beneficial ownership of the
shares of Common Stock issuable upon exercise of the option.
The Company leases two store properties from Raymond Zimmerman and Service
Realty Company, Inc., a corporation whose sole shareholder is Raymond Zimmerman.
For the fiscal year ended January 1, 1994, Raymond Zimmerman and Service Realty
Company, Inc. received an aggregate of $111,000 on account of properties leased
to the Company. The Company believes the rentals paid and which may be paid
under these leases are and will be comparable to rentals paid by lessees of
similar properties in the same general locations, and the terms of such leases
are at least as favorable to the Company as could be obtained from unaffiliated
persons.
The Company is a party to split-dollar agreements covering $12,041,040 in
life insurance policies on the life of Raymond Zimmerman. Pursuant to these
agreements, the Company is the owner of the policies, pays the premiums of
approximately $115,296 per year and, upon the payment of the policy proceeds,
will receive, net of any tax liability, an amount equal to the aggregate
premiums paid by the Company. The remaining policy proceeds will be paid to Mr.
Zimmerman's designated beneficiaries. Mr. Zimmerman has no interest in the cash
surrender value of the policies. Either party may terminate the respective
agreements at any time on thirty days' written notice. See note (1) to the
Summary Compensation Table on page 7.
PROPOSAL NO. 2: APPROVAL OF DELOITTE & TOUCHE
AS INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche as independent
public accountants of the Company for the 1994 fiscal year, subject to approval
by the shareholders. Deloitte & Touche served as the Company's independent
public accountants for the fiscal year ended January 1, 1994. A representative
of Deloitte & Touche is expected to be present at the Annual Meeting with the
opportunity to make a statement if such representative so desires and will be
available to respond to appropriate questions.
15
<PAGE> 18
PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentation at the next
Annual Meeting of Shareholders of the Company and inclusion in the proxy
statement and form of proxy for such Meeting should forward such proposals to
Glen A. Bodzy, Vice President, General Counsel and Secretary, Service
Merchandise Company, Inc., P. O. Box 24600, Nashville, Tennessee 37202-4600.
Proposals must be in writing and must be received by the Company prior to
November 18, 1994. Proposals should be sent to the Company by certified mail,
return receipt requested.
By Order of the Board of Directors
GLEN A. BODZY,
Secretary
March 18, 1993
16
<PAGE> 19
PROXY SERVICE MERCHANDISE COMPANY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON WEDNESDAY, APRIL 20, 1994.
The undersigned hereby appoints Raymond Zimmerman and Glen A. Bodzy, and
each of them, as proxies, with full power of substitution, to vote all shares of
the undersigned as shown below on this proxy at the Annual Meeting of
Shareholders of Service Merchandise Company, Inc. to be held at the Company's
offices located at 7100 Service Merchandise Drive, Brentwood, Tennessee, on
Wednesday, April 20, 1994, at 10:00 a.m., local time, and any adjournments
thereof.
(1) PROPOSAL 1: ELECTION OF TWO CLASS II DIRECTORS:
/ / FOR both of the following nominees (except as indicated to the contrary
below):
CLASS II NOMINEES: R. Maynard Holt and James E. Poole
AGAINST the following nominee (please print name or names)
----------------
WITHHOLD AUTHORITY (ABSTAIN) to vote for the following nominee (please print
name or names)
----------------------------------------------------------------------------
/ / AGAINST both nominees
/ / WITHHOLD AUTHORITY (ABSTAIN) to vote for both nominees
(2) PROPOSAL 2: APPROVAL OF DELOITTE & TOUCHE AS INDEPENDENT PUBLIC ACCOUNTANTS.
/ / FOR / / AGAINST / / ABSTAIN
(3) IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
IMPORTANT: PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE.
Your shares will be voted in accordance with your instructions. If no choice
is specified, shares will be voted FOR the Class II director nominees in the
election of directors and FOR the approval of Deloitte & Touche.
Date: , 1994. PLEASE SIGN HERE AND RETURN
------------------- PROMPTLY
---------------------------
---------------------------
Please sign exactly as your name
appears at left. If registered in
the names of two or more persons,
each should sign. Executors,
administrators, trustees,
guardians, attorneys, and corporate
officers should show their full
titles.
- --------------------------------------------------------------------------------
If you have changed your address, please PRINT your new address on this line.
