PATHMARK STORES INC, 10-K, 1998-04-28

PATHMARK STORES INC
10-K, 1998-04-28
GROCERY STORES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended Commission File Number
January 31, 1998 1-5287
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Pathmark Stores, Inc.
(Exact name of registrant as specified in its charter)

DELAWARE 22-2879612
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

200 Milik Street 07008
Carteret, New Jersey (Zip Code)
(Address of principal executive offices)

(732) 499-3000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:

Title of each Class Name of exchange on which registered
Junior Subordinated Deferred New York Stock Exchange
Coupon Notes due 2003

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /

As of April 1, 1998, there were outstanding 100 shares of Common Stock,
$0.10 par value, all of which are privately owned and not traded on a public
market.

Documents Incorporated by Reference: None

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PART I

ITEM 1. Business*
General

The predecessor of the registrant was incorporated in the state of
Delaware in June 1987 as a wholly owned subsidiary of Supermarkets General
Holdings Corporation ("Holdings"). In October 1987, Holdings acquired
Supermarkets General Corporation ("SGC"). In 1990, SGC was merged into the
registrant and the registrant retained the name SGC. In connection with the
1993 recapitalization referred to below, the registrant changed its name from
SGC to Pathmark Stores, Inc. ("Pathmark" or the "Company").

Pathmark consummated a recapitalization plan (the "Recapitalization") on
October 26, 1993. In connection with the Recapitalization, its former parent,
Holdings, transferred all of the capital stock of Pathmark to PTK Holdings,
Inc. ("PTK"), a then newly formed, wholly owned subsidiary of Holdings. PTK
was incorporated in the State of Delaware in 1993 and owns 100% of the
capital stock of Pathmark.

During the fiscal year ended February 1, 1997 ("Fiscal 1996"), the Company
reported that it had decided to divest 12 supermarkets located in its southern
region. During the course of the fiscal year ended January 31, 1998 ("Fiscal
1997"), the Company sold or closed 11 of the 12 stores held for divestiture and
decided to continue to operate the remaining store.

On June 30, 1997, the Company entered into a new $500 million bank credit
agreement (the "Credit Agreement") with a group of lenders led by The Chase
Manhattan Bank. The Credit Agreement includes a $300 million term loan (the
"Term Loan") and a $200 million working capital facility (the "Working Capital
Facility"). The Company repaid in full the former term loan and former working
capital facility with the borrowings obtained under the Credit Agreement.

Under the Credit Agreement, the Term Loan and Working Capital Facility bear
interest at floating rates, ranging from LIBOR plus 2.25% to LIBOR plus 2.50%.
The Company is required to repay a portion of its borrowings under the Term Loan
each year so as to retire such indebtedness in its entirety by December 15,
2001. Under the Working Capital Facility, which expires on June 15, 2001, the
Company can borrow or obtain letters of credit in an aggregate amount not to
exceed $200 million, of which the maximum of $125 million can be in letters of
credit. In addition, pursuant to a Permitted Subordinated Debt Refinancing (as
defined in the Credit Agreement), the Working Capital Facility and a portion of
the Term Loan can be extended up to an additional two and one-half years
and the remainder of the Term Loan can be extended up to an additional three
and one-half years from the original expiration dates.

The Credit Agreement contains certain covenants, including financial
covenants concerning levels of operating cash flow, minimum interest and rent
expense coverage, maximum leverage ratio, maximum senior debt leverage ratio,
maximum consolidated rental payments and maximum capital expenditures. The
Credit Agreement also contains other covenants including, but not limited to,
covenants with respect to the following matters: (i) limitation on indebtedness;
(ii) limitation on liens; (iii) restriction on mergers (iv) restriction on
investments, loans, advances, guarantees and acquisitions; (v) restriction on
assets sales and sale/leaseback transactions; (vi) restriction on certain
payments of indebtedness and incurrence of certain agreements, and (vii)
restriction on transactions with affiliates.

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* Except as otherwise indicated, information contained in this Item is given as
of January 31, 1998.

<PAGE>

Business

At January 31, 1998, Pathmark operated 135 supermarkets primarily in the
densely populated New York-New Jersey and Philadelphia metropolitan areas. These
metropolitan areas contain over 10% of the population and grocery sales in the
United States. These supermarkets are located in New Jersey, New York,
Pennsylvania, Delaware and Connecticut and consist of 5.2 million selling square
footage and 7.1 million total square footage.

Business Strategy

Pathmark's business strategy is to increase sales, profitability and market
penetration in its existing markets by focusing on the following five operating
priorities: concentrate on core business, Pathmark "GREAT" service, lower
operating costs, spend capital wisely and have the right management team. By
concentrating on and implementing these five priorities, the Company expects to
accomplish its strategic goals (i) by providing superior perishable and
non-perishable merchandise, value and service to its customers through its
marketing, merchandising and customer service programs; (ii) through increased
operating efficiencies; and (iii) through efficient use of capital to renovate
and enlarge its existing store base.

Marketing and Merchandising

- Super Center Format. Of Pathmark's 135 stores, 132 are Super Centers. The
average Pathmark Super Center is approximately 39% larger than the average
size supermarket in the United States and offers greater convenience by
providing one-stop shopping and a wider assortment of foods and general
merchandise than is offered by conventional supermarkets. The Pathmark
Super Center format is designed to provide Pathmark customers with a
substantially greater selection of quality perishable products and to be
more "customer friendly", with wider aisles, more accessible customer
service and information departments, improved signs and graphics, and
increased availability of Pathmark associates, particularly in the
perishable departments. All of Pathmark's new supermarkets and enlargements
completed in Fiscal 1997 were Super Centers and Pathmark expects that all
new stores and enlargements thereafter will employ the same concept.

- Flexible Merchandising. Pathmark believes that its large-store format gives
it considerable flexibility to respond to changing consumer demands and
competition by varying and enhancing its merchandise selection. Pathmark's
"Big Deals" program, currently consisting of over 500 merchandise items,
offers large-sized merchandise at prices that Pathmark believes are
competitive with those available in "warehouse" and "club" stores. Pathmark
emphasizes competitive pricing plus weekly sales and

2
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promotions supported by extensive advertising, primarily in print media.
Merchandising flexibility and effectiveness is enhanced through the
increased utilization of a category management approach. In addition,
Pathmark offers for sale over 3,000 items through its private label
program.

- Pharmacy. Pathmark provides full pharmacy services in virtually all of its
stores. Pathmark's broad market coverage within its marketing area has
enabled it to become a leading filler of third-party prescriptions.
Pathmark believes that its well-established pharmacy operations provide a
competitive advantage in attracting and retaining customers.

Store Expansion and Renovation Program

- New Stores, Enlargements and Renovations. During Fiscal 1997, Pathmark
opened two new Pathmark Super Centers, closed 11 other stores, and
completed five renovations and eight enlargements. During the fiscal year
ending January 30, 1999 ("Fiscal 1998"), Pathmark plans to open up to two
new Super Centers and to complete up to an aggregate of 19 renovations and
enlargements.

- Pathmark recognizes the importance of keeping its stores looking fresh and
up-to-date; thus, each store typically receives a renovation or enlargement
every five years. At the end of Fiscal 1997, Pathmark derived approximately
77% of its supermarket sales from stores that were opened, enlarged or
renovated during the last five years.

- Core Market Focus. Pathmark has identified over 50 potential locations for
new supermarkets within its current marketing areas and expects that all
new stores opened during the current and next two fiscal years will be
located in these areas. Pathmark believes that, by opening stores in its
current marketing areas, it can achieve additional operating economies and
other benefits from its store expansion program without the risks and costs
associated with opening stores in new marketing areas.

Operating Efficiencies

- Technology. Pathmark has made a significant and continuing investment in
information technology. All Pathmark supermarket checkout terminals have
third-generation IBM 4680 scanner systems supported by a RISC 6000
application processor in each store. These systems allow consumer credit
and electronic fund transfer ("EFT") transactions, greatly facilitate
system-wide promotion and merchandising programs, and improve the speed and
control of consumer transactions. In addition, all Pathmark supermarkets
utilize radio frequency technology for direct vendor receivings and shelf
labels.

- Cost Reduction. The Company is continuously evaluating its operations in an
effort to reduce operating costs consistent with its overall objective of
providing a high level of customer service. During Fiscal 1997, the Company
took several steps to accomplish this goal. The Company closed or sold 11
stores, which had experienced unprofitable operating results. The Company
reevaluated its merchandise distribution methods, resulting in decisions to
outsource its trucking business and hire a trucking company to meet its
transportation needs, to outsource its pharmacy merchandise requirements to
a drug wholesaler, and to sell its grocery, frozen and perishable
distribution centers to and enter into a 15 year supply arrangement with
C&S, thereby lowering the Company's distribution costs (see Item 1 -
Business - Supply and Distribution).

<PAGE>

- Demographic and Geographic Concentration. The Company's stores serve
densely populated communities. In addition, all Pathmark supermarkets are
located within 100 miles of its corporate headquarters in Carteret, New
Jersey and the principal warehousing facilities that serve them. The high
population density, as well as the geographic concentration of stores,
provide substantial economy of scale opportunities.

Pathmark Supermarkets

Pathmark operated 135 supermarkets at January 31, 1998. Super Centers
accounted for approximately 98% of Pathmark's supermarket sales for Fiscal 1997.
The following table presents selected data reflecting supermarket sales and
stores for the last five fiscal years.

Fiscal Years
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1997 1996 1995(a) 1994 1993
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<S> <C> <C> <C> <C> <C>
(Dollars in millions)
Supermarket sales................................. $ 3,692 $ 3,701 $ 3,853 $ 3,785 $3,839
Average sales per Supermarket(b).................. 27.5 26.1 26.4 25.9 25.4
Number of Supermarkets:
Renovations(c).............................. 5 16 14 14 12
Enlargements(d)............................. 8 5 4 11 5
Opened...................................... 2 4 5 4 4
Closed...................................... 11 4 4 6 5
Type of Supermarket(e):
Super Center................................ 132 139 139 137 138
Conventional................................ 3 5 5 6 7
Total Supermarkets Open at Year End......... 135 144 144 143 145
</TABLE>

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(a) Fiscal 1995 was a 53-week year.
(b) Computed on the basis of aggregate sales of stores open for the full year,
based on a 52-week period.
(c) Renovations involve an investment of $400,000 or more and in Fiscal 1997
averaged over $1.0 million per store.
(d) Enlargements involve the addition of selling space and in Fiscal 1997
averaged an investment in excess of $3.5 million.

(e) Includes two stores not wholly owned. The sales figures for these stores
are not included above.

By industry standards, Pathmark stores are large and productive, averaging
approximately 52,500 square feet in size and generating high average sales
volume of approximately $27.5 million per store ($712 per selling square foot)
for stores open for all of Fiscal 1997. Pathmark's 135 supermarkets at January
31, 1998 ranged from 26,008 to 66,463 square feet in size and included 126
supermarkets that are 40,000 square feet or larger in size. All Pathmark stores
carry a broad variety of food and drug store products, including an extensive
variety of the Pathmark, No Frills and Pathmark Preferred brands. All but five
supermarkets contained in-store pharmacy departments at the end of Fiscal 1997.

Pathmark pioneered the development of the large "superstore" in the Middle
Atlantic States, opening the first "Pathmark Super Center" in 1977, and
currently operates 132 such stores. The majority of Super Centers were created
through the enlargement or renovation of existing stores. In addition to the
broad variety of food and non-food items carried in conventional Pathmark
stores, a typical Super Center includes a customer service center, videotape
rental, a pharmacy, expanded produce department, meat department, cheese shop,
bakery, seafood, service delicatessen department and expanded health and beauty
care department. All Super Centers have EFT and credit transaction capability at
their checkout terminals, and 77 supermarkets also feature in-store automated
teller machines. During Fiscal 1996, the Company entered into master licensing
agreements with two regional banking institutions to place up to 98

<PAGE>

in-store banks in Pathmark supermarkets over the next two years. Each bank,
which occupies approximately 400 square feet, offers a full array of
financial services and is open seven days a week. The license agreements have
an initial term of five years with optional renewal periods. At the close of
Fiscal 1997, 58 stores had in-store banks and Pathmark expects to have 36
additional in-store banks by the end of Fiscal 1998.

Over the past several years, Pathmark stores have been designed to be more
"customer friendly", with wider aisles, more accessible customer service and
information departments, improved signs and graphics, and increased availability
of Pathmark associates. For example, Pathmark has introduced "GREAT" service, a
customer service program emphasizing proactive, inter-personal communication
between store associates and customers. All of Pathmark's new supermarkets and a
majority of supermarket enlargements completed in Fiscal 1997 were Super Centers
and Pathmark expects that virtually all new stores and enlargements will employ
the same concept.

Pathmark's supermarket business is generally not seasonal, although sales in
the second and fourth quarters tend to be slightly higher than those in the
first and third quarters.

Store Expansion and Renovation Program

A key to Pathmark's business strategy has been, and will continue to be, the
expansion of the total selling square footage of its operations. Pathmark
believes, that by adding new stores and increasing the selling area of existing
stores, it can improve its competitive position and operating margins by
achieving economies of scale in merchandising, advertising, distribution and
supervision. During the five years ending with Fiscal 1997, Pathmark completed
94 renovations and enlargements and opened 19 new supermarkets. At the close of
Fiscal 1997, sales in these stores accounted for approximately 77% of its total
supermarket sales. Pathmark currently expects to open up to two non-replacement
Pathmark Super Centers and to complete up to 19 renovations and enlargements
during Fiscal 1998.

Advertising and Promotion

As part of its marketing strategy, Pathmark emphasizes value through its
competitive pricing and weekly sales and promotions supported by extensive
advertising. Additional savings are offered each week from Pathmark "super
coupons" in newspapers and circulars. Pathmark's advertising expenditures are
concentrated on print advertising, including advertisements and circulars in
local and area newspapers and advertising flyers distributed in stores, and
radio. Several years ago, Pathmark introduced "Smart Coupons" in its
advertisements. With "Smart Coupons", customers no longer are required to cut
out Pathmark coupons from its advertisement and physically present them at the
cash registers. Rather, when a coupon item is scanned during the check-out
process, the coupon savings is automatically deducted from the price. Pathmark
believes that its "Smart Coupons" greatly convenience its customers and improve
customer service at the checkout.

Consumer Research

Pathmark conducts numerous ongoing and special consumer research projects.
These typically involve customer surveys (both in-store and by telephone) as
well as focus groups. The information derived from these projects is used to
evaluate consumers' attitudes and purchasing patterns and helps shape Pathmark's
marketing programs.

<PAGE>

Technology

Pathmark has made a significant and continuing investment in information
technology. All Pathmark supermarket checkout terminals have IBM 4680 scanner
systems supported by a RlSC 6000 application processor in each store. These
systems allow consumer credit and EFT transactions, greatly facilitate
system-wide promotion and merchandising programs, and improve the speed and
control of customer transactions. This technology and the data generated by
scanning have not only led to lower labor costs, improved price control and
shelf allocation, and quicker customer check-out, but have also assisted in the
analysis of product movement, profit contribution and demographic merchandising.
Pathmark also has a computer-assisted ordering system that enables it to
replenish inventory to avoid "out of stocks" at store level while maintaining
optimum overall inventory levels. In addition, all Pathmark supermarkets utilize
radio frequency technology for direct vendor receivings and shelf labels.

All of the pharmacies are equipped with pharmacy computers. In addition to
improving customer service, these computers aid pharmacists in detecting drug
interactions, improve the collection of third-party receivables and help to
attract third-party businesses, such as health maintenance organizations and
union welfare plans.

In August 1991, Pathmark entered into a ten year facilities management and
systems integration agreement with IBM Company. Under the agreement, IBM has
taken over Pathmark's data center operations, mainframe processing and
information system functions and is providing business applications and systems
designed to enhance Pathmark's customer service and efficiency.

Supply and Distribution

During the third quarter of Fiscal 1997, the Company decided to outsource
its trucking operations and retained a local trucking company to provide the
requisite trucking services. Management believes that the outsourcing
arrangement will result in lower transportation costs to the Company.

Beginning in January 1998, the Supply Agreement with C&S commenced. Under
the Supply Agreement, C&S supplies to the Company and distributes from the
Facilities substantially all of the grocery, frozen and perishable (includes
meat, produce, seafood and delicatessen items) merchandise formerly owned and
warehoused by the Company. Management believes that the Supply Agreement with
C&S enhances the Company's ability to offer consistently fresh and high quality
products to its customers at a reduced distribution cost to the Company. Prior
to the Supply Agreement, products purchased for resale by the Company were
purchased directly from a large group of unaffiliated suppliers, including large
consumer products companies.

The Company continues to operate a 266,000 square foot leased general
merchandise, health and beauty care products and tobacco distribution center in
Edison, New Jersey (the "GMDC"), which opened in 1980. During Fiscal 1997, the
Company outsourced its pharmacy merchandise distribution requirements to a
pharmaceutical wholesaler. In addition, Chefmark Inc., an affiliate of the
Company, owns and operates a 16,000 square foot commissary in Somerset, New
Jersey (the "Chefmark Facility") in which high quality cooked meat products and
salads are prepared for sale and supplied to the Company for sale in the
Company's delicatessen departments. The Chefmark Facility opened in 1976.

Prior to the Supply Agreement with C&S, the Company operated, in addition to
the GMDC and Chefmark Facility, four distribution centers and a banana ripening
facility, aggregating approximately 1.3 million square feet.

<PAGE>

In addition to reducing the Company's distribution and transportation costs,
management believes that the logistics outsourcing will enhance its ability to
better concentrate on the core business of the Company.

Competition

The supermarket business is highly competitive and is characterized by high
asset turnover and narrow profit margins. Pathmark's earnings are primarily
dependent on the maintenance of relatively high sales volume per supermarket,
efficient product purchasing and distribution, and cost-effective store
operating and distribution techniques. Pathmark's main competitors are national,
regional and local supermarkets, drug stores, convenience stores, discount
merchandisers, "warehouse" and "club" stores and other local retailers in the
areas served. Principal competitive factors include price, store location,
advertising and promotion, product mix, quality and service.

Trade Names, Service Marks and Trademarks

Pathmark has registered a variety of trade names, service marks and
trademarks with the United States Patent and Trademark Office, each for an
initial period of 20 years, renewable for as long as the use thereof continues.
Pathmark considers its Pathmark service marks to be of material importance to
its business and actively defends and enforces such service marks.

Regulation

Pathmark's food and drug business requires it to hold various licenses and
to register certain of its facilities with state and federal health, drug and
alcoholic beverage regulatory agencies. By virtue of these licenses and
registration requirements, Pathmark is obligated to observe certain rules and
regulations, and a violation of such rules and regulations could result in a
suspension or revocation of the licenses or registrations. In addition, most of
Pathmark's licenses require periodic renewals. Pathmark has experienced no
material difficulties with respect to obtaining, effecting or retaining its
licenses and registrations.

Employees

At January 31, 1998, the Company employed approximately 28,000 people, of
whom approximately 20,500 were employed on a part-time basis.

Approximately 88% of the Company's employees are covered by 18 collective
bargaining agreements (typically having three or four year terms) negotiated
with approximately 15 different local unions. During Fiscal 1998, eight
contracts, covering approximately 13,000 Pathmark associates in approximately
90% of the stores and approximately 130 associates in GMDC, will expire. The
Company does not anticipate any difficulty in renegotiating these contracts.

The Company believes that its relationship with its employees is generally
satisfactory.

ITEM 2. Properties**

Reference is made to the answer to Item 1, "Business" of this report for
information concerning the states in which the Company's supermarkets and
distribution facilities are located. See "Business of Pathmark-Supply and
Distribution" in Item 1 of this report for information concerning the Company's
distribution facilities.

<PAGE>

Pathmark's 135 supermarkets have an aggregate selling area of approximately
5.2 million square feet. Eighteen of the supermarkets are owned by Pathmark and
the remaining 117 are leased. These supermarkets are either freestanding stores
or are located in shopping centers. Twenty-nine leases expire during the current
and next four calendar years and Pathmark has options to renew all of them.

Pathmark leases its corporate headquarters in Carteret, NJ in premises
totaling approximately 150,000 square feet in size.

Most of the facilities owned by Pathmark are owned subject to mortgages.
Pathmark plans to acquire leasehold or fee interests in any property on which
new stores or other facilities are opened and will consider entering into
sale/leaseback or mortgage transactions with respect to owned properties if
Pathmark believes such transactions are financially advantageous.

ITEM 3. Legal Proceedings

The Company is a party to a number of legal proceedings in the ordinary
course of business. Management believes that the ultimate resolution of these
proceedings will not, in the aggregate, have a material adverse impact on the
financial condition, results of operations or business of the Company.

ITEM 4. Submission of Matters to a Vote of Security Holders.

None.

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** Except as otherwise indicated, information contained in this Item is given as
of January 31, 1998.

8
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PART II

ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters (as of April 1, 1998)

All of registrant's outstanding Common Stock is held by PTK and not traded
on the public market. All of PTK's outstanding common stock is held by Holdings.
All of Holdings outstanding common stock is held by SMG-II Holdings Corporation
("SMG-II").

The authorized preferred stock of Holdings consists of 9,000,000 shares of
$3.52 Cumulative Exchangeable Redeemable Preferred Stock, of which 4,890,671
shares were issued and outstanding at April 1, 1998 (the "Exchangeable Preferred
Stock"). The Exchangeable Preferred Stock has a liquidation preference of $25
per share and its terms provide for cumulative quarterly dividends at an annual
rate of $3.52 per share, when as, and if declared by the Board of Directors of
Holdings.

The Exchangeable Preferred Stock is non-voting, except that if an amount
equal to six quarterly dividends is in arrears in whole or in part, the holders
thereof, voting as a class, are entitled to elect an additional two members of
the board of directors of Holdings. Holdings is currently in arrears on payment
of more than six quarterly dividends on the Exchangeable Preferred Stock and
does not expect to receive cash flow sufficient to permit payments of dividends
on the Exchangeable Preferred Stock in the foreseeable future. The holders of
the Exchangeable Preferred Stock reelected two persons to Holdings' Board of
Directors at Holdings' 1997 annual meeting.

The authorized capital stock of SMG-II consists of 3,000,000 shares of
SMG-II Class A Common Stock, 3,000,000 shares of SMG-II Class B Common Stock, of
which 672,476 and 320,000 shares, respectively, were issued and outstanding at
April 1, 1998, and 4,000,000 shares of SMG-II Preferred Stock, of which
1,500,000 shares are designated SMG-II Series A Preferred Stock, 1,500,000
shares are designated SMG-II Series B Preferred Stock, and 33,520 shares are
designated SMG-II Series C Preferred Stock (the three series of Preferred Stock
hereinafter collectively referred to as "SMG-II Preferred Stock").

At April 1, 1998, there were outstanding 236,731 shares of SMG-II Series A
Preferred Stock, 180,769 shares of SMG-II Series B Preferred Stock and 8,520
shares of SMG-II Series C Preferred Stock.

SMG-II's capital stock is held beneficially as follows: (i) SMG-II Class A
Common Stock by approximately 55 holders, including six affiliates of Merrill
Lynch & Co., Inc. (The "ML Common Investors"), Chemical Investments, Inc.
("CII"), an affiliate of Chase Manhattan Corp., and 48 current and former
members of the Company's management or their heirs (the "Management Investors");
(ii) SMG-II Series A Preferred Stock by five affiliates of Merrill Lynch & Co.,
Inc. (the "ML Preferred Investors", the ML Common Investors and ML Preferred
Investors hereinafter collectively referred to as the "ML Investors"); (iii)
SMG-II Class B Common Stock held by three holders, including CII, The Equitable
Life Assurance Society of the United States ("Equitable") and an affiliate of
Equitable (collectively, the "Equitable Investors"); (iv) SMG-II Series B
Preferred Stock held by three holders, including CII and the Equitable
Investors; and (v) SMG-II Series C Preferred Stock held by one Management
Investor. Holders of shares of SMG-II Class A Common Stock are entitled to one
vote per share on all matters to be voted on by stockholders. Holders of shares
of SMG-II Class B Common Stock are not entitled to any voting rights, except as
required by law or as otherwise provided in the Restated Certificate of
Incorporation of SMG-II. Subject to compliance with certain procedures, holders
of shares of SMG-II Class B Common Stock may exchange their shares for shares of
SMG-II Class A Common Stock and holders of shares of SMG-II Class A Common Stock
may exchange their shares for shares of SMG-II Class B Common Stock, in each
case on a share-for-shares basis. All holders of SMG-II capital stock are
parties to a Stockholders Agreement dated as of February 4, 1991, as amended,
with SMG-II (the "Stockholders Agreement").

9
<PAGE>

SMG-II Preferred Stock has a stated value and liquidation preference of $200
per share and bears dividends at the rate of 10% of the stated value per annum,
payable annually. At the option of SMG-II, dividends are payable in cash or may
accumulate (and the amount thereof shall compound annually).

Holders of shares of SMG-II Series A Preferred Stock and SMG-II Series C
Preferred Stock are entitled to one vote per share of SMG-II Class A Common
Stock into which such SMG-II Series A Preferred Stock and SMG-II Series C
Preferred Stock are convertible on all matters to be voted on by SMG-II
stockholders, subject to increase to 1.11 votes per share upon the occurrence of
certain events. Holders of shares of SMG-II Series B Preferred Stock are
entitled to one vote per share of SMG-II Class B Common Stock into which such
SMG-II Series B Preferred Stock is convertible for the purpose of voting on any
consolidation or merger, sale, lease or exchange of substantially all of the
assets or any liquidation, dissolution or winding up, of SMG-II. Additionally,
holders of SMG-II Preferred Stock have separate voting rights with respect to
alteration in the voting powers, rights and preferences and certain other terms
affecting the SMG-II Preferred Stock. Subject to compliance with certain
procedures, holders of SMG-II Series B Preferred Stock may exchange their shares
for shares of SMG-II Series A Preferred Stock and holders of SMG-II Series A
Preferred Stock may exchange their shares for shares of SMG-II Series B
Preferred Stock, on a share-for-share basis. Each series of SMG-II Preferred
Stock ranks pari passu with each other series.

At the option of the holder, SMG-II Preferred Stock is convertible into
SMG-II Common Stock at any time, on or prior to the occurrence of certain
events, including an initial public offering of in excess of 25% of the number
of outstanding shares of common stock of SMG-II, at a conversion ratio of one
share of the corresponding class of SMG-II Common Stock for each share of SMG-II
Preferred Stock, subject to adjustment upon the occurrence of certain events.

Holders of SMG-II Preferred Stock are party with the holders of SMG-II
Common Stock to the Stockholders Agreement which, among other things, restricts
the transferability of SMG-II capital stock and relates to the corporate
governance of SMG-II. None of SMG-II's capital stock is publicly traded on any
market. See Item 12, "Security Ownership of Certain Beneficial Owners and
Management."

The payment of dividends to the holders of registrant's Common Stock is
prohibited under the Credit Agreement and subject to restrictions in its other
debt instruments. During Fiscal 1996 and Fiscal 1997, the Company paid no
dividends to its sole stockholder. The Company does not currently anticipate
paying dividends during Fiscal 1998.

10
<PAGE>

ITEM 6. Selected Financial Data

The following table represents selected financial data for the last five
fiscal years and should be read in conjunction with the Company's Consolidated
Financial Statements in Item 8 of this report.

PATHMARK STORES, INC.
SUMMARY OF OPERATIONS AND FINANCIAL HIGHLIGHTS
(in millions)

Fiscal Years(a)
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>

Sales..................................................... $3,696 $3,710 $3,972 $3,968 $4,021
Cost of sales (exclusive of depreciation and
amortization shown separately below)................... 2,652 2,619 2,838 2,866 2,952
------- ------- -------- ------- ------

Gross profit.............................................. 1,044 1,091 1,134 1,102 1,069
Selling, general and administrative expenses.............. 841 857 866 851 837
Depreciation and amortization(b).......................... 84 89 80 75 70
Restructuring charge(c)................................... -- 9 -- -- --
Lease commitment charge(d)................................ -- 9 -- -- --
Gain on disposition of freestanding drug stores(e)........ -- -- 16 -- --
Recapitalization expense(f)............................... -- -- -- -- 17
Provision for store closings(g)........................... -- -- -- -- 6
------- ------- -------- ------- ------

Operating earnings........................................ 119 127 204 176 139
Interest expense, net(h).................................. (164) (161) (165) (148) (172)
------- ------- -------- ------- ------

Earnings (loss) from continuing operations before income
taxes, gain on disposal of home centers segment,
extraordinary items and cumulative effect of
accounting changes....................................... (45) (34) 39 28 (33)
Income tax benefit (provision)............................ 17 14 (6) (4) 20
------- ------- -------- ------- ------

Earnings (loss) from continuing operations before gain on disposal of home
centers segment, extraordinary
items and cumulative effect of accounting changes........ (28) (20) 33 24 (13)
Loss from discontinued operations......................... -- -- -- (2) --
Gain on disposal of home centers segment, net of tax(i)... -- -- -- 17 --
------- ------- -------- ------- ------

Earnings (loss) before extraordinary items and cumulative
effect of accounting changes............................. (28) (20) 33 39 (13)
Extraordinary items, net of tax(j)........................ (8) (1) -- -- (97)
------- ------- -------- ------- ------

Earnings (loss) before cumulative effect of accounting
changes................................................ (36) (21) 33 39 (110)
Cumulative effect of accounting changes, net of tax(k).... -- -- -- -- (38)
------- ------- -------- ------- ------

Net earnings (loss)....................................... $ (36) $ (21) $ 33 $ 39 $ (148)
------- ------- -------- ------- ------
------- ------- -------- ------- ------

Ratio of earnings to fixed charges(l)..................... -- -- 1.22x 1.17x --
------- ------- -------- ------- ------
------- ------- -------- ------- ------

Deficiency in earnings available to cover fixed charges(m) $ 45 $ 34 $ -- $ -- $ 33
------- ------- -------- ------- ------
------- ------- -------- ------- ------

</TABLE>

Balance Sheet Data:
Total assets...................................... $ 900 $ 990 $ 986 $1,018 $1,119
Working capital deficiency........................ 109 182 173 122 107
Lease obligations, long-term...................... 170 175 140 127 132
Long-term debt, net of current maturities......... 1,178 1,186 1,215 1,273 1,286
Stockholder's deficiency.......................... 1,077 1,042 1,024 1,030 1,001
</TABLE>

(footnotes on following page)

11
<PAGE>

PATHMARK STORES, INC.
NOTES TO SUMMARY OF OPERATIONS AND FINANCIAL HIGHLIGHTS

(a) The Company's fiscal year ends on the Saturday nearest to January 31 of
the following calendar year. Fiscal years consist of 52 weeks, except for
53 weeks in Fiscal 1995.
(b) Fiscal 1996 depreciation and amortization includes a $5 million pretax
charge to write down certain fixed assets held for sale to their
estimated net realizable values. See Note 6 of the Notes to Consolidated
Financial Statements at Item 8, Part II of this Form 10-K.
(c) During Fiscal 1996, the Company recorded a pretax charge of $9 million
for reorganization and restructuring costs related to its administrative
operations. See Note 18 of the Notes to Consolidated Financial Statements
at Item 8, Part II of this Form 10-K.
(d) During Fiscal 1996, the Company recorded a pretax charge of $9 million
related to unfavorable lease commitments of certain unprofitable stores
in the Company's southern region. See Note 19 of the Notes to
Consolidated Financial Statements at Item 8, Part II of this Form 10-K.
(e) During Fiscal 1995, the Company recorded a pretax gain of $16 million
related to the disposition of its freestanding drug stores. See Note 20
of the Notes to Consolidated Financial Statements at Item 8, Part II of
this Form 10-K.
(f) In connection with the Recapitalization in Fiscal 1993, the Company
recorded a pretax charge of $17 million related to reorganization and
restructuring costs.
(g) During Fiscal 1993, the Company closed or disposed of five stores and
recorded a pretax charge of $6 million.
(h) Prior to Fiscal 1995, interest expense was net of interest charged to
discontinued operations.
(i) During Fiscal 1994, the Company sold its home centers segment, which
resulted in a gain on sale of $17 million, net of $2 million of income
taxes.
(j) During Fiscal 1997, the Company recorded an extraordinary charge of $8
million, net of an income tax benefit of $5 million and during Fiscal
1996, the Company recorded an extraordinary charge of $1 million, net of
an income tax benefit, both related to the early extinguishment of debt.
See Note 17 of the Notes to Consolidated Financial Statements at Item 8,
Part II of this Form 10-K. During Fiscal 1993, in connection with the
Recapitalization, the Company recorded an extraordinary charge of $97
million, net of an income tax benefit of $15 million, related to the
early extinguishment of debt.
(k) The cumulative effect of accounting changes in Fiscal 1993 of $38
million, net of an income tax benefit of $28 million, reflects the
adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions";
the adoption of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits"; the change in the
method utilized to calculate last-in, first-out (LIFO) inventories; and
the change in the determination of the discount rate utilized to record
the present value of certain noncurrent liabilities. All of the
accounting changes were made as of the beginning of Fiscal 1993.
(l) For the purpose of this calculation, earnings before fixed charges
consist of earnings from continuing operations before income taxes plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness (including amortization of deferred debt issuance costs) and
the portion of operating lease rental expense that is representative of
the interest factor (deemed to be one-third of operating lease rentals).
(m) For purposes of determining the deficiency in earnings available to cover
fixed charges, earnings are defined as earnings (loss) from continuing
operations before income taxes plus fixed charges. Fixed charges consist
of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the portion of operating lease rental
expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals).

12
<PAGE>

ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The matters discussed herein, with the exception of historical information,
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. Potential risks and uncertainties include, but are
not limited to, the competitive environment in which the Company operates and
the general economic conditions in the Company's trading areas.

Results of Operations

Fiscal 1997 v. Fiscal 1996

Sales: Sales in Fiscal 1997 were $3.70 billion compared to $3.71
billion in the prior year, a decrease of 0.4%. Same store sales increased
0.8% for the year. Sales in Fiscal 1997 compared to Fiscal 1996 were also
impacted by new store openings and remodels, offset by sold and closed
stores. During Fiscal 1997, the Company opened two new Pathmark stores,
completed 13 major renovations and enlargements to existing supermarkets, and
sold four and closed seven stores. The Company operated 135 and 144
supermarkets at the end of Fiscal 1997 and Fiscal 1996, respectively.

Gross Profit: Gross profit in Fiscal 1997 was $1.04 billion or 28.2% of
sales compared to $1.09 billion or 29.4% of sales for the prior year. The
decrease in gross profit in both dollars and as a percentage of sales for Fiscal
1997 compared to the prior year was due to the promotional pricing program
introduced during the first quarter of Fiscal 1997, as well as the
pre-Thanksgiving holiday promotions during the third quarter of Fiscal 1997. The
cost of goods sold comparisons were impacted by a pretax LIFO credit of $5.4
million and $1.3 million in Fiscal 1997 and Fiscal 1996, respectively. The
pretax LIFO credit for Fiscal 1997 includes a $2.0 million gain on a LIFO
liquidation related to the sale of the Company's pharmaceutical warehouse
inventory and a $0.8 million gain on a LIFO liquidation related to the sale of
the Company's grocery, frozen and perishable merchandise in connection with the
C&S Supply Agreement (see Note 3 of the Notes to the Consolidated Financial
Statements at Item 8, Part II of this Form 10-K).

Selling, General and Administrative Expenses ("SG&A"): SG&A in Fiscal 1997
decreased $16.4 million or 1.9% compared to the prior year. As a percentage of
sales, SG&A was 22.8% in Fiscal 1997, down from 23.1% in the prior year. The
decrease in SG&A as a percentage of sales in Fiscal 1997 compared to the prior
year was primarily due to lower administrative, advertising, claims and
utilities expenses, partially offset by higher store labor expenses.

Depreciation and Amortization: Depreciation and amortization of $83.4
million in Fiscal 1997 was $5.6 million lower than the prior year of $89.0
million. The decrease in depreciation and amortization expense in Fiscal 1997
compared to the prior year was primarily due to a pretax charge of $5.4 million
in Fiscal 1996 to write down fixed assets held for sale, principally in the
Company's southern region, partially offset by capital expenditures in Fiscal
1997. Depreciation and amortization excludes video tape amortization, which is
recorded in cost of goods sold, of $3.4 million and $3.1 million in Fiscal 1997
and Fiscal 1996, respectively.

Operating Earnings: Operating earnings in Fiscal 1997 were $119.3 million
compared to the prior year of $127.1 million. The decrease in operating earnings
in Fiscal 1997 compared to the prior year was primarily due to lower gross
profit, partially offset by lower SG&A and depreciation expense in Fiscal 1997
and the restructuring charge and the lease commitment charge in Fiscal 1996.

13
<PAGE>

Interest Expense: Interest expense was $164.2 million in Fiscal 1997
compared to $161.5 million in the prior year. The increase in interest expense
in Fiscal 1997 compared to the prior year was primarily due to increases in
lease obligations and the debt accretion on the Deferred Coupon Notes, partially
offset by lower amortization of debt issuance costs.

Income Taxes: The income tax benefit was $16.7 million and $14.4 million
in Fiscal 1997 and Fiscal 1996, respectively. The 1997 benefit is net of a $1.9
million increase in the valuation allowance related to the Company's deferred
income tax assets. The Company believes that it is more likely than not that the
net deferred income tax assets of $54.0 million at January 31, 1998 will be
realized through the implementation of tax strategies which could generate
taxable income.

During Fiscal 1997, the Company made income tax payments of $4.8 million
and received income tax refunds of $4.3 million. During Fiscal 1996, the Company
made income tax payments of $4.6 million and received income tax refunds of $5.5
million.

Extraordinary Items: During the second quarter of Fiscal 1997, in
connection with the Credit Agreement, the Company wrote off deferred financing
fees of $12.8 million related to the former bank credit agreement, resulting in
a net loss on early extinguishment of debt of $7.4 million. In addition, during
the second quarter of Fiscal 1997, in connection with the sale of certain
mortgaged property, the Company made a mortgage paydown of $2.9 million,
including accrued interest and debt premiums, resulting in a net loss on early
extinguishment of debt of $0.1 million.

During the second quarter of Fiscal 1996, in connection with the sale of
certain mortgaged property, the Company made a mortgage paydown of $5.3 million,
including accrued interest and debt premiums, resulting in a net loss on early
extinguishment of debt of $0.2 million. During the first quarter of Fiscal 1996,
in connection with the termination of the Plainbridge, Inc. credit agreement due
to the reacquisition of Plainbridge, Inc. by Pathmark, the Company wrote off
deferred financing fees resulting in a net loss on early extinguishment of debt
of $0.7 million.

Summary of Operations: For Fiscal 1997, the Company's net loss was $35.7
million compared to a net loss of $20.8 million for the prior year. The increase
in net loss in Fiscal 1997 compared to the prior year was primarily due to lower
operating earnings, the extraordinary loss on early extinguishment of debt and
higher interest expense, partially offset by a higher income tax benefit.

EBITDA-FIFO: EBITDA-FIFO was $201.2 million and $236.4 million in Fiscal
1997 and Fiscal 1996, respectively. EBITDA-FIFO represents net earnings before
interest expense, income taxes, depreciation, amortization, the LIFO charge
(credit) and unusual transactions. EBITDA-FIFO is a widely accepted financial
indicator of a company's ability to service and/or incur debt and should not be
construed as an alternative to, or a better indicator of, operating income or
cash flows from operating activities, as determined in accordance with generally
accepted accounting principles.

Fiscal 1996 (52-week year) v. Fiscal 1995 (53-week year)

Sales: Sales in Fiscal 1996 were $3.71 billion compared to $3.97 billion
in Fiscal 1995. Sales comparisons were impacted by the extra week in the prior
year and the disposition of the freestanding drug stores during Fiscal 1995.
Sales generated by the freestanding drug stores were $110.8 million in Fiscal
1995. Same store sales from supermarkets decreased 2.8% for the year primarily
due to a significant increase in competitive new store openings and remodels,
particularly in the Company's southern region.

14
<PAGE>

During Fiscal 1996, the Company opened four new Pathmark stores, two of which
replaced smaller stores, and completed 21 major renovations and enlargements to
existing supermarkets. Two stores were closed and not replaced during the year.
The Company operated 144 supermarkets at the end of both Fiscal 1996 and Fiscal
1995.

Gross Profit: Gross profit in Fiscal 1996 was $1.09 billion or 29.4% of
sales compared with $1.13 billion or 28.6% of sales in Fiscal 1995. Excluding
the impact of the disposition of the freestanding drug stores, gross profit as a
percentage of sales was 28.8% in Fiscal 1995. The improvement in gross profit,
as a percentage of sales in Fiscal 1996 compared to Fiscal 1995, was primarily
due to increased focus on merchandising programs, the impact of the disposition
of the freestanding drug stores, as well as the Company's continuing emphasis on
the Pathmark 2000 format stores which allow expanded variety in all departments
particularly high margin perishables. The decrease in gross profit was primarily
attributable to the lower sales. The cost of goods sold comparisons were
affected by a pretax LIFO credit of $1.3 million and a pretax LIFO charge of
$1.1 million in Fiscal 1996 and Fiscal 1995, respectively.

Selling, General and Administrative Expenses ("SG&A"): SG&A decreased $8.4
million or 1.0% in Fiscal 1996 compared with Fiscal 1995. SG&A, on a proforma
basis eliminating the SG&A impact of the freestanding drug stores, increased
2.0% in Fiscal 1996 compared to Fiscal 1995. As a percentage of sales, SG&A were
23.1% in Fiscal 1996, up from 21.8% in Fiscal 1995 due to the impact of lower
sales, higher labor and labor related expenses, claims expenses and occupancy
costs, partially offset by lower advertising expenses and the impact of the
disposition of the freestanding drug stores in Fiscal 1995. SG&A for Fiscal 1996
also included a first quarter provision of $5.8 million representing the
termination costs for two former executives of the Company, a first quarter gain
of $5.6 million recognized on the sale of certain real estate and a second
quarter curtailment gain of $2.0 million due to the elimination of
postretirement medical coverage for active non-union associates. SG&A for Fiscal
1995 also included a fourth quarter gain of $3.4 million recognized on the sale
of a former warehouse of Purity Supreme, Inc., a previously divested company.

Depreciation and Amortization: Depreciation and amortization of $89.0
million in Fiscal 1996 was $8.6 million higher than $80.4 million in Fiscal
1995. The increase for Fiscal 1996 was primarily due to a pretax charge of $5.4
million to write down certain fixed assets held for sale, principally in the
Company's southern region, to their estimated net realizable values and capital
expenditures. Depreciation and amortization excludes video tape amortization,
which is recorded in cost of goods sold, of $3.1 million and $2.8 million in
Fiscal 1996 and Fiscal 1995, respectively.

Restructuring Charge: During the fourth quarter of Fiscal 1996, the
Company recorded a pretax charge of $9.1 million for reorganization and
restructuring costs related to its administrative operations. The restructuring
charge included $4.2 million for the costs of a voluntary early retirement
program and $1.2 million for severance and termination benefits. The remaining
charge of $3.7 million primarily relates to consulting fees incurred in
connection with the restructuring and exit costs for facility consolidation.

Lease Commitment Charge: During the fourth quarter of Fiscal 1996, the
Company decided to divest a group of its southern region stores, certain of
which have experienced unprofitable operating results. The Company concluded
that the operating losses being experienced by these stores were other than
temporary and that the projected operating results of such stores would not be
sufficient to recover their long-lived assets and their contractual lease
commitments. Further, the Company believes that these lease costs will not be
significantly recoverable through any future sublease. Therefore, the Company
recorded a $8.8 million pretax charge related to these unfavorable lease
commitments, in addition to writing down the long-lived assets of these stores
(see "Depreciation and Amortization" above).

<PAGE>

Operating Earnings: Operating earnings for Fiscal 1996 were $127.1 million
compared with $203.4 million for Fiscal 1995. The decrease in operating earnings
during Fiscal 1996 compared to Fiscal 1995 was due to lower sales, higher
depreciation and amortization expense, the restructuring charge and the lease
commitment charge in Fiscal 1996 and the gain on disposition of freestanding
drug stores in Fiscal 1995, partially offset by lower SG&A.

Interest Expense: Interest expense was $161.5 million for Fiscal 1996
compared to $164.7 million in Fiscal 1995 primarily due to reductions in the
Term Loan along with lower interest rates.

Income Taxes: The income tax benefit for Fiscal 1996 was $14.4 million.
The income tax provision for Fiscal 1995 was $5.9 million reflecting the
reversal of the valuation allowance of $9.1 million related to the Company's
deferred income tax assets. The reversal was recorded in conjunction with the
Company's continuing evaluation of its deferred income tax assets.

During Fiscal 1996, the Company made income tax payments of $4.6 million
and received income tax refunds of $5.5 million. During Fiscal 1995, the Company
made income tax payments of $21.9 million and received income tax refunds of
$10.3 million.

Extraordinary Items: During the first quarter of Fiscal 1996, in
connection with the termination of the Plainbridge, Inc. credit agreement due to
the reacquisition of Plainbridge, Inc. by Pathmark, the Company wrote off
deferred financing fees resulting in a net loss on early extinguishment of debt
of $0.7 million. During the second quarter of Fiscal 1996, in connection with
the proceeds from the sale of certain mortgaged property, the Company made a
mortgage paydown of $5.3 million, including accrued interest and debt premiums,
resulting in a net loss on early extinguishment of debt of $0.2 million.

Summary of Operations: The Company's net loss in Fiscal 1996 was $20.8
million compared to net earnings of $32.7 million in Fiscal 1995. The decrease
in net earnings for Fiscal 1996 compared to Fiscal 1995 was due to lower
operating earnings in Fiscal 1996, partially offset by lower interest expense
and an income tax benefit in Fiscal 1996 compared to an income tax provision in
Fiscal 1995.

EBITDA-FIFO: EBITDA-FIFO was $236.4 million in Fiscal 1996 and $268.9
million in Fiscal 1995, respectively.

Financial Condition

Debt Service: During Fiscal 1997, total long-term debt decreased $38.7
million from Fiscal 1996 year end primarily due to a net decrease in borrowings
under the Credit Agreement compared to the former credit agreement and a
decrease in certain mortgages, partially offset by debt accretion on the
Deferred Coupon Notes. In addition, during Fiscal 1997, total lease obligations
decreased $3.9 million from Fiscal 1996.

On January 29, 1998, the Company sold its fee and leasehold interests in the
Facilities to C&S for approximately $104 million (approximately $60 million,
excluding inventory) in connection with the C&S Purchase Agreement.
Simultaneously, Pathmark and C&S commenced the 15 year Supply Agreement,
pursuant to which C&S will supply Pathmark with substantially all of its
grocery, frozen and perishable merchandise requirements. In conjunction with the
C&S Purchase Agreement, the Company used $32.5 million of the net proceeds to
pay down a portion of the Term Loan. The remainder of the net proceeds were used
to pay down the Working Capital Facility and invest in marketable securities of
$52.0 million at January 31, 1998. As a result, there were no borrowings under
the Working Capital Facility at January 31, 1998. However, subsequent to Fiscal
1997, the Company utilized its marketable securities and borrowings

16
<PAGE>

under the Working Capital Facility, which have increased to $15.0 million at
April 21, 1998, primarily to paydown trade accounts payable related to the
inventory sold in connection with the C&S Purchase Agreement and other
liabilities.

During the second quarter of Fiscal 1997, the Company sold four supermarkets
that it announced for divestiture at the end of Fiscal 1996 for $14.9 million
and sold two former drug stores for $11.1 million. There was no gain or loss
recognized on these transactions. The proceeds were used to paydown a portion of
the former working capital facility and related mortgages.

On June 30, 1997, the Company entered into the Credit Agreement with a group
of lenders led by The Chase Manhattan Bank. The Credit Agreement includes a $300
million Term Loan and a $200 million Working Capital Facility. In connection
with this refinancing, the Company repaid in full the former term loan ($230.5
million) and the former working capital facility ($57.5 million) with the
borrowings obtained under the Credit Agreement.

Under the Credit Agreement, the Term Loan and Working Capital Facility bear
interest at floating rates, ranging from LIBOR plus 2.25% to LIBOR plus 2.50%.
The Company is required to repay a portion of its borrowings under the Term Loan
each year, so as to retire such indebtedness in its entirety by December 15,
2001. Under the Working Capital Facility, which expires on June 15, 2001, the
Company can borrow or obtain letters of credit in an aggregate amount not to
exceed $200 million, of which the maximum of $125 million can be in letters of
credit. In addition, pursuant to a Permitted Subordinated Debt Refinancing (as
defined in the Credit Agreement), the Working Capital Facility and a portion of
the Term Loan can be extended up to an additional two and one-half years and the
remainder of the Term Loan can be extended up to an additional three and
one-half years from the original expiration dates.

The Company is required to make sinking fund payments on the Subordinated
Notes (as defined in Note 9 of the Notes to Consolidated Financial Statements at
Item 8, Part II of this Form 10-K) in the amount of 25% of the original
aggregate principal amount of the Subordinated Notes on each of June 15, 2000
and June 15, 2001. The Subordinated Debentures (as defined in Note 9 of the
Notes to Consolidated Financial Statements at Item 8, Part II of this Form 10-K)
and the remaining Subordinated Notes mature on June 15, 2002. The Senior
Subordinated Notes (as defined in Note 9 of the Notes to Consolidated Financial
Statements at Item 8, Part II of this Form 10-K) and the Deferred Coupon Notes
mature in Fiscal 2003. The Company has no payment obligations, through
intercompany notes or otherwise, with respect to its parent's indebtedness.

The majority of the cash interest payments are scheduled in the second and
fourth quarters.

The amounts of principal payments required each year on outstanding
long-term debt (excluding the original issue discount with respect to the
Deferred Coupon Notes) are as follows (dollars in millions):
<TABLE>
<CAPTION>

Principal
Fiscal Years Payments
------------ --------

<S> <C> <C>
1998........................... $ 43.5
1999........................... 14.9
2000........................... 78.2
2001........................... 263.8
2002........................... 195.8
2003........................... 625.2

</TABLE>

17
<PAGE>

Liquidity: The consolidated financial statements of the Company indicate
that, at January 31, 1998, current liabilities exceeded current assets by $109.3
million and stockholder's deficiency was $1.08 billion. Management believes that
cash flows generated from operations, supplemented by the unused borrowing
capacity under the Working Capital Facility (refer to Notes 1 and 9 of the Notes
to Consolidated Financial Statements at Item 8, Part II of this Form 10-K) and
the availability of capital lease financing will be sufficient to pay the
Company's debts as they come due, provide for its capital expenditure program
and meet its other cash requirements.

The Company believes that it will be able to make the scheduled payments or
refinance its obligations with respect to its indebtedness through a combination
of operating funds and borrowing facilities. Future refinancing will be
necessary if the Company's cash flow from operations is not sufficient to meet
its debt service requirements related to the maturity of a portion of the Term
Loan and Working Capital Facility in Fiscal 2001, and the maturity of the
Subordinated Notes and Subordinated Debentures in Fiscal 2002. The Company
expects that it will be necessary to refinance all or a portion of the Senior
Subordinated Notes and the Deferred Coupon Notes due in Fiscal 2003. The Company
may undertake a refinancing of some or all of such indebtedness sometime prior
to its maturity. The Company was in compliance with its various debt covenants
at January 31, 1998 and, based on management's operating projections for Fiscal
1998, the Company believes that it will continue to be in compliance with its
various debt covenants. The Company's ability to make scheduled payments, to
refinance or otherwise meet its obligations with respect to its indebtedness
depends on its financial and operating performance, which in turn, is subject to
prevailing economic conditions and to financial, business and other factors
beyond its control. Although the Company's cash flow from its operations and
borrowings has been sufficient to meet its debt service obligations, there can
be no assurance that the Company's operating results will continue to be
sufficient or that future borrowing facilities will be available for payment or
refinancing of the Company's indebtedness.

While it is the Company's intention to enter into other refinancings that it
considers advantageous, there can be no assurances that the prevailing market
conditions will be favorable to the Company. In the event the Company obtains
any future refinancing on less than favorable terms, the holders of outstanding
indebtedness could experience increased credit risk and could experience a
decrease in the market value of their investment, because the Company might be
forced to operate under terms that would restrict its operations and might find
its cash flow reduced.

Capital Expenditures: Capital expenditures for Fiscal 1997, including
property acquired under capital leases, were $57.9 million compared to $94.1
million for Fiscal 1996 and $110.6 million for Fiscal 1995. During Fiscal 1997,
the Company opened two new Pathmark stores, completed 13 major renovations and
enlargements to existing supermarkets, and sold four and closed seven stores.
During Fiscal 1998, the Company plans to open up two new Pathmark stores, close
one store and complete up to an aggregate of 19 major renovations and
enlargements. Capital expenditures for Fiscal 1998, including property to be
acquired under capital leases, are estimated to be $70.0 million. Management
believes that cash flows generated from operations, supplemented by the unused
borrowing capacity under the Working Capital Facility and the availability of
capital lease financing will be sufficient to provide for the Company's capital
expenditure program.

Cash Flows: Cash provided by operating activities amounted to $56.5 million
in Fiscal 1997 compared to $73.6 million in the prior year. The decrease in net
cash provided by operating activities was primarily due to an increase in the
net loss and an increase in cash used for operating assets and liabilities. Cash
provided by investing activities was $95.5 million in Fiscal 1997 compared to
cash used for investing activities of $46.8 million in the prior year. The
increase in cash provided by investing activities was primarily due to an
increase in proceeds related to the C&S Purchase Agreement, property
dispositions and a decrease in expenditures of property and equipment. Cash used
for financing activities was $101.8

<PAGE>

million in Fiscal 1997 compared to $28.6 million in the prior year. The
increase in cash used for financing activities was primarily due to a decrease
in borrowings in conjunction with the Credit Agreement, net of repaying in full
the former term loan and former working capital facility in Fiscal 1997, the
proceeds from the lease financing of three supermarket locations in Fiscal 1996,
a decrease in book overdrafts and an increase in deferred financing fees related
to the Credit Agreement in Fiscal 1997.

Cash provided by operating activities amounted to $73.6 million in Fiscal
1996 compared to $118.3 million in Fiscal 1995. The decrease in net cash
provided by operating activities was primarily due to a decline in cash provided
by operating assets and liabilities and a decrease in net earnings. Cash used
for investing activities in Fiscal 1996 was $46.8 million due to expenditures of
property and equipment of $55.0 million, offset by proceeds from property
dispositions of $8.2 million. Cash used for investing activities in Fiscal 1995
was $0.7 million primarily due to property and equipment expenditures of $69.5
million, partially offset by the net proceeds from the disposition of the
freestanding drug stores of $59.9 million, the proceeds from the sale of real
estate of $3.4 million and the proceeds from the disposal of home centers
segment of $4.7 million. Cash used for financing activities in Fiscal 1996 was
$28.6 million compared to $128.0 million in Fiscal 1995. The decrease in cash
used for financing activities is primarily due to an increase in borrowings
under the former working capital facility, the proceeds from the lease financing
of three supermarket locations, a decrease in dividends to PTK and a paydown of
$25.0 million on the Term Loan in Fiscal 1995 in conjunction with the
disposition of the freestanding drug stores. During Fiscal 1995, the Company
paid a dividend to PTK of $26.5 million from the net proceeds related to the
disposition of the freestanding drug stores and the sale of the home centers
segment.

Year 2000 Compliance: The Company has initiated a program to prepare the
Company's computer systems and applications for the year 2000. This is necessary
because computer programs have been written using two digits rather than four to
define the applicable year. Any of the Company's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process normal business transactions.

The Company expects that the principal costs will be those associated
with the remediation and testing of its computer applications. Through IBM,
this effort is under way across the Company, and is following a process of
inventory, scoping and analysis, modification, testing and certification, and
implementation. A major portion of these costs will be met under the existing
agreement with IBM through a reprioritization of technology development
initiatives, with the remainder representing incremental costs (refer to Note
22 of the Notes to Consolidated Financial Statements at Item 8, Part II of
this Form 10-K). The Company does not believe that the total cost of such
compliance will be material. Additionally, the Company believes, based on
available information, that it will be able to manage its total year 2000
transition without any material adverse effect on its operations.

In addition, the Company is communicating with major vendors to determine
the extent to which the Company is vulnerable to third-party year 2000
compliance issues.

19
<PAGE>

New Accounting Standards Not Yet Adopted

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is not expected
to have an effect on the Company's financial statements currently being
presented because the Company, at this time, has no items of comprehensive
income other than net income.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS No. 131"), which will be effective for financial statements beginning
after December 15, 1997. SFAS No. 131 redefines how operating segments are
determined and requires expanded quantitative disclosures relating to a
company's operating statements. SFAS No. 131, which the Company is evaluating,
will impact the financial statements to the extent that it is necessary to
provide additional disclosure about the Company's segments.

In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("SFAS No. 132"), which will be effective for financial
statements beginning after December 15, 1997. SFAS No. 132 revises employers'
disclosure about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The Company will adopt
SFAS No. 132 in Fiscal 1998 and believes it will impact the financial statements
to the extent that it is necessary to provide additional disclosure about the
Company's pensions and other postretirement benefits.

ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company due to
adverse changes in financial rates. The Company is exposed to market risk in the
area of interest rates. This exposure is directly related to its Term Loan and
borrowing activities under the Working Capital Facility. The Company does not
currently maintain any interest rate hedging arrangements due to the reasonable
risk that near-term interest rates will not rise significantly. The Company is
continuously evaluating this risk and will implement interest rate hedging
arrangements when deemed appropriate.

20
<PAGE>

ITEM 8. Consolidated Financial Statements.

PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>

52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
January 31, February 1, February 3,
1998 1997 1996
------------ -------------- --------------
<S> <C> <C> <C>

Sales...................................................... $ 3,695,865 $ 3,710,523 $ 3,971,593

Cost of sales (exclusive of depreciation and
amortization shown separately below)..................... 2,652,289 2,619,277 2,837,631
------------ ------------ -----------

Gross profit............................................... 1,043,576 1,091,246 1,133,962

Selling, general and administrative expenses............... 840,886 857,290 865,679

Depreciation and amortization.............................. 83,413 88,956 80,408

Restructuring charge....................................... -- 9,137 --

Lease commitment charge.................................... -- 8,763 --

Gain on disposition of freestanding drug stores............ -- -- 15,535
------------ ------------ -----------

Operating earnings......................................... 119,277 127,100 203,410

Interest expense........................................... (164,168) (161,469) (164,749)
------------ ------------ -----------

Earnings (loss) before income taxes and
extraordinary items..................................... (44,891) (34,369) 38,661

Income tax benefit (provision)............................. 16,705 14,411 (5,914)
------------ ------------ -----------

Earnings (loss) before extraordinary items................. (28,186) (19,958) 32,747

Extraordinary items, net of an income tax benefit of
$5,456 in Fiscal 1997 and $613 in Fiscal 1996........... (7,488) (877) --
------------ ------------ -----------

Net earnings (loss)........................................ $ (35,674) $ (20,835) $ 32,747
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

See notes to consolidated financial statements.

21
<PAGE>

PATHMARK STORES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)

January 31, February 1,
1998 1997
----------- ---------
<S> <C> <C>

ASSETS
Current Assets
Cash and cash equivalents.................................................. $ 60,076 $ 9,880
Accounts receivable, net................................................... 10,928 12,492
Merchandise inventories.................................................... 148,775 216,931
Deferred income taxes, net................................................. 10,621 7,111
Prepaid expenses........................................................... 21,449 24,951
Due from suppliers......................................................... 13,027 13,923
Other current assets....................................................... 11,331 5,908
----------- ---------

Total Current Assets..................................................... 276,207 291,196
Property and Equipment, Net................................................... 529,542 603,577
Deferred Financing Costs, Net................................................. 18,547 28,743
Deferred Income Taxes, Net.................................................... 43,389 22,846
Other Assets.................................................................. 32,687 43,534
----------- ---------

$ 900,372 $ 989,896
----------- ---------
----------- ---------

LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Current Liabilities
Accounts payable........................................................... $ 128,484 $ 166,199
Book overdrafts............................................................ 26,330 41,085
Current maturities of long-term debt....................................... 43,478 74,431
Income taxes payable....................................................... 1,771 860
Accrued payroll and payroll taxes.......................................... 49,533 56,335
Current portion of lease obligations....................................... 24,337 23,133
Accrued interest payable................................................... 18,300 20,712
Accrued expenses and other current liabilities............................. 93,297 90,589
----------- ---------

Total Current Liabilities................................................ 385,530 473,344
----------- ---------

Long-Term Debt................................................................ 1,177,898 1,185,639
----------- ---------

Lease Obligations, Long-Term.................................................. 170,273 175,353
----------- ---------

Other Noncurrent Liabilities.................................................. 244,011 197,226
----------- ---------

Commitments and Contingencies (Notes 3, 12 and 22)
Stockholder's Deficiency
Common Stock $.10 par value................................................... -- --
Authorized, issued and outstanding: 100 shares
Paid-in Capital............................................................... 68,703 68,703
Accumulated Deficit........................................................... (1,146,043) (1,110,369)
----------- ---------

Total Stockholder's Deficiency........................................... (1,077,340) (1,041,666)
----------- ---------

$ 900,372 $ 989,896
----------- ---------
----------- ---------

</TABLE>

See notes to consolidated financial statements.

22
<PAGE>

PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
(in thousands)

Total
Common Paid-in Accumulated Stockholder's
Stock Capital Deficit Deficiency
--------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>

Balance, January 28, 1995............................ $ -- $ 91,809 $ (1,122,281) $ (1,030,472)

Net earnings...................................... -- -- 32,747 32,747

Dividend to PTK Holdings, Inc. in conjunction
with the disposition of freestanding drug stores -- (21,800) -- (21,800)
Dividend to PTK Holdings, Inc. in conjunction
with the disposal of the home centers segment... -- (4,706) -- (4,706)
--------- ----------- --------------- ---------

Balance, February 3, 1996............................ -- 65,303 (1,089,534) (1,024,231)

Net loss.......................................... -- -- (20,835) (20,835)

Capital contribution from SMG-II Holdings
Corporation..................................... -- 3,400 -- 3,400
--------- ----------- --------------- ---------

Balance, February 1, 1997............................ -- 68,703 (1,110,369) (1,041,666)

Net loss.......................................... -- -- (35,674) (35,674)
--------- ----------- --------------- ---------

Balance, January 31, 1998............................ $ -- $ 68,703 $ (1,146,043) $ (1,077,340)
--------- ----------- --------------- ---------
--------- ----------- --------------- ---------

</TABLE>

See notes to consolidated financial statements.

<PAGE>

PATHMARK STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

52 Weeks Ended 52 Weeks Ended 53 Weeks Ended
January 31, 1998 February 1, 1997 February 3, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>

Operating Activities
Net earnings (loss)......................................... $(35,674) $(20,835) $ 32,747
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt........ 7,488 877 --
Depreciation and amortization............................. 87,341 92,485 83,263
Deferred income tax (benefit) expense..................... (24,053) (12,558) 6,417
Interest accruable but not payable........................ 18,509 16,678 15,028
Amortization of original issue discount................... 354 354 354
Amortization of debt issuance costs....................... 5,542 7,426 7,140
(Gain) loss on disposal of property and equipment......... 127 (5,347) 200
Gain on disposition of freestanding drug stores........... -- -- (15,535)
Gain on sale of real estate............................... -- -- (3,371)
Cash provided by (used for) operating assets and liabilities:
Accounts receivable, net................................ 1,564 (1,939) 2,380
Merchandise inventories................................. 22,170 8,517 15,653
Income taxes............................................ 6,367 (2,584) 8,932
Prepaid expenses........................................ (861) (2,889) (1,631)
Due from suppliers...................................... 896 (745) 5,079
Other current assets.................................... (4,749) (3,009) 2,221
Other assets............................................ 9,700 2,309 (23,419)
Accounts payable........................................ (37,715) (17,883) (9,114)
Accrued payroll and payroll taxes....................... (6,802) 2,013 780
Accrued interest payable................................ (2,289) 1,403 (363)
Accrued expenses and other current liabilities.......... 2,708 (1,867) (6,997)
Other noncurrent liabilities............................ 5,860 11,191 (1,462)
---------- ---------- -------------

Cash provided by operating activities................. 56,483 73,597 118,302
---------- ---------- -------------

Investing Activities
Property and equipment expenditures......................... (34,322) (54,963) (69,544)
Proceeds from disposition of property and equipment......... 26,132 8,170 896
Net proceeds in connection with the C&S Purchase Agreement.. 103,728 -- --
Net proceeds from disposition of freestanding drug stores... -- -- 59,876
Net proceeds from sale of real estate....................... -- -- 3,371
Net proceeds from disposal of home centers segment.......... -- -- 4,706
---------- ---------- -------------

Cash provided by (used for) investing activities...... 95,538 (46,793) (695)
---------- ---------- -------------

Financing Activities
Borrowings under Term Loan in connection with new Credit 300,000 -- --
Agreement...................................................
Repayments of term loans.................................... (279,877) (44,828) (60,295)
Increase (decrease) in working capital facilities borrowings (73,500) 27,500 (17,000)
Decrease in book overdrafts................................. (14,755) (2,635) (1,262)
Increase in other borrowings................................ 1,956 2,052 895
Repayment of other long-term borrowings..................... (6,136) (8,085) (5,208)
Reduction in lease obligations.............................. (21,337) (20,032) (18,221)
Premiums incurred in early extinguishment of debt........... (132) (352) --
Deferred financing fees..................................... (8,044) (3,597) (374)
Proceeds from lease financing............................... -- 21,405 --
Dividend to PTK Holdings, Inc............................... -- -- (26,506)
---------- ---------- -------------

Cash used for financing activities.................... (101,825) (28,572) (127,971)
---------- ---------- -------------

Increase (decrease) in cash and cash equivalents............... 50,196 (1,768) (10,364)
Cash and cash equivalents at beginning of period............... 9,880 11,648 22,012
---------- ---------- -------------

Cash and cash equivalents at end of period..................... $ 60,076 $ 9,880 $ 11,648
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

See notes to consolidated financial statements.
24

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continiued)

Note 1-Business

Organization and Basis of Presentation:

Pathmark Stores, Inc. (the "Company") operated 135 supermarkets as of
January 31, 1998, primarily in the New York-New Jersey and Philadelphia
metropolitan areas and is a wholly owned subsidiary of PTK Holdings, Inc.
("PTK") and an indirect wholly owned subsidiary of Supermarkets General Holdings
Corporation ("Holdings").

Holdings was formed by Merrill Lynch Capital Partners, Inc., a wholly
owned subsidiary of Merrill Lynch & Co., Inc. ("ML&Co."), to effect the
acquisition (the "Acquisition") of the Company. On June 15, 1987, Holdings
completed the first step in the Acquisition when it acquired 32.8 million shares
(approximately 85%) of the Company's common stock through a tender offer. The
remaining outstanding common stock of the Company was acquired by Holdings on
October 5, 1987 pursuant to a Merger Agreement dated April 22, 1987, as amended.
The Acquisition of the Company by Holdings was accounted for as a purchase and,
accordingly, Holdings recorded the assets and liabilities of the Company at
their fair values at the date of the Acquisition. The accompanying consolidated
financial statements of the Company reflect Holdings' basis. The tax basis for
the assets and liabilities acquired was retained.

During Fiscal 1993, the Board of Directors of Holdings authorized
management of the Company and Holdings to proceed with a recapitalization plan
(the "Recapitalization"), which included a refinancing of Holdings' debt and the
distribution to Holdings of certain of the Company's assets and liabilities. In
conjunction with the Recapitalization, the assets, liabilities and related
operations of the Company's home centers segment, as well as certain assets and
liabilities of the warehouse, distribution and processing facilities which
service the Company's supermarkets and drug stores, and certain inventories and
real property were contributed to Plainbridge, Inc. ("Plainbridge"), a then
newly formed wholly owned subsidiary of the Company and the shares of
Plainbridge were then distributed to PTK, a then newly formed wholly owned
subsidiary of Holdings (the "Plainbridge Spin-Off"). Following the Plainbridge
Spin-Off, PTK held 100% of the capital stock of both Plainbridge and the
Company. On May 3, 1993, the Company contributed total assets of $1.7 million
and total liabilities of $1.8 million, which represented the Chefmark deli food
preparation operations and the related warehouse and a leased banana ripening
warehouse to Chefmark, Inc. ("Chefmark"), a then newly formed Delaware
corporation, and distributed the shares of Chefmark to Holdings.

On March 1, 1996, the Company reacquired all of the outstanding capital
stock of Plainbridge by means of a capital contribution from PTK. As a result,
Plainbridge is a wholly-owned subsidiary of the Company. Since the acquisition
of the capital stock of Plainbridge is a transfer of interest among entities
under common control, it is being accounted for at historical cost in a manner
similar to pooling-of-interests accounting. Accordingly, the consolidated
financial statements presented herein reflect the assets and liabilities and
related results of operations of the combined entity for all periods.

Management's Plan:
The consolidated financial statements of the Company indicated that, at
January 31, 1998, current liabilities exceeded current assets by $109.3 million
and the stockholder's deficiency was $1.08 billion. Management believes that
cash flows generated from operations, supplemented by the unused borrowing
capacity under its working capital facility (the "Working Capital Facility") and
the availability of capital lease financing, will be sufficient to pay the
Company's debts as they come due, provide for its capital expenditure program
and meet its other cash requirements.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 1-Business-(Continued)

On June 30, 1997, the Company entered into a new $500 million bank credit
agreement (the "Credit Agreement") with a group of lenders led by The Chase
Manhattan Bank. The Credit Agreement includes a $300 million term loan (the
"Term Loan") and a $200 million Working Capital Facility. The Company repaid in
full the former term loan and former working capital facility with the
borrowings obtained under the Credit Agreement (see Note 9).

Note 2-Summary of Significant Accounting Policies

Principles of Consolidation:

The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All intercompany
transactions have been eliminated in consolidation.

Use of Estimates:

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

The accompanying consolidated balance sheets include reserves for self
insured claims relating to customer, employee and vehicle accidents and covered
employee medical benefits. The liabilities for customer and employee accident
claims are recorded at present value, due to the long-term payout of these
claims (see Note 8). While the Company believes that the amounts provided are
adequate to cover its self-insured liabilities, it is reasonably possible that
the final resolution of these claims may differ from the amounts provided.

Fiscal Year:

The Company's fiscal year ends on the Saturday nearest to January 31 of
the following calendar year. Normally, each fiscal year consists of 52 weeks,
but every five or six years the fiscal year consists of 53 weeks. Fiscal 1995
consists of 53 weeks.

Statements of Cash Flows:

All investments and marketable securities with a maturity of three month
or less are considered to be cash equivalents. The Company had $52.0 million of
cash equivalent investments as of January 31, 1998 and had no cash equivalent
investments as of February 1, 1997.

Merchandise Inventories:

Merchandise inventories are valued at the lower of cost or market. Cost
for substantially all merchandise inventories is determined on a last-in,
first-out ("LIFO") basis.

Rental Video Tapes:
Video tapes purchased for rental purposes are capitalized and amortized
over their estimated useful lives. The amortization of video tapes, included in
cost of goods sold, approximated $3.4 million, $3.1 million and $2.8 million in
Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 2-Summary of Significant Accounting Policies-(Continued)
Software:

Externally purchased software is capitalized and amortized over a three
year period. The amortization of capitalized software included in selling,
general and administrative expenses approximated $0.5 million, $0.4 million and
$0.1 million in Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively.
Internally developed software, including software developed by IBM (see Note
22), is expensed as incurred.

Property and Equipment:

Property and equipment are stated at cost. Depreciation and amortization
expense on owned property and equipment is computed on the straight-line method
over the following useful lives: buildings, 40 years; fixtures and equipment,
3-10 years; and leasehold improvements, 8-15 years or lease term, whichever is
shorter. Capital leases are recorded at the present value of minimum lease
payments or fair market value of the related property, whichever is less.
Amortization of property under capital leases is computed on the straight-line
method over the term of the lease or the leased property's estimated useful
life, whichever is shorter.

Long-Lived Assets:
Effective February 4, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of ("SFAS No. 121"). SFAS No. 121
establishes accounting standards for the measurement of the impairment of
long-lived assets, certain intangibles and goodwill related to those assets.
SFAS No. 121 requires that an asset to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The carrying value of
long-lived assets, which are being used in the Company's operations, are
assessed for recoverability based upon groups of assets and the related cash
flow generated by such assets. Assets held for sale are reviewed for impairment
based upon the estimated net realizable value of such assets. The adoption of
SFAS No. 121, on February 4, 1996, had no effect on the Company's
financial condition or results of operations.

Deferred Financing Costs:
Deferred financing costs are amortized utilizing the interest method over
the life of the related indebtedness.

Book Overdraft:
Under the Company's cash management system, checks issued but not
presented to banks result in overdraft balances for accounting purposes and are
classified as book overdrafts.

Revenue Recognition:
Revenue is recognized at the point of sale to the customer.

Advertising Costs:
Advertising costs, net of vendor reimbursements, are expensed as incurred
and were $18.9 million, $23.7 million and $30.6 million in Fiscal 1997, Fiscal
1996 and Fiscal 1995, respectively.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 2-Summary of Significant Accounting Policies-(Continued)
Store Preopening and Closing Costs:

Store preopening costs are expensed as incurred. Store closing costs, such
as future rent and real estate taxes subsequent to the actual store closing, net
of expected sublease recovery, are recorded at present value when management
makes a decision to close a store (see Note 8).

Income Taxes:

The Company's income taxes are computed based on a tax sharing agreement
with its ultimate parent, SMG-II Holdings Corporation ("SMG-II"), in which the
Company computes a hypothetical tax return as if the Company was not joined in a
consolidated or combined return with SMG-II. The Company must pay SMG-II the
positive amount of any such hypothetical tax. If the hypothetical tax return
shows entitlement to a refund, including any refund attributable to a carryback,
then SMG-II will pay to the Company the amount of such refund.

Earnings (Loss) Per Common Share:

Since the Company is a wholly owned subsidiary, earnings (loss) per share
is not presented.

Reclassifications:

Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the Fiscal 1997 presentation.

New Accounting Standards Not Yet Adopted:

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 3-Supply and Distribution Agreements

On January 29, 1998, the Company sold its Woodbridge, New Jersey
distribution center and office complex and its leasehold interests in its two
distribution centers and its banana ripening facility in North Brunswick, New
Jersey, Dayton, New Jersey and Avenel, New Jersey, respectively (all of the
foregoing buildings are hereinafter referred to as, collectively the
"Facilities"), to C&S Wholesale Grocers, Inc. ("C&S"), including the fixtures,
equipment and inventory in each of those Facilities, for $104.4 million (the
"C&S Purchase Agreement"). The Company used $32.5 million of the net proceeds to
pay down a portion of the Term Loan. A portion of the net proceeds were used to
pay down the Working Capital Facility at the end of Fiscal 1997. The remainder
of the proceeds were invested in marketable securities and subsequent to year
end were utilized to pay down accounts payable related to the inventory sold in
connection with the C&S Purchase Agreement and other liabilities.
Simultaneously, the Company and C&S entered into a 15 year supply agreement (the
"Supply Agreement") pursuant to which C&S will supply substantially all of the
Company's grocery, frozen and perishable merchandise requirements, formerly
owned and warehoused by the Company. As a result of these agreements, the
Company recorded deferred income of $60.8 million. Such deferred income consists
of (i) $25.0 million received by the Company for future trade discounts and
rebates, which will be amortized to operations by the Company as it is earned,
and (ii) $35.8 million in net proceeds received in excess of the fair value of
the assets sold; such excess has been deferred and will be amortized to
operations over the life of the Supply Agreement. In addition, current year
results include a $0.8 million gain on a LIFO liquidation related to the sale of
such inventory.

In addition, the Company outsourced its trucking operations to a third party
trucking company, pursuant to a ten year trucking services agreement effective
October 5, 1997, in which the trucking company will deliver merchandise to all
of the Company's stores.

Note 4-Accounts Receivable

Accounts receivable are comprised of the following (dollars in thousands):

<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
--------- ---------
<S> <C> <C>

Prescription plans..................................... $ 10,074 $ 10,397
Other.................................................. 2,048 3,366
--------- ---------

Accounts receivable.................................... 12,122 13,763
Less: allowance for doubtful accounts(a)............... 1,194 1,271
--------- ---------

Accounts receivable, net............................... $ 10,928 $ 12,492
--------- ---------
--------- ---------
</TABLE>

---------

(a) Fiscal 1997 includes a credit of $0.2 million and a recovery of $0.1
million. Fiscal 1996 includes a provision of $0.1 million and a recovery of
$0.3 million.

Note 5--Merchandise Inventories
Merchandise inventories are comprised of the following (dollars in
thousands):

January 31, February 1,
1998 1997
--------- -------------
<S> <C> <C>

Merchandise inventories at FIFO cost.............. $ 184,862 $ 258,417
Less: LIFO reserve................................ 36,087 41,486
--------- -------------

Merchandise inventories at LIFO cost.............. $ 148,775 $ 216,931
--------- -------------
--------- -------------
</TABLE>

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 5-Merchandise Inventories-(Continued)

The decrease in the merchandise inventories and the LIFO reserve was
primarily due to the sale of the Company's warehouse inventory related to its
grocery, frozen and perishable merchandise (see Note 3). In addition, the
Company sold its warehouse pharmaceutical inventory to a pharmacecutical
wholesaler. For Fiscal 1997, the liquidation of LIFO layers resulted in a $2.8
million gain related to such inventory. Liquidation of LIFO layers in Fiscal
1996 and Fiscal 1995 did not have a significant effect on the results of
operations.

Note 6-Property and Equipment

Property and equipment are comprised of the following (dollars in
thousands):

January 31, February 1,
1998 1997
--------- --------------
<S> <C> <C>

Land................................................ $ 54,065 $ 61,258
Buildings and building improvements................. 169,490 201,364
Fixtures and equipment.............................. 176,443 202,952
Leasehold costs and improvements.................... 279,386 293,626
Transportation equipment............................ 19,820 19,706
--------- --------------

Property and equipment, owned....................... 699,204 778,906
Property and equipment under capital leases......... 213,094 206,819
--------- --------------

Property and equipment, at cost..................... 912,298 985,725
Less: accumulated depreciation and amortization..... 382,756 382,148
--------- --------------

Property and equipment, net......................... $ 529,542 $ 603,577
--------- --------------
--------- --------------

</TABLE>

The decrease in the owned property and equipment was primarily due to the
sale of the distribution facilities (see Note 3). During the fourth quarter of
Fiscal 1996, the Company recorded a pretax charge of $5.4 million to write down
fixed assets held for sale, principally in its southern region, to their
estimated net realizable values. This charge is included in depreciation and
amortization expense in the accompanying consolidated statement of operations
for Fiscal 1996.

Note 7--Deferred Financing Costs, Net

Deferred financing costs are comprised of the following (dollars in
thousands):

January 31, February 1,
1998 1997
--------- ---------
<S> <C> <C>

Deferred financing costs................ $ 28,599 $ 51,378
Less: accumulated amortization.......... 10,052 22,635
--------- ---------

Deferred financing costs, net........... $ 18,547 $ 28,743
--------- ---------
--------- ---------

</TABLE>

In connection with the Credit Agreement, the Company incurred deferred
financing costs of $8.0 million. Also, in connection therewith, the Company
wrote off, as part of the extraordinary items, $12.8 million of net deferred
financing costs associated with debt which was extinguished (see Note 17).

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 8-Other Noncurrent Liabilities

Other noncurrent liabilities are comprised of the following (dollars in
thousands):

January 31, February 1,
1998 1997
--------- ---------
<S> <C> <C>

Deferred income related to the C&S transaction (see Note 3).... $ 60,837 $ --
Self-insured liabilities....................................... 58,567 62,485
Pension and deferred compensation.............................. 20,296 20,227
Other postretirement and postemployment benefits............... 39,942 41,399
Closed stores.................................................. 13,798 20,117
Lease commitments.............................................. 6,810 7,107
Other.......................................................... 43,761 45,891
--------- ---------

Other noncurrent liabilities................................... $ 244,011 $ 197,226
--------- ---------
--------- ---------

</TABLE>

Certain noncurrent liabilities, such as self-insured liabilities for
incurred but unpaid claims relating to customer, employee and vehicle accidents
and closed store liabilities, are recorded at present value utilizing a 4%
discount rate based on the projected payout of these claims.

Note 9--Long-Term Debt
Long-term debt is comprised of the following (dollars in thousands):

January 31, February 1,
1998 1997
------------ ---------
<S> <C> <C>

Term loans................................................................... $ 263,250 $ 243,127
Working capital facilities................................................... -- 73,500
9.625% Senior Subordinated Notes due 2003 ("Senior Subordinated Notes")...... 438,134 437,780
11.625% Subordinated Notes due 2002 ("Subordinated Notes")................... 199,017 199,017
12.625% Subordinated Debentures due 2002 ("Subordinated Debentures")......... 95,750 95,750
10.75% Deferred Coupon Notes due 2003 ("Deferred Coupon Notes").............. 187,068 168,559
Debt payable to Holdings..................................................... 983 983
Industrial revenue bonds..................................................... 6,375 6,375
Other debt (primarily mortgages)............................................. 30,799 34,979
------------ ---------

Total debt................................................................... 1,221,376 1,260,070
Less: current maturities..................................................... 43,478 74,431
------------ ---------

Long-term portion............................................................ $ 1,177,898 $ 1,185,639
------------ ---------
------------ ---------

</TABLE>

Scheduled Maturities of Debt:
Long-term debt principal payments are as follows (dollars in thousands):

Principal
Fiscal Years Payments
------------ --------
<S> <C>

1998................ $ 43,478
1999................ 14,858
2000................ 78,238
2001................ 263,849
2002................ 195,750
2003................ 625,203
-----------

$ 1,221,376
-----------
-----------

</TABLE>

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 9-Long-Term Debt-(Continued)

Bank Credit Agreement:

On June 30, 1997, the Company entered into the Credit Agreement with a
group of lenders led by The Chase Manhattan Bank. The Credit Agreement includes
a $300 million Term Loan and a $200 million Working Capital Facility. The
Company repaid in full the former term loan and former working capital facility
with the borrowings obtained under the Credit Agreement.

Under the Credit Agreement, the Term Loan and Working Capital Facility
bear interest at floating rates, ranging from LIBOR plus 2.25% to LIBOR plus
2.50%. The Company is required to repay a portion of its borrowings under the
Term Loan each year, so as to retire such indebtedness in its entirety by
December 15, 2001. Under the Working Capital Facility, which expires on June 15,
2001, the Company can borrow or obtain letters of credit in an aggregate amount
not to exceed $200 million, of which the maximum of $125 million can be in
letters of credit. In addition, pursuant to a Permitted Subordinated Debt
Refinancing (as defined in the Credit Agreement), the Working Capital Facility
and a portion of the Term Loan can be extended up to an additional two and
one-half years and the remainder of the Term Loan can be extended up to an
additional three and one-half years from the original expiration dates.

At January 31, 1998, the Company was in compliance with all of its debt
covenants. Based upon projected results for the upcoming fiscal year, the
Company believes it will be in compliance with its debt covenants which include
financial covenants concerning levels of operating cash flow, minimum interest
and rent expense coverage, maximum leverage ratio, maximum senior debt leverage
ratio, maximum consolidated rental payments and maximum capital expenditures.
The Credit Agreement also contains other covenants including, but not limited
to, covenants with respect to the following matters: (i) limitation on
indebtedness; (ii) limitation on liens; (iii) restriction on mergers; (iv)
restriction on investments, loans, advances, guarantees and acquisitions; (v)
restriction on assets sales and sale/leaseback transactions; (vi) restriction on
certain payments of indebtedness and incurrence of certain agreements and (vii)
restriction on transactions with affiliates.

The Company believes it has sufficient unused borrowing capacity under the
Working Capital Facility, which can be utilized for unforeseen or for seasonal
cash requirements. At January 31, 1998, the Company had $92.8 million in
outstanding letters of credit and $107.2 million in unused borrowing capacity
under its Working Capital Facility.

Senior Subordinated Notes:

The Senior Subordinated Notes accrete to a maturity value of $440.0
million in Fiscal 2003. These notes pay cash interest on a semiannual basis and
have no sinking fund requirements.

Subordinated Notes:

The Subordinated Notes mature in Fiscal 2002 and pay cash interest on a
semiannual basis. These notes contain a sinking fund provision that requires the
Company to deposit $49.8 million (25% of the original aggregate principal
amount) with the trustee of the Subordinated Notes on June 15 in each of Fiscal
2000 and Fiscal 2001 for the redemption of the Subordinated Notes, at a
redemption price equal to 100% of the principal amount thereof, plus accrued
interest to the redemption date and providing for the redemption of 50% of the
original aggregate principal amount of such notes prior to maturity.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 9-Long-Term Debt-(Continued)

Subordinated Debentures:

The Subordinated Debentures mature in Fiscal 2002. These debentures pay
cash interest on a semiannual basis and have no sinking fund requirements.

Deferred Coupon Notes:

The Deferred Coupon Notes accrete to a maturity value of $225.3 million in
Fiscal 2003. These notes begin paying cash interest on a semiannual basis on May
1, 2000 and have no sinking fund requirements.

Industrial Revenue Bonds:

Interest rates for the industrial revenue bonds range from 10.5% to 10.9%.
The industrial revenue bonds are payable in Fiscal 2003.

Other Debt:

Other debt includes mortgage notes, which are secured by property and
equipment, having a net book value of $51.7 million at January 31, 1998 and
$54.5 million at February 1, 1997. These borrowings, whose interest rates
averaged 10.5%, are payable in installments ending in Fiscal 2000, including a
scheduled payment of $27.4 million in Fiscal 1998.

Note 10-Fair Value of Financial Instruments

The carrying amount and fair values of the Company's financial instruments
are as follows (dollars in thousands):

January 31, 1998 February 1, 1997
---------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>

Term loans................................. $ 263,250 $ 263,250 $ 243,127 $ 243,127
Working capital facilities................. -- -- 73,500 73,500
Senior Subordinated Notes.................. 438,134 421,344 437,780 415,015
Subordinated Notes......................... 199,017 181,782 199,017 202,340
Subordinated Debentures.................... 95,750 88,846 95,750 96,353
Deferred Coupon Notes...................... 187,068 133,596 168,559 142,471
Debt payable to Holdings................... 983 898 983 999
Industrial revenue bonds................... 6,375 6,375 6,375 6,375
Other debt (primarily mortgages)........... 30,799 30,799 34,979 34,979
----------- ---------- ---------- -----------

Total debt............................ $ 1,221,376 $ 1,126,890 $ 1,260,070 $ 1,215,159
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------

</TABLE>

The fair value of the term loans and working capital facilities at January
31, 1998 and February 1, 1997 approximated their carrying value due to their
floating interest rates. The fair value of the notes and debentures are based on
the quoted market prices at January 31, 1998 and February 1, 1997 since such
instruments are publicly traded. The Company has evaluated its other debt
(primarily mortgages) and industrial revenue bonds and believes, that based on
interest rates, related terms and maturities, that the fair value of such
instruments approximates their respective carrying amounts. As of January 31,
1998 and February 1, 1997, the carrying values of cash and cash equivalents,
accounts receivable and accounts payable approximated their fair values due to
the short-term maturities of these instruments.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 11-Interest Expense
Interest expense is comprised of the following (dollars in thousands):

Fiscal Years
---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>

Term loans...................................................... $ 22,884 $ 22,616 $ 29,067
Working capital facilities...................................... 4,969 5,444 5,601
Senior Subordinated Notes
Amortization of original issue discount...................... 354 354 354
Currently payable............................................ 42,350 42,350 42,350
Subordinated Notes.............................................. 23,151 23,136 23,136
Subordinated Debentures......................................... 12,088 12,088 12,088
Deferred Coupon Notes, accruable but not payable................ 18,509 16,678 15,028
Debt payable to Holdings........................................ 114 114 114
Amortization of debt issuance costs............................. 5,542 7,426 7,140
Lease obligations............................................... 22,091 19,364 16,646
Mortgages payable............................................... 3,462 3,736 4,210
Other, net...................................................... 8,654 8,163 9,015
--------- -------- ---------

Interest expense................................................ $ 164,168 $ 161,469 $ 164,749
--------- -------- ---------
--------- -------- ---------

</TABLE>

The Company made cash interest payments of $142.0 million, $135.5 million
and $142.7 million in Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively.

Note 12-Leases
At January 31, 1998, the Company was liable under terms of noncancellable
leases for the following minimum lease commitments (dollars in thousands):
<TABLE>
<CAPTION>

Capital Operating
Fiscal Years Leases Leases
- ------------ ------ ------
<S> <C> <C>
1998............................................................... $ 43,337 $ 28,865
1999............................................................... 37,948 29,116
2000............................................................... 35,391 29,164
2001............................................................... 26,165 27,489
2002............................................................... 22,312 26,131
Later years........................................................ 249,473 297,742
---------- ----------

Total minimum lease payments(a).................................... 414,626 $ 438,507
----------
----------

Less: executory costs (such as taxes, maintenance and insurance)... 2,440
----------

Net minimum lease payments......................................... 412,186
Less: amounts representing interest................................ 217,576
----------

Present value of net minimum lease payments (including current
installments of $24,337)........................................ $ 194,610
----------
----------
</TABLE>

-------
(a) Net of sublease income of $0.8 million and $74.4 million for capital and
operating leases, respectively.

During Fiscal 1997, Fiscal 1996 and Fiscal 1995, the Company incurred
capital lease obligations of $23.6 million, $39.2 million and $41.1 million,
respectively, in connection with property and equipment lease agreements. These
capital lease amounts are noncash and, accordingly, have been excluded from the
consolidated statements of cash flows.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS (Continued)

Note 12--Leases--(Continued)

During the third quarter of Fiscal 1996, the Company sold three of its
supermarket properties for $19.3 million, net of fees of $1.4 million and income
taxes of $0.7 million, and simultaneously leased back such properties. The net
proceeds were used to paydown debt, primarily the former working capital
facility. Due to the Company's continuing involvement in such properties, no
gain has been recorded and the transaction has been accounted for as a
financing, with the associated liability of $21.0 million and $21.1 million
included in lease obligations in the consolidated balance sheet at January 31,
1998 and February 1, 1997, respectively.

Rent expense, under all operating leases having noncancellable terms of more
than one year, is summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
Fiscal Years
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>

Minimum rentals........................ $ 44,396 $ 42,481 $ 42,576
Less: rentals from subleases........... (8,131) (9,691) (10,917)
--------- --------- -------
Rent expense........................... $ 36,265 $ 32,790 $ 31,659
--------- --------- -------
--------- --------- -------

</TABLE>

Note 13--Related Party Transactions

The Company is a party to an agreement pursuant to which the Company
provides certain administrative services to Chefmark. Such services include,
among other things, legal, human resources, data processing, insurance,
accounting, tax, treasury and property management services. The agreement has an
initial term of seven years, which expires in Fiscal 2000, with renewal options.
The cost of the services charged to Chefmark under this agreement was
approximately $1.4 million in each of Fiscal 1997, Fiscal 1996 and Fiscal 1995.

During Fiscal 1996, in conjunction with the hiring of a Chief Executive
Officer (the "CEO"), SMG-II granted the CEO an equity package (the "Equity
Strip") independently valued at $3.4 million and consisting of restricted shares
of SMG-II Preferred Stock and restricted shares and options of SMG-II Common
Stock. The Company recorded the Equity Strip as deferred compensation by the
means of a capital contribution from SMG-II (see Note 21).

In addition, the Company retained John W. Boyle, a Director of the Company,
to act as its interim Chairman & Chief Executive Officer for the period of March
20, 1996 through October 7, 1996 (the "Transition Period"). Under the terms of
the consulting arrangement between the Company and Mr. Boyle, the Company paid
Mr. Boyle a consulting fee of $41,667 per month ($288,980 in the aggregate) plus
living and travel expenses during the Transition Period. In addition, Mr. Boyle
received a completion bonus of $100,000 when the CEO commenced employment with
the Company.

During Fiscal 1995, the Company paid ML&Co. fees of approximately $0.6
million related to the sale of the freestanding drug stores.

In March 1990, Jerry G. Rubenstein, a Director of the Company, borrowed from
Holdings $100,000 in order to help finance his purchase of Holdings' Class A
Common Stock. Subsequently, such shares of Holdings' Class A Common Stock were
exchanged for shares of SMG-II Class A Common Stock. The foregoing indebtedness
to Holdings is evidenced by a full recourse promissory note (the "Recourse
Note"). The Recourse Note is for a term of ten years and bears interest at the
rate of 8.02% per annum, payable annually. Except as otherwise provided in the
Recourse Note, no principal on such recourse loan shall be due and payable until
the tenth anniversary of the date of issue for such Recourse Note. Under the
terms of

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 13--Related Party Transactions--(Continued)

the agreement pursuant to which the shares of Holdings' Class A Common Stock
were exchanged for shares of SMG-II Class A Common Stock, the Company is
obligated to pay to each Management Investor who pays interest on his Recourse
Note (except under certain circumstances) an amount equal to such interest, plus
an amount sufficient to pay any income taxes resulting from the above prescribed
payment after taking into account the value of any deduction available to him as
a result of the payment of such interest or taxes. As of April 1, 1998, Mr.
Rubenstein remained indebted to Holdings in the amount of $100,000.

Note 14--Retirement and Benefit Plans

The Company has several noncontributory defined benefit pension plans, the
most significant of which is the SGC Pension Plan, which covers substantially
all non-union and certain union associates. Pension benefits to retired and to
terminated vested associates are primarily based upon their length of service
and upon a percentage of qualifying compensation. The Company's funding policy,
which is consistent with federal funding requirements, is intended to provide
not only for benefits attributed to service to date, but also for those benefits
expected to be earned in the future. Due to the overfunding status of the SGC
Pension Plan, no contributions were required during the last three fiscal years.

The Company also maintains an unfunded supplemental retirement plan for
participants in the SGC Pension Plan to provide benefits in excess of amounts
permitted to be paid under the provisions of the tax law. Additionally, the
Company has entered into individual retirement agreements with certain
current and retired executives providing for unfunded supplemental pension
benefits upon their retirement after attainment of age 60.

The following table sets forth the funded status of the pension plans and
the amounts recognized in the Company's financial statements (dollars in
thousands):

January 31, 1998 February 1, 1997
--------------------------------- ----------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>

Actuarial present value of accumulated
benefit obligation:
Vested............................... $ (100,353) $ (20,573) $ (84,092) $ (20,922)
Unvested............................. (1,982) -- (5,988) (215)
------------ ------------ ------------- ----------

Total (102,335) (20,573) (90,080) (21,137)
Plan assets at fair value............... 213,771 -- 171,270 447
------------ ------------ ------------- ----------

Plan assets higher (lower) than
accumulated benefit obligation........ $ 111,436 $ (20,573) $ 81,190 $ (20,690)
------------ ------------ ------------- ----------
------------ ------------ ------------- ----------

Actuarial present value of projected
benefit obligation.................... $ (124,303) $ (22,461) $ (114,776) $ (23,200)
Plan assets at fair value............... 213,771 -- 171,270 447
------------ ------------ ------------- ----------

Plan assets higher (lower) than
projected benefit obligation.......... 89,468 (22,461) 56,494 (22,753)
Unrecognized net gain from past
experience
different from that assumed and (72,162) (274) (43,296) (90)
effects of
changes in assumptions................
Unrecognized prior service cost......... (13) 702 1,111 955
------------ ------------ ------------- ----------

Prepaid (accrued) pension cost.......... $ 17,293 $ (22,033) $ 14,309 $ (21,888)
------------ ------------ ------------- ----------
------------ ------------ ------------- ----------

</TABLE>

Assets of the Company's pension plans are invested in marketable securities
comprised primarily of equities of domestic corporations, U.S. Government
instruments and money market investments.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 14--Retirement and Benefit Plans--(Continued)

The following table provides the assumptions used in determining the
actuarial present value of the projected benefit obligation at January 31, 1998
and February 1, 1997:

January 31, February 1,
1998 1997
---------- ----------
<S> <C> <C>

Weighted average discount rate....................... 7.0% 7.5%
Rate of increase in future compensation levels....... 4.0 4.5
Expected long-term rate of return on plan assets..... 9.5 9.5

</TABLE>

The change in the weighted average discount rate, which is used in
determining the actuarial present value of the projected benefit obligation,
will not have a material impact on the Company's net pension cost in Fiscal
1998.

The net periodic pension cost (income) is comprised of the following
components (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Years
-------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>

Service cost of benefits earned during the year.............. $ 3,208 $ 3,771 $ 3,402
Interest cost on projected benefit obligation................ 9,847 10,182 9,533
Actual return on plans' assets............................... (49,357) (28,109) (40,531)
Net amortization and deferral................................ 35,105 15,988 27,747
-------- -------- ----------

Net periodic pension (income) cost........................... $ (1,197) $ 1,832 $ 151
-------- -------- ----------
-------- -------- ----------
</TABLE>

The Company also contributes to many multi-employer plans which provide
defined benefits to certain union associates. The Company's contributions to
these multi-employer plans were $19.0 million, $18.7 million and $17.7 million
in Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively.

The Company sponsors a savings plan for eligible non-union associates.
Contributions under the plan are based on specified percentages of associate
contributions. The Company's contributions to the savings plan were $3.0
million, $3.6 million and $3.7 million in Fiscal 1997, Fiscal 1996 and Fiscal
1995, respectively.

Note 15--Other Postretirement and Postemployment Benefits

The Company provides its associates other postretirement benefits,
principally health care and life insurance benefits. The accumulated
postretirement benefit obligation was determined utilizing an assumed discount
rate of 7.0% at January 31, 1998 and 7.5% at February 1, 1997 and by applying
the provisions of the Company's medical plans, the established maximums and
sharing of costs, the relevant actuarial assumptions and the health-care cost
trend rates, which are projected at 6.25% and grade down to 4.0% in Fiscal 2002.
The effect of a 1% increase in the assumed cost trend rate would change the
accumulated postretirement benefit obligation by approximately $1.2 million as
of January 31, 1998 and would increase the net periodic postretirement benefit
income by $0.1 million for Fiscal 1997.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 15--Other Postretirement and Postemployment Benefits--(Continued)

The net postretirement benefit cost (income) is comprised of the following
components (dollars in thousands):

Fiscal Years
-----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned during the year............... $ 399 $ 545 $ 613
Interest cost on accumulated postretirement benefit
obligation................................................. 1,139 1,640 2,267
Net amortization and deferral................................. (1,866) (931) (460)
Curtailment gain.............................................. -- (2,000) --
-------- -------- --------
Net postretirement benefit cost (income)...................... $ (328) $ (746) $ 2,420
-------- -------- --------
-------- -------- --------

</TABLE>

During the second quarter of Fiscal 1996, the Company eliminated
postretirement medical coverage for active non-union associates who retire after
December 31, 1997. This change resulted in a pretax curtailment gain of $2.0
million.

The following table provides information on the status of the
postretirement plans (dollars in thousands):

<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------- -----------

<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................... $ 7,231 $ 9,678
Other active plan participants.............................................. 10,077 10,180
--------- ---------

Total....................................................................... 17,308 19,858

Unrecognized prior service cost................................................. 5,748 7,026
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions................................ 8,690 6,798
--------- ---------
Accrued postretirement cost..................................................... $ 31,746 $ 33,682
--------- ---------
--------- ---------

</TABLE>

The decrease in the accumulated postretirement benefit obligation and the
unrecognized prior service cost was due to actual benefit payments made and
amortization gains recognized from the elimination of postretirement medical
coverage for active non-union associates in Fiscal 1996.

The Company also provides its associates postemployment benefits, primarily
long-term disability and salary continuation. The obligation for these benefits
was determined by application of the provisions of the Company's long-term
disability plan and includes the age of active claimants at disability and at
valuation, the length of time on disability and the probability of the claimant
remaining on disability to maximum duration. These liabilities are recorded at
their present value utilizing a discount rate of 4%.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 15--Other Postretirement and Postemployment Benefits--(Continued)

The accumulated postemployment benefit obligation as of January 31, 1998 and
February 1, 1997 was $8.9 million and $8.5 million, respectively. The net
postemployment benefit cost consisted of the following components (dollars in
thousands):

Fiscal Years
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned during the year................. $ 1,412 $ 1,314 $ 997
Interest cost on accumulated postemployment obligation.......... 409 316 296
------- -------- -------
Net postemployment benefit cost................................. $ 1,821 $ 1,630 $ 1,293
------- -------- -------
------- -------- -------

</TABLE>

Note 16--Income Taxes

The income tax benefit (provision) is comprised of the following (dollars in
thousands):

Fiscal Years
----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current
Federal.......................................... $ (4,629) $ 1,084 $ (1,669)
State............................................ (2,719) 769 2,172
Deferred
Federal.......................................... 18,755 9,626 (9,233)
State............................................ 7,198 2,932 (6,254)
Change in valuation allowance.................... (1,900) -- 9,070
---------- ---------- ---------

Income tax benefit (provision)....................... $ 16,705 $ 14,411 $ (5,914)
---------- ---------- ---------
---------- ---------- ---------

</TABLE>

The effective tax rate for the income tax benefit (provision) differs from
the federal statutory tax rate as follows:

Fiscal Years
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate..................................... 35.0% 35.0% (35.0)%
State income taxes............................................. 6.5 7.0 (6.9)
Change in valuation allowance.................................. (4.2) -- 23.5
Tax credits.................................................... -- -- 1.5
Other.......................................................... (0.1) (0.1) 1.6
------ ------ ------
Effective tax rate............................................. 37.2% 41.9% (15.3)%
------ ------ ------
------ ------ ------

</TABLE>

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 16--Income Taxes--(Continued)

Deferred income tax assets and liabilities consist of the following
(dollars in thousands):

January 31, 1998 February 1, 1997
---------------------------------- ------------------------------
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Depreciation and amortization.......... $ -- $ 50,216 $ -- $ 65,449
Merchandise inventory and gross profit. -- 11,840 -- 20,449
Prepaid expenses....................... -- 6,108 -- 6,969
Self-insured liabilities............... 36,230 -- 38,906 --
Benefit plans.......................... 6,248 -- 10,011 --
Lease capitalization................... 19,290 -- 17,927 --
Alternative minimum taxes.............. 8,752 -- 8,316 --
General business credits............... 9,019 -- 9,019 --
Net operating loss carryforwards....... 9,223 -- 9,631 --
Other postretirement and
postemployment benefits.............. 17,306 -- 17,791 --
Deferred income........................ 26,909 -- -- --
Closed stores reserves and accrued
expenses............................. 15,402 -- 18,281 --
Capital loss carryforward.............. 29,732 -- 45,850 --
Other.................................. 683 8,870 721 7,779
---------- ---------- -------- --------
Subtotal............................... 178,794 77,034 176,453 100,646
Less: valuation allowance.............. 47,750 -- 45,850 --
---------- ---------- -------- --------
Total.................................. $ 131,044 $ 77,034 $ 130,603 $ 100,646
---------- ---------- -------- --------
---------- ---------- -------- --------

</TABLE>

The balance sheet classification of the deferred income tax assets and
liabilities is as follows (dollars in thousands):

January 31, 1998 February 1, 1997
------------------------------- ---------------------------
Current Noncurrent Current Noncurrent
<S> <C> <C> <C> <C>
Assets................................ $ 37,695 $ 141,099 $ 36,884 $ 139,569
Liabilities........................... (17,685) (59,349) (29,773) (70,873)
----------- ----------- ---------- -----------
`
Subtotal.............................. 20,010 81,750 7,111 68,696
Less: valuation allowance............. (9,389) (38,361) -- (45,850)
----------- ----------- ---------- -----------
`
Total................................. $ 10,621 $ 43,389 $ 7,111 $ 22,846
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
`
</TABLE>

The Company's net deferred income tax assets were $54.0 million and $30.0
million, net of a valuation allowance of $47.8 million and $45.9 million at
January 31, 1998 and February 1, 1997, respectively. The Company believes that
it is more likely than not that the net deferred tax assets will be realized
through the implementation of tax strategies which could generate taxable
income.

During Fiscal 1997, the net increase in the valuation allowance was $1.9
million. This change reflects an increase in the valuation allowance related to
those deferred tax assets which the Company has concluded are not likely to be
realized, partially offset by a decrease in the valuation allowance related to
the utilization of the Company's capital loss carryforwards due to generation of
capital gains from the C&S transaction.

The Company will continue to assess the recoverability of its deferred
income tax assets and further adjustments to the valuation allowance may be
necessary based on the evidence available at that time.

<PAGE>
PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 16--Income Taxes--(Continued)

During Fiscal 1995, in conjunction with the Company's evaluation of its
deferred income tax assets, the Company reversed the valuation allowance
related to its net deferred income tax assets. Such reversal of the
valuation allowance totaled $9.1 million and has been included as a
component of the Fiscal 1995 income tax provision.

In Fiscal 1997, Fiscal 1996 and Fiscal 1995, the Company made income tax
payments of $4.8 million, $4.6 million and $21.9 million, respectively, and
received income tax refunds of $4.3 million, $5.5 million and $10.3 million,
respectively.

Note 17--Extraordinary Items

The extraordinary items, representing losses on early extinguishment of
debt, consist of the following (dollars in thousands):

<TABLE>
<CAPTION>
Fiscal Years
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Loss before income taxes.................................................. $ (12,944) $ (1,490)
Income tax benefit........................................................ 5,456 613
------------- -------------
Extraordinary items, net of a tax benefit................................. $ (7,488) $ (877)
------------- -------------
------------- -------------

</TABLE>

During the second quarter of Fiscal 1997, in connection with the Credit
Agreement, the Company wrote off deferred financing fees of $12.8 million
related to the former bank credit agreement, resulting in a net loss on early
extinguishment of debt of $7.4 million, net of an income tax benefit of $5.4
million. In addition, during the second quarter of Fiscal 1997, in connection
with the sale of certain mortgaged property, the Company made a mortgage paydown
of $2.9 million, including accrued interest and debt premiums, resulting in a
net loss on early extinguishment of debt of $0.1 million, net of an income tax
benefit of $0.1 million.

During the second quarter of Fiscal 1996, in connection with the proceeds
from the sale of certain mortgaged property, the Company made a mortgage paydown
of $5.3 million, including accrued interest and debt premium, resulting in a net
loss on early extinguishment of debt of $0.2 million, net of an income tax
benefit of $0.1 million. During the first quarter of Fiscal 1996, in connection
with the termination of the Plainbridge credit agreement due to the
reacquisition of Plainbridge by Pathmark, the Company wrote off deferred
financing fees, resulting in a net loss on early extinguishment of debt of $0.7
million, net of an income tax benefit of $0.5 million.

Note 18--Restructuring Charge

During the fourth quarter of Fiscal 1996, the Company recorded a pretax
charge of $9.1 million for reorganization and restructuring costs related to its
administrative operations. The restructuring charge included $4.2 million for
the costs of a voluntary early retirement program, which was accepted by 142
employees, and $1.2 million for severance and termination benefits for 80
employees. The remaining charge of $3.7 million primarily relates to consulting
fees incurred in connection with the restructuring and exit costs for facility
consolidation.

As of January 31, 1998, $7.7 million have been expended, of which $4.2
million related to the early retirement program and severance benefits and $3.5
million related to consulting costs and the facility consolidation. The Company
estimates it will expend $0.2 million in Fiscal 1998. The remaining balance of
$1.2 million relates to early retirement benefits which will be expended over
time; such balance is included in the respective pension and postretirement
liability accounts.
41
<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 19--Lease Commitment Charge

During the fourth quarter of Fiscal 1996, the Company decided to divest a
group of its southern region stores, certain of which have experienced
unprofitable operating results. The Company concluded that the operating losses
being experienced by these stores were other than temporary and that the
projected operating results of such stores would not be sufficient to recover
their long-lived assets and their contractual lease commitments. Further, the
Company believes that these lease costs will not be significantly recoverable
through any future sublease. Therefore, the Company recorded a $8.8 million
pretax charge related to these unfavorable lease commitments, in addition to
writing down the long-lived assets of these stores (see Note 6).

During Fiscal 1997, the Company sold four and closed seven stores that it
announced for divestiture at the end of Fiscal 1996. The results of operations
for these 11 stores were as follows (dollars in thousands):

Fiscal Years
-----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales................................................... $ 42,877 $ 152,599 $ 160,133
----------- ----------- ----------
----------- ----------- ----------
Operating loss.......................................... $ 10,590 $ 10,663 $ 8,364
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

Note 20--Disposition of Freestanding Drug Stores

During the second quarter of Fiscal 1995, the Company made a decision to
dispose of its 36 freestanding drug stores and, on July 28, 1995, completed the
sale of 30 of its freestanding drug stores, including merchandise inventory, to
Rite Aid Corporation for $59.9 million. The Company used $25.0 million of the
proceeds to repay a portion of its existing Term Loan and paid a dividend of
$21.8 million to PTK. The Company paid $13.1 million to Holdings in accordance
with the tax sharing agreement, representing income taxes currently due related
to the gain on the sale.

In Fiscal 1995, the Company recorded a pretax gain on the disposition of its
freestanding drug stores of $15.5 million, net of a $19.0 million charge related
to the estimated exit costs of the remaining six freestanding drug stores. Five
of the remaining six freestanding drug stores closed during Fiscal 1995 and the
sixth store closed during the second quarter of Fiscal 1996.

The following summarizes the activity related to the exit costs (dollars in
thousands):
<TABLE>
<CAPTION>

Amount
<S> <C>
Balance, January 28, 1995.............................................................. $ --
To record estimated exit costs...................................................... 18,955
Activity............................................................................ (804)
-------------

Balance, February 3, 1996.............................................................. 18,151
Activity............................................................................ (2,306)
-------------

Balance, February 1, 1997.............................................................. 15,845
Activity............................................................................ (3,007)
-------------

Balance, January 31, 1998.............................................................. $ 12,838

-------------
-------------
</TABLE>

During Fiscal 1997, two of the closed drug stores were sold and one lease
was terminated. The remaining balance of $12.8 million at January 31, 1998
reflects the future rent and real estate taxes, net of expected sublease
recoveries, related to the remaining three closed drug stores which have not
been subleased.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 21--Chief Executive Officer 1996 Employment Agreement

On October 8, 1996, the Company hired a CEO pursuant to a five-year
employment agreement (the "Employment Agreement"). In conjunction with his
employment, SMG-II granted to the CEO an Equity Strip consisting of 8,520
restricted shares of a new series of SMG-II Preferred Stock and 19,851
restricted shares of SMG-II Common Stock and options to purchase 100,000 shares
of SMG-II Common Stock at an initial exercise price of $100 per share (the
"Options") with the said exercise price increasing over time. The Equity Strip
was valued at $3.4 million at the date of issuance, based upon an independent
appraisal, and will vest over the term of the Employment Agreement or earlier
with the occurrence of an employment-related event, as defined, and will be
forfeited in its entirety upon the occurrence of a termination event, as
defined. The Equity Strip is being amortized as compensation expense in the
Company's statement of operations over the term of the Employment Agreement. The
Options were accounted for by SMG-II using the methods prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
as a result, no compensation expense was recorded. The Options will vest over
four years and expire one year after being fully vested, except for the portion
of the Options that vest on the day before the fifth year and has not yet become
exercisable, the expiration of which will be extended to year seven. If
employment with the Company should end as a result of a termination event, the
Options (whether or not then vested) will be immediately and irrevocably
forfeited, except in certain circumstances. Vested Options do not become
exercisable until the occurrence of certain events related generally to the
realization of a third-party sale of SMG-II Common Stock. The CEO also received
(a) a one-time signing bonus of $1 million, which is being amortized as
compensation expense in the Company's statement of operations over the term of
the Employment Agreement, and (b) a $4.5 million loan evidenced by sixteen
separate promissory notes. Under the terms of each note, if he is in full
employment of the Company on a quarterly anniversary of his hiring date, his
obligation to pay such note maturing on such date will be forgiven as to
principal, but not any then accrued and unpaid interest. The Company has and
will continue to record compensation expense upon the forgiveness of each note.
In the event his employment ends, as a result of a termination event, prior to a
change in control, as defined, each note will become immediately due and payable
as to all outstanding principal and all accrued and unpaid interest. These
notes, which bear interest at a blended rate of approximately 6%, are on a
full-recourse basis and secured by the Equity Strip, the Options and any shares
acquired upon exercise of such Options.

Note 22--Commitments and Contingencies

Rickel:

In connection with the sale of its home centers segment in Fiscal 1994,
the Company, as lessor, entered into nine leases for certain of the Company's
owned real estate properties with Rickel, as tenant. In addition, the Company
assigned to Rickel twenty-six third party leases.

In January 1996, Rickel filed for bankruptcy protection under Chapter
11 of the United States Bankruptcy Code. Subsequent to the filing, Rickel
assigned two leases, terminated two leases and rejected nine leases returning
these nine leases back to the Company. Of these nine rejected leases, two
have been settled with the landlord, one has been assigned to a large
retailer, one of the properties has been sold and the other five properties
are being actively marketed by the Company to other prospective tenants.

In September 1997, Rickel announced that it was terminating its retail
operations and liquidating its retail inventory. In February 1998, Rickel
entered into an agreement to assign thirteen of the Company's leases to Staples,
Inc. and additionally, allow Staples, Inc. until May 1, 1998 to decide whether
to lease an additional seven properties.

With respect to the remaining two locations, Rickel has not yet determined
whether they will reject or assign such leases.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATION FINANCIAL STATEMENTS(Continued)

Note 22--Commitments and Contingencies--(Continued)

Management has assessed its exposure with respect to this matter and has
concluded that it has sufficient reserves to cover any resulting liability which
may occur, including the future rent and real estate taxes, net of expected
sublease recoveries, of the five properties that have been returned to the
Company, as well as the nine other properties that could be returned to the
Company.

Information Services Outsourcing:

In August 1991, the Company entered into a ten year agreement with IBM, to
provide a wide range of information systems services. Under the agreement, IBM
has taken over the Company's data center operations and mainframe processing and
information system functions and is providing business applications and systems
designed to enhance the Company's customer service and efficiency. The charges
under this agreement are based upon the services requested at predetermined
rates. The Company may terminate the agreement upon 90 days notice with payment
of a specified termination charge. The amounts expensed under this agreement in
the accompanying consolidated statements of operations were $23.7 million, $22.1
million and $21.0 million during Fiscal 1997, Fiscal 1996 and Fiscal 1995,
respectively.

Other:

The Company is also a party to a number of legal proceedings in the
ordinary course of business. Management believes that the ultimate resolution of
these proceedings will not, in the aggregate, have a material adverse impact on
the financial condition, results of operations or business of the Company.

<PAGE>

PATHMARK STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 23--Quarterly Financial Data (Unaudited)

Financial data for the interim periods of Fiscal 1997 and Fiscal 1996 is
as follows (dollars in thousands):

13 Weeks Ended
----------------------------------------------------------------
May 3, August 2, November 1, January 31, Fiscal
1997 1997 1997 1998 1997
-------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
52 Weeks Ended
January 31, 1998
Sales......................... $922,319 $931,833 $900,986 $940,727 $3,695,865
Gross profit(a)............... 259,262 262,150 248,174 273,990 1,043,576
Selling, general and
administrative expenses...... 212,341 213,095 205,292 210,158 840,886
Depreciation and
amortization.................. 20,174 19,942 21,366 21,931 83,413
Operating earnings............. 26,747 29,113 21,516 41,901 119,277
Interest expense............... (41,290) (41,262) (40,368) (41,248) (164,168)
Earnings (loss) before income
taxes and extraordinary
items........................ (14,543) (12,149) (18,852) 653 (44,891)
Income tax benefit
(provision).................. 5,701 4,836 7,630 (1,462) 16,705
Loss before
extraordinary items.......... (8,842) (7,313) (11,222) (809) (28,186)
Extraordinary items, net of an
income tax benefit........... -- (7,488) -- -- (7,488)
Net loss....................... $ (8,842) $(14,801) $(11,222) $ (809) $ (35,674)

</TABLE>

13 Weeks Ended
----------------------------------------------------------------
May 4, August 3, November 2, February 1, Fiscal
1996 1996 1996 1997 1996
-------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
52 Weeks Ended
February 1, 1997
Sales.......................... $912,837 $931,237 $911,099 $955,350 $3,710,523
Gross profit(b)................ 266,024 274,697 266,747 283,778 1,091,246
Selling, general and
administrative expenses(c)... 213,680 214,957 211,820 216,833 857,290
Depreciation and
amortization................. 20,639 21,410 20,488 26,419 88,956
Restructuring charge........... -- -- -- 9,137 9,137
Lease commitment
charge....................... -- -- -- 8,763 8,763
Operating earnings............. 31,705 38,330 34,439 22,626 127,100
Interest expense............... (39,889) (40,470) (40,304) (40,806) (161,469)
Loss before income taxes and
extraordinary items.......... (8,184) (2,140) (5,865) (18,180) (34,369)
Income tax benefit............. 3,321 699 2,314 8,077 14,411
Loss before
extraordinary items.......... (4,863) (1,441) (3,551) (10,103) (19,958)
Extraordinary items, net of an
income tax benefit........... (673) (204) -- -- (877)
Net loss....................... $ (5,536) $ (1,645) $ (3,551) $(10,103) $ (20,835)
</TABLE>

- -----------------------
(a) The pretax LIFO credit for Fiscal 1997 was $5.4 million consisting of
provisions of $0.4 million and $0.5 million in the first and second
quarters, respectively, and credits of $1.7 million and $4.6 million in
the third and fourth quarters, respectively.
(b) The pretax LIFO credit for Fiscal 1996 was $1.3 million consisting of
provisions of $0.85 million in the first and second quarters, no provision
in the third quarter and a $3.0 million credit in the fourth quarter.
(c) Selling, general and administrative expenses for Fiscal 1996 included a
first quarter provision of $5.8 million representing the termination costs
of two former executives of the Company, a first quarter gain of $5.6
million recognized on the sale of certain real estate and a second quarter
curtailment gain of $2.0 million due to the elimination of postretirement
medical coverage for active non-union associates.

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholder
Pathmark Stores, Inc.
Carteret, New Jersey

We have audited the accompanying consolidated balance sheets of Pathmark
Stores, Inc. and its subsidiaries (the "Company") as of January 31, 1998 and
February 1, 1997, and the related consolidated statements of operations,
stockholder's deficiency and cash flows for each of the three years in the
period ended January 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 31,
1998 and February 1, 1997, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1998 in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP
Parsippany, New Jersey
April 16, 1998

<PAGE>

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

PART III

ITEM 10. Directors and Executive Officers of the Company (As of April 15, 1998)

(a) Directors of the Company

The following table sets forth the name, principal occupation or employment
at the present time and during the last five years, and the name and principal
business of any corporation or other organization in which such occupation or
employment is or was conducted, of the directors of the Company, all of whom are
citizens of the United States unless otherwise indicated. Each individual named
below is a director of both the Company and Holdings.
<TABLE>
<CAPTION>

Director of the
Company
Name, Age, Principal Occupation and Other Directorships Since
------------------------------------------------------- --------------
<S> <C>
MATTHIAS BOWMAN, 49, Director of Merrill Lynch Capital Partners, Inc., 1997
("MLCP"), an investment firm affiliated with Merrill Lynch & Co., ("ML& Co."),
the financial services concern, since 1998; Chief Executive Officer of MLCP
from 1994 to 1998; Vice Chairman of Investment Banking with ML&Co. since 1993;
Managing Director of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPFS")
since at least 1992. Mr. Bowman is also a Director of U.S. Foodservice Corp.

JOHN W. BOYLE, 69, Chairman and Chief Executive Officer of the Company from March 1996 to 1995
October 1996 (Retired); Vice Chairman (retired), Eckerd Corporation, a drug store
chain, between 1983 and 1995. Mr. Boyle is also Chairman of United Artists Theater
Circuit, Inc.

JAMES J. BURKE, JR., 46, Partner and a Director of Stonington Partners, Inc. ("SPI"), a 1988
private investment firm, since 1993, and a Director of MLCP since 1987; Partner of
MLCP from 1993 to 1994; President and Chief Executive Officer of MLCP from 1987 to
1993. Mr. Burke was also a Managing Director of ML&Co. until 1994. Mr. Burke is also
a Director of Ann Taylor Stores Corp., Borg-Warner Security Corp., Education
Management Corp. and United Artists Theater Circuit, Inc.(1)

JAMES DONALD, 44, Chairman, President and Chief Executive Officer of the Company (since 1996
October 1996); Senior Vice President and General Manager, Safeway, Inc., Eastern
Division from February 1994 until October 1996; Vice President-Marketing, Wal-mart
Corp. prior thereto.

U. PETER C. GUMMESON, 39, Senior Vice President, Albion Alliance LLC, an asset manager 1996
specializing in private debt and equity securities (since 1996). Mr. Gummeson has
also been Managing Director of Alliance Corporate Finance Group Incorporated, an asset
manager specializing in private debt and equity securities since 1984. Both firms are
affiliated with the Equitable Investors.

STEPHEN M. McLEAN, 40, Partner and a Director of SPI since 1993; Partner of MLCP from 1993 1987
to 1994; Senior Vice President of MLCP from 1987 to 1993; Director of MLCP since 1987;
Managing Director of the Investment Banking Division of ML&Co. until 1994. Mr.
McLean is also a Director of CMI Industries, Inc., Dictaphone Corporation, Merisel,
Inc. and Packard Bio Science Company(1)

</TABLE>

47
<PAGE>

Director of the
Company
Name, Age, Principal Occupation and Other Directorships Since
------------------------------------------------------- --------------
<S> <C>
ROBERT G. MILLER, 54, Chief Executive Officer of Fred Meyer, Inc., a diversified 1997
retailer. Mr. Miller is also a Director of PacifiCorp.

ROBERT J. MYLOD, JR., 31, Principal of SPI since 1996; Associate of SPI from November 1993 1998
to December 1995; Associate of MLCP prior thereto. Mr. Mylod was also an associate of
the Investment Banking Division of MLPFS from 1993 to 1994. Mr. Mylod is also a
Director of Goss Graphic Systems, Inc.

JERRY G. RUBENSTEIN, 68, Managing Partner, Omni Management Associates; Consultant to MLCP 1996
since 1988.
</TABLE>

- ------------------
(1) Includes service with Pathmark's predecessor.

Pursuant to the Stockholders Agreement, the ML Investors are entitled to
designate seven directors, the Management Investors are entitled to designate
three directors and The Equitable Investors are entitled to designate one
director to Holdings' Board of Directors. By having the ability to designate a
majority of Holdings' Board of Directors, the Merrill Lynch Investors have the
ability to control the Company. Currently, six of the persons serving as
directors were designated by the Merrill Lynch Investors (Messrs. Bowman, Boyle,
Burke, McLean, Mylod and Rubenstein), one was designated by the Management
Investors (Mr. Donald) and one was designated by the Equitable Investors (Mr.
Gummeson). Mr. Miller was designated by the three investor groups. No family
relationship exists between any director and any other director or executive
officer of the Company.

(b) Executive Officers

The following table sets forth the name, principal occupation or employment
at the present time and during the last five years, and the name of any
corporation or other organization in which such occupation or employment is or
was conducted, of the executive officers of the Company, all of whom are
citizens of the United States unless otherwise indicated and serve at the
discretion of the Board of Directors of the Company. The executive officers of
the Company listed below were elected to office for an indefinite period of
time. No family relationship exists between any executive officer and any other
executive officer or director of the Company.

Officer of
the Company
Name Age Positions and Office Since
---- ---- --------------------- ----------
<S> <C> <C> <C>
JAMES DONALD 44 Chairman, President and Chief Executive Officer since 1996
October 1996 (1)

RON MARSHALL 44 Executive Vice President and Chief Financial Officer since 1994
October 1994. Senior Vice President and Chief Financial
Officer of Dart Group Corporation (a diversified retailer)
prior thereto.

EILEEN SCOTT 45 Executive Vice President, Marketing and Distribution 1998
(since January 1998); Vice President, Non-Foods
Merchandising and Pharmacy (November 1995 - December
1997); Vice President, Sales & Advertising (August 1994 -
November 1995); Director of Grocery Sales prior thereto.
Ms. Scott joined the Company in 1969.

</TABLE>

48
<PAGE>

Officer of
the Company
Name Age Positions and Office Since
---- ---- --------------------- ----------
<S> <C> <C> <C>
JOHN SHEEHAN 40 Executive Vice President--Operations (since January 1998); 1996
Senior Vice President--Operations (October 1996 to December
1997); Director of Operations, Albertsons, Inc., prior
thereto.

JOSEPH W. ADELHARDT 51 Senior Vice President and Controller since January 1996; 1987
Vice President and Controller prior thereto.
Mr. Adelhardt joined the Company in 1976.(2)

HARVEY M. GUTMAN 52 Senior Vice President--Retail Development. 1990
Mr. Gutman joined the Company in 1976.(2)

ROBERT JOYCE 52 Senior Vice President--Administration (since October 1996); 1989
Executive Vice President--Operations (from January 1996 to
October 1996); Senior Vice President--Operations--from
March 1995 to January 1996; Senior Vice
President--Administration prior thereto. Mr. Joyce joined
the Company in 1963.(2)

MARC A. STRASSLER 49 Vice President, Secretary and General Counsel. Mr. 1987
Strassler joined the Company in 1974.(2)

FRANK VITRANO 42 Vice President and Treasurer since December 1996; 1996
Treasurer from July 1995 to December 1996; Director--Risk
Management prior thereto. Mr. Vitrano joined the Company
in 1972.

MYRON D. WAXBERG 64 Vice President and General Counsel--Real Estate. Mr. 1991
Waxberg joined the Company in 1976.(2)
</TABLE>

- ------------------
(1) Member of the Company's Board of Directors.
(2) Includes service with Pathmark's predecessor.

<PAGE>

ITEM 11. Executive Compensation.

Summary Compensation Table

Annual Compensation Long Term Compensation Awards
----------------------------------------------------------- -----------------------------------

Securities
Position Other Annual Restricted Underlying All Other
Name and Bonus Compensation Stock Awards Options/SARs Compensation
Principal Year Salary ($) ($)(1) ($)(2) ($) (#) ($) (3)
----- --------- ------- -------------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Donald...... 1997 600,000 425,000 1,179,390 -- -- 3,632
Chairman, President 1996 193,846 1,175,000 340,021 3,400,000 100,000 16,821
and Chief
Executive Officer

Ron Marshall......... 1997 306,750 202,455 -- -- -- 4,750
Executive Vice 1996 300,000 36,000 49,177 -- -- 5,250
President and 1995 280,289 168,173 -- -- -- --
Chief Financial
Officer

John Sheehan......... 1997 186,312 52,537 80,793 -- -- --
Executive Vice 1996 51,923 81,231 9,733 -- -- --
President--
Operations

Robert Joyce......... 1997 230,062 63,267 2,195 -- -- 5,600
Senior Vice 1996 223,846 26,862 2,195 -- -- 5,250
President-- 1995 205,437 97,334 2,200 -- 250 5,250
Administration

Marc A. Strassler.... 1997 163,600 81,800 3,841 -- -- 5,600
Vice President, 1996 143,950 10,796 3,841 -- -- 5,250
Secretary and 1995 135,850 42,793 3,849 -- -- 5,250
General Counsel

Neill Crowley(4)..... 1997 219,746 -- -- -- -- 242,043
Executive Vice 1996 253,750 30,450 -- -- -- 5,250
President-- 1995 247,212 112,241 15,000 -- -- 4,341
Retail Services

Ronald Rallo(4).... 1997 197,131 -- 4,023 -- -- 183,215
Senior Vice 1996 245,000 29,400 4,389 -- -- 5,250
President-- 1995 227,500 113,585 4,399 -- -- 5,250
Merchandising

</TABLE>

- --------------------
(1) The amounts with respect to Fiscal 1997 paid to Mr. Donald was the minimum
amount payable pursuant to the -- Donald Agreement (as hereinafter
defined). The amounts with respect to Fiscal 1997 in this column represent
bonuses awarded to the other named executives in recognition of their
efforts in connection with the -- Company's distribution outsourcing with
C&S and refinancing of its outstanding bank indebtedness.
(2) Represents in Fiscal 1997 (i) with respect to Mr. Donald, payment of
$54,390 as reimbursement for -- relocation expenses and forgiveness of loan
payments due to the Company of $1,125,000; (ii) with respect to Mr.
Sheehan, reimbursement of relocation expenses; and (iii) with respect to
Messrs. Rallo, Joyce and -- Strassler, payments as reimbursement for
interest paid to Holdings for loans, each of less than $60,000 from
Holdings in connection with the purchase of SMG-II Class A Common Stock and
includes an amount sufficient to pay any income taxes resulting therefrom
after taking into account the value of any deductions available as a result
of the payment of such interest and taxes.
(3) Represents in Fiscal 1997 (i) with respect to Mr. Donald, payments of
$3,632 for a term life insurance -- premium on Mr. Donald's life; (ii) with
respect to Mr. Rallo, payments of $5,600 representing the Company's
matching contribution to the SGC Savings Plan and $177,615 paid to Mr.
Rallo pursuant to a Resignation -- Agreement dated November 4, 1997 among
Mr. Rallo, the Company and SMG-II (the "Rallo Agreement"); (iii) -- with
respect to Mr. Crowley, payments of $5,600, representing the Company's
matching contribution to the SGC Savings Plan and $236,443 pursuant to a
Resignation Agreement dated November 4, 1997 among Mr. Crowley, -- SMG-II
and the Company (the "Crowley Agreement"); and (iv) with respect to the
other named executive -- officers, the Company's matching contribution
under the SGC Savings Plan.

(4) Messrs. Rallo and Crowley each retired on November 4, 1997.

<PAGE>

Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values(1)
<TABLE>
<CAPTION>

Number of Securities
Underlying Unexercised
Options/SARs at FY-End
(#)
Exercisable/
Name Unexercisable
---- -----------------------
<S> <C>
Neill Crowley............................................................................. 1,000/0
James Donald.............................................................................. 0/100,000
Robert Joyce.............................................................................. 2,420/0
Ron Marshall.............................................................................. 2,000/0
Ronald Rallo.............................................................................. 2,850/0
John Sheehan.............................................................................. 0/0
Marc Strassler............................................................................ 1,080/0
</TABLE>

- --------------
(1) Options shown were granted pursuant to the SMG-II 1987 Management Investors
Stock Option Plan (except with respect to Mr. Donald) and relate to shares
of Class A Common Stock of SMG-II. No options were either granted to or
exercised by any of the above named executives in Fiscal 1997.

Pension Plan Table(1)
Years of Service
-------------------------------------------------------------------------------------
Final Average Pay 10 15 20 25 30 35
- ----------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 150,000............. $ 20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 60,000
200,000............. 26,667 40,000 53,333 66,667 80,000 80,000
225,000............. 30,000 45,000 60,000 75,000 90,000 90,000
250,000............. 33,333 50,000 66,667 83,333 100,000 100,000
300,000............. 40,000 60,000 80,000 100,000 120,000 120,000
350,000............. 46,667 70,000 93,333 116,667 140,000 140,000
400,000............. 53,333 80,000 106,667 133,333 160,000 160,000
450,000............. 60,000 90,000 120,000 150,000 180,000 180,000
500,000............. 66,667 100,000 133,333 166,667 200,000 200,000
550,000............. 73,333 110,000 146,667 183,333 220,000 220,000
600,000............. 80,000 120,000 160,000 200,000 240,000 240,000
650,000............. 86,667 130,000 173,333 216,667 260,000 260,000
700,000............. 93,333 140,000 186,667 233,333 280,000 280,000
750,000............. 100,000 150,000 200,000 250,000 300,000 300,000
</TABLE>

- ------------------
(1) The table above illustrates the aggregate annual pension benefits payable
under the SGC Pension Plan and Excess Benefit Plan (collectively, the
"Pension Plans"). The retirement benefit for individuals with 30 years of
credited service is 40% of the individual's average compensation during his
or her highest five compensation years in the last ten years before
retirement, less one-half of the social security benefit received. The
retirement benefit is reduced by 3.33% for every year of credited service
less than 30. Covered compensation under the Pension Plans includes all
cash compensation subject to withholding plus amounts deferred under the
Savings Plan pursuant to Section 401(k) of the Internal Revenue Code of
1986, as amended, and as to individuals identified in the Summary
Compensation Table, would be the amount set forth in that table under the
headings "Salary" and "Bonus". The table shows the estimated annual
benefits an individual would be entitled to receive if normal retirement at
age 65 occurred in January 1998 after the indicated number of years of
covered employment and if the average of the participant's covered
compensation for the five years out of the last ten years of such
employment yielding the highest such average equaled the amounts indicated.
The estimated annual benefits are based on the assumption that the
individual will receive retirement benefits in the form of a single life
annuity (married participants may elect a joint survivorship option) and
are before applicable deductions for social security benefits in effect as
of January 1998. As of December 31, 1997, the following individuals had the
number of years of credited service indicated after their names: Mr.
Donald, 1.2,

51
<PAGE>

Mr. Crowley, 3.6; Mr. Rallo, 30; Mr. Joyce, 27.7; Mr.
Marshall, 3.2; Mr. Sheehan, 1.2; and Mr. Strassler, 23.8. As described
below in "Compensation Plans and Arrangements--Supplemental Retirement
Agreements", certain of the named executives is party to a Supplemental
Retirement Agreement with Pathmark.

Compensation Plans and Arrangements

Supplemental Retirement Agreements. The Company has entered into
supplemental retirement agreements with certain key executives, including
certain of the executive officers named in the Summary Compensation Table, which
provide that said executive officers will be paid upon termination of employment
after attainment of age 60 a supplemental pension benefit in such an amount as
to assure him or her an annual amount of pension benefits payable under the
supplemental retirement agreement, the Company's qualified pension plans and
certain other plans of the Company, including Savings Plan balances as of March
31, 1983, (a) in the case of Messrs. Joyce, Strassler and Rallo equal to (i) 30%
of his final average Compensation based on ten years of service with the Company
and increasing 1% per year for each year of service thereafter, to a maximum of
40%, of his final average Compensation based on 20 years of service, or (ii)
$150,000 ($100,000 for Mr. Strassler), whichever is less, and (c) in the case of
Messrs. Crowley and Marshall, equal to 12.5% of his final average Compensation
based on five years of service with the Company and increasing 2.5% per year for
each year of service thereafter to a maximum of 35% of his final average
Compensation based on 14 years of service. "Compensation" includes base salary
and bonus payments under the Executive Incentive Plan, but excludes Company
matching contributions under the Savings Plan. If the executive leaves the
Company prior to completing 20 years of service (other than for disability), the
supplemental benefit would be reduced proportionately. Should the executive die,
the surviving spouse then receiving or, if he or she was not then receiving a
supplemental pension benefit, the spouse would be entitled to a benefit equal to
two-thirds of the benefit to which the executive would have been entitled,
provided the executive has attained at least ten years of service with the
Company.

Employment Agreements:

Employment Agreement Among Pathmark, SMG-II and James L. Donald. On October
8, 1996 (the "Effective Date"), the Company and SMG-II entered into an
employment agreement with Mr. James L. Donald (the "Donald Agreement") pursuant
to which Mr. Donald was elected Chairman, President and Chief Executive Officer
for a term of five years. The Donald Agreement provides Mr. Donald with an
initial annual base salary of $600,000 and provides that he shall participate in
the Pathmark Executive Incentive Plan, under which Mr. Donald may earn an annual
bonus of up to 125% of his annual salary based on performance targets that are
set by the Board. For the first full fiscal year during the term of the Donald
Agreement, Mr. Donald shall receive a minimum annual bonus of $425,000.
Furthermore, under the Donald Agreement, Mr. Donald is guaranteed an annual
bonus for each of the second, third and fourth full fiscal years of the term of
at least 25% of his base salary. The Donald Agreement provides Mr. Donald with
the right to defer up to 50% of his annual bonus and salary, which shall be held
in a grantor trust established by the Company. During the term of the Donald
Agreement, in addition to the base salary, bonus eligibility and other customary
annual benefits and perquisites that the Company generally provides to its
executive officers, the Company will provide Mr. Donald with a company car and
term life insurance in the amount of $4.5 million during the first year and $3.2
million thereafter. The Company also reimbursed Mr. Donald for the legal
expenses incurred by him in the negotiation of the Donald Agreement. Mr. Donald
also received a one-time signing bonus of $1 million, which is being amortized
over the term of the Donald Agreement.

<PAGE>

Furthermore, Mr. Donald received an equity package (the "Equity Strip"),
consisting of 8,520 restricted shares of a new series of SMG-II Preferred Stock
with a stated value of $200 per share and 19,851 restricted shares of SMG-II
Class A Common Stock, the terms of which are set forth in the stock award
agreement (the "Stock Award Agreement"). The Equity Strip, which as of the
Effective Date was valued by the Company at $3.4 million based upon an
independent appraisal, will vest in its entirety upon the occurrence of an
Employment-Related Event, as defined in the Stock Award Agreement, and will be
forfeited in its entirety upon the occurrence of a Termination Event, as defined
in the Donald Agreement. The valuation of $3.4 million is being amortized by the
Company over the term of the Donald Agreement. The Preferred Stock ranks pari
passu with the existing SMG-II convertible preferred stock and will accrue
dividends at a rate of 10% per annum. The Preferred Stock will be convertible
into Common Stock on a one-for-one basis. As of the Effective Date, the
Preferred Stock had accumulated dividends of approximately $122 per share.

In addition, Mr. Donald received a stock option (the "Option") to purchase
an aggregate of 100,000 shares of SMG-II Class A Common Stock. The Option
consists of component A ("Option Component A") covering 50,000 shares of SMG-II
Class A Common Stock and component B ("Option Component B") covering the
remaining 50,000 shares of SMG-II Class A Common Stock. Any terms used herein
not otherwise defined shall have the meanings assigned to them in the Donald
Agreement. Option Component A shall have an initial per share exercise price of
$100 per share. The per share exercise price of Option Component A will increase
to $125 per share on the first day of the Fiscal Year beginning in calendar year
2000 ("Fiscal Year 2000") and to $150 per share on the first day of the Fiscal
Year beginning in calendar year 2001 ("Fiscal Year 2001"). Option Component B
will have an initial per share exercise price of $100 per share. The per share
exercise price of Option Component B will increase to $150 per share on the
first day of the Fiscal Year beginning in calendar year 1999; to $250 per share
on the first day of Fiscal Year 2000; and to $350 per share on the first day of
Fiscal 2001. The Option will expire on the fifth anniversary of the Effective
Date to the extent not previously exercised (the "Expiration Date"); provided,
however, that the Expiration Date for the portion of Option Component A and
Option Component B which is vested (as explained below) immediately prior to
such Expiration Date will be extended until the seventh anniversary of the
Effective Date if such vested portion of Option Component A and Option Component
B, as the case may be, has not become exercisable by such initial Expiration
Date. During the period of such extension, the per share exercise price of
Option Component A and Option Component B, as the case may be (to the extent not
previously exercised), will increase at the end of each month during such
extension period at an annual rate of 10%. Mr. Donald will vest in 25% of Option
Component A and in 25% of Option Component B on the Effective Date and on each
of the first through third anniversaries of the Effective Date, provided that
the Optionee is in the employ of Pathmark on each such date. Upon the occurrence
of a Minimum IPO (as defined below) while the Optionee is in the employ of the
Company, the entire Option shall immediately and fully vest. In addition, the
Option will immediately and fully vest upon the occurrence of a Change in
Control (as defined below) occurring prior to the Termination Event (as defined
below). If Mr. Donald's employment with the Company should end as a result of a
Termination Event, then, as of the applicable date of termination, the entire
Option (whether or not then vested) will be immediately and irrevocably
forfeited.

Except for purposes of tag-along rights under Article V of the Stockholders
Agreement and the piggyback rights under Article VI of the Stockholders
Agreement, the Option shall not be exercisable (even though the Option or a
portion thereof is vested) unless and until it becomes exercisable in accordance
with the following provisions:

53
<PAGE>

(i) The Exercisable Percentage (as defined below) of each component of the
Option will become exercisable if the ML Investors (as defined in the
Stockholders Agreement) have a Realization Event (as defined below) in
respect of the Common Stock at a per share price in excess of the
amounts (the "Target Prices") set forth below :

Period of Time Target Price per Target Price per
Share/Option Component A Share/Option Component B
------------------------------- ----------------------------- -------------------------
<S> <C> <C>
Prior to 2/1/00 $ 100 $150

2/1/00 to 1/31/01 $ 125 $250

2/1/01 and after $ 150 $350

</TABLE>

(ii) Notwithstanding the above, if the ML Investors have a Realization Event
for more than 15% of the shares of Common Stock beneficially owned by
them on the date of grant and Option at a per share price in excess of
the Target Price described above applicable to the date when such
Realization Event occurs, then the components of the Option for which
such Target Prices have been achieved shall become immediately vested
and exercisable and the exercise price shall not thereafter increase.

In the event that Mr. Donald becomes entitled to any tag-along rights under
Section 5.6 or registration rights under Section 6.2 of the Stockholders
Agreement, he will be permitted to exercise his sale or transfer rights with
respect to the portion of the Option for which the Target Price has been met.
For purposes of Section 5.6(b) of the Stockholders Agreement, 100% of the
portion of the Option for which the Target Amount has been realized will be
considered exercisable in order to determine the number of shares to be included
under Section 5.6(b) of the Stockholders Agreement. If, prior to the Expiration
Date, the Board determines that it is necessary or desirable to list, register
or qualify the shares of Common Stock subject to the Option, and if such
listing, registration or qualification is delayed beyond the Expiration Date,
the vested and exercisable portion of the Option will remain exercisable until
30 days after such listing, registration, or qualification is accomplished.

Pursuant to the Donald Agreement, the Company lent Mr. Donald $4.5 million
(the "Loan") evidenced by 16 separate promissory notes. Under the terms of each
note, if Mr. Donald is in full employment of the Company on a quarterly
anniversary of the Effective Date, Mr. Donald's obligation to pay such note
maturing on such date will be forgiven as to principal, but not any then accrued
and unpaid interest. In the event his employment ends at any time during the
term of the Donald Agreement prior to a Change in Control as a result of a
Termination Event, each note will become immediately due and payable as to all
outstanding principal and all accrued and unpaid interest. These notes bear
interest at an effective rate of 6%. The Loan is on a full recourse basis and
secured by the Equity Strip, the Option and any shares acquired upon exercise of
the Option.

In the event of Mr. Donald's Involuntary Termination, Pathmark will pay him
(w) the full amount of any accrued but unpaid base salary, plus a cash payment
(calculated on the basis of the base salary then in effect) for all unused
vacation time which Mr. Donald may have accrued as of the date of Involuntary
Termination; (x) the amount of any earned but unpaid Annual Bonus for any Fiscal
Year of Pathmark ended on or prior to the date of Involuntary Termination; (y)
any unpaid reimbursement for business expenses; and (z) a severance amount equal
to four times Mr. Donald's annual rate of salary, based upon the annual rate
then in effect immediately prior to the date of termination, payable in monthly
installments over 24 months. In addition, in the event of an Involuntary
Termination, Mr. Donald and his eligible dependents shall continue to be
eligible to participate in the medical, dental, health and life insurance plans
applicable to Mr. Donald immediately prior to the Involuntary Termination on the
same terms and conditions in effect

54
<PAGE>

immediately prior to such Involuntary Termination until the earliest to
occur of (i) the end of the 24-month period after the date of termination, the
date Mr. Donald becomes eligible to be covered under the benefit plans of a
subsequent employer and (iii) the date Mr. Donald breaches any of the protective
covenants described below. Furthermore, in the event of an Involuntary
Termination, the Equity Strip will automatically and without the need for
further action or consent by Pathmark become fully vested in the manner provided
by the Stock Award Agreement, and the Option will continue to remain outstanding
to the extent provided by the Option Agreement. All notes not previously
delivered to Mr. Donald will automatically and without the need for further
action or consent by Pathmark be delivered by the escrow agent to Mr. Donald
marked "Paid in Full" upon payment by Mr. Donald of any then accrued but unpaid
interest on the Loan. During the 30-day period beginning 6 months after a Change
in Control, Mr. Donald shall be eligible to resign from the Company for no
stated reason and receive all the amounts listed in clauses (w), (x), (y) and
(z) above. Any such resignation in such 30-day period following a Change in
Control shall be treated as an Involuntary Termination for all purposes of this
Agreement.

In the event Mr. Donald's employment ends at any time during the term as a
result of a Termination Event, the Company shall pay him only the amounts
decried in clauses (w), (x) and (y) above, and Mr. Donald will immediately
forfeit the Equity Strip and the Option. In addition, each note will become
immediately due and payable as to all outstanding principal and all accrued and
unpaid interest if Mr. Donald's employment ends prior to a Change in Control as
a result of a Termination Event.

Although, in the event of an Involuntary Termination, Mr. Donald has no duty
to mitigate the severance amount by seeking new employment, any severance amount
payable during the second year of the severance period shall be reduced by any
compensation or benefits Mr. Donald earns in connection with any employment by
another employer.

The Donald Agreement includes protective covenants that prohibit Mr. Donald
from engaging (i) in any activity in competition with Pathmark, or any parent or
subsidiary thereof or (ii) in soliciting employees or customers of Pathmark, or
any parent or subsidiary thereof, during his term of employment and up to two
years thereafter. The Donald Agreement also includes a confidentiality clause
which prohibits Mr. Donald from disclosing any confidential information
regarding Pathmark.

The following definitions apply to the terms of the Donald Agreement:

"Cause" means the termination of Mr. Donald's employment with Pathmark
because of (i) his willful and repeated failure (other than by reason of
incapacity due to physical or mental illness) to perform the material
duties of his employment after notice from Pathmark of such failure and
his inability or unwillingness to correct such failure within 30 days of
such notice, (ii) his conviction of a felony or plea of no contest to a
felony or (iii) perpetration by Mr. Donald of a material dishonest act or
fraud against Pathmark or any parent or subsidiary thereof; provided
however, that, before Pathmark may terminate Mr. Donald for Cause, the
Board shall deliver to him a written notice of Pathmark's intent to
terminate him for Cause, including the reasons for such termination, and
Pathmark must provide him an opportunity to meet once with the Board prior
to such termination.

"Change in Control" means the acquisition by a person (other than a person
or group of persons that beneficially owns an equity interest in SMG-II or
Pathmark on the Effective Date or any person controlled thereby) of more
than 50% control of the voting securities of SMG-II as a result of a sale
of voting securities after the Effective Date by the persons who, on the
Effective Date, have a beneficial interest in such voting securities, but
shall not include any change in the ownership of Pathmark or SMG-II
resulting from a public offering.

"Common Stock" means SMG-II Class A Common Stock, par value $0.01 per share.

55
<PAGE>

"Exercisable Percentage" means (i) in connection with a Third Party Sale,
the percentage of the shares of Common Stock subject to the Option that
Mr. Donald is entitled to sell pursuant to the exercise of his "tag-along"
rights under the Stockholders Agreement and (ii) in connection with a
Public Offering, the percentage of the shares of Common Stock then
beneficially owned by the ML Investors (as defined in the Stockholders
Agreement) which are sold in the Public Offering.

"Good Reason" means Mr. Donald's resignation because of (i) the failure of
Pathmark to pay any material amount of compensation to Mr. Donald when
due, (ii) a material adverse reduction or material adverse diminution in
Mr. Donald's titles, duties, positions or responsibilities with Pathmark,
including, but not limited to, failure by Pathmark to elect Mr. Donald to
the office of Chief Executive Officer, or (iii) any other material breach
by Pathmark of the Donald Agreement. In order to assert Good Reason, Mr.
Donald must provide written notification of his intention to resign within
30 business days after he knows or has reason to know the occurrence of
any such event. After Mr. Donald provides such written notice to Pathmark,
Pathmark shall have 15 days from the date of receipt of such notice to
effect a cure of the condition constituting Good Reason.

"Involuntary Termination" means (i) the termination of Mr. Donald's
employment by Pathmark other than for Cause or disability or (ii) Mr.
Donald's resignation of employment with Pathmark for Good Reason.

"Minimum IPO" means a Public Offering of the Common Stock after the Date of
Grant at the conclusion of which the aggregate price for all the shares of
Common Stock having been sold to the public in such Public Offering, plus
the aggregate offering price for all shares of Common Stock sold in all
prior Public Offerings of Common Stock occurring after the date that Mr.
Donald is granted any Option, exceeds $50 million.

"Preferred Stock" shall mean a new series of convertible preferred stock
that will be issued for purposes of the Donald Agreement.

"Public Offering" means a public offering of the Common Stock pursuant to an
effective registration statement under the Securities Act.

"Realization Event" means the receipt by the ML Investors (as defined in the
Stockholders Agreement) of cash or property from an unrelated third party
as consideration for the sale of shares of Common Stock then beneficially
owned by the ML Investors. For purposes of the Donald Agreement, any
property other than cash received by the ML Investors in the Realization
Event shall have the value ascribed to such property by the parties to
such sale.

"Securities Act" means the Securities Act of 1933, as amended.

"Stockholders Agreement" shall mean the Stockholders Agreement, dated as of
February 4, 1991, as amended, among SMG-II and its stockholders.

"Termination Event" shall mean Mr. Donald's resignation without Good Reason
or a termination by Pathmark for Cause.

"Third Party Sale" means a sale of Common Stock subject to Section 5.6 of
the Stockholders Agreement.

56
<PAGE>

Other Executive Agreements

As of April 1, 1997, the Company entered into an employment agreement with
Mr. Sheehan. As of September 9, 1994, the Company entered into an employment
agreement with Mr. Marshall. As of June 1, 1995, the Company entered into an
employment agreement with Mr. Strassler and Mr. Joyce, respectively. The four
above mentioned employment agreements are hereinafter referred to collectively
as the "Employment Agreements". Each of the Employment Agreements is for an
initial term of two years. The term of each Employment Agreement is
automatically extended for an additional year on (a) April 1, 1999 for Mr.
Sheehan and on each successive April 1st thereafter; (b) February 1, 1999 for
Mr. Marshall and on each successive February 1st thereafter, and (c) June 1,
1998 for Mr. Strassler and Mr. Joyce and on each successive June 1st thereafter.
Under the terms of his respective Employment Agreement, each executive is
entitled to a minimum annual base salary of (a) $205,000 for Mr. Sheehan, (b)
$309,000 for Mr. Marshall, (c) $164,800 for Mr. Strassler, and (d) $231,750 for
Mr. Joyce, which salary is subject to upward adjustment by the Company. The
Employment Agreements also provide that each executive shall be entitled to
receive an annual bonus of up to 66% of his annual base salary with respect to
Messrs. Sheehan and Marshall, up to 55% and 50% of his annual base salary with
respect to Messrs. Joyce and Strassler, respectively, and shall be provided the
opportunity to participate in pension and welfare plans, programs and
arrangements that are generally made available to executives of Pathmark or as
may be deemed appropriate by the Compensation Committee of the Board of
Directors of SMG-II.

In the event one of the four above named executives' employment is
terminated by the Company without Cause (as defined in the Employment
Agreements), or by the executive for Good Reason (as defined in the Employment
Agreements) prior to the termination of the applicable Employment Agreement,
such executive will be entitled to continue to receive his base salary and
continued coverage under health and insurance plans for the period commencing on
the date of such termination or resignation through the date of applicable
Employment Agreement would have expired had it not been automatically renewed
but for said termination or resignation, reduced by any compensation or benefits
which the executive is entitled to receive in connection with his employment by
another employer during said period.

The Employment Agreements contain agreements by the executives not to
compete with the Company as long as they are receiving payments under an
employment agreement and an agreement by the executives not to disclose
confidential information.

On November 4, 1997 (the "Retirement Date"), Messrs. Crowley and Rallo each
retired as executive officers of the Company. Pursuant to the Rallo Agreement,
Mr. Rallo will be entitled to receive his base salary at the annual rate of
$252,350 per year during the period commencing November 5, 1997 and ending May
31, 1999, or the date of his death, if earlier (the "Rallo Benefit Period").
Additionally, Mr. Rallo will be entitled to receive continued health coverage
through the Rallo Benefit Period under the Company's health and insurance plans
applicable to him immediately prior to the Retirement Date. Each of the above
described payments and benefits shall be reduced by any compensation and
benefits earned by Mr. Rallo for any calendar year during the Rallo Benefit
Period. Additionally, pursuant to the terms of the Rallo Agreement, the Company
made a cash lump sum payment to Mr. Rallo of $138,792 on December 15, 1997.
Pursuant to the Crowley Agreement, Mr. Crowley will be entitled to receive his
base salary at the annual rate of $288,399 per year during the period commencing
November 5, 1997 and ending July 31, 1999, or the date of his death, if earlier
(the "Crowley Benefit Period"). Additionally, Mr. Crowley will be entitled to
receive continued health coverage through the Crowley Benefit Period under the
Company's health and insurance plans applicable to him immediately prior to the
Retirement Date. Each of the above described payments and benefits shall be
reduced by any compensation and benefits earned by Mr. Crowley for any calendar
year during the Crowley Benefit Period. Additionally, pursuant to the terms of
the Crowley Agreement, the Company made a cash lump sum payment to Mr. Crowley
of $192,074 on April 15, 1998.

<PAGE>

Compensation Committee Interlocks and Insider Participation

Messrs. Burke, Boyle and McLean comprise the compensation committee of the
Board of Directors of SMG-II and are responsible for decisions concerning
compensation of the executive officers of the Company. Messrs. Burke and McLean
are directors of MLCP and have been retained by MLCP as consultants. MLCP is an
indirect wholly-owned subsidiary of ML&Co. See "Security Ownership of Certain
Beneficial Ownership and Management."

Compensation of Directors

Each director who is not employed by the Company or one of its subsidiaries,
SPI, MLCP or the Equitable Investors or its affiliates receives an aggregate
annual retainer of $20,000 per year, plus travel expenses, for service as a
director on the Board of Directors of SMG-II and its subsidiaries, including the
Company.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management.

As of April 15, 1998, all shares of the Company's capital stock is held by
PTK. All of PTK's capital stock is held by Holdings. Since February 4, 1991, all
shares of the Holdings Common Stock are held by SMG-II. As of April 15, 1998,
the number of shares of SMG-II (i) Class A Common Stock, (ii) Class B Common
Stock, (iii) Series A Preferred Stock, (iv) Series B Preferred Stock and (v)
Series C Preferred Stock, beneficially owned by the persons known by management
of the Company to be the beneficial owners of more than 5% of the outstanding
shares of any class as "beneficial ownership" has been defined under Rule 13d-3,
as amended, under the Securities Exchange Act of 1934, are set forth in the
following table:

Number % of
Name of Shares Class
<S> <C> <C>
SMG-II Class A Common Stock
Merrill Lynch Capital Appreciation Partnership No. IX, L.P.(2)......... 488,704.8 66.6
ML Offshore LBO Partnership No. IX(2).................................. 12,424.7 1.7
Barfield House
St. Julians Avenue
St. Peter Port
Guernsey
Channel Islands
ML Employees LBO Partnership No. I, L.P.(2)............................ 12,148.6 1.6
ML IBK Positions, Inc.(3).............................................. 21,258.9 2.9
Merchant Banking L.P. No. 1(3)......................................... 8,119 1.1
Merrill Lynch KECALP L.P. 1987(3)...................................... 7,344 1.0
Chemical Investments, Inc.(4).......................................... 30,000 4.1
270 Park Avenue
New York, NY 10017
Management and other employees (including former employees of Pathmark) 153,894 (1) 21.0
200 Milik Street
Carteret, NJ 07008
SMG-II Class B Common Stock
The Equitable Life Assurance Society of the United States(5)........... 150,000 46.9
c/o Albion Alliance LLC
1345 Avenue of the Americas, 39th Floor
New York, NY 10005
Equitable Deal Flow Fund, L.P.(5)...................................... 150,000 46.9
c/o Albion Alliance LLC
1345 Avenue of the Americas, 39th Floor
New York, NY 10005

</TABLE>

<PAGE>

Number % of
Name of Shares Class
<S> <C> <C>
Chemical Investments, Inc.(4).................................................... 20,000 6.2
SMG-II Series A Preferred Stock(6)...................................................
Merrill Lynch Capital Appreciation Partnership No. B-X, L.P.(2).................. 133,043 56.2
ML Offshore LBO Partnership No. B-X(2)........................................... 40,950 17.3
MLCP Associates, L.P. No. II(2).................................................. 1,740 .7
ML IBK Positions, Inc.(3)........................................................ 46,344.5 19.6
Merchant Banking L.P. No. IV(3).................................................. 3,779 1.6
Merrill Lynch KECALP L.P. 1989(3)................................................ 7,000 3.0
Merrill Lynch KECALP L.P. 1991(3)................................................ 3,874.5 1.6
SMG-II Series B Preferred Stock(6)
Chemical Investments, Inc.(4).................................................... 12,500 7.0
The Equitable Life Assurance Society of the United States(5)..................... 84,134 46.5
Equitable Deal Flow Fund, L.P.(5)................................................ 84,135 46.5
SMG-II Series C Preferred Stock(6)................................................... 8,520 100.0
James Donald
200 Milik Street
Carteret, NJ 07008

</TABLE>

- ---------
(1) Includes presently exercisable options granted under the Plan for
61,418 shares of SMG-II Class A Common Stock held by Management Investors.
(2) MLCP and its affiliates are the direct or indirect managing partners of ML
Offshore LBO Partnership No. IX, Merrill Lynch Capital Appreciation
Partnership No. IX, L.P., ML Employees LBO Partnership No. 1, L.P., Merrill
Lynch Capital Appreciation Partnership No. B-x, L.P., ML Offshore LBO
Partnership No. B-X and MLCP Associates, L.P. No. II. Such entities and
those disclosed in footnote (3) below, are referred to herein as the ML
Investors. The address of such entities is c/o Merrill Lynch Capital
Partners, Inc., in care of Stonington Partners, Inc., 767 Fifth Avenue, New
York, New York 10153. MLCP is an indirect wholly owned subsidiary of ML&Co.
The partners and principals of SPI (including Messrs. Burke, McLean and
Mylod) are consultants to MLCP. Mr. Bowman is Chief Executive Officer of
MLCP.
(3) Merchant Banking L.P. No. 1, Merchant Banking L.P. No. IV, Merrill Lynch
KECALP L.P. 1987, Merrill Lynch KECALP L.P. 1989, Merrill Lynch KECALP
L.P. 1991 and ML IBK Positions, Inc. are indirectly controlled by ML&Co.
The address of such entities is c/o James Caruso, Merrill Lynch & Co.,
Inc., World Financial Center, South Tower, New York, New York, 10080-6123.
(4) Chemical Investments, Inc. is an affiliate of Chase Manhattan Corp.
(5) The Equitable Investors are separate purchasers who are affiliates of each
other.
(6) SMG-II Preferred stock may be converted into an equivalent number of shares
of common stock of SMG-II in accordance with its terms.

59
<PAGE>

No officer or director claims beneficial ownership of any share of the
Company's Common Stock, Holdings Common Stock, or of SMG-II stock other than
SMG-II Class A Common Stock, except Mr. Donald who claims beneficial ownership
of 8,520 (100%) shares of SMG-II Series C Preferred Stock. As of April 15, 1998,
the number of shares of SMG-II Class A Common Stock beneficially owned by each
director, by each of the executive officers named in the Summary Compensation
Table and by all directors and executive officers as a group is as follows:
<TABLE>
<CAPTION>

Name Number of Shares % of Class
---- ---------------- ----------
<S> <C> <C>
Matthias Bowman(1)........................................ -- --
James J. Burke, Jr.(1).................................... -- --
James Donald.............................................. 19,851 2.6
Robert Miller............................................. -- --
Neill Crowley(2).......................................... 1,000 *
U. Peter C. Gummeson...................................... -- --
Ron Marshall(2)........................................... 2,000 *
Robert J. Mylod, Jr.(1)................................... -- --
Stephen M. McLean(1)...................................... -- --
John W. Boyle(2).......................................... 3,000 *
Ronald Rallo(2)........................................... 3,250 *
Jerry G. Rubenstein(2).................................... 2,500 *
Robert Joyce(2)........................................... 3,120 *
Marc Strassler(2)......................................... 1,430 *
John Sheehan.............................................. -- --
Directors and named executive officers as a group(1)(2) 36,151 4.9

</TABLE>

- -----------
* Less than 1%
(1) Does not include 550,000 shares of SMG-II Class A Common Stock or 236,731.5
shares of SMG-II Series A Preferred Stock owned beneficially by a group of
which MLCP is a part. Messrs. Burke, McLean and Bowman, directors of MLCP,
disclaim beneficial ownership in all such shares.
(2) Includes presently exercisable options granted under the Plan to
purchase shares of SMG-II Class A Common Stock, as follows: Mr. Crowley,
1,000; Mr. Marshall, 2,000; Mr. Joyce, 2,420; Mr. Rallo, 2,850;
Mr.Rubenstein, 1,000; Mr. Strassler, 1,080 and Mr. Boyle, 3,000 and all
directors and executive officers as a group, 42,461.

ITEM 13. Certain Relationships and Related Transactions

The holders of SMG-II Preferred Stock are a party with the holders of SMG-II
Common Stock to the Stockholders Agreement, which, among other things, restricts
the transferability of SMG-II capital stock and relates to the corporate
governance of SMG-II and Holdings. Among other provisions, the Stockholders
Agreement requires a vote of at least 80% of the members of the Board of
Directors to cause the Company to conduct any business other than that engaged
in by the Company in February of 1991 and the approval of stockholders
representing 662/3% of the number of shares of SMG-II voting capital stock
voting together as a single class for SMG-II to enter into any Significant
Transaction (as defined), including certain mergers, sales of assets,
acquisitions, sales or redemptions of stock, the amendment of the certificate of
incorporation or by-laws or the liquidation of SMG-II. The Stockholders
Agreement also provides that SMG-II must obtain the prior written consent of the
Equitable Investors with respect to certain of these transactions and that the
Equitable Investors have certain preemptive rights with respect to the sale of
capital stock of Holdings or the Company.

60
<PAGE>

The Stockholders Agreement also contains an agreement of the stockholders of
SMG-II with respect to the composition of SMG-II's and Holdings' Board of
Directors. Under this agreement, the Merrill Lynch Investors will be entitled to
designate up to seven directors, the Management Investors will be entitled to
designate up to three directors and the Equitable Investors will be entitled to
designate one director to both of SMG-II's and Holdings' Board of Directors.
Such agreement furthermore entitles the ML Investors to designate a majority of
Holdings' Board of Directors at all times. By having the ability to designate a
majority of Holdings' Board of Directors, the ML Investors have the ability to
control the Company, since Holdings (through PTK) owns all of the outstanding
shares of the Company's Common Stock. The ML Investors are controlled by ML&Co.

In addition to the foregoing, the Stockholders Agreement contains terms
restricting the transfer of SMG-II Common Stock and SMG-II Preferred Stock
(collectively, the "SMG-II Stock") by the stockholders of SMG-II, and providing
to the stockholders of SMG-II rights of first offer with respect to resales of
SMG-II Stock, rights of first refusal with respect to certain issuances of
shares of SMG-II Stock, certain rights to demand or participate in registrations
of shares of SMG-II Stock under the Securities Act and certain "tag-along"
rights.

In October 1996, pursuant to the Donald Agreement, James L. Donald, an
Officer and Director, was provided by Pathmark with a four-year loan of $4.5
million. The foregoing indebtedness to Pathmark is evidenced by 16 full recourse
promissory notes for $281,250 each bearing interest at the short-term or
intermediate-term federal rate in effect as of the date of each note (effective
rate of 6%) and secured by the Equity Strip and the Option. Under the Donald
Agreement, one promissory note will be forgiven at the end of each quarter of a
year during which Mr. Donald remains employed by Pathmark. In the event that Mr.
Donald resigns his employment without Good Reason or is terminated for Cause or
in the event of his death, the outstanding portion of the loan will become
immediately due and payable. As of April 1, 1998, Mr. Donald remained indebted
to the Company in the amount of $3,093,750.

In March 1990, Jerry G. Rubenstein, a Director, borrowed from Holdings
$100,000 in order to help finance his purchase of Holdings' Class A Common
Stock. Subsequently, such shares of Holdings' Class A Common Stock were
exchanged for shares of SMG-II Class A Common Stock. The foregoing indebtedness
to Holdings is evidenced by a full recourse promissory note (the "Recourse
Note"). The Recourse Note is for a term of ten years and bears interest at the
rate of 8.02% per annum, payable annually. Except as otherwise provided in the
Recourse Note, no principal on such recourse loan shall be due and payable until
the tenth anniversary of the date of issue of such Recourse Note. Under the
terms of the agreement pursuant to which the shares of Holdings' Class A Common
Stock were exchanged for shares of SMG-II Class A Common Stock, the Company is
obligated to pay to each Management Investor who pays interest on his Recourse
Note (except under certain circumstances) an amount equal to such interest, plus
an amount sufficient to pay any income taxes resulting from the above prescribed
payment after taking into account the value of any deduction available to him as
a result of the payment of such interest or taxes. As of April 1, 1998, Mr.
Rubenstein remained indebted to Holdings in the amount of $100,000.

<PAGE>

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) Documents filed as part of this Report.

1. Financial Statement Schedules: None required
2. Exhibits:

Incorporated herein by reference is a list of the Exhibits
contained in the Exhibit Index on Pages 64 through 66 of this
Report.

(b) Reports on Form 8-K.
None

See item 14(a) above.

62
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: April 28, 1998 PATHMARK STORES, INC.

By: /s/ RON MARSHALL
------ ------------------
Ron Marshall
Executive Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JAMES DONALD Director, Chairman, President and Chief April 28, 1998
---------------- Executive Officer
(James Donald) (Principal Executive Officer)

/s/ RON MARSHALL Executive Vice President and Chief April 28, 1998
---------------- Financial Officer
(Ron Marshall) (Principal Financial Officer)

/s/ JOSEPH ADELHARDT Senior Vice President and Controller April 28, 1998
-------------------- (Principal Accounting Officer)
(Joseph Adelhardt)

MATTHIAS BOWMAN Director* April 28, 1998
--------------------
(Matthias Bowman)

JOHN W. BOYLE Director* April 28, 1998
-------------
(John W. Boyle)

JAMES J. BURKE, JR. Director* April 28, 1998
-------------------
(James J. Burke, Jr.)

STEPHEN M. McLEAN Director* April 28, 1998
-----------------
(Stephen M. McLean)

ROBERT G. MILLER Director* April 28, 1998
----------------
(Robert G. Miller)

ROBERT MYLOD, JR. Director* April 28, 1998
--------------------
(Robert Mylod, Jr.)

U. PETER C. GUMMESON Director* April 28, 1998
--------------------
(U. Peter C. Gummeson)

JERRY G. RUBENSTEIN Director* April 28, 1998
-------------------
(Jerry G. Rubenstein)

*By: /s/ MARC A. STRASSLER
---------------------
Marc A. Strassler
Attorney-in-Fact

</TABLE>

<PAGE>

EXHIBIT INDEX

Exhibit Page
No. Exhibit No.
- ----- ------ -----
<S> <C> <C>

2.1 --Distribution and Transfer Agreement among the Registrant, PTK and Plainbridge................

2.2 --Distribution and Transfer Agreement dated as of May 3, 1993 among the Registrant, Holdings
and Chefmark (incorporated by reference from Exhibit 2.2 to the Registration Statement on
Form S-1 of the Registrant and Holdings, File No. 33-59616)...............................

2.3 --Agreement and Plan of Merger dated as of April 22, 1987 by
and among Old Supermarkets, SMG Acquisition Corporation and
Holdings, as amended and restated (incorporated by reference
from Exhibit 2 to the Registration Statement on Form S-1 of
Holdings, File No. 33-16963)..............................................................

3.1* --Restated Certificate of Incorporation of the Registrant......................................

3.2 --Amendment to the Restated Certificate of Incorporation of the Registrant, as amended
(incorporated by reference from Annual Report on Form 10-K of Registrant for the year
ended January 29, 1994 (the "1994 10-K)...................................................

3.3 --By-Laws of the Registrant (incorporated by reference from Exhibit 3.3 to the Registration
Statement on Form S-1 of Registrant, File No. 33-59612, (the "October 1993 Registration
Statement")...............................................................................

4.1 --Indenture between the Registrant and United States Trust Company of New York, Trustee,
relating to the Senior Subordinated Notes due 2003 of the Registrant (incorporated by
reference from the 1994 10-K).............................................................

4.1A --Senior Subordinated Note due 2003 of the Registrant (contained in the Indenture filed as
Exhibit 4.1) (incorporated by reference from the 1994 10-K)...............................

4.2 --Indenture between the Registrant and NationsBank of Georgia, National Association, Trustee,
relating to the Junior Subordinated Deferred Coupon Notes due 2003 of the Registrant
(incorporated by reference from the 1994 contained in the Indenture filed as Exhibit 4.2)
(incorporated by reference from the 1994 10-K)............................................

4.2B --Indenture between the Registrant and Wilmington Trust Company, Trustee, relating to the
11 5/8% Subordinated Notes due 2002 of the Registrant (incorporated by reference from the
1994 10-K)................................................................................

4.3 --Indenture between the Company and Wilmington Trust Company, Trustee, relating to the 12 5/8%
Subordinated Debentures due 2002 of the Registrant (incorporated by reference from the
1994 10-K)................................................................................

4.4 --Credit Agreement dated as of June 30, 1997 ("the Credit Agreement") among the Registrant,
the Lenders listed therein, and Chase Manhattan Bank as Agent (incorporated by reference
from Registrant's Form 10-Q for the period ended August 2, 1997)........................

10.3** --First Amended and Restated Supply Agreement among Registrant, Plainbridge and C&S Wholesale
Grocers, Inc. dated as of January 29, 1998................................................

10.4 --Services Agreement dated as of May 3, 1993 between the Registrant and Chefmark (incorporated
by reference from Exhibit 10.4 to the Registration Statement on Form S-1 of the
Registrant and Holdings, File No. 33-59616)...............................................

</TABLE>
64

<PAGE>

Exhibit Page
No. Exhibit No.
------- ------- ----

10.5 --Chefmark Supply Agreement, dated May 3, 1993, between the Registrant and Chefmark
(incorporated by reference from Exhibit 10.5 to the Registrant Statement on Form S-1 of
the Registrant, and Holdings, File No. 33-59616)..........................................

10.6 --Tax Sharing Agreement between the Registrant and SMG-II (incorporated by reference from the
1994 10-K)................................................................................

10.7 --Tax Indemnity Agreement between the Registrant and Plainbridge (incorporated by reference
from the 1994 10-K).......................................................................

10.8 --Supermarkets General Corporation Pension Plan (as Amended and Restated effective January 1,
1979) as amended through May 29, 1987 (incorporated by reference from Exhibit 10.21 to
the Registration Statement on Form S-1 of Holdings, File No. 33-16963)....................

10.9 --Supermarkets General Corporation Savings Plan (as Amended and Registration Statement on Form
S-1 of Holdings, File No. 33-16963).......................................................

10.10 --Supermarkets General Corporation Management Incentive Plan effective June 17, 1971
(incorporated by reference from Exhibit 10.23 to the Registration Statement on Form S-1
of Holdings, File No. 33-16963............................................................

10.11 --Supplemental Retirement Agreements dated as of March 9, 1987 between Old Supermarkets and
Jack Futterman, (incorporated by reference from Exhibit 10.25 to the Registration
Statement on Form S-1 of Holdings, File No. 33-16963).....................................

10.12 --Excess Benefit Plan of Supermarkets General Corporation, effective as of March 9,
1987 (incorporated by reference from Exhibit 10.12 to the October 1993 Registration
Statement)................................................................................

10.13 --Recourse Secured Promissory Note, dated October 5, 1987, given to Holdings from each
Management Investor listed therein (incorporated by reference from Exhibit 10.43 to
Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 of Holdings,
File No. 33-16963)........................................................................

10.14 --Stock Pledge Agreement dated October 5, 1987, between Holdings and each Management Investor
listed therein (incorporated by reference from Exhibit 10.44 to Post-Effective Amendment
No. 1 to the Registration Statement on Form S-1 of Holdings, File No. 33-16963)...........

10.15 --SMG-II Holdings Corporation Management Investors Stock Option Plan, as amended and restated
May 17, 1991 (the "Option Plan") (incorporated by reference from Exhibit 10.15 to the
October 1993 Registration Statement)......................................................

10.16 --Form of Stock Option Agreement under the Option Plan (incorporated by reference from Exhibit
10.16 to the October 1993 Registration Statement).........................................

10.17 --SMG-II Holdings Corporation Employees 1987 Stock Option Plan, as amended and restated May
17, 1991 (incorporated by reference from Exhibit 10.17 to the October 1993 Registration
Statement)................................................................................

10.18 --Management Investors Exchange Agreement dated as of February 4, 1991 among SMG-II Holdings
Corporation, Holdings and each of the Management Investors party thereto (incorporated by
reference from Exhibit 10.53 to the Registration Statement on Form S-1 of Holdings, No.
33-16963).................................................................................

</TABLE>

65
<PAGE>

Exhibit Page
No. Exhibit No.
------- ------- ----
<S> <C> <C>
10.19* --Employment Agreement dated as of June 1, 1995 among the Registrant, Robert Joyce and SMG-II..

10.20* --Employment Agreement dated as of June 1, 1995 among the Registrant, Marc Strassler and SMG-II

10.21 --Supplemental Retirement Agreement dated June 1, 1994, between the Registrant and Neill
Crowley (incorporated by reference from Registrant's Annual Report on Form 10-K for the
year ended February 3, 1996)..............................................................

10.22 --Supplemental Retirement Agreement dated October 3, 1994 between the Registrant and Ron
Marshall (incorporated by reference from Registrant's Annual Report on Form 10-K for the
year ended February 3, 1996)..............................................................

10.23* --Employment Agreement dated April 1, 1997 among the Registrant, John Sheehan and SMG-II.......

10.24* --Resignation Agreement dated as of November 4, 1997 among Registrant, Neill Crowley and SMG-II

10.25 --Employment Agreement dated as of September 9, 1994 between Registrant and Ron Marshall
(incorporated by reference from Registrant's Annual Report on Form 10-K for the year
ended February 3, 1996)...................................................................

10.26* --Resignation Agreement dated as of November 4, 1997 among Registrant, Ron Rallo and SMG-II...

10.27 --Employment Agreement dated as of October 8, 1996 among Registrant, SMG-II and James Donald
(incorporated by reference from Registrant's Annual Report on Form 10-K for the year
ended February 1, 1997)...................................................................

12.1* --Statements Regarding Computation of Ratio of Earnings to Fixed Charges.......................

22.1* --List of Subsidiaries of the Registrant.......................................................

24.1* --Power of Attorney of Robert J. Mylod, Jr.

</TABLE>

- ------------
* Filed herewith.
** Confidential treatment requested

<PAGE>

Exhibit 3.1

RESTATED

CERTIFICATE OF INCORPORATION

PATHMARK STORES, INC.

--------------

PATHMARK STORES, INC. (originally incorporated as SMG
INTERMEDIATE HOLDINGS CORPORATION XV, the "Corporation") hereby certifies that
this Restated Certificate of Incorporation of PATHMARK STORES, INC. was duly
adopted in accordance with the provisions of section 245 of the General
Corporation Law of the State of Delaware and that it only restates and
integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as theretofore amended or supplemented, and that
there is no discrepancy between those provisions and the provisions of the
restated certificate. The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of Delaware on June 5, 1987.

ARTICLE I

Name

Section 1.1. Name. The name of the Corporation is
Pathmark Stores, Inc.

ARTICLE II

Registered Office and Registered Agent

Section 2.1. Office and Agent. The registered office of the
Corporation in the State of Delaware is located at 1013 Centre Road, City of
Wilmington, County of New Castle. The name and address of the Corporation's
registered agent is The Prentice-Hall Corporation System, Inc., 1013 Centre
Road, Wilmington, Delaware, 19805.

ARTICLE III

Corporate Purposes

Section 3.1. Purpose. The purpose of the Corporation
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.

<PAGE>

ARTICLE IV

Capital Stock

Section 4.1. Shares, Classes and Series Authorized. The total
number of shares of all classes of capital stock which the Corporation shall
have authority to issue is one hundred (100) all of which shall be Common Stock
of the par value of $0.10 each (hereinafter called "Common Stock"). The Common
Stock shall have voting rights for the election of directors and for all other
purposes, each holder of Common Stock being entitled to one vote for each share
thereof held by such holder, except as otherwise required by law.

ARTICLE V

Powers of Board of Directors

Section 5.1. Powers. In furtherance and not in limitation
of the powers conferred by statute, the Board of Directors of the
Corporation is expressly authorized:

(a) To make, alter, amend or repeal the By-Laws, except as
otherwise expressly provided in any By-Law made by the holders of the capital
stock of the Corporation entitled to vote thereon. Any ByLaw may be altered,
amended or repealed by the holders of the capital stock of the Corporation
entitled to vote thereon at any annual meeting or at any special meeting called
for that purpose.

(b) To authorize and cause to be executed mortgages and liens
upon the real and personal property of the Corporation.

(c) To determine the use and disposition of any surplus and
net profits of the Corporation, including the determination of the amount of
working capital required, to set apart out of any of the funds of the
Corporation, whether or not available for dividends, a reserve or reserves for
any proper purpose and to abolish any such reserve in the manner in which it was
created.

(d) To designate, by resolution passed by a majority of the
whole Board of Directors, one or more committees, each committee

2
<PAGE>

to consist of one or more directors of the Corporation, which, to the extent
provided in the resolution designating the committee or in the By-Laws of the
Corporation, shall, subject to the limitations prescribed by law, have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Such committee or committees shall have such name or names as may be provided
in the By-Laws of the Corporation or as may be determined from time to time
by resolution adopted by the Board of Directors.

(e) To adopt such pension, retirement, deferred compensation
or other employee benefit plans or provisions as may, from time to time, be
approved by it, providing for pensions, retirement income, deferred compensation
or other benefits for officers or employees of the Corporation and of any
corporation which is a subsidiary of the Corporation, or any of them, in
consideration for or in recognition of the services rendered by such officers or
employees or as an inducement to future efforts. No such plan or provision,
which is not at the time of adoption unreasonable or unfair, shall be
invalidated or in any way affected because any director shall be a beneficiary
thereunder or shall vote for any plan or provision under which he may benefit.

(f) To exercise, in addition to the powers and authorities
hereinbefore or by law conferred upon it, any such powers and authorities and do
all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware
and of this Certificate of Incorporation and of the By-Laws of the Corporation.

ARTICLE VI

Indemnification of Directors, Officers and Others

Section 6.1. Indemnification by Corporation. (a) Any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was

3
<PAGE>

serving at the request of the corporation as a director, officer, employee or
agent (including trustee) of another corporation, partnership, joint venture,
trust or other enterprise, shall be indemnified by the Corporation (funds
paid or required to be paid to any person as a result of the provisions of
this Article shall be returned to the Corporation or reduced, as the case may
be, to the extent that such person receives funds pursuant to an
indemnification from any such other corporation or organization) against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
the defense or settlement of such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Any such person who could be indemnified pursuant to the preceding
sentence except for the fact that the subject action or suit is or was by or
in the right of the Corporation shall be indemnified by the Corporation
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit,
except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to
the Corporation unless and only to the extent that the Court of Chancery of
the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.

(b) To the extent that a director, officer, employee or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in paragraph (a) of
this Section 1, or in defense of any claim, issue or matter therein,
including the dismissal of an action without prejudice, he shall be
indemnified by the Corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith without the
necessity of any action being taken by the Corporation other than the
determination, in good faith, that such defense has been successful. In all
other cases wherein indemnification is provided by this Article, unless
ordered by a court, indemnification shall be made by

4
<PAGE>

the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct
specified in this Article. Such determination shall be made (1) by the Board
of Directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by the
holders of a majority of the shares of capital stock of the Corporation
entitled to vote thereon.

(c) The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person
seeking indemnification did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Entry of a
judgment by consent as part of a settlement shall not be deemed a final
adjudication of liability for negligence or misconduct in the performance of
duty, nor of any other issue or matter.

(d) Expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by the director, officer, employee
or agent involved to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.

(e) The indemnification and advancement of expenses hereby
provided shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such person.

5
<PAGE>

(f) By action of the Board of Directors, notwithstanding
any interest of the directors in the action, the Corporation, at its expense,
may purchase and maintain insurance, in such amounts as the Board of
Directors deems appropriate, on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
(including trustee) of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether or
not the Corporation shall have the power to indemnify him against such
liability under the provisions of this Article or under the provisions of the
General Corporation Law of the State of Delaware.

(g) All rights to indemnification and advancement of
expenses under this Article shall be deemed to be provided by contract
between the Corporation and the director, officer, employee or agent who
serves in such capacity at any time while these by-laws and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable law, if any, are in effect.

(h) Any repeal or modification of the foregoing paragraphs
by the stockholders of the Corporation shall not adversely affect any right
or protection of a director, officer, employee or agent of the Corporation
existing at the time of such repeal or modification.

(i) If the General Corporation Law of the State of Delaware
is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, officers, employees or agents, then such
person, in addition to the circumstances in which he is not now personally
liable, shall be free of liability to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended.

(j) For purposes of this Article, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a

6
<PAGE>

director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.

(k) For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any services as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to any employee
benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation", as referred to in this Article.

(1) If this Article or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each person as provided above as to
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including a grand jury proceeding
and an action by the Corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated by
any other applicable law.

ARTICLE VII

Director Liability to the Corporation

Section 7.1. Director Liability. (a) A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breaches of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law

7
<PAGE>

of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.

(b) Any repeal or modification of the foregoing paragraph
(a) by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.

(c) If the General Corporation Law of the State of Delaware
is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then a director of the Corporation, in
addition to the circumstances in which he is not now personally liable, shall
be free of liability to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.

ARTICLE VIII

Reservation of Right to Amend Certificate of Incorporation

Section 8.1. Amendment. The Corporation reserves the right
to amend, alter, change or repeal any provisions contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
law, and all the provisions of this Certificate of Incorporation and all
rights and powers conferred in this Certificate of Incorporation on
stockholders, directors and officers are subject to this reserved power.

ARTICLE IX

Reorganization

Section 9.1. Reorganization. Whenever a compromise or
arrangement is proposed between this Corporation and its creditors or any
class of them and/or between this Corporation and its stockholders or any
class of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this Corporation or of
any creditor or stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation under the provisions of Section 291
of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of Section 279 of Title 8 of

8
<PAGE>

the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of the stockholders
of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of
such compromise or arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.

IN WITNESS WHEREOF, PATHMARK STORES, INC. has caused this
Restated Certificate of Incorporation to be signed by its Chairman and
President and attested by its Secretary on the 20th day of June, 1997.

PATHMARK STORES, INC.

By: /s/James L. Donald
-----------------------
Name: James L. Donald
Title: Chairman, President and
Chief Executive Officer

ATTEST:

By: /s/Marc A. Strassler
---------------------------
Name: Marc A. Strassler
Title: Secretary

<PAGE>
Exhibit 10.3

CONFORMED COPY

CONFIDENTIAL TREATMENT

FIRST AMENDED AND RESTATED SUPPLY AGREEMENT

AMONG

PATHMARK STORES, INC., PLAINBRIDGE, INC.

AND

C&S WHOLESALE GROCERS, INC.

DATED AS OF JANUARY 29, 1998

Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Secretary of the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. Such portions are marked with the word "[CONFIDENTIAL]".

<PAGE>

TABLE OF CONTENTS

ARTICLE I

<S> <C> <C>
CERTAIN DEFINITIONS...................................................1
Section 1.01. Certain Defined Terms. ...............................1

Agreement....................................................1
AMF..........................................................1
Asset Purchase Agreement.....................................1
Average Service Level Deficiency.............................1
Base Price...................................................1
Commencement Date............................................1
Contract Year................................................1
Credit Agreement.............................................1
CPI..........................................................2
Division.....................................................2
ERISA........................................................2
Event of Force Majeure.......................................2
Event of Insolvency..........................................2
Facilities...................................................3
GMDC.........................................................3
GMDC Lease...................................................3
Goodwill.....................................................3
HPR..........................................................3
LC Termination Event.........................................3
Left-over Ad Product........................................3
Left-over Ad Product Report.................................3
Loan Documents...............................................3
Lost Profits Surcharge.......................................3
Master Purchase Order........................................3
Merchandise..................................................3
Multiemployer Pension Plans..................................4
Pathmark Stores..............................................4
Per Case Reduced Volume Surcharge............................4
Per Case Volume Incentive....................................4
Person.......................................................4
Plainbridge..................................................4
Reissued LC..................................................4
Sale.........................................................4
Service Level................................................4
Service Level Breach.........................................5
Service Level Deficiency.....................................5
SKU..........................................................5
Standard Credit Policy.......................................5

</TABLE>

<PAGE>

<S> <C> <C>
Targeted Service Level.......................................5
Term.........................................................5
TDR..........................................................5
Transportation Company.......................................5
Withdrawal Liability.........................................5

ARTICLE II

SCOPE OF AGREEMENT; TERM..............................................5
Section 2.01. Agreement..............................................5
Section 2.02. Term...................................................5

ARTICLE III

PURCHASE AND SALE.....................................................6
Section 3.01. Maintenance of Inventory; Operation of Facilities......6
Section 3.02. Delivery...............................................6
Section 3.03. Base Price.............................................7
Section 3.04. Other Pricing Provisions...............................8
Section 3.05. Payments..............................................12
Section 3.06. Service Level.........................................14
Section 3.07. Third Party Deductions................................15
Section 3.08. Ordering Practices....................................16
Section 3.09. GM/HBC Takeover.......................................16

ARTICLE IV

FEES; REBATES; OTHER CHARGES.........................................16
Section 4.01. Fees..................................................16
Section 4.02. Cross-dock............................................18
Section 4.03. Continuities..........................................18
Section 4.04. Banana Ripening.......................................18
Section 4.05. Cardboard Bales.......................................18
Section 4.06. Rebate................................................18
Section 4.07. Volume Incentive......................................19
Section 4.08. Reduced Volume Surcharge; Lost Profits Surcharge......19
Section 4.09. Reconciliation........................................19
Section 4.10. Trade Discount Rebate, Advance Marketing Funds and
Goodwill..............................................20
Section 4.11. Interest Charges......................................22
Section 4.12. Payments in Lieu of Diverting.........................22
Section 4.13. ERISA Withdrawal Liability............................22

ARTICLE V
</TABLE>
ii

<PAGE>

<S> <C> <C>
CERTAIN COVENANTS.............................................................23
Section 5.01. Pallet Program........................................23
Section 5.02. Reclamation...........................................23
Section 5.03. Compliance with Law...................................23
Section 5.04. Indemnity and Insurance...............................24
Section 5.05. Certain Financial Information.........................25
Section 5.06. PACA, Repossession and Set Off........................25
Section 5.07. Utilization of Other C&S Facilities...................26
Section 5.08. Base Price Audit......................................26
Section 5.09 Year 2000.............................................26
Section 5.10. Additional Stores.....................................27

ARTICLE VI

ASSET PURCHASE.......................................................27
Section 6.01. Purchase of Assets....................................27

ARTICLE VII

TERMINATION..........................................................27
Section 7.01. Termination by C&S....................................27
Section 7.02. Termination by Pathmark...............................27
Section 7.03. Waiver................................................28
Section 7.04. Meetings to Review Progress Toward Curing Breach......28

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES.......................................28
Section 8.01. Representations and Warranties of C&S.................28
Section 8.02. Representations and Warranties of Pathmark............29

ARTICLE IX

GENERAL PROVISIONS...................................................29
Section 9.01. Entire Agreement......................................29
Section 9.02. Expenses..............................................30
Section 9.03. Amendments............................................30
Section 9.04. Notices...............................................30
Section 9.05. Binding Effect; Assignment............................31
Section 9.06. Sale of Pathmark Division.............................32
Section 9.07. Counterparts..........................................32
Section 9.08. Confidentiality.......................................32
Section 9.09. Relationship of Parties...............................33
</TABLE>
iii

<PAGE>

<S> <C> <C>
Section 9.10. No Third-Party Beneficiaries..........................33
Section 9.11. Severability..........................................33
Section 9.12. Headings..............................................33
Section 9.13. Arbitration...........................................33
Section 9.14. Governing Law.........................................34
Section 9.15. Facility Closing......................................34

</TABLE>
iv

<PAGE>

THIS FIRST AMENDED AND RESTATED SUPPLY AGREEMENT, dated as of January
29, 1998 (this "Agreement"), is by and between PATHMARK STORES, INC., a Delaware
corporation, PLAINBRIDGE, INC., a Delaware corporation (collectively, with
Pathmark Stores, Inc., "Pathmark") and C&S WHOLESALE GROCERS, INC., a Vermont
corporation ("C&S").

Preliminary Statement. Pathmark operates supermarkets in the states of
New Jersey, New York, Delaware, Connecticut and Pennsylvania. C&S is a wholesale
supplier of food products and other merchandise sold in supermarkets. Pathmark
and C&S desire to enter into an arrangement pursuant to which C&S will source
and make available to Pathmark certain merchandise. Pathmark will be responsible
for distribution of the merchandise to Pathmark's stores.

Agreement. The parties, intending to be bound, agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:

"Agreement" has the meaning specified in the preamble to this
Agreement.

"AMF" has the meaning specified in Section 4.10(a).

"Asset Purchase Agreement" means that certain amended and restated
asset purchase agreement between C&S, Pathmark and Plainbridge, Inc., dated as
of September 26, 1997.

"Average Service Level Deficiency" means the arithmetic average of any
number of consecutive Weekly Service Level Deficiencies beginning with the first
week with respect to which Pathmark delivers a Service Level Deficiency Notice
pursuant to Section 3.06(b) hereof.

"Base Price" has the meaning specified in Section 3.03.

"Commencement Date" means February 1, 1998.

"Contract Year" means any consecutive twelve-month period during the
Term commencing on February 1, and ending the following January 31, the first
such Contract Year to commence February 1, 1998. Each Contract Year consists of
four 13-week "Contract Quarters."

"Credit Agreement" that certain Credit Agreement dated as of June 30,
1997, as amended, supplemented or otherwise modified, between Pathmark and the
lenders party thereto.

"CPI" means the Consumer Price Index for all urban consumers (CPI-U)
for New

<PAGE>

York/Northeastern New Jersey for food and beverages or similar appropriate index
chosen by the parties if the CPI is no longer available.

"Division" means any number of Pathmark Stores (a) which if Sold, cause
Pathmark's case purchases from C&S to fall below [CONFIDENTIAL] cases in any
Contract Year or (b) to be Sold if Pathmark's case purchases from C&S are below
[CONFIDENTIAL] cases in any Contract Year.

"ERISA" means the Employee Retirement Income Security Act of 1974 (as
amended).

"Event of Force Majeure" means any event, circumstance or condition
described in any of clauses (a) through (h) below that is beyond the control of
C&S, and is not the result of negligence or failure of C&S to act with due care,
and that prevents C&S from performing, in whole or in part, its obligations
under this Agreement. The following occurrences shall be deemed to be Events of
Force Majeure: (a) Acts of God, fire, explosion, accident, flood, storm or other
natural phenomenon; (b) war (whether declared or undeclared); (c) national
defense requirements; (d) compliance with any law, rule, regulation or
governmental order that (i) becomes effective after the date hereof and (ii) is
binding on C&S, and compliance therewith by C&S is not voluntary or optional;
(e) producers or manufacturers establish allocations or restrictions on
quantities of products available to C&S; (f) the occurrence of a labor dispute
between Pathmark, its employees or agents; (g) performance, or the failure to
perform, by a Transportation Company; (h) until August 21, 2001, a labor dispute
between C&S and any of its employees and (1) such employees are former Pathmark
employees and (2) the dispute relates or is with respect to the transition of
work from Pathmark to C&S; or (i) Pathmark's failure to deliver possession or
complete use of any Facility pursuant to the Asset Purchase Agreement, but only
with respect to goods that were to be distributed from such Facility and only
until C&S shall have obtained a proper replacement Facility.

"Event of Insolvency" means that, with respect to any Person, such
Person shall admit in writing its inability to pay its debts generally or shall
make a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against such Person seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 60 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property) shall occur; or such Person shall
take any corporate action to authorize any of the actions set forth above in
this definition.

<PAGE>

"Facilities" mean the facilities in the following locations: (i) 301
Blair Road, Woodbridge, New Jersey (the "Blair Facility"), (ii) 275 Omar Avenue,
Woodbridge, New Jersey (the "Omar Facility"), (iii) North Brunswick, New Jersey
(the "Brunswick Facility"), (iv) the freezer located in Dayton, New Jersey (the
"Dayton Facility"), and (v) any other facility used by C&S to supply Pathmark
Stores. The Facilities are sometimes individually referred to herein as a
"Facility." The Brunswick Facility is further described in the Brunswick
Facility Lease attached as Exhibit G-1 to the Asset Purchase Agreement. The
Blair Facility and Omar Facility are further described on Exhibit D attached to
the Asset Purchase Agreement. The Dayton Facility is further described in form
of Dayton Facility Lease attached as Exhibit G-2 to the Asset Purchase
Agreement.

[CONFIDENTIAL]

"GMDC" means the general merchandise facility located in Edison, New
Jersey that Pathmark shall continue to operate so as to supply Pathmark Stores
with certain goods not included in Merchandise hereunder.

"GMDC Lease" means the lease between Pathmark and California State
Teacher's Retirement System with respect to the GMDC.

"Goodwill" has the meaning specified in Section 4.10(a).

"HPR" means highly protected risk.

[CONFIDENTIAL]

"Left-over Ad Product" has the meaning specified in Section 3.04.

"Left-over Ad Product Report" has the meaning specified in Section
3.04.

"Loan Documents" has the meaning specified in the Credit Agreement.

"Lost Profits Surcharge" has the meaning specified in Section 4.08(b).

"Master Purchase Order" has the meaning specified in Section 5.04(b).

"Merchandise" means all of Pathmark's requirements of groceries,
perishables and other merchandise in the product categories carried by C&S
including, but not limited to, branded or private label products in the
following categories: grocery (mainline), dry bakery, candy, supplies and all
perishables including, but not limited to, fresh meat, fresh deli, fresh
seafood, dairy, produce, floral, frozen (mainline), frozen bakery, ice cream,
frozen meat and frozen seafood. The term "Merchandise" (a) includes ice, and
forty pounds of ice shall be considered one case, but (b) does not include,
Grossman supplies and other supplies and candy currently

<PAGE>

supplied to Pathmark Stores from the GMDC. Subject to the satisfaction of the
conditions set forth in Section 3.09, Merchandise shall include all goods
supplied to Pathmark Stores from the GMDC on the Commencement Date, including,
without limitation, all general merchandise and health and beauty aids.

"Multiemployer Pension Plans" has the meaning specified in the Asset
Purchase Agreement.

"Pathmark Stores" shall mean (i) all existing Pathmark stores as
itemized on Exhibit B, (ii) all new stores opened by Pathmark during the Term,
including without limitation, any so-called "replacement" store(s) opened by
Pathmark contemporaneously with, or in contemplation of, the closing of or other
suspension of operations at any then existing Pathmark store(s), and (iii) all
stores acquired by Pathmark during the Term by any means, including, without
limitation, through an acquisition or merger, as soon as Pathmark is legally
capable of purchasing Merchandise for such stores from C&S. The parties agree to
amend Exhibit B from time to time to reflect the addition of new Pathmark Stores
or the closing of existing Pathmark Stores.

"Per Case Reduced Volume Surcharge" has the meaning specified in
Section 4.08(a).

"Per Case Volume Incentive" has the meaning specified in Section 4.07.

"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity or any
government or governmental authority or agency and any affiliate of such Person.

"Plainbridge" means Plainbridge, Inc., a Delaware corporation.

[CONFIDENTIAL]

"Sale" has the meaning specified in Section 9.06(a).

[CONFIDENTIAL]

"Service Level" means at any time a percentage reflecting the ratio of
(i) the number of cases of Merchandise made available for pick up by Pathmark at
the Facilities to (ii) the total number of cases of such Merchandise ordered by
Pathmark, as calculated in accordance with Section 3.06. Service Level
percentages will not be adversely affected by long-term manufacturers'
out-of-stocks, commodity shortages, unusual overpulls on ad items, unauthorized
items ordered by Pathmark, any error by Pathmark in booking advertising and
feature items (including sales levels of feature items in excess of projections
made by Pathmark and adjustments to pre-orders where applicable), Pathmark's
directions with respect to items procured by Pathmark pursuant to Section
3.04(f) and 3.04(g), or any Event of Force Majeure.

<PAGE>

"Service Level Breach" has the meaning specified in Section 3.06.

"Service Level Deficiency" has the meaning specified in Section 3.06.

"SKU" means stock keeping unit.

"Standard Credit Policy" has the meaning specified in Section 3.05(d)

"Targeted Service Level" has the meaning specified in Section 3.06.

"Transferred Inventory" shall mean the Merchandise purchased by C&S
from Pathmark pursuant to the Asset Purchase Agreement.

"Term" has the meaning specified in Section 2.02.

"TDR" has the meaning specified in Section 4.10(a).

"Transportation Company" means the company designated by Pathmark to
perform transportation services.

"Withdrawal Liability" has the meaning specified in Section 4.13.

ARTICLE II

SCOPE OF AGREEMENT; TERM

Section 2.01. Agreement. Except as set forth in Section 3.04(f) herein,
Pathmark agrees to purchase from C&S, during the Term, all requirements of
Merchandise for Pathmark Stores, and C&S agrees to supply to Pathmark, during
the Term, all Merchandise ordered by Pathmark, upon the terms and subject to the
conditions set forth in this Agreement. Pathmark agrees that it will not, during
the Term, use a secondary supplier for the Merchandise, except for Merchandise
that C&S fails to, or is unable to, provide in accordance with the provisions of
this Agreement. Notwithstanding the foregoing, Pathmark may continue to purchase
items currently supplied by direct store delivery vendors from suppliers other
than C&S, [CONFIDENTIAL].

Section 2.02. Term.

(a) The term of this Agreement (the "Term") will be fifteen
Contract Years, beginning February 1, 1998.

(b) Notwithstanding the foregoing provisions, the Term shall
not commence until the Closing under the Asset Purchase Agreement shall
have occurred, and sales of

<PAGE>

Merchandise from C&S to Pathmark that commenced on January 11, 1998 in
anticipation of implementation of this Agreement shall be governed by
this Agreement.

ARTICLE III

PURCHASE AND SALE

Section 3.01. Maintenance of Inventory; Operation of Facilities.

(a) C&S shall purchase Merchandise from vendors thereof, and
shall maintain in stock an adequate inventory of Merchandise to fill
and load Pathmark orders on a timely basis in accordance with the load
schedules for Pathmark Stores. The initial load schedules for Pathmark
Stores are set forth on Exhibit D. The parties agree to negotiate in
good faith to make necessary adjustments to the load schedules from
time to time.

(b) C&S shall maintain a workforce and equipment reasonably
necessary to provide services under this Agreement in an efficient,
timely and safe manner. C&S will load Pathmark store-bound mail on the
provided trailers or with the Transportation Company; provided that
Pathmark shall sort and prepare all mail in the sequence of outbound
trailers for that day.

(c) C&S will be responsible for overall security at the
Facilities, and will take reasonable measures to safeguard the
Transportation Company's trucks and trailers while they are on the
grounds of each Facility including affixing and checking the seals of
all outbound loads and maintaining receiving and shipping logs.
Pathmark shall be responsible for movement of tractors and trailers on
the grounds of each Facility, and Pathmark shall cause the
Transportation Company to maintain a workforce reasonably necessary to
provide for such movement; provided that such work or movement must
arise out of, be related to or connected with Merchandise intended for
sale to, or services for, Pathmark . Pathmark acknowledges that it has
responsibility for its employees', agents' or licensees' activities at
each Facility.

(d) Each party agrees to consult with the other party on a
regular and continuing basis regarding all aspects of the services to
be provided hereunder.

Section 3.02. Delivery. (a) All Merchandise ordered by Pathmark
hereunder shall be made available for pick up by Pathmark at the applicable
Facility's loading docks within the agreed upon dispatch times and windows as
reflected on Exhibit D, as such Exhibit may be adjusted from time to time by
mutual agreement of the parties. If C&S decides to use another facility for the
supply of Merchandise hereunder, then Pathmark will, within reason, adjust its
ordering times or delivery schedule to accommodate such change. C&S shall be
responsible for loading the Merchandise onto the Transportation Company's
trucks. Pathmark shall be

<PAGE>

responsible for ensuring that fully operable trailers are available to C&S for
loading in an adequate amount of time in order to meet scheduled loading times;
provided, that if additional trailers are needed, then C&S shall rent such
trailers with Pathmark's prior approval and charge the amount of such rental to
Pathmark on a weekly basis in accordance with Section 3.05(a). Pathmark shall be
responsible for delivering the Merchandise to Pathmark Stores. Title to, and
risk of loss with respect to, such Merchandise shall remain with C&S until such
time as the trailer containing Merchandise exits the applicable Facility;
provided, that such risk of loss shall transfer to Pathmark only at such time
that a Pathmark trailer is attached to a Pathmark tractor in order to move the
trailer from place to place within such Facility; provided, further that if the
Merchandise is lost or stolen due to the negligence or intentional act of an
employee of Pathmark or of the Transportation Company, C&S shall not be liable
to Pathmark for said damaged, lost or stolen Merchandise and Pathmark's recourse
shall be against its employees or the Transportation Company. C&S shall be
responsible for trailer damage caused by C&S employees; provided that C&S shall
not be responsible for usual and customary wear and tear on such trailers. C&S
shall have the right to use any facility (other than the Facilities) for the
supply of Merchandise hereunder; provided that C&S will reimburse Pathmark for
[CONFIDENTIAL] of the net additional direct transportation costs incurred by
Pathmark due to such change in facility; provided further that C&S shall not be
obligated to share in any such additional cost to the extent that (i) C&S can
demonstrate that such transportation services can be provided at a lower cost or
(ii) Pathmark fails to deliver possession or use of such Facility, under the
Asset Purchase Agreement, to supply the Merchandise (e.g., if due to
environmental remediation activities at such Facility for which Pathmark is
responsible or if Pathmark fails to deliver the lease assignment for such
Facility pursuant to the Asset Purchase Agreement). To the extent that C&S is
able to reduce Pathmark's transportation costs by opening new Facilities closer
to certain Pathmark Stores, Pathmark shall pay over to C&S annually
[CONFIDENTIAL] of all such savings. C&S shall have the right to audit Pathmark's
records, and Pathmark agrees to make all relevant records available for audit,
in order to confirm Pathmark's transportation costs. Such audits shall be
limited to one in any twelve-month period. For example, if (a) C&S should use a
warehouse in a location that is closer to certain Pathmark Stores than a current
Facility that is servicing such stores and (b) by using such warehouse, Pathmark
has lower transportation costs, then Pathmark shall pay to C&S [CONFIDENTIAL] of
such cost savings on a weekly basis in accordance with Section 3.05(a).

(b) C&S shall be prepared to handle new items within
twenty-one (21) days after Pathmark shall have notified C&S of Pathmark's
acceptance of such new items, subject to availability of such items from
vendors.

Section 3.03. Base Price. The Base Prices for all Merchandise supplied
by C&S to Pathmark pursuant to this Agreement are as follows; provided, that the
Base Price for each item of Transferred Inventory shall be [CONFIDENTIAL]:

(a) Grocery, Certain Frozen and Other Categories. The Base
Price for the grocery, dry bakery, candy, frozen (mainline), frozen
bakery, ice cream and dairy product

<PAGE>

categories shall be [CONFIDENTIAL]. C&S shall publish the Base Price
weekly in the C&S bulletin and price book prepared for Pathmark, and
will also transmit the Base Price information electronically to
Pathmark each week.

(b) Produce and Meat Categories. The Base Price for items in
the produce (including floral), deli, fresh meat (including fresh
seafood), frozen seafood and frozen meat categories shall be
[CONFIDENTIAL].

Section 3.04. Other Pricing Provisions. The following provisions shall
be applicable to the purchase and supply by C&S of Merchandise hereunder:

[CONFIDENTIAL].

(c) C&S will carry Pathmark's full assortment of private label
and branded Merchandise [CONFIDENTIAL]. C&S agrees that Pathmark shall
identify the source of private label Merchandise and set the
specifications for same.

(d) Pathmark will be responsible for providing C&S with ad
quantities. C&S will notify Pathmark each Monday (a "Left-over Ad
Product Notice") of ad product [CONFIDENTIAL]. Items shall be removed
from the Left-over Ad Product Report when such item [CONFIDENTIAL].

[CONFIDENTIAL]

(f) In its sole discretion, Pathmark may control
[CONFIDENTIAL] procurement decisions solely with respect
[CONFIDENTIAL]. All produce and fresh meat Merchandise purchased by C&S
shall be purchased following the specifications attached to those
certain letters between Pathmark (Marc A. Strassler) and C&S (Mark
Gross), dated September 23, 1997 (produce specifications) and September
24, 1997 (meat specifications), which specifications may be adjusted
from time to time based upon availability and mutual agreement of the
parties. Pathmark shall disclose to C&S all rebates and volume
incentives available to Pathmark with respect to such items. Pathmark
will provide C&S with ad quantities, designated vendor, and cost of
goods for those items for which Pathmark is controlling the
procurement. C&S will cut all purchase orders, control all in-bound
freight and purchase turn inventory regardless of which party controls
the procurement decision. From time to time, C&S may allow Pathmark to
procure items in addition to those specified in this paragraph (such as
private label sausage), but such designation may be revoked in the sole
discretion of C&S.

(g) Pathmark is responsible for buying and storing all holiday
frozen turkeys and

<PAGE>

holiday frozen shrimp. C&S shall not be obligated to take delivery of
such items more than one week prior to the first store distribution
date; provided that Pathmark shall handle the first store distribution
of such items.

[CONFIDENTIAL]

(j) Purchase orders for all grocery, frozen and dairy
Merchandise will be placed with metro New York/New Jersey brokers. C&S'
purchase orders will be placed based on the same pricing structure
currently presented on the Pathmark deal sheets.

[CONFIDENTIAL]

(l) The pricing provisions in this Agreement have been agreed
to based upon the parties' mutual assumption that deal and billback
activity and other manufacturers' promotions will remain at levels
throughout the Term that are essentially the same as the current levels
and that no fundamental changes will occur in the structuring of
promotions or other factors affecting the wholesale cost of
Merchandise. In the event that the parties' mutual assumptions cease to
be true at any time during the Term, the parties agree to negotiate in
good faith to reach agreement on new, mutually acceptable pricing
terms.

(m) C&S will not be responsible for any distress or spoiled
product for which C&S has not made the procurement decisions and shall
not issue any credit with respect to such product.

[CONFIDENTIAL]

(o) Each party will bear the cost of their own quality control
inspectors.

(p) Pathmark acknowledges that slots and other warehouse space
has value and that C&S is entitled to be compensated for the
introduction of new items into any Facility. Neither party nor their
respective representatives will interfere with the other party's
slotting, incentive or accrual programs. Neither party nor their
respective representatives will induce any vendor to forego paying to
either party slotting, incentive or accrual monies or any other funds
that a wholesaler or retailer, as the case may be, would customarily
receive.

(q) C&S shall not be obligated to carry a greater number of
SKU's than Pathmark currently carries as of the date hereof (as
attached to that certain letter between Pathmark (Marc A. Strassler)
and C&S (Mark Gross), dated September 24, 1997, absent the consent of
C&S, which consent will not be unreasonably withheld.

(r) With respect to Red Pack tomatoes, Ocean Spray cranberry
sauce, and certain private label commodity items that are subject to
significant market

<PAGE>

changes, C&S and Pathmark will meet to determine the amount of product
to be purchased, the number of promotional weeks in relationship to the
number of turn weeks, and the price of such product (it being the
intent that C&S can recover its expenses related to the purchase plus a
fair profit for C&S). [CONFIDENTIAL]

(s) Pathmark shall repurchase from C&S any and all inventory
that C&S purchased from Pathmark pursuant to the Asset Purchase
Agreement within 120 days of the Commencement Date (or such shorter
time as provided in the Asset Purchase Agreement) [CONFIDENTIAL].

Section 3.05. Payments.

[CONFIDENTIAL]

(d) The parties have established an overage/shortage program,
attached hereto as Exhibit F (the "Standard Credit Policy"). The
Standard Credit Policy also provides for store delivery documentation
and remedy procedures in the event of a "missing pallet" and Pathmark's
right to witness load audits. C&S will adopt Pathmark's wrapping
procedure for pallets of high-cost product.

(e) C&S shall have the right to determine the application of
any monies received from Pathmark against amounts owed to it by
Pathmark. Generally, C&S shall apply amounts received from Pathmark
first against any fees and expenses, including interest charges and
TDR, AMF or Goodwill repayments (if due and payable), second to amounts
owed for non-produce Merchandise and finally to amounts owed for
produce Merchandise.

Section 3.06. Service Level.

(a) Service Level Reporting. C&S will provide Pathmark a daily
Service Level Reconciliation Report showing, with respect to each
invoice, the number of cases ordered, the number of cases shipped, the
number of cases that are out of stock (including "warehouse scratches")
and the number of cases that are unauthorized.

(b) Service Level Deficiency. During the first 90 days of the
Term of this Agreement, C&S' goal will be to maintain the following
Service Levels (each a "Targeted Service Level"):

A. Dry Merchandise, including: [CONFIDENTIAL]
--------------------------
grocery (mainline)
dry bakery
candy
supplies

<PAGE>

B. Perishable Merchandise, including: [CONFIDENTIAL]
---------------------------------
fresh meat
fresh deli
fresh seafood
produce
dairy

C. Frozen Food Merchandise: [CONFIDENTIAL]
-----------------------

For the balance of the Term, C&S agrees to use its best efforts to maintain the
Targeted Service Levels at all times. The parties expressly acknowledge that
C&S's obligations to maintain such Service Level shall be excused upon the
occurrence of an Event of Force Majeure. If the Service Level falls below the
Targeted Service Level for any week following the first 90 days of the Term (a
"Service Level Deficiency"), Pathmark shall give notice to C&S and C&S shall use
its best efforts to restore the required Service Level. If, during the second
week following the occurrence of a Service Level Deficiency, a Targeted Service
Level is achieved, then the Service Level Deficiency shall be remedied. If C&S
fails to remedy the Service Level Deficiency during the second week following
the occurrence of a Service Level Deficiency, Pathmark shall be entitled to
source product from a third party. Once the Service Level Deficiency is cured,
Pathmark agrees to cease purchases from third party suppliers (except with
respect to products previously ordered).

[CONFIDENTIAL]

(d) Service Level Breach. If Pathmark has given notice to C&S
of a Service Level Deficiency and C&S fails during the following week
to remedy the Service Level Deficiency, a "Service Level Breach" will
be deemed to have occurred and such Service Level Breach shall continue
until a week occurs during which the Service Level Deficiency is
remedied. In the event, however, that the average Service Level in any
Contract Quarter meets or exceeds the Targeted Service Level, no
Service Level Breach shall be deemed to have occurred within such
Contract Quarter. If five or more Service Level Breaches occur within
any Contract Year, Pathmark shall have the right to terminate this
Agreement in accordance with the terms of Section 7.02.

Section 3.07. Third Party Deductions. From time to time, Pathmark may
ask C&S to act as its agent to deduct amounts that are due from manufacturers to
Pathmark. C&S has the right, in its discretion, to refuse to honor any third
party deduction request that Pathmark may make. If C&S makes a deduction on
Pathmark's behalf and the manufacturer disputes the deduction made by C&S,
Pathmark agrees to indemnify and defend C&S against and hold C&S harmless from
any claim by the manufacturer related to such deduction. If C&S repays any
deduction that C&S makes on Pathmark's behalf, Pathmark will, upon notice from
C&S, repay such amount to C&S. Pathmark will insure that supply of Merchandise
from manufacturers to C&S is not adversely affected by any third party
deductions that C&S may take on Pathmark's behalf. Service Level shall not be
adversely affected by an interruption in the supply of Merchandise from a
manufacturer to C&S if the interruption is caused by the refusal of the

<PAGE>

manufacturer to ship product to C&S and such refusal is attributable to a
disputed deduction that C&S has taken on Pathmark's behalf. C&S will add to each
deduction from a vendor a fee of no less than [CONFIDENTIAL] to process the
deduction made by C&S on Pathmark's behalf; provided, that in no event will C&S
charge such fee for any goods processed through C&S' reclamation program. Each
Friday, C&S will reimburse Pathmark for all deductions collected during the
preceding seven day period, less C&S' fee.

Section 3.08. Ordering Practices. Pathmark and C&S agree to develop and
maintain ordering practices which shall include computer-assisted ordering and
full, store-ready pallets in order to maintain and improve efficiency at the
Pathmark Stores and the Facilities. The parties hereby agree and acknowledge
that with respect to the Pathmark Stores on Schedule 3.08, Pathmark may need to
adjust the amount of store-ready pallets such stores order.

[CONFIDENTIAL]

ARTICLE IV

FEES; REBATES; OTHER CHARGES

Section 4.01. Fees. (a) Pathmark shall pay to C&S, pursuant to Section
3.05(a) herein, for Merchandise ordered from C&S, fees determined in accordance
with the following schedule.

A. Dry Merchandise upcharge: [CONFIDENTIAL]
------------------------
-including the following:
grocery (mainline)
dry bakery
candy
supplies

B. Perishable Merchandise upcharge: [CONFIDENTIAL]
-------------------------------
-including the following:
fresh meat
fresh deli
fresh seafood
produce
dairy
floral

C. Frozen Food Merchandise upcharge: [CONFIDENTIAL]
--------------------------------

The modulars and loose produce Merchandise shipped in a bin as a packaging
container, [CONFIDENTIAL], shall be deemed to contain [CONFIDENTIAL].

<PAGE>

(b) Adjustment to fees.

(i) C&S will bill Pathmark for C&S' costs due to any
Transportation Company's failure to perform as required under this
Agreement, including without limitation, any and all costs due to the
failure of any Transportation Company to move a trailer away from a
dock door within two hours of such trailer being ready to be moved.

(ii) Commencing with the third Contract Year, C&S may adjust
the upcharges to reflect increases in Pathmark's pro rata share of the
statutory rates for workers' compensation coverage and legislated costs
of providing medical benefits over the costs incurred by C&S for each
of these items during the first contract year.

[CONFIDENTIAL]

(iv) The fees set forth in this Agreement reflect the parties'
assumption that C&S will not be obligated to pay New Jersey gross
receipts (litter control) tax. If C&S determines that it is obligated
to pay New Jersey gross receipts (litter control) tax, the fees payable
to C&S will be adjusted to offset the increased cost to C&S.

Section 4.02. Cross-dock. C&S will charge Pathmark a handling fee of
[CONFIDENTIAL]. On a periodic basis, C&S will make empty totes available for
return to the GMDC. Cross-dock product is not slotted in the Facility and does
not have to be carried over 24 hours in the Facility.

Section 4.03. Continuities. The processing of continuities and their
returns will be at Pathmark's discretion. If C&S handles such continuities, then
C&S will charge Pathmark a handling fee of [CONFIDENTIAL]. Only full case units
in the original shipping container or partial cases which have been repacked and
sealed by the store may be returned. The handling fee will be subject to
adjustment for cases exceeding two cubic feet.

Section 4.04. Banana Ripening. In addition to the Upcharges reflected
in Section 4.01, Pathmark will pay a fee for banana ripening in an amount equal
to [CONFIDENTIAL].

Section 4.05. Cardboard Bales. If Pathmark requests that C&S handle
Pathmark's cardboard bales, then Pathmark shall pay to C&S a handling fee of
[CONFIDENTIAL].

Section 4.06. Rebate.

[CONFIDENTIAL]

Section 4.07. Volume Incentive. If in any Contract Quarter, Pathmark's
case purchases

<PAGE>

from C&S are greater than [CONFIDENTIAL], C&S will pay Pathmark a
volume incentive (the "Per Case Volume Incentive") equal to [CONFIDENTIAL] for
all cases in excess of the [CONFIDENTIAL], provided that (i) the parties expect
that such annual sales shall exceed the [CONFIDENTIAL], and (ii) if Pathmark
shall acquire any store that, prior to such acquisition, was supplied by C&S,
then the Per Case Volume Incentive shall not apply to the volume attributable to
such store. The Per Case Volume Incentive shall be credited by C&S by the 10th
day after the end of each Contract Quarter.

Section 4.08. Reduced Volume Surcharge; Lost Profits Surcharge.

(a) If in any Contract Quarter, Pathmark's purchases from C&S
are less than [CONFIDENTIAL], then Pathmark shall pay to C&S a Per Case
Reduced Volume Surcharge (the "Per Case Reduced Volume Surcharge")
equal to [CONFIDENTIAL] for all quarterly case sales less than
[CONFIDENTIAL].

(b) If in any Contract Quarter Pathmark's purchases from C&S
are less than the [CONFIDENTIAL] cases, Pathmark shall pay to C&S an
additional surcharge (the "Lost Profits Surcharge"), equal to
[CONFIDENTIAL].

(c) For purposes of determining any Reduced Volume Surcharge
payable with respect to the first Contract Quarter, cases purchased
during the implementation period will be aggregated with cases
purchased during the first Contract Quarter. The Per Case Reduced
Volume Surcharge and the Lost Profits Surcharge calculated as set forth
in this Section 4.08 for any Contract Quarter shall be paid by Pathmark
by the 10th day after the end of each Contract Quarter.

Section 4.09. Reconciliation. The [CONFIDENTIAL] referred to in Section
4.07 hereof, and Section 4.08(a) hereof, and the [CONFIDENTIAL] referred to in
Section 4.08(b) hereof are referred to herein as benchmarks. At the end of each
Contract Quarter, C&S shall reconcile the actual aggregate case sales for such
Contract Year with the applicable aggregate benchmark amount for each of the Per
Case Volume Incentive, Per Case Reduced Volume Surcharge and the Lost Profits
Surcharge. For example, if (a) in the first Contract Quarter, Pathmark's case
volume was [CONFIDENTIAL] cases and Pathmark paid a Per Case Reduced Volume
Surcharge of [CONFIDENTIAL] and (b) in the second Contract Quarter, Pathmark's
case volume was [CONFIDENTIAL] cases, then C&S would (i) aggregate the Contract
Quarters within such Contract Year [CONFIDENTIAL], (ii) aggregate the applicable
benchmarks [CONFIDENTIAL], reconcile such aggregate case sales with the
aggregate benchmark amount and, in this example, refund such prior
[CONFIDENTIAL] payment ten days following the end of the second Contract
Quarter.

Section 4.10. Trade Discount Rebate, Advance Marketing Funds and
Goodwill. [CONFIDENTIAL]

(b) Reduction and Repayment.

<PAGE>

(i) Volume Decline. If in any Contract Year, the
annual case purchases by Pathmark from C&S are less than
[CONFIDENTIAL], then C&S shall reduce [CONFIDENTIAL] due at the end of
said Contract Year by [CONFIDENTIAL].

[CONFIDENTIAL]

(iii) TDR, AMF and Goodwill and Termination. If
Pathmark rejects and/or terminates this Agreement pursuant to any
bankruptcy case brought by or against Pathmark (any termination without
cause being prohibited under this Agreement), then Pathmark shall repay
to C&S all TDR, AMF and Goodwill payments that C&S has paid to Pathmark
in addition to all other damages caused by such termination.

(c) Schedule Adjustment. All dates set forth in Section
4.10(a) assume that Pathmark shall begin purchasing all of its
requirements of Merchandise from C&S on January 30, 1998. Payments
hereunder shall be, as applicable, delayed or accelerated by one day
for every day that the Commencement Date is delayed or accelerated.

(d) Conditions. C&S's obligation to make any and all TDR, AMF
or Goodwill payments shall be subject to the satisfaction of the
following conditions:

(i) The representations and warranties of Pathmark
set forth herein shall be true and correct in all material respects on
and as of the date of such payment except to the extent such
representations and warranties specifically relate to an earlier date,
in which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier
date; and

(ii) At the time of such TDR, AMF or Goodwill
payment, no default under this Agreement or no Event of Default (as
defined in the Credit Agreement) in the following subparagraphs in
Article 7 (a)-(c) and (f)-(j) of the Credit Agreement shall have
occurred and be continuing.

Each and every TDR, AMF or Goodwill payment shall be deemed to
constitute a representation and warranty by Pathmark on the date
thereof as to the matters specified in paragraphs (i) and (ii) of this
Section.

Section 4.11. Interest Charges. This is a supply agreement and not a
credit agreement; it is not intended, nor shall it be a source of financing for
Pathmark. Notwithstanding the preceding sentence, interest shall accrue on all
unpaid amounts under this Agreement from the date due until repaid. Interest
shall accrue at a rate of [CONFIDENTIAL]. After termination of this Agreement,
any amounts outstanding under this Agreement shall bear interest from the date
of such termination to the date such amount is paid in full at a rate per annum
equal to [CONFIDENTIAL]. Interest is due and payable daily.

<PAGE>

[CONFIDENTIAL]

Section 4.13. ERISA Withdrawal Liability. Pursuant to the Asset
Purchase Agreement, the parties thereunder have agreed that Woodbridge Logistics
LLC will elect to proceed under ERISA Section 4204 and assume Pathmark's
obligations under the Multiemployer Pension Plans. Upon any subsequent
withdrawal from such plan by Woodbridge Logistics LLC occurring (i) prior to the
expiration or termination (other than a termination that occurs as a result of a
default by C&S hereunder) of this Agreement; (ii) within 60 days after
expiration of this Agreement; or (iii) within 180 days after termination of this
Agreement, [CONFIDENTIAL]. This Section 4.13 shall survive termination of this
Agreement.

ARTICLE V

CERTAIN COVENANTS

Section 5.01. Pallet Program. Pursuant to the Asset Purchase Agreement,
C&S or its subsidiary shall purchase from Pathmark all of Pathmark's pallets
(plastic and wooden). C&S and Pathmark agree to develop a mutually acceptable
pallet exchange program and accounting procedures to ensure that Pathmark
maintains an adequate number of pallets throughout the Term, provided that it is
the responsibility of C&S to purchase any and all replacement pallets and the
responsibility of Pathmark to return all pallets. If Pathmark fails to return to
C&S any pallet, then C&S will bill Pathmark for such shortage. This Section 5.01
is amended and supplemented by the pallet control procedures set forth on
schedule 5.01.

Section 5.02. Reclamation.

(a) Pathmark shall participate in C&S' reclamation program for
all Merchandise. This product will be scanned at C&S' reclamation
center within seven days after the product or empty container is picked
up from Pathmark Stores, and Pathmark will receive credit, on a monthly
basis, in an amount equal to [CONFIDENTIAL] of the retail value of
qualifying product. Furthermore, Pathmark shall receive a credit, on a
monthly basis, in an amount equal to [CONFIDENTIAL]; provided, that if
manufacturers adjust their current practices regarding reclamation,
then C&S would suspend payment of this credit and the parties would
meet to ensure that C&S' profitability was not negatively affected. For
the purpose of this section, qualifying product shall not include any
private label or any other unauthorized items. C&S shall not sell
Pathmark's private label goods within a 200-mile radius of the Blair
Facility.

(b) GM/HBC, cigarettes and Non-Merchandise items. C&S will
scan all qualified units of GM/HBC, cigarettes and non-Merchandise
items and transmit such information to Pathmark. Pathmark, in turn,
shall pay C&S, on a monthly

<PAGE>

basis, $.21 per unit scanned and will bill the respective vendors for
the cost of such product and related handling fees. If and when a
non-Merchandise item becomes Merchandise hereunder, then, at the
discretion of C&S, the reclamation of such items will be pursuant to
Section 5.02(a). If an item has been discontinued and C&S is unable to
bill the respective vendor for the cost of such product and related
handling fees, then the reclamation of such item shall be pursuant to
this Section 5.02(c).

Section 5.03. Compliance with Law. Each of Pathmark and C&S covenants
and agrees that in performing its obligations hereunder, it will comply with all
applicable laws, rules, regulations and orders and will have and maintain all
permits, licenses and authorizations necessary for the conduct of its business
and the performance of its obligations hereunder.

Section 5.04. Indemnity and Insurance.

(a) General Indemnity Provisions. C&S agrees to defend,
indemnify and hold harmless Pathmark and its employees, servants,
agents, successors and assigns from and against any and all claims and
demands for bodily injury or property damage arising out of or
resulting from the acts or omissions of C&S in any manner relating to
the handling, storage or use (but not the transportation) of the
Merchandise supplied to Pathmark pursuant to this Agreement, provided,
however, that this indemnification and hold harmless shall not apply to
any claims arising from or as a result of the misconduct or negligence
of Pathmark or its employees, agents or licensees.

Pathmark agrees to defend, indemnify and hold harmless C&S and
its employees, servants, agents, successors and assigns from and
against any and all claims and demands for bodily injury or property
damage arising from or caused by (i) any acts or omissions of Pathmark
in any manner relating to the transportation or handling of the
Merchandise; or (ii) the use of any product sold by Pathmark to C&S
pursuant to Section 6.01 of this Agreement.

Whenever Pathmark receives notice of a claim or demand that
would be covered by C&S' indemnity, Pathmark shall in turn provide C&S
with prompt written notice of said claim or demand.

Whenever C&S receives notice of a claim or demand that would
be covered by Pathmark' indemnity, C&S shall in turn provide Pathmark
with prompt written notice of said claim or demand.

(b) Product Liability. C&S represents that it shall endeavor
to obtain indemnification and hold harmless agreements (the "Master
Purchase Order") from the

<PAGE>

manufacturers, vendors or distributors of the Merchandise being sold to
Pathmark by C&S under this Agreement, which indemnification and hold
harmless agreements shall cover all claims and demands in any manner
based upon or attributed to the use of the Merchandise supplied by C&S.
C&S also represents that it shall endeavor to obtain evidence of
product liability insurance covering said indemnification in the amount
of $1 million from each such manufacturer, vendor or distributor. C&S
has furnished Pathmark its form of Master Purchase Order currently
furnished to vendors, as attached hereto as Exhibit G.

Pathmark agrees to assist C&S in its efforts to obtain
indemnification agreements and evidence of insurance from all vendors
supplying Pathmark Merchandise. Attached to this Agreement as Exhibit H
is a list of all Pathmark vendors as of the date hereof and an
indication of the amount (if any) of insurance each such vendor has
agreed to maintain. Pathmark agrees to furnish C&S copies of insurance
certificates furnished by such vendors and any related indemnity
agreements upon request.

On the Commencement Date and on each anniversary of the
Commencement Date, C&S will furnish Pathmark a list of vendors that
have executed C&S' form of Master Purchase Order and provided evidence
of insurance. If Pathmark places further orders for product supplied by
any vendor that has not executed C&S' form of Master Purchase Order and
provided evidence of insurance, C&S shall have no liability except for
acts or omissions by C&S causing bodily injury or property damage, and
Pathmark shall indemnify, defend and hold harmless C&S and its
employees, servants, agents, successors and assigns against any and all
claims and demands in any manner based upon or attributed to the use of
the products supplied by such vendors except claims arising out of acts
or omissions by C&S.

(c) Insurance. C&S agrees that all material properties and
risks of C&S shall at all times be covered by valid and currently
effective insurance policies or binders of insurance or programs of
self-insurance in such types and amounts as are consistent with
customary practices and standards of C&S. Pathmark shall be named as an
additional insured as provided in the certificate of insurance
previously delivered to Pathmark, and certificates of insurance
evidencing the renewal of insurance shall be delivered by C&S to
Pathmark from time to time. Pathmark agrees that all material
properties and risks of Pathmark and any third party providing
transportation services to Pathmark shall at all times be covered by
valid and currently effective insurance policies or binders of
insurance or programs of self-insurance in such types and amounts as
are consistent with customary practices and standards of companies
engaged in businesses and operations similar to those of Pathmark. C&S
shall permit Pathmark's property insurance carrier to conduct one
property conservation inspection each year at each Facility. C&S shall
at all times maintain the Facilities utilizing the same fire protection
standards utilized by Pathmark prior to the transfer to C&S. C&S agrees
to implement the reasonable recommendations of such carrier and to
adhere to the property conservation practices

<PAGE>

normally associated with HPR properties; provided, that C&S shall not
be obligated to expend more than [CONFIDENTIAL] in the first Contract
Year pursuant to this section and more than [CONFIDENTIAL] in the first
two Contract Years, and, provided further, that the inspection
scheduled by Arkwright Mutual Insurance Company for February 1998,
reaffirms the 1994 HPR rating for such Facility.

Section 5.05. Certain Financial Information. Pathmark shall immediately
give notice to C&S of any defaults (or any event that, with the passage of time,
would constitute a default) occurring under the Loan Documents.

Section 5.06. PACA, Repossession and Set Off . Pathmark affirms and
acknowledges that (i) upon a failure by Pathmark to make any payment when due
pursuant to this Agreement, C&S may fully enforce against Pathmark any and
all rights that C&S may possess pursuant to the Perishable Agricultural
Commodities Act, as amended, codified at 7 U.S.C.A. Section 499a et seq.;
(ii) upon an Event of Insolvency with respect to Pathmark or a failure by
Pathmark to make any payment when due under this Agreement, C&S may fully
enforce against Pathmark any and all rights that C&S may possess pursuant to
Section 2-702 of the Uniform Commercial Code, including without limitation,
the right to reclaim goods delivered to Pathmark upon the terms and
conditions set forth in Section 2-702; and (iii) upon a failure of Pathmark
to make any payment to C&S when due, C&S may, and is hereby authorized by
Pathmark, at any time and from time to time, to the fullest extent permitted
by applicable law, without advance notice to Pathmark (any such notice being
expressly waived by Pathmark), set off and apply any and all amounts owed by
C&S to Pathmark under this Agreement, against any or all of the Pathmark
obligations that have not been paid when due and remain unpaid, irrespective
of whether or not C&S has exercised any other rights that it has or may have
with respect to such Pathmark obligations. Pathmark shall execute and deliver
to C&S, from time to time during the term of this Agreement, such documents
as C&S may reasonably request to create, maintain, acknowledge or confirm the
rights of C&S affirmed and acknowledged by Pathmark pursuant to this Section
5.06.

Section 5.07. Utilization of Other C&S Facilities. If an Event of Force
Majeure affects C&S' ability to supply Pathmark Stores from any Facility but
does not otherwise affect C&S' operations, then C&S will use reasonable efforts
to supply Pathmark Stores from another facility operated by C&S.

Section 5.08. Base Price Audit. Pathmark shall have the right to audit
C&S' records, and C&S agrees to make all relevant records available for audit,
on C&S' premises or at other mutually agreed locations in order to confirm that
the Base Price charged to Pathmark during the period covered by the audit is in
accordance with the provisions of this Agreement. Such audits shall be limited
to one in any twelve month period, for the preceding twelve month period, and,
unless any significant discrepancies are found, each such audit shall be
completed in thirty working days. Pathmark agrees to conduct audits under this
Agreement only upon reasonable notice to C&S (which notice shall specify the
documentation that Pathmark requests the opportunity to review). All audits
shall be conducted so as to minimize the disruption on C&S'

<PAGE>

business operation. Pathmark agrees that it shall be limited to using four
persons at any time on such audit and that such persons shall be knowledgeable
regarding industry standards and customs, and such persons shall keep all such
information strictly confidential. Pathmark acknowledges that disclosure to
third parties of information obtained by Pathmark during its audits, other
non-public financial information furnished by C&S or the terms of this Agreement
could have a substantial adverse impact upon C&S. Pathmark agrees to maintain
any such information in strict confidence. C&S reserves the right to require any
individual engaged in an audit on behalf of Pathmark to sign a confidentiality
agreement prior to commencing the audit.

Section 5.09. Year 2000. C&S shall complete its computer system
conversion to recognize dates beyond December 31, 1999 (year 2000) by June 30,
1999.

Section 5.10. Additional Stores. If, at any time and from time to time
during the Term hereof, Pathmark shall acquire any store(s) through merger,
consolidation or other transaction and prior to said acquisition was supplied
with Merchandise by C&S, then C&S shall elect to either continue to supply such
store(s) under the terms and conditions of its existing supply agreement or
supply such store under the terms and conditions of this Agreement.

ARTICLE VI

ASSET PURCHASE

Section 6.01. Purchase of Assets. C&S agrees to purchase from Pathmark
certain assets pursuant to the terms of the Asset Purchase Agreement.

ARTICLE VII

TERMINATION

Section 7.01. Termination by C&S. C&S may terminate this Agreement for
cause (i) in the event of a default by Pathmark under Section 3.05 which remains
uncured for 72 hours after receipt by Pathmark of written notice thereof from
C&S (subject, however, to the provisions of such Section for arbitration), (ii)
in the event that Pathmark breaches any other material obligation under this
Agreement and such breach is curable and remains uncured after 90 days following
receipt by Pathmark of written notice of such breach from C&S, or (iii) upon the
occurrence of an Event of Insolvency with respect to Pathmark (provided,
however, that C&S shall not terminate this Agreement upon the occurrence of an
Event of Insolvency in the event that Pathmark is otherwise in compliance with
the terms of this Agreement and Pathmark provides adequate assurance of future
performance under this Agreement). In the event that C&S terminates this
Agreement pursuant to this Section 7.01, Pathmark shall promptly re-pay to C&S
all TDR, AMF and Goodwill amounts paid to Pathmark pursuant to Section 4.10
hereof less

<PAGE>

[CONFIDENTIAL] for each full Contract Year (or part thereof in excess of six
months) completed. This Section 7.01 shall survive termination of this
Agreement.

Section 7.02. Termination by Pathmark. Pathmark may terminate this
Agreement for cause (i) in the event that, for any reason other than a default
by Pathmark under this Agreement or an Event of Force Majeure, a Service Level
Breach occurs more than five times in any Contract Year, (ii) in the event that
C&S breaches any other material obligation under this Agreement and such breach
is curable and remains uncured after 90 days following receipt by C&S of written
notice of such breach from Pathmark, (iii) upon the occurrence of an Event of
Insolvency with respect to C&S (provided, however, that Pathmark shall not
terminate this Agreement upon the occurrence of an Event of Insolvency in the
event that C&S is otherwise in compliance with the terms of this Agreement and
C&S provides adequate assurance of future performance under this Agreement) or
(iv) if C&S fails to make any payment or credit to Pathmark under this Agreement
when due and payable that remains unpaid or credited for 72 hours after Pathmark
has given written notice to C&S of such default (subject, however, to the
provisions herein for arbitration with respect to credits due under this
Agreement).

Section 7.03. Waiver. Either party to this Agreement may (a) extend the
time for the performance of any of the obligations or other acts of the other
party or (b) waive compliance with any of the agreements or conditions of the
other party contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.

Section 7.04. Meetings to Review Progress Toward Curing Breach. If
either party gives notice of a breach that may be cured within 90 days pursuant
to section 7.01 or 7.02, the parties agree to meet within 10 days of the date of
the notice in order to review progress toward curing the breach. If the breach
is not sooner cured, the parties agree to meet again prior to the end of the 90
day cure period in order to review the progress toward curing the breach and to
attempt to negotiate an accommodation acceptable to each party.

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

Section 8.01. Representations and Warranties of C&S. C&S hereby
represents and warrants to Pathmark as follows:

(a) Corporate Organization and Authority. C&S (i) is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Vermont

<PAGE>

and is authorized to transact business in the State of New Jersey; and
(ii) has the corporate power and authority to own and operate its
properties and to carry on its business as now conducted and as
proposed to be conducted.

(b) Authorization. C&S has the corporate power and authority
to execute, deliver and perform its obligations under this Agreement
and has taken all necessary corporate action to authorize its
execution, delivery and performance of this Agreement. This Agreement
has been duly executed and delivered on behalf of C&S and constitutes
the legal, valid and binding obligation of C&S, enforceable in
accordance with its terms.

(c) No Consents; Conflicts. No consent, authorization by,
approval of or other action by, and no notice to, or filing or
registration with, any governmental authority, agency, regulatory body,
lender, lessor, franchisee or other Person is required for the
execution, delivery or performance of this Agreement by C&S, other than
those that have been obtained and are in full force and effect. The
execution, delivery and performance of this Agreement will not result
in any violation or breach of any provision of the charter or by-laws
of C&S, any judgment, decree or order to which C&S is a party or by
which it is bound, any indenture, mortgage or other agreement or
instrument to which C&S is a party or by which it is bound or any
statute, rule or regulation applicable to C&S.

Section 8.02. Representations and Warranties of Pathmark. Pathmark
hereby represents and warrants to C&S as follows:

(a) Corporate Organization and Authority. Pathmark (i) is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware; and (ii) has the corporate power and
authority to own and operate its properties and to carry on its
business as now conducted and as proposed to be conducted.

(b) Authorization. Pathmark has the corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and has taken all necessary corporate action to authorize its
execution, delivery and performance of this Agreement. This Agreement
has been duly executed and delivered on behalf of Pathmark and
constitutes the legal, valid and binding obligation of Pathmark,
enforceable in accordance with its terms.

(c) No Consents; Conflicts. No consent, authorization by,
approval of or other action by, and no notice to, or filing or
registration with, any governmental authority, agency, regulatory body,
lender, lessor, franchisee or other Person is required for the
execution, delivery or performance of this Agreement by Pathmark, other
than those that have been obtained and are in full force and effect.
The execution, delivery and performance of this Agreement will not
result in any violation or breach of any provision of the charter or
by-laws of Pathmark, any judgment, decree or order to which Pathmark is
a party or by which it is bound, any indenture, mortgage or other
agreement or

<PAGE>

instrument to which Pathmark is a party or by which it is
bound or any statute, rule or regulation applicable to Pathmark.

ARTICLE IX

GENERAL PROVISIONS

Section 9.01. Entire Agreement. This Agreement, together with the
documents referred to herein, constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior agreements
and undertakings, both written and oral, between the parties hereto with respect
to the subject matter hereof.

Section 9.02. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
borne by the party incurring the same.

Section 9.03. Amendments. This Agreement may not be amended or modified
except (i) by an instrument in writing signed by, or on behalf of, each of
Pathmark and C&S or (ii) by a waiver in accordance with Section 7.03.

Section 9.04. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy or telex or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 9.04):

(a) If to Pathmark:

James Donald
Chairman, Chief Executive Officer and President
Pathmark Stores, Inc.
200 Milik Street
Carteret, NJ 07008
Telephone: (732) 499-3281
Facsimile: (732) 499-3100

<PAGE>

with a copy to:

Marc Strassler, Esq.
Vice President and General Counsel
Pathmark Stores, Inc.
200 Milik Street
Carteret, NJ 07008
Telephone: (732) 499-3930
Facsimile: (732) 499-3460

(b) If to C&S:

Richard B. Cohen
President and Chief Executive Officer
C&S Wholesale Grocers, Inc.
Old Ferry Road
Brattleboro, VT 05301
Telephone: (802) 257-6700
Facsimile: (802) 257-6620

with a copy to:

Mark Gross, Esq.
Senior Vice President and General Counsel
C&S Wholesale Grocers, Inc.
Old Ferry Road
Brattleboro, VT 05301
Telephone: (802) 257-6025
Facsimile: (802) 257-6857

Section 9.05. Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of Pathmark and C&S and their respective
successors and assigns; provided that (i) C&S shall not have the right to assign
or subcontract its rights or obligations hereunder or any interest herein
without the prior written consent of Pathmark, which consent shall not be
unreasonably withheld, conditioned or delayed, provided that C&S may assign this
Agreement to a subsidiary of C&S without obtaining such consent, and (ii)
Pathmark may assign its rights and delegate its obligations hereunder only so
long as (x) Pathmark shall assign, and the assignee shall assume, all such
rights and obligations, (y) the assignment is to a Person or Persons who are
acquiring all or substantially all of Pathmark' business or assets, and (z)
Pathmark demonstrates, to the reasonable satisfaction of C&S, that such Person
has the financial capability to perform the obligations of Pathmark hereunder.
C&S agrees that it shall respond, in respect of clause (z) above, promptly, and
in any event within 10 business days of receipt of notice from Pathmark of any
such proposed assignment. Failure by C&S to respond to Pathmark within such 10
business

<PAGE>

day period shall be deemed to be a confirmation by C&S to Pathmark of its
reasonable satisfaction with the financial capability of the proposed assignee.
The parties acknowledge that (i) C&S will be deemed to have assigned its rights
and obligations hereunder for purposes of this Section 9.05 in the event that
Richard B. Cohen shall cease to beneficially own at least 50.1% of the issued
and outstanding voting stock of C&S, and (ii) such assignment shall require the
prior written consent of Pathmark, which consent shall not be unreasonably
withheld, conditioned or delayed.

Section 9.06. Sale of Pathmark Division.

(a) Pathmark will provide C&S with written notice of any
Pathmark plan to sell transfer, assign or otherwise convey ownership (a
"Sale") in one or more Pathmark Divisions. Such notice shall be given
at the earliest practicable time and shall state, among other things,
the name of the proposed purchaser, the location of the stores
comprising the Division to be Sold, the approximate timetable for
consummating the sale and the purchaser's plans for supplying the
Division in the aftermath of the Sale, if such plan is known to
Pathmark. Such notice shall be given, at the latest, thirty (30) days
in advance of the date scheduled for the proposed Sale.

(b) If Pathmark Sells a Division in one or a series of
transactions within any consecutive twelve (12) month period to the
same Person, then C&S shall continue to supply such stores under the
terms of this Agreement for six months immediately following such sale
consummation.

(c) If the cause of any decline in the amount of Pathmark's
purchases from C&S is a Sale of a Division, then C&S shall relieve
Pathmark of Pathmark's obligation to pay the Per Case Reduced Volume
Surcharge and the Lost Profits Surcharge attributable to such sale to
the extent that the purchaser of such Division either (a) executes a
supply agreement on substantially the same terms and conditions as this
Agreement with respect to such Division, or (b) otherwise enters into
an agreement with C&S for C&S to supply such purchaser with
Merchandise.

Section 9.07. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.

Section 9.08. Confidentiality. Each of Pathmark and C&S agrees to and
will cause its respective authorized agents, representatives, affiliates,
employees, officers, directors, accountants, counsel and other designated
representatives (collectively, "Representatives") to (i) treat and hold as
confidential (and not disclose or provide access to any Person to) all records,
books, contracts, instruments, computer data and other data and information
(collectively,

<PAGE>

"Information") concerning the other in its possession or furnished by the
other or the other's Representatives pursuant to this Agreement, (ii) in the
event that either party or its Representatives become legally compelled to
disclose any such Information, provide the other party with prompt written
notice of such requirement so that such other party may seek a protective
order or other remedy or waive compliance with this Section 9.08, and (iii)
in the event that such protective order or other remedy is not obtained, or
the other party waives compliance with this Section 9.08, furnish only that
portion of such Information which is legally required to be provided and
exercise its best efforts to obtain assurances that confidential treatment
will be accorded such Information; provided, however, that this sentence
shall not apply to any Information that, at the time of disclosure, is
available publicly and was not disclosed in breach of this Agreement by such
party or its Representatives. Without limiting the foregoing, (i) C&S agrees
that Pathmark is the owner of all information relating to its purchasing
practices and that Pathmark may, in its sole discretion, sell such
information to third parties and (ii) that C&S may share movement information
of any product with the supplier of such product. This Section 9.08 shall
survive termination of this Agreement.

Section 9.09. Relationship of Parties. In all matters relating to this
Agreement, both parties shall be acting solely as independent contractors and
shall be solely responsible for the acts of their employees, officers, directors
and agents. Employees, agents or contractors of one party shall not be
considered employees, agents or contractors of the other party.

Section 9.10. No Third-Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties thereto and their
permitted assigns, and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever.

Section 9.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.

Section 9.12. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.

<PAGE>

Section 9.13. Arbitration.

(a) Any matter required to be submitted to arbitration
pursuant to Section 3.05 of this Agreement shall be subject to this
Section 9.13. Any such matter shall be submitted to binding arbitration
in Springfield, Massachusetts (or another location agreed to by the
parties) in accordance with the rules and procedures of the American
Arbitration Association (or another organization agreed to by the
parties). The arbitration shall be conducted in accordance with (i) the
terms of this Section 9.13; (ii) the commercial arbitration rules of
the American Arbitration Association (or the corresponding rules of any
such other organization); (iii) the Federal Arbitration Act (Title 9 of
the United States Code); and (iv) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of New
York. Judgment upon any award rendered hereunder may be entered in any
court having jurisdiction.

(b) A single arbitrator shall be selected by mutual agreement
of the parties, or, if the parties fail to reach such agreement within
ten days after either party has requested arbitration hereunder in
writing, by, or in a manner provided by the American Arbitration
Association (or such other organization referred to above).

(c) The arbitrator is empowered to resolve the matter in
dispute by summary ruling substantially similar to a summary judgment
and motion to dismiss. The arbitrator shall resolve all disputes in
accordance with applicable substantive law. The determination of the
arbitrator shall be binding on all parties and shall not be subject to
further review or appeal except as allowed by applicable law. The costs
and expenses of the arbitrator shall be apportioned between the parties
hereto as determined by the arbitrator in such manner as the arbitrator
deems reasonable.

(d) The arbitrator and the parties shall take all actions
necessary to the end that the arbitration proceeding shall be concluded
as promptly as practicable.

(e) The provisions of this Section 9.13 shall not preclude a
party from exercising any right or remedy with respect to any matter
that is not expressly required to be submitted to arbitration pursuant
to Section 3.05 of this Agreement.

<PAGE>

Section 9.14. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to the principles of conflicts of laws thereof.

Section 9.15. Facility Closing. Subject to its abilities to meet its
obligations hereunder, C&S in its sole discretion may close any and all current
Facilities.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.

PATHMARK STORES, INC.

By: /s/ Ron Marshall
--------------------------------------
Name: Ron Marshall
Title: Executive Vice President

C&S WHOLESALE GROCERS, INC.

By: /s/ Richard B. Cohen
--------------------------------------
Name: Richard B. Cohen
Title: President and Chief Executive
Officer

<PAGE>

INDEX TO EXHIBITS

Exhibit A Omitted
Exhibit B Pathmark Stores
Exhibit C Omitted
Exhibit D Initial Load Schedules
Exhibit E Sales Service Allowances[CONFIDENTIAL]
Exhibit F Credit Policy[CONFIDENTIAL]
Exhibit G Master Purchase Order
Exhibit H Pathmark Vendors(OMITTED)
Schedule 3.04(a) Short-code dairy items[CONFIDENTIAL]
Schedule 3.04(b) List of Pathmark cash discounts[CONFIDENTIAL]
Schedule 3.04(d) Left-over ad product[CONFIDENTIAL]
Schedule 3.04(e) Forward Buy Procedures[CONFIDENTIAL]
Schedule 3.04(n) C&S average case weight average cost system[CONFIDENTIAL]
Schedule 3.08 Certain Pathmark Stores[CONFIDENTIAL]
Schedule 4.01 Produce shipped by the bin[CONFIDENTIAL]
Schedule 4.06-1 Current amount and "mix" of back hauls[CONFIDENTIAL]
Schedule 4.06-2 Back haul Rates[CONFIDENTIAL]
Schedule 5.01 Pallet Control Agreement
Schedule 5.02 Reclamation Procedures

Related Letters
- - Produce Specifications referenced in Section 3.04(f)[CONFIDENTIAL]
- - SKU lists referenced in Section 3.04(q)[CONFIDENTIAL]
- current list of items carried by the Grocery Department, as
evidenced on the Daily Buyer's Report processed 9/18/97;
- current list of items at the Dayton Facility, as evidenced on
the Daily Buyer's Report processed 9/16/97 and the PSS Weekly
Transmission Report - Store # 535 processed 9/22/97, pages
838-860;
- current list of items at the Perishable Distribution Facility,
as evidenced by the PSS Weekly Transmission Report - Store #
535 processed 9/20/97; and
- current list of items at the Perishable Distribution Facility
(fresh seafood, dry in-store bakery and dairy), as evidenced
by the Dairy-Deli Requirement Recap processed 9/18/97.

<PAGE>

SCHEDULE 4.01

Loose Product packaged and shipped in bins

Watermelons (seeds) 30
Watermelons (seedless) 20
Cauliflower 30
Citrus, in 10 pound bags 30
Potatoes, in 10 pound bags, up to 225 bags per pallet 40
Apples, in 5 pound bags 20
Musk Melons 20
Bird seed 40

Mods packaged and shipped by pallet

Nut Mod (in shell) 40
Mixed Fruit Mod 40
Peanut Mod 40

<PAGE>

Exhibit 10.19

EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated as of June 1, 1995, between Pathmark Stores, Inc.,
a Delaware corporation (the "Company"), and Robert Joyce ("Executive").

W I T N E S S E T H

WHEREAS, the Company wishes to assure itself of the services of
Executive for the period provided in this Agreement, and Executive is willing to
serve in the employ of the Company on a full time basis for said period, and
upon the other terms and conditions hereinafter provided;

NOW, THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the parties hereto agree as follows:

1. Employment and Duties.

(a) General. Subject to paragraph 2 hereof, the Company hereby
employs Executive and Executive agrees upon the terms and conditions herein set
forth to serve the Company as Senior Vice President and, in such capacity, shall
perform such duties as may be delineated in the By-Laws of the Company, and such
other duties, commensurate with Executive's title and position of Senior Vice
President, as may be assigned to Executive from time to time by the Chief
Executive Officer of the Company. If elected or appointed, Executive shall also
serve as a director or officer of any of the Company's subsidiaries or
affiliated companies without further compensation.

(b) Full-Time Service. Throughout the Period (as defined in
paragraph 2 below), Executive shall, except as may from time to time be
otherwise agreed to in writing by the Company and unless prevented by ill
health, devote his full-time working hours to his duties hereunder, shall in all
respects conform to and comply with the lawful and reasonable directions and
instructions given to him by the Chief Executive Officer of the Company, and
shall use his best efforts to promote and serve the interests of the Company.

<PAGE>

(c) No Other Employment. Throughout the Period, Executive shall
not, directly or indirectly, render services to any other person or organization
for which he receives compensation without the consent of the Board of Directors
of the Company, or otherwise engage in activities which would interfere
significantly with his faithful performance of his duties hereunder. Executive
may perform inconsequential services without specific compensation therefor in
connection with the management of personal investments, provided that such
activity does not contravene the provisions of subparagraph 1(b) hereof or
paragraph 5 hereof.

2. Term of Employment. The Company shall retain Executive and Executive
shall serve in the employ of the Company for an initial period of approximately
24 months commencing on June 1, 1995 (the "Commencement Date") and extending
through and including May 31, 1997 (the "Initial Period"); provided, however,
that commencing on June 1, 1996 and each successive June1st thereafter, the term
of employment hereunder shall be automatically extended for one additional year,
unless at least 30 days prior to such June 1st the Company has delivered to
Executive, or Executive has delivered to the Company, written notice of its or
his desire, as the case may be, not to extend the term of employment (the
Initial Period, including the extensions thereof, if any, is herein referred to
as the "Period"; provided, further, that the Period shall terminate when
Executive's employment hereunder terminates).

3. Compensation and Other Benefits. Subject to the provisions of this
Agreement, the Company shall pay and provide the following compensation and
other benefits to Executive during the Period as compensation for services
rendered hereunder:

(a) Base Salary. The Company shall pay to Executive a minimum
annual base salary (the "Base Salary") at the rate of $200,000 per annum,
payable in accordance with the Company's then current payroll practice. The Base
Salary shall be reviewed annually on or about May 1st of each year during the
Period and may be increased in the discretion of the Board of Directors of the
Company or the Compensation Committee of the Board of Directors of the Company
or of one of

<PAGE>

its parent corporations (the "Compensation Committee"). The Company shall be
entitled to deduct or withhold all taxes and charges which the Company may be
required to deduct or withhold therefrom.

(b) Bonus. Commencing on the Commencement Date, for each fiscal
year in the Period (or fraction thereof), Executive shall be eligible to receive
a bonus, ranging in each year from 0 to a maximum rate of 60% of annual Base
Salary, in accordance with the targets adopted by the Compensation Committee
pursuant to the terms of the Executive Incentive Plan ("EIP") of the Company as
in effect for Company executives. Bonuses payable hereunder shall be paid in
accordance with the Company's payroll practice concerning bonuses.

(c) Employee Benefit Plans. At all times during the Period,
Executive shall be provided the opportunity to participate in pension and
welfare plans, programs and arrangements (the "Plans") that are generally made
available to executives of the Company, or as may be deemed appropriate by the
Compensation Committee, in accordance with their respective terms.

(d) Relocation. The Company shall not, without Executive's
consent, relocate Executive's principal place of business to a location beyond
20 miles from Woodbridge, New Jersey.

(e) Travel. The Company shall not, without Executive's consent,
require Executive to travel on the Company's business to an extent materially
inconsistent with the Company's normal business travel requirements.

4. Termination of Employment.

(a) Termination for Cause (i) If, prior to the expiration of the
Period, Executive's employment is terminated by the Company for Cause, as
defined in subparagraph 4(a)(ii), or if Executive resigns from his employment
without Good Reason, as defined in subparagraph 4(b)(iv), Executive shall not be
eligible to receive Base Salary under subparagraph 3(a) or to participate in

<PAGE>

any Plans under subparagraph 3(c) with respect to future periods after the date
of such termination or resignation except for the right to receive benefits
which have become vested under any Plan in accordance with the term of such
Plan. In addition, Executive shall not be eligible to receive any bonus
described in subparagraph 3(b) for the Company's fiscal year during which the
date of termination or resignation occurs and any later years.

(ii) Termination for "Cause" shall mean termination
of Executive's employment with the Company by the Chief Executive Officer or
Board of Directors of the Company based upon the occurrence of any of the
following events in the good faith opinion of the Chief Executive Officer or
Board of Directors: (A) Executive shall have committed an offense constituting a
first, second or third degree crime (as defined by the New Jersey Code of
Criminal Justice), or a felony under any other state or federal law; (B) the
willful engaging by Executive in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For purposes of this
subparagraph (ii)(B), no act on Executive's part shall be considered "willful"
unless done by Executive not in good faith and without reasonable belief that
Executive's action was in the best interests of the Company, or (C) the
Executive shall have habitually neglected his duties to the Company if such
neglect is not cured by the Executive within five days after written notice is
given to Executive by the Chief Executive Officer or Board of Directors
identifying the manner in which the Chief Executive Officer or Board of
Directors (whichever is applicable) believes that the Executive has habitually
neglected his duties.

(iii) The date of termination of employment by the
Company under this paragraph 4(a) shall be the date specified in a written
notice of termination (which date shall be no earlier than the date of
furnishing such notice), or if no such date is specified therein, the date of
receipt by Executive of such written notice of termination. The date of
resignation under this paragraph 4(a) shall be two weeks after receipt by the
Company of written notice of resignation, or if no such notice is provided, the
date the Executive ceases to perform his duties hereunder.

<PAGE>

(b) Termination Without Cause; Resignation for Good Reason (i)
Subject to the provisions of subparagraph 4(a) and subparagraph 4(b)(vi) hereof,
if, prior to expiration of the Period, Executive's employment is terminated by
the Company without Cause, or if Executive resigns from his Employment for Good
Reason, Executive shall be entitled to receive during the Severance Period, as
severance pay or liquidated damages, or both ("Severance Benefits"), (A) a sum
equal to his Base Salary at the annual rate then in effect immediately prior to
such termination or resignation, and (B) continued coverage under Company health
and insurance plans applicable to Executive immediately prior to such
termination or resignation, or, if any such plan does not permit continued
coverage of the Executive, the Company shall arrange to provide a benefit
substantially similar to and no less favorable than the benefit he was entitled
to under such plan, reduced by any compensation or benefits which Executive
receives, or is entitled to receive, in connection with any employment of the
Executive by another employer during the time that Severance Benefits are
payable to Executive pursuant to this paragraph 4(b). Executive shall provide
the Company with any evidence of amounts received in connection with other
employment which the Company shall reasonably request. The Severance Period
shall commence on the day following the date of such termination or resignation
for Good Reason and shall expire on the date this Agreement would have expired
but for said termination or resignation.

(ii) If, following a termination of employment for
resignation for Good Reason, Executive breaches the provisions of paragraph 5
hereof, Executive shall not be eligible, as of the date of such breach, for the
payment of Severance Benefits and all obligations and agreements of the Company
to pay Severance Benefits shall thereupon cease.

(iii) The date of termination of employment by the
Company under this paragraph 4(b) shall be the date specified in a written
notice of termination to Executive (which date shall be no earlier than the date
of furnishing such notice) or, if no such date is specified therein, the date on
which such notice is given to Executive. The date of resignation under this
paragraph 4(b) shall be two weeks after receipt by the Company of the written
notice of resignation.

<PAGE>

(iv) Resignation for "Good Reason" shall mean the
Executive's voluntary termination of employment with the Company because of (A)
a reduction, without Executive's written consent, in Executive's current base or
aggregate compensation, unless such reduction is generally applicable to all
executives of the Company, (B) a reduction, without the Executive's consent, in
Executive's then current responsibilities, (C) receipt of notice by Executive
pursuant to paragraph (2) hereof of the Company's desire not to extend the term
of employment, or (D) such other events of hardship as the Compensation
Committee or Board of Directors may determine on a case-by-case basis.

(v) Severance Benefits shall be paid in connection with
the Company's then current payroll practice commencing on the next payroll date
following the date of the termination of Executive's employment under
subparagraph 4(b), in a gross amount equal to the amount paid to Executive by
the Company for the payroll period immediately prior to such termination or
resignation.

(c) Death. If Executive dies prior to the expiration of the
Period, his Base Salary and bonus (determined as the bonus he would have earned
had his employment continued until the end of the applicable bonus period during
which his death occurred) will be prorated through his day of death and paid to
his beneficiary or estate.

(d) Disability. If Executive becomes Permanently Disabled, as
defined below in this subparagraph, prior to the expiration of the Period, the
Company shall be entitled to terminate his employment and Executive shall be
entitled to receive disability benefits in accordance with the disability policy
maintained by the Company as of the date of such disability. For the purposes of
this subparagraph, Executive shall be deemed "Permanently Disabled" when, and
only when, he suffers a physical or mental disability or infirmity that prevents
the normal performance of duties lasting for a continuous period of six months
or more.

<PAGE>

5. Secrecy and Noncompetition.

(a) No Competing Employment. For so long as Executive is
receiving, or is entitled to receive, any payments under or pursuant to this
Agreement (such period being referred to hereinafter as the "Restricted
Period"), Executive shall not, unless he receives the prior written consent
of the Company, directly or indirectly, whether as owner, consultant,
employee, partner, venturer, agent, through stock ownership, investment of
capital, lending of money or property, rendering of services, or otherwise
(except ownership of less than 5% of the number of shares outstanding of any
securities which are publicly traded), compete with the retail
supermarket/drugstore business of the Company or any other business
contributing at least 15% of the consolidated revenues of the Company at the
time of termination of Executive's employment hereunder (such businesses are
hereinafter referred to as the "Business"), or assist, become interested in
or be connected with any corporation, firm, partnership, joint venture, sole
proprietorship or other entity which so competes with the Business, except
for the aforementioned 5% ownership of publicly traded securities. The
restrictions imposed by this subparagraph shall not apply to any geographic
area in which the Company is not engaged in the Business at the time of
termination.

(b) No Interference. During the Restricted Period, Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization or
entity (other than the Company), intentionally solicit, endeavor to entice away
from the Company or any Affiliate or otherwise interfere with the relationship
of the Company or any Affiliate with, any person who is employed by or
associated with the Company or any Affiliate (including, but not limited to, any
independent sales representatives or organizations) or any person or entity who
is, or was within the then most recent 12 month period, a customer or client of
the Company or any Affiliate.

(c) Secrecy. Executive recognizes that the services to be
performed by him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder with the Company, he may acquire confidential
information and trade secrets concerning the operations of

<PAGE>

the Company or its Affiliates, the use or disclosure of which could cause the
Company substantial loss and damages which could not be readily calculated and
for which no remedy at law would be adequate. Accordingly, Executive covenants
and agrees with the Company that he will not at any time, except in performance
of Executive's obligations to the Company hereunder or with the prior written
consent of the Board of Directors of the Company, directly or indirectly,
disclose any secret or confidential information that he may learn by reason of
his association with the Company, or use any such information to the detriment
of the Company, or any of its Affiliates. The term "confidential information"
includes, without limitation, information not previously disclosed to the public
or to the trade by the Company's management with respect to the Company's, or
any of its respective subsidiaries' or Affiliates' business plans, prospects and
opportunities, the identity of clients, suppliers or customers, information
regarding operational strengths and weaknesses, trade secrets, know-how and
other intellectual property, systems, procedures, manuals, confidential reports,
product price lists, marketing plans or strategies, and financial information.
Executive understands and agrees that the rights and obligations set forth in
this subparagraph 5(c) are perpetual and, in any case, shall extend beyond the
Restricted Period and Executive's employment hereunder.

(d) Exclusive Property. Executive confirms that all confidential
information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by Executive relating to the
business of the Company shall be and remain the property of the Company. Upon
the termination of his employment with the Company or upon the request of the
Company at any time, Executive shall promptly deliver to the Company, and shall
not, without the consent of the Company (which consent shall not be unreasonably
withheld), retain copies of any written materials not previously made available
to the public, records and documents made by Executive or coming into his
possession concerning the business or affairs of the Company. Executive may
retain records relating exclusively to the terms and conditions of his
employment relationship with the Company. Executive understands and agrees that
the rights and obligations set forth in this subparagraph 5(d) are perpetual
and, in any case, shall extend beyond the Restricted Period and Executive's
employment hereunder.

<PAGE>

(e) Stock Ownership. Other than as provided in subparagraph 1(c)
or 5(a) hereof, nothing in this Agreement shall prohibit Executive from
acquiring or holding any issue of stock or securities of any company or other
business entity, provided that Executive does not participate in the operations
of any such company and provided further that, with respect to any class of
voting securities listed on a national securities exchange or quoted on the
automated quotations system of the National Association of Securities Dealers,
Inc., Executive and members of his immediate family do not own at any time
during the Restricted Period more than 5% of the issued and outstanding shares
of such class of securities.

(f) Injunctive Relief. Without intending to limit the remedies
available to the Company, Executive acknowledges that a breach of any of the
covenants contained in this paragraph 5 may result in material irreparable
injury to the Company for which there is no adequate remedy at law, that it will
not be possible to measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, the Company shall be entitled to
obtain a temporary restraining order and/or a preliminary or permanent
injunction restraining Executive from engaging in activities prohibited by this
paragraph 5 or such other relief as may be required to specifically enforce any
of the covenants in this paragraph 5.

6. Nonassignability, Binding Agreement. Neither this Agreement nor any
right, duty, obligation or interest hereunder shall be assignable or delegable
by Executive without the Company's prior written consent provided, however, that
nothing in this paragraph shall preclude Executive from designating any of his
beneficiaries to receive any benefits payable hereunder upon his death, or the
executors, administrators, or other legal representatives from assigning any
rights hereunder to the person or persons entitled thereto.

This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto, any successors to or assigns of the Company and Executive's
heirs and the personal representatives of Executive's estate.

<PAGE>

7. Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term or
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.

8. Amendment; Waiver. This Agreement may not be modified, amended or
waived in any manner except by an instrument in writing signed by both parties
hereto. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement, or of any subsequent breach by such party
of a provision of this Agreement.

9. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of New Jersey.

10. Notices. Any notice hereunder by either party to the other shall be
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed to
Executive at the address last known to the Company, or if addressed to the
Company, the notice shall be delivered or mailed to the Company at its executive
offices, to the attention of the Chairman of the Board, with a copy to the
Secretary of the Company, at 301 Blair Road, Woodbridge, NJ 07095. A notice
shall be deemed given, if by personal delivery, on the date of such delivery or,
if by certified mail, on the date shown on the applicable return receipt.

11. Supersedes Previous Agreements. This Agreement supersedes all prior
or contemporaneous negotiations, commitments, agreements and writings with
respect to the subject matter hereof, all such other negotiations, commitments,
agreements and writings will have no further force or effect, and the parties to
any such other negotiation, commitment, agreement or writing will have no
further rights or obligations thereunder.

<PAGE>

12. Counterparts. This Agreement may be executed by either of the
parties hereto in counterpart, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.

13. Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

14. Tax Withholding. The Company shall be entitled to deduct or withhold
from any payment made hereunder all Federal, state and local taxes which the
Company is required by law to deduct or withhold therefrom.

15. Definition of Affiliate. As used in this Agreement, the term
"Affiliate" shall mean a person, corporation or other entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
pursuant to the authority of its Board of Directors, and Executive has executed
this Agreement as of the day and year first written above.

PATHMARK STORES, INC.

By /s/ Jack Futterman
----------------------------

Jack Futterman, Chairman and
Chief Executive Officer

/s/ Robert Joyce
----------------------------

<PAGE>

Exhibit 10.20

EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated as of June 1, 1995, between Pathmark Stores, Inc.,
a Delaware corporation (the "Company"), and Marc Strassler ("Executive").

W I T N E S S E T H

NOW, THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the parties hereto agree as follows:

1. Employment and Duties.

(a) General. Subject to paragraph 2 hereof, the Company hereby
employs Executive and Executive agrees upon the terms and conditions herein set
forth to serve the Company as Vice President and General Counsel and, in such
capacity, shall perform such duties as may be delineated in the By-Laws of the
Company, and such other duties, commensurate with Executive's title and position
of Vice President and General Counsel, as may be assigned to Executive from time
to time by the Chief Executive Officer of the Company. If elected or appointed,
Executive shall also serve as a director or officer of any of the Company's
subsidiaries or affiliated companies without further compensation.

<PAGE>

promote and serve the interests of the Company.

(a) Base Salary. The Company shall pay to Executive a minimum
annual base salary (the "Base Salary") at the rate of $128,015 per annum,
payable in accordance with the Company's then current payroll practice. The Base
Salary shall be reviewed annually on or about May 1st of each year during the
Period and may be increased in the discretion of the Board of Directors of the

2
<PAGE>

Company or the Compensation Committee of the Board of Directors of the Company
or of one of its parent corporations (the "Compensation Committee"). The Company
shall be entitled to deduct or withhold all taxes and charges which the Company
may be required to deduct or withhold therefrom.

(b) Bonus. Commencing on the Commencement Date, for each fiscal
year in the Period (or fraction thereof), Executive shall be eligible to receive
a bonus, ranging in each year from 0 to a maximum rate of 37.5% of annual Base
Salary, in accordance with the targets adopted by the Compensation Committee
pursuant to the terms of the Executive Incentive Plan ("EIP") of the Company as
in effect for Company executives. Bonuses payable hereunder shall be paid in
accordance with the Company's payroll practice concerning bonuses.

(d) Relocation. The Company shall not, without Executive's
consent, relocate Executive's principal place of business to a location beyond
20 miles from Woodbridge, New Jersey.

4. Termination of Employment.

3
<PAGE>

Executive shall not be eligible to receive Base Salary under subparagraph 3(a)
or to participate in any Plans under subparagraph 3(c) with respect to future
periods after the date of such termination or resignation except for the right
to receive benefits which have become vested under any Plan in accordance with
the term of such Plan. In addition, Executive shall not be eligible to receive
any bonus described in subparagraph 3(b) for the Company's fiscal year during
which the date of termination or resignation occurs and any later years.

(ii) Termination for "Cause" shall mean termination of
Executive's employment with the Company by the Chief Executive Officer or Board
of Directors of the Company based upon the occurrence of any of the following
events in the good faith opinion of the Chief Executive Officer or Board of
Directors: (A) Executive shall have committed an offense constituting a first,
second or third degree crime (as defined by the New Jersey Code of Criminal
Justice), or a felony under any other state or federal law; (B) the willful
engaging by Executive in conduct which is demonstrably and materially injurious
to the Company, monetarily or otherwise. For purposes of this subparagraph
(ii)(B), no act on Executive's part shall be considered "willful" unless done by
Executive not in good faith and without reasonable belief that Executive's
action was in the best interests of the Company, or (C) the Executive shall have
habitually neglected his duties to the Company if such neglect is not cured by
the Executive within five days after written notice is given to Executive by the
Chief Executive Officer or Board of Directors identifying the manner in which
the Chief Executive Officer or Board of Directors (whichever is applicable)
believes that the Executive has habitually neglected his duties.

4
<PAGE>

5
<PAGE>

6
<PAGE>

5. Secrecy and Noncompetition.

(a) No Competing Employment. For so long as Executive is
receiving, or is entitled to receive, any payments under or pursuant to this
Agreement (such period being referred to hereinafter as the "Restricted
Period"), Executive shall not, unless he receives the prior written consent of
the Company, directly or indirectly, whether as owner, consultant, employee,
partner, venturer, agent, through stock ownership, investment of capital,
lending of money or property, rendering of services, or otherwise (except
ownership of less than 5% of the number of shares outstanding of any securities
which are publicly traded), compete with the retail supermarket/drugstore
business of the Company or any other business contributing at least 15% of the
consolidated revenues of the Company at the time of termination of Executive's
employment hereunder (such businesses are hereinafter referred to as the
"Business"), or assist, become interested in or be connected with any
corporation, firm, partnership, joint venture, sole proprietorship or other
entity which so competes with the Business, except for the aforementioned 5%
ownership of publicly traded securities. The restrictions imposed by this
subparagraph shall not apply to any geographic area in which the Company is not
engaged in the Business at the time of termination.

<PAGE>

8
<PAGE>

9
<PAGE>

9. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of New Jersey.

10
<PAGE>

13. Headings. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

PATHMARK STORES, INC.

By /s/Jack Futterman
--------------------------------
Jack Futterman, Chairman and
Chief Executive Officer

/s/Marc Strassler
--------------------------------

<PAGE>

Exhibit 10.23

PATHMARK STORES, INC.

- -------------------------------------------------------------------------------
301 Blair Road, P.O. Box 5301, Woodbridge, NJ 07095-0915
(908) 499-3930 Fax: (908) 499-3460

Mr. John Sheehan
7 Pheasant Drive
Colts Neck, NJ 07722

Employment Agreement

Dear John:

The following sets forth the agreement between Pathmark Stores, Inc.
(the "Company") and you regarding the terms and provisions of your employment
as an employee of the Company during the Term (as hereinafter defined).

1. Term of Employment Under the Agreement The Term of your
employment under this Agreement (the "Term") shall commence on April 1, 1997
(the "Effective Date") and shall continue until March 31, 1999; provided,
however, that commencing on April 1, 1998 and on each successive April 1st
thereafter (each, a "Renewal Date"), the Term shall be automatically extended
for one additional year, unless at least 30 days prior to the next Renewal
Date the Company has delivered to you or you have delivered to the Company,
written notice of the desire, not to extend the Term. For purposes of this
Agreement, "Fiscal Year" means the Company's fiscal year. Subject to the
provisions of Section 4 below, either party may terminate your employment
under this Agreement at any time.

2. Employment During the Term During the Term, you shall be employed
as Senior Vice President - Operations of the Company, and your duties and
responsibilities to the Company shall be consistent in all respects with such
position. In addition, pursuant to this Agreement, in the sole discretion of
the Company, and for no additional consideration, you agree to serve as an
officer of any subsidiary or parent corporation of the Company. You shall
devote substantially all of your business time, attention, skills and efforts
exclusively to the business and affairs of the Company, other than de minimis
amounts of time devoted by you to the management of your personal finances or
to engaging in charitable or community services. Your principal place of
employment shall be the executive offices of the Company as established from
time to time, although you understand and agree that you will be required to
travel from time to time for business purposes.

<PAGE>

3. Compensation During the Term

(a) Base Salary. As compensation to you for all services
rendered to the Company, the Company will pay you a base salary (the "Salary")
at the rate of $180,000 per annum, which will be reviewed annually by the Chief
Executive Officer and may be increased but not decreased by the Board of
Directors (the "Board") or any committee thereof responsible for the Company's
executive compensation policies (the "Committee"), on the basis of such review.
Your Salary will be paid to you in accordance with the Company's regular payroll
practices applicable to its executive officers.

(b) Bonuses. During the Term, you shall be eligible to
participate in the Company's Executive Incentive Plan (the "EIP"). Under the
EIP, for each full twelve-month Fiscal Year occurring during the Term, you will
be eligible to earn an annual bonus (the "Annual Bonus") of up to 55% of your
Salary, at the rate in effect at the beginning of the applicable Fiscal Year,
based on targets set by the Committee for your Annual Bonus for such Fiscal
Year. The target for your Annual Bonus for any partial Fiscal Year occurring
during the Term shall be prorated by multiplying the target by a fraction (not
greater than one), the numerator of which shall be the number of days in such
Fiscal Year occurring during the Term and the denominator of which shall be 365.
The Annual Bonus earned by you for any Fiscal Year will be paid to you within
120 days following the end of such Fiscal Year.

(c) Benefits. During the Term, you shall be eligible to
participate in each pension, welfare and fringe benefit program made available
generally to executives of the Company in accordance with the terms and
provisions of each such program, provided, however, that the Company shall not
be obligated to provide any supplemental retirement plan or any similar
arrangement to you.

(d) Business Expenses. The Company will reimburse you upon
presentation by you of appropriate documentation for business expenses
reasonably incurred by you in connection with the performance of your duties
under this Agreement.

4. Effect of Termination of Employment

(a) Involuntary Termination. (i) Subject to Sections 4(f) and
4(g) below, in the event of your Involuntary Termination (as hereinafter
defined), the Company shall pay you (x) the full amount of the accrued but
unpaid Salary you have earned through the date of such Involuntary Termination,
plus a cash payment (calculated on the basis of your rate of Salary then in
effect) for all unused vacation time which you

<PAGE>

may have accrued as of the date of Involuntary Termination; (y) the amount of
any earned but unpaid Annual Bonus for any Fiscal Year of the Company ended on
or prior to the date of the termination of your employment hereunder (the "Date
of Termination", which is defined in detail under Section 4(d) below), and (z) a
Severance Amount (the "Severance Amount") equal to your annual rate of Salary,
based upon the annual rate then in effect immediately prior to the Date of
Termination, multiplied by a fraction (not greater than two), the numerator of
which is the number of months remaining in the Term, and the denominator of
which is 12, payable in the same manner as the Salary in accordance with the
Company's regular payment practices applicable to its executive officers over
the Severance Period. For purposes of this Agreement, "Involuntary Termination"
shall mean (i) your termination of employment by the Company other than for
Cause or Disability, or (ii) your resignation of employment with the Company for
Good Reason. "Cause" shall mean the termination of your employment with the
Company because of (i) your willful and repeated failure (other than by reason
of incapacity due to physical or mental illness) to perform the material duties
of your employment with the Company after notice from the Company of such
failure and your inability or unwillingness to correct such failure within
thirty (30) days of such notice; (ii) your conviction of a felony, or your plea
of no contest to a felony, (iii) perpetration by you of a material dishonest act
or fraud against the Company or any parent or subsidiary thereof; or (iv) any
material breach by you of this Agreement, including, but not limited to, any
breach of the Protective Covenants set forth in Section 5 hereof. "Disability"
shall mean your absence from continuous full-time employment with the Company
for a period of at least 180 consecutive days by reason of a mental or physical
illness. "Good Reason" shall mean your resignation because of (i) the failure of
the Company to pay any material amount of compensation to you when due; (ii) a
material, adverse reduction or material, adverse diminution in your titles,
duties, positions or responsibilities with the Company, including, but not
limited to, failure by the Company to elect you to the office of Senior Vice
President; (iii) any other material breach by the Company of the Agreement; or
(iv) receipt of notice by you pursuant to Section 1 hereof of the Company's
decision not to extend the Term. In order to constitute Good Reason, you must
provide within sixty (60) days after you know or have reason to know of the
occurrence of any such event, a Notice of Termination (as defined in Section
4(d) below). After you provide such Notice of Termination to the Company, the
Company shall have thirty (30) days from the date of receipt of such notice to
effect a cure of the condition constituting Good Reason, and, upon cure thereof
by the Company (which cure shall be retroactive with respect to any monetary
matter), such event shall no longer constitute Good Reason. "Severance Period"
shall mean, in the event of an Involuntary Termination, the period commencing on
the Date of Termination and ending on the last day of the Term.

<PAGE>

(ii) In the event of your Involuntary Termination,
you and your eligible dependents shall continue to be eligible to participate
during the Benefit Continuation Period (as hereinafter defined) in the medical,
dental, health and life insurance plans applicable to you immediately prior to
your Involuntary Termination on the same terms and conditions in effect for you
and your dependents immediately prior to such Involuntary Termination. For
purposes of this Agreement, Benefit Continuation Period shall mean, in
connection with your Involuntary Termination, the period beginning on the Date
of Termination and ending on the earliest to occur of (i) the end of the
Severance Period; (ii) the date you are eligible to be covered under the benefit
plans of a subsequent employer, and (iii) the date of your breach of any
provision of Section 5 hereof.

(iii) Except as otherwise provided in this Section
4(a) or the provisions of any employee benefit plan in which you are a
participant, or as required by law, in the event of your Involuntary
Termination, as of the Date of Termination, you will relinquish the right to
any additional payments or benefits from the Company under this Agreement or
otherwise.

(b) Termination Event. In the event your employment ends at
any time during the Term as a result of a Termination Event (as hereinafter
defined), the Company shall pay you the full amount of the accrued but unpaid
Salary you have earned through the Date of Termination, plus a cash payment
(calculated on the basis of your rate of Salary then in effect) for all unused
vacation time which you may have accrued as of the Date of Termination. You
shall immediately relinquish the right to any other payments or benefits from
the Company under this Agreement or otherwise, except with respect to any
employee benefit plan that provides otherwise. "Termination Event" shall mean
your resignation without Good Reason or a termination by the Company for Cause.

(c) Death or Disability. If your employment with the Company
ends as a result of your death or Disability during the Term, the Company shall
pay you (or, in the event of your death, your Beneficiary) the full amount of
the accrued but unpaid Salary you have earned through the Date of Termination,
plus a cash payment (calculated on the basis of your rate of Salary then in
effect) for all unused vacation time which you may have accrued as of the Date
of Termination. In addition, the Company shall pay you the amount of any earned
but unpaid Annual Bonus for any Fiscal Year of the Company ended on or prior to
the Date of Termination. Except as otherwise

<PAGE>

provided in this Section 4(c), the provisions of any employee benefit plan in
which you are a participant, as of the Date of Termination, you (or in the event
of your death, your Beneficiary) will relinquish the right to any additional
payments or benefits from the Company under this Agreement or otherwise. For
purposes of this Agreement, "Beneficiary" shall mean the person or persons
designated by you in writing to receive any benefits payable to you hereunder in
the event of your death or, if no such persons are so designated, your estate.
No Beneficiary designation shall be effective unless it is in writing and
received by the Company prior to the date of your death.

(d) Date and Notice of Termination. Any termination of your
employment by the Company or by you during the Term shall be communicated in
writing by a notice of termination to the other party hereto (the "Notice of
Termination"). The Notice of Termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated. The Date of Termination shall be
determined as follows: (i) if your employment is terminated for Disability,
thirty (30) days after a Notice of Termination is given (provided that you shall
not have returned to the full-time performance of your duties during such
thirty-day period); (ii) if your employment is terminated by the Company in an
Involuntary Termination, the date specified in the Notice of Termination (or if
no date is specified in the Notice of Termination, the date the Notice of
Termination is delivered to you); (iii) if your employment is terminated by the
Company for Cause, the later of (x) the date specified in the Notice of
Termination, and (y) the expiration of the applicable period set forth in the
definition of Cause during which you may effect a cure or meet with the Board if
such period expires without such cure being effected by you and without a
reversal on the part of the Board regarding its decision to terminate you for
Cause; (iv) if you resign your employment hereunder on the basis of Involuntary
Termination for Good Reason, the Date of Termination shall be the later of (x)
the date specified in the Notice of Termination, and (y) the expiration of the
applicable cure period set forth in the definition of Good Reason if such period
expires without such cure being effected by the Company; (v) the Date of
Termination in the event of your resignation of employment other than for Good
Reason shall be the date set forth in the Notice of Termination, which shall be
no earlier than thirty (30) days after the date such notice is received by the
Company; and (vi) the Date of Termination in the event of your death shall be
the date of your death.

(f) Reduced Severance Amount. Any Severance Amount payable
under the Agreement will be reduced by any compensation or benefits you earn in
connection with any employment by another employer during the Severance Period.
You agree promptly

<PAGE>

to provide the Company with any evidence of amounts received in connection with
such other employment which the Company shall reasonably request.

(g) Breach of Protective Covenants. If, following the Date of
Termination, you breach any of the provisions of Section 5 below, in addition to
any other remedies the Company may have, you shall not be eligible, as of the
date of such breach, for any Severance Amount, and all obligations of the
Company to pay any Severance Amount hereunder shall thereupon cease.

5. Protective Covenants

(a) No Competing Employment. During the Restricted Period (as
hereinafter defined), you shall not, without the prior written consent of the
Board, directly or indirectly, whether as owner, consultant, employee, partner,
venturer, or agent, through stock ownership, investment of capital, lending of
money or property, rendering of services, or otherwise (except ownership of less
than 1% of the number of shares outstanding of any securities which are publicly
traded), compete with the retail supermarket business, or any other business
contributing at least 15% of the consolidated revenues, of the company or any
parent or subsidiary of the Company (such businesses are hereinafter referred to
as the "Business"), or assist, become interested in or be connected with any
corporation, firm, partnership, joint venture, sole proprietorship or other
entity which so competes with the Business, except for the aforementioned 1%
ownership of publicly traded securities. The restrictions imposed by this
Section 5(a) shall not apply to any geographic area in which the Company, its
parent or subsidiaries are not engaged in the Business at the Date of
Termination. "Restricted Period" shall mean the period beginning on the
Effective Date and ending on the last day of the Term.

(b) No Solicitation of Clients, Customers or Employees. During
the Restricted Period, you shall not, without the prior written consent of the
Board, directly or indirectly (i) solicit in competition with the Business any
person who at any time either during the Term or during the Restricted Period is
or becomes a customer or a client of the Business; (ii) solicit, induce or
attempt to persuade any employee or independent contractor of the Business, to
terminate his or her employment or independent contractor relationship in order
to enter into any other employment or engage in other business or livelihood;
(iii) solicit, influence, or attempt to influence any provider of services or
products to the Business, including, without limitation, any person or entity
which has been a provider of services or products to the Business during the
Executive's employment with the Company, or take any action detrimental to the
existing or prospective relationships between the Business and any provider of
services, or (iv) assist

<PAGE>

or encourage any other person in carrying out, directly or indirectly, any
activity that would be prohibited by the provisions of this Section 5(b) if such
activity were carried out by you, and, in particular, you agree that you will
not, directly or indirectly, induce any employee of the Business to carry out
any such activity.

(c) Confidentiality. You recognize that the services you
perform for the Company are special, unique and extraordinary in that you may
acquire confidential information and trade secrets concerning the operations of
the Company, its parent and subsidiaries, the use or disclosure of which could
cause the Company substantial loss and damages which could not be readily
calculated, and for which no remedy at law would be adequate. Accordingly, you
covenant and agree with the Company that you will not at any time, except in
performance of your obligations to the Company hereunder, or with the prior
written consent of the Board, directly or indirectly, disclose any secret or
confidential information that you may learn by reason of your association with
the Company. The term "confidential information" includes, without limitation,
information not previously disclosed to the public or to the trade by the
Company's management with respect to the Company or any of its parent's or
subsidiaries' business plans, prospects and opportunities, the identity of
clients, suppliers or customers, information regarding operational strengths and
weaknesses, trade secrets, know-how and other intellectual property, systems,
procedures, manuals, confidential reports, product price lists, marketing plans
or strategies, and financial information. You understand and agree that the
rights and obligations set forth in this Section 5(c) are perpetual and, in any
case, shall extend beyond the Restricted Period and the Severance Period.

(d) Injunctive Relief. Without limiting the remedies available
to the Company, you acknowledge that a breach of any of the covenants contained
in this Section 5 may result in material irreparable injury to the Company for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach or threat thereof, the Company shall be entitled to obtain a temporary
restraining order or a preliminary or permanent injunction restraining you from
engaging in activities prohibited by this Section 5 or such other relief as may
be required to specifically enforce any of the covenants of this Section 5.

6. Successors; Binding Agreement

(a) Assumption by Successor. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company
expressly to assume and to agree to perform this Agreement in the same manner
and to the same extent that the

<PAGE>

Company would be required to perform it if no such succession had taken place;
provided, however, that no such assumption shall relieve the Company of its
obligations hereunder.

(b) Enforceability; Beneficiaries. This Agreement shall be
binding upon and inure to the benefit of you (and your personal representatives
and heirs) and the Company and any organization which succeeds to substantially
all of the business or assets of the Company, whether by means of merger,
consolidation, acquisition of all or substantially all of the assets of the
Company or otherwise.

7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand, sent by telecopier or
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the Chief Executive Officer, Pathmark Stores, Inc., 301
Blair Road, P.O. Box 5301, Woodbridge, New Jersey 07095-0915, telecopier number
(908) 499-3100, with a copy to the General Counsel of the Company, at the same
address, telecopier number (908) 499-3460, or to you at the address set forth on
the first page of this Agreement, or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.

8. Miscellaneous.

(a) No Rights to Continued Employment. Neither this Agreement
nor any of the rights or benefits evidenced hereby shall confer upon you any
right to continuance of employment by the Company or interfere in any way with
the right of the Company to terminate your employment, subject to the provisions
of Section 4 above, for any reason, with or without Cause.

(b) Amendments, Waivers, Etc. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing by the parties hereto. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provision or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement, and this Agreement shall supersede all prior
agreements, negotiations, correspondence, undertakings and communications of the
parties, oral or written, with respect to the subject matter hereof.

<PAGE>

(c) Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

(d) Representation. You hereby represent and warrant to the
Company that the execution and delivery by you of this Agreement to the Company
will not breach the terms of any contract, agreement or understanding to which
you are a party. You further acknowledge and agree that a breach of this
representation by you shall render this Agreement void ab initio and of no
further force and effect.

(e) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

(f) Withholding. Amounts paid to you hereunder shall be
subject to all applicable federal, state and local wage withholdings.

(g) Source of Payments. All payments provided under this
Agreement (other than payments made pursuant to a plan which provides otherwise
or as otherwise expressly provided hereunder) shall be paid in cash from the
general funds of the Company, and no special or separate fund shall be
established, and no other segregation of assets made, to assure payment. You
will have no right, title or interest whatsoever in or to any investments which
the Company may make to aid it in meeting its obligations hereunder. To the
extent that any person acquires a right to receive payments from the Company
hereunder, such right shall be no greater than the right of an unsecured
creditor of the Company.

(h) Headings. The headings contained in this Agreement are
intended solely for convenience of reference and shall not affect the rights of
the parties to this Agreement.

(i) Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
New Jersey applicable to contracts entered into and performed in such state.

<PAGE>

If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.

Sincerely,

PATHMARK STORES, INC.

By: /s/James Donald
---------------

[Name] James Donald
[Title] President

Agreed to as of this 4th day of
April , 1997.
- -----

/s/John Sheehan
- ---------------

<PAGE>

Exhibit 10.24

RESIGNATION AGREEMENT

AGREEMENT (the "Agreement"), dated as of November 4, 1997 (the
"Effective Date"), among Pathmark Stores, Inc., a Delaware corporation (the
"Company") and SMG-11 Holdings Corporation ("SMG-II), a Delaware corporation
(collectively, with each of their respective subsidiaries and affiliates, the
"Companies"), and Neill Crowley ("Executive").

WITNESSETH:

WHEREAS, the Company, SMG-II and Executive are parties to an Employment
Agreement, dated as of May 23, 1994 (the "Employment Agreement"), relating to
the terms and conditions of Executive's services as an employee and officer of
the Company and SMG-II; and

WHEREAS, the parties have agreed that Executive's services as an
employee and officer of the Companies shall end on the Effective Date in
accordance with the terms and provisions set forth below;

NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:

I . Resignation in Certain Capacities. As of the Effective Date,
Executive hereby resigns as an employee and officer of the Companies, and in
each other capacity in which he serves the Companies. Executive agrees to take
any and all further action as shall be reasonably necessary to effect or
memorialize the foregoing resignations.

2. Termination of Employment Agreement. As of the Effective Date, the
Employment Agreement shall terminate and be of no further force and effect.

3. Severance Payments and Benefits in Connection with the Resignation.

(a) Salary Continuation Payments. Subject to Section 6 below,
the Company will continue to pay Executive his base salary at the annual rate of
$288,399.28 per year during the period commencing on the day following the
Effective Date and ending on July 31, 1999 (or the date of Executive's death, if
earlier) (the "Severance Period"). Such salary continuation payments shall be
paid in accordance with the Company's payroll practices, commencing on the next
payroll date following the Effective Date, in an amount equal to the amount paid
to Executive by the Company for the payroll period immediately prior to the
Effective Date.

<PAGE>

(b) Bonus Continuation. Subject to Section 6 below, Executive
shall be entitled to receive as severance the portion of the bonus or bonuses
attributable to the financial targets set forth for the Company under the
Company's Executive Incentive Plan (the "EIP") that Executive would have earned
had his employment continued through January 31, 1998, determined in accordance
with the EIP and based on the same percentage of base compensation used to
calculate bonuses for Executive on the Effective Date and subject to the Company
reaching the applicable financial targets set under the EIP or any other bonus
plans. Any bonus payments payable to Executive hereunder shall be paid in
accordance with the Company's current practice for paying bonuses commencing
within two months after the Company's fiscal year-end.

(c) Health and Insurance Continuation. Subject to Section 6
below, Executive will be entitled to receive continued coverage through the
Severance Period under the Company's health and insurance plans applicable to
Executive immediately prior to the Effective Date or, if any such plan does not
permit continued coverage, the Company will arrange to provide Executive with a
benefit substantially similar to and no less favorable than the benefits
Executive was entitled to under such plan.

(d) Company Car. Executive may, at his option, purchase his
Company car at its fair market value, as determined by the leasing company.

(e) Mitigation. The severance payments and benefits provided
in Sections 3(a), 3(b) and 3(c) above (hereinafter, the "Severance Benefits")
shall be reduced by any compensation or benefits Executive is entitled to
receive in connection with any employment by another employer during the
Severance Period. Executive shall promptly provide the Company with any evidence
of amounts received in connection with his employment during the Severance
Period which the Company shall reasonably request.

(f) Breach of Protective Covenants. If, following the
Effective Date, Executive breaches any of the provisions of Section 6 hereof,
Executive shall not be eligible, as of the date of such breach, for the
Severance Benefits, and all obligations of the Company to pay Severance Benefits
hereunder shall thereupon cease; provided, however, that this Section 3(f) shall
not in any way impair Executive's rights to extend medical coverage, at his
expense, under Section 4980B(f) of the Internal Revenue Code of 1986, as
amended, and the applicable rules and regulations thereunder (the "Code").

(g) Tax Withholding. The payments and benefits provided to
Executive under this Agreement shall be subject to all applicable income tax or
other withholding required by applicable federal, state or local law, and the
Company shall have no obligation to make any such payment or to provide any such
benefits to Executive until

<PAGE>

arrangements reasonably acceptable to the Company have been made to satisfy such
withholding obligations.

(h) Section 28OG of the Code. In the event that any Severance
Benefits would not be deductible in whole or in part, in the calculation of
federal income tax owed by the Company or any of its affiliates, or any other
person or entity making such payment or providing such benefit by reason of
Section 28OG of the Code, such Severance Benefits shall be reduced until no
portion of the Severance Benefits is not deductible by reason of Section 28OG of
the Code.

(i) Special Payment. The Company will make a cash lump sum
payment to Executive in the amount of $192,074 on or prior to April 15, 1998.

(j) Accrued Vacation. Promptly following the Effective Date,
the Company shall pay Executive his accrued but unused vacation benefits in
accordance with existing Company policy for retirees.

4. Options. SMG-11 and Executive are parties to an option agreement
(the "Option Agreement") granted under the SMG-11 Management Investors 1987
Stock Option Plan (the "Option Plan") which entitle Executive to purchase up to
a maximum of 1,000 shares of Class A Common Stock of SMG-11 in accordance with
the terms and provisions of the Option Agreement. Executive and SMG-II each
agree that the provisions of the Option Agreement is hereby amended to provide
that the option evidenced by such Option Agreement shall be exercisable until
the Expiration Date (as defined in Section 2 of the Option Agreement), subject
to Section 6 of the Option Agreement. Executive understands and agrees that any
option which is so extended shall no longer qualify as an incentive stock option
for purposes of the Code. For purposes of the Option Agreement, Executive's
resignation hereunder shall be treated as a resignation for "Good Reason."

5. No Other Compensation or Benefits. Except for the obligations of the
Company under Sections 3, and 4 of this Agreement, Executive shall not be
entitled to any other compensation or benefits from any of the Companies in
connection with his resignation of employment or otherwise, and Executive shall
not be eligible for or entitled to any other severance, termination or any
similar benefits under any plan, program, policy or arrangement, whether formal
or informal, written or unwritten, of any of the Companies.

<PAGE>

6. Protecting the Interests of the Company.

(a) No Competing Employment. During the Restricted Period (as
hereinafter defined), Executive shall not, unless he receives after the
Effective Date the prior written consent of the Board, directly or indirectly,
whether as owner, consultant, employee, partner, venturer, agent, through stock
ownership, investment of capital, lending of money or property, rendering of
services, or otherwise (except ownership of less than 5% of the number of shares
outstanding of any securities which are publicly traded), compete with the
retail supermarket business or any other business contributing at least 15% of
the consolidated revenues of the Companies as of the Effective Date (such
businesses are hereinafter referred to as the "Business"), or assist, become
interested in or be connected with any corporation, firm, partnership, joint
venture, sole proprietorship or other entity which so competes with the
Business, except for the aforementioned 5% ownership of publicly traded
securities. The restrictions imposed by this Section 6(a) shall not apply to
Executive's employment within any geographic area in which the Companies are not
engaged in the Business at the time of termination. The "Restricted Period"
shall mean the period beginning on the Effective Date and ending on July 31,
1999.

(b) No Interference. During the Restricted Period, Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization or
entity (other than the Companies), intentionally solicit, endeavor to entice
away from the Companies, or any of their affiliates, or otherwise interfere with
the relationship of the Companies, or any of their affiliates, with any person
who is employed by any of the Companies, or any of their affiliates (including,
but not limited to, any independent sales representatives or organizations), or
any person or entity who is, or was within the then most recent 12- month
period, a customer or client (other than an individual retail consumer) of the
Companies, or any of their affiliates.

(c) Secrecy. Executive recognizes that the services he
performed for the Companies were special, unique and extraordinary in that, by
reason of his past employment with the Companies he has acquired confidential
information and trade secrets concerning the operations of the Companies and
their affiliates, the use or disclosure of which could cause the Companies
substantial loss and damages which could not be readily calculated, and for
which no remedy at law would be adequate. Accordingly, Executive covenants and
agrees with the Companies that he will not at any time, except in performance of
Executive's obligations to the Companies hereunder, or with the prior written
consent of the Board, directly or indirectly, disclose any secret or
confidential information that he has learned by reason of his association with
the

<PAGE>

Companies, or any predecessors to the business of the Companies, or use any such
information to the detriment of the Companies or any of their affiliates. The
term "confidential information" includes, without limitation, information not
previously disclosed to the public or to the trade by the Companies' management
with respect to the Companies' or any of their respective subsidiaries' or
affiliates' business plans, prospects and opportunities, the identity of
clients, suppliers or customers, information regarding operational strengths and
weaknesses, trade secrets, know-how and other intellectual property, systems,
procedures, manuals, confidential reports, product price lists, marketing plans
or strategies, and financial information. Executive understands and agrees that
the rights and obligations set forth in this Section 6(c) are perpetual and, in
any case, shall extend beyond the Restricted Period and the Severance Period.

(d) Exclusive Property. Executive confirms that all
confidential information is and shall remain the exclusive property of the
Companies. All business records, papers and documents kept or made by Executive
relating to the business of the Companies shall be and remain the property of
the Companies and shall be promptly delivered to the Company within three days
following the Effective Date. Executive shall not, without the consent of the
Board, retain copies of any written materials not previously made available to
the public, records and documents made by Executive or coming into his
possession concerning the business or affairs of the Companies. Executive may
retain records relating exclusively to the terms and conditions of his
employment relationship with the Companies and this Agreement. Executive
understands and agrees that the rights and obligations set forth in this Section
6(d) are perpetual and, in any case, shall extend beyond the Restricted Period
and the Severance Period. All other property of the Companies in Executive's
possession (such as business credit cards, keys and pass cards, computer
hardware and computer software) shall be returned to Company within three days
following the Effective Date.

(e) Stock Ownership. Other than as provided in Section 6(a)
hereof, nothing in this Agreement shall prohibit Executive from acquiring or
holding any issue of stock or securities of any company or other business
entity, provided that, with respect to any class of voting securities listed on
a national securities exchange or quoted on the automated quotation system of
the National Association of Securities Dealers, Inc., Executive and members of
his immediate family do not own at any time during the Restricted Period more
than 5% of the issued and outstanding shares of such class of securities.

<PAGE>

directors and shareholders to the press, any employees of any of the Companies,
or any individual or entity with whom any of the Companies has a business
relationship. In connection with Executive's resignation hereunder, Executive
and the Company agree to the issuance of an internal statement in the form
attached hereto as Exhibit A.

(g) Cooperation in Litigation. In consideration of the
payments hereunder, Executive agrees to cooperate fully with the Companies in
the preparation and assertion of any claim or defense in connection with any
action, suit or proceeding brought by or against any of the Companies; provided,
however, that Executive's obligation under this Section 6(g) shall apply only to
matters in which Executive was involved, or in respect of which Executive
acquired information, as a result of his services as an employee, officer or
director of any of the Companies. The Company shall reimburse Executive for all
reasonable expenses incurred by him (including reasonable attorneys' fees and
expenses) as a result of any request by the Company under this Section 6(g).

(h) Injunctive Relief. Without intending to limit the remedies
available to the Companies, Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable injury
to the Companies for which there is no adequate remedy at law, that it will not
be possible to measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, the Companies shall be entitled to
obtain a temporary restraining order and/or a preliminary or permanent
injunction restraining Executive from engaging in activities prohibited by this
Section 6, or such other relief as may be required to specifically enforce any
of the covenants in this Section 6.

7. Release; Covenant Not to Sue. In consideration of the benefits
contained in this Agreement:

(a) Covenant Not to Sue. Executive promises not to file a
complaint or charge or to commence any legal proceedings against the Companies,
their directors, officers and employees (the "Released Parties") at an
administrative agency, or in a court of law or equity, exclusive of a claim to
enforce this Agreement, which shall be governed by Section 8 below ("Permitted
Claims"). Executive represents that he has not filed any such complaint or
charge, or commenced any legal proceedings as of the Effective Date. Executive
understands that if his representation contained in the preceding sentence is
untrue on the date he signs the Agreement, or should he bring any lawsuit
against the Released Parties or file any charge or complaint with any
administrative agency relating to, or arising out of, his employment
relationship or the commencement or termination of that relationship (other than
a Permitted Claim), then he will be in breach of this

<PAGE>

Agreement and will be required to return any benefits received, will forfeit
rights to any further benefits, and his stock options will automatically be
deemed to be canceled.

(b) Release. Executive, on behalf of himself, his heirs,
administrators, executors, successors and assigns, hereby releases and forever
discharges the Released Parties from any and all claims, actions, suits, causes
of action, damages, judgments and demands whatsoever, in law or in equity (all
hereinafter "Claims"), known or unknown, fixed or contingent, suspected or
asserted, including, but not limited to, all Claims against the Released Parties
he ever had or may have based upon disability, age, sex, national origin, race,
color, religion, marital status or any other factor; torts or personal injury
(including claims of wrongful discharge, defamation or emotional distress);
breach of contract, express or implied; breach of the covenant of good faith and
fair dealing; violation of any constitutional or statutory right, whether
arising under the Federal Age Discrimination in Employment Act of 1967, as
amended, the New Jersey Law Against Discrimination, as amended, Title VII of the
Civil Rights Act of 1964, as amended, the Equal Pay Act, the New Jersey
Conscientious Employee Protection Act, the Constitution of the United States,
the constitution of any individual state, any other federal, state or local law,
regulation or ordinance; and/or the common law of any state. This release is for
any relief, including back pay, front pay, compensatory damages, counsel fees,
punitive damages or damage for pain and suffering.

(d) Executive further understands that he may cancel the
Agreement within seven (7) days after he signs it and until the seven days have
passed, this Agreement shall neither be effective nor enforceable. Executive
understands that should he cancel the Agreement, he will not be entitled to the
benefits in the Agreement, but will receive only those benefits for which the
Company is responsible under the Employment Agreement.

(e) Executive understands that by signing the Agreement he
does not waive rights or claims that arise after the date of this Agreement.

(f) Executive agrees and admits that no representation of fact
or opinion has been made by either party, or any representative thereof, either
jointly or individually, to induce Executive to sign this Agreement. Executive
hereby agrees that the Companies do not admit liability of any sort and that the
Companies have made no representation as to liability of any sort, and that this
Agreement is made as a compromise and to terminate all controversy and/or claims
by Executive.

<PAGE>

(g) Executive further states that he has carefully read the
Agreement, including the release and that he knows and understands their
contents, and that he is signing the Agreement voluntarily and of his own free
will.

(h) Executive further agrees that he has been advised by the
Company to consult with an attorney, prior to executing this Agreement,
including the release, and that he fully understands the terms, conditions, and
final and binding effect of this Agreement and the release.

(i) Executive acknowledges that he has been given a period of
at least twenty-one (21) days within which to consider this Agreement, including
the release, prior to signing it.

8. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, including, but not limited to, any claim relating to the
validity, interpretation, enforceability or breach of this Agreement, which is
not settled by agreement between the parties, shall be settled by arbitration in
Newark, New Jersey before a panel of three arbitrators, one to be selected by
the Companies, one by Executive and the other by the two persons so selected,
all in accordance with the rules of the American Arbitration Association then in
effect; provided, however, that the Companies shall nevertheless be entitled to
seek relief under Section 6 above in accordance with Section 6(h) thereof. In
consideration of the parties' agreement to submit to arbitration disputes with
regard to this Agreement and with regard to any alleged tort, contract or other
claim arising out of the employment relationship, and in consideration of the
anticipated expedition and minimization of expense of this arbitration remedy,
each party agrees that the arbitration provisions of this Agreement shall
provide it with the exclusive remedy, except as provided in the preceding
sentence, and each party expressly waives any right it might have to seek
redress in any other form except as provided herein. The parties further agree
that the arbitrators acting hereunder shall be empowered to assess no remedy
other than payment of compensatory damages or an order (including temporary,
preliminary or permanent injunctive relief) enforcing the provisions of Section
6 above. Each party shall bear its own expenses in connection with the
arbitration proceeding. Any decision or order of the majority of arbitrators
shall be binding upon the parties hereto, and judgment thereon may be entered in
the Superior Court of the State of New Jersey, or any other court having
jurisdiction.

9. Nonassignability; Binding Agreement. Neither this Agreement nor any
right, duty, obligation or interest hereunder shall be assignable or delegatable
by Executive without the Company's prior written consent; provided, however,
that nothing in this Section 9 shall preclude Executive from designating any of
his beneficiaries to receive

<PAGE>

any benefits payable under Section 3(c) upon his death, or the executors,
administrators, or other legal representatives from assigning any rights
hereunder to the person or persons entitled thereto.

This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto, any successors to or assigns of the Companies and Executive's
heirs and the personal representatives of Executive's estate.

10. Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term or
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid and unenforceable
term or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.

11. Amendment; Waiver. This Agreement may not be modified, amended or
waived in any manner, except by an instrument in writing signed by all parties
hereto. The waiver by any party of compliance with any provision of this
Agreement by any other party shall not operate or be construed as a waiver of
any other provision of this Agreement, or of any subsequent breach by such party
of a provision of this Agreement.

12. Notices. Any notice hereunder by any party to any other shall be
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed to
Executive at the address last known to the Company, or if addressed to any of
the Companies, the notice shall be delivered or mailed to the Company at its
executive offices, to the attention of the President. A notice shall be deemed
given, if by personal delivery, on the date of such delivery or, if by certified
mail, on the date shown on the applicable return receipt.

13. Counterparts. This Agreement may be executed by any of the parties
hereto in counterpart, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.

14. Headings. The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

<PAGE>

15. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of New Jersey.

IN WITNESS WHEREOF, the Company and SMG-11 have caused the Agreement to
be signed by its officer and Executive has executed this Agreement as of the day
and year first written above.

PATHMARK STORES, INC.

By: /s/Marc Strassler
-----------------

Title: Vice President
--------------

SMG-II HOLDINGS CORPORATION

By: /s/Marc Strassler
-----------------

Title: Vice President
--------------

AGREED AND ACCEPTED:

/s/Neill Crowley
- ----------------

Neill Crowley

<PAGE>

Exhibit 10.26

RESIGNATION AGREEMENT

WITNESSETH:

WHEREAS, the Company, SMG-II and Executive are parties to an Employment
Agreement, dated as of June 1, 1995 (the "Employment Agreement"), relating to
the terms and conditions of Executive's services as an employee and officer of
the Company and SMG-II; and

WHEREAS, the parties have agreed that Executive's services as an
employee and officer of the Companies shall end on the Effective Date in
accordance with the terms and provisions set forth below;

NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:

2. Termination of Employment Agreement. As of the Effective Date, the
Employment Agreement shall terminate and be of no further force and effect.

3. Severance Payments and Benefits in Connection with the Resignation.

(a) Salary Continuation Payments. Subject to Section 7 below,
the Company will continue to pay Executive his base salary at the annual rate of
$252,350 per year during the period commencing on the day following the
Effective Date and ending on May 31, 1999 (or the date of Executive's death, if
earlier) (the "Severance Period"). Such salary continuation payments shall be
paid in accordance with the Company's payroll practices, commencing on the next
payroll date following the Effective Date, in an amount equal to the amount paid
to Executive by the Company for the payroll period immediately prior to the
Effective Date.

<PAGE>

(b) Bonus Continuation. Subject to Section 7 below, Executive
shall be entitled to receive as severance the portion of the bonus or bonuses
attributable to the financial targets set forth for the Company under the
Company's Executive Incentive Plan (the "EIP") that Executive would have earned
had his employment continued through January 31, 1998, determined in accordance
with the EIP and based on the same percentage of base compensation used to
calculate bonuses for Executive on the Effective Date and subject to the Company
reaching the applicable financial targets set under the EIP or any other bonus
plans. Any bonus payments payable to Executive hereunder shall be paid in
accordance with the Company's current practice for paying bonuses commencing
within two months after the Company's fiscal year-end.

(c) Health and Insurance Continuation. Subject to Section 7
below, Executive will be entitled to receive continued coverage through the
Severance Period under the Company's health and insurance plans applicable to
Executive immediately prior to the Effective Date or, if any such plan does not
permit continued coverage, the Company will arrange to provide Executive with a
benefit substantially similar to and no less favorable than the benefits
Executive was entitled to under such plan.

(d) Company Car. As soon as reasonably practicable, Company
shall cause title to Executive's Company car to be conveyed to Executive.
Executive agrees to return his gasoline credit card to Company by November 12,
1997.

(f) Breach of Protective Covenants. If, following the
Effective Date, Executive breaches any of the provisions of Section 7 hereof,
Executive shall not be eligible, as of the date of such breach, for the
Severance Benefits, and all obligations of the Company to pay Severance Benefits
hereunder shall thereupon cease; provided, however, that this Section 3(f) shall
not in any way impair Executive's rights to extend medical coverage, at his
expense, under Section 4980B(f) of the Internal Revenue Code of 1986, as
amended, and the applicable rules and regulations thereunder (the "Code").

<PAGE>

obligation to make any such payment or to provide any such benefits to Executive
until arrangements reasonably acceptable to the Company have been made to
satisfy such withholding obligations.

(i) Special Payment. The Company will make a cash lump sum
payment to Executive in the amount of $138,792.50 on or prior to December 15,
1997.

(j) Accrued Vacation. Promptly following the Effective Date,
the Company shall pay Executive his accrued but unused vacation benefits in
accordance with existing Company policy for retirees.

4. Supplemental Retirement Agreement. The provisions of the
Supplemental Retirement Agreement (the "SR Agreement"), dated as of June 1,
1994, shall remain in full force and effect.

5. Options. SMG-11 and Executive are parties to option agreements (the
"Option Agreements") granted under the SMG-11 Management Investors 1987 Stock
Option Plan (the "Option Plan") which entitle Executive to purchase up to a
maximum of 2,850 shares of Class A Common Stock of SMG-11 in accordance with the
terms and provisions of the Option Agreements. Executive and SMG-II each agree
that the provisions of each Option Agreement is hereby amended to provide that
the options evidenced by each such Option Agreement shall be exercisable until
the respective Expiration Date (as defined in Section 2 of each Option
Agreement), subject to Section 6 of each Option Agreement. Executive understands
and agrees that any option which is so extended shall no longer qualify as an
incentive stock option for purposes of the Code. For purposes of the Option
Agreements, Executive's resignation hereunder shall be treated as a resignation
for "Good Reason."

6. No Other Compensation or Benefits. Except for the obligations of the
Company under Sections 3, 4, and 5 of this Agreement, Executive shall not be
entitled to any other compensation or benefits from any of the Companies in
connection with his resignation of employment or otherwise, and Executive shall
not be eligible for or entitled to any other severance, termination or any
similar benefits under any plan,

<PAGE>

program, policy or arrangement, whether formal or informal, written or
unwritten, of any of the Companies.

7. Protecting the Interests of the Company.

(a) No Competing Employment. During the Restricted Period (as
hereinafter defined), Executive shall not, unless he receives after the
Effective Date the prior written consent of the Board, directly or indirectly,
whether as owner, consultant, employee, partner, venturer, agent, through stock
ownership, investment of capital, lending of money or property, rendering of
services, or otherwise (except ownership of less than 5% of the number of shares
outstanding of any securities which are publicly traded), compete with the
retail supermarket business or any other business contributing at least 15% of
the consolidated revenues of the Companies as of the Effective Date (such
businesses are hereinafter referred to as the "Business"), or assist, become
interested in or be connected with any corporation, firm, partnership, joint
venture, sole proprietorship or other entity which so competes with the
Business, except for the aforementioned 5% ownership of publicly traded
securities. The restrictions imposed by this Section 7(a) shall not apply to
Executive's employment within any geographic area in which the Companies are not
engaged in the Business at the time of termination. The "Restricted Period"
shall mean the period beginning on the Effective Date and ending on May 31,
1999.

(b) No Interference. During the Restricted Period, Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization or
entity (other than the Companies), intentionally solicit, endeavor to entice
away from the Companies, or any of their affiliates, or otherwise interfere with
the relationship of the Companies, or any of their affiliates, with any person
who is employed by any of the Companies, or any of their affiliates (including,
but not limited to, any independent sales representatives or organizations), or
any person or entity who is, or was within the then most recent 12-month
period, a customer or client (other than an individual retail consumer) of the
Companies, or any of their affiliates.

<PAGE>

time, except in performance of Executive's obligations to the Companies
hereunder, or with the prior written consent of the Board, directly or
indirectly, disclose any secret or confidential information that he has learned
by reason of his association with the Companies, or any predecessors to the
business of the Companies, or use any such information to the detriment of the
Companies or any of their affiliates. The term "confidential information"
includes, without limitation, information not previously disclosed to the public
or to the trade by the Companies' management with respect to the Companies' or
any of their respective subsidiaries' or affiliates' business plans, prospects
and opportunities, the identity of clients, suppliers or customers, information
regarding operational strengths and weaknesses, trade secrets, know-how and
other intellectual property, systems, procedures, manuals, confidential reports,
product price lists, marketing plans or strategies, and financial information.
Executive understands and agrees that the rights and obligations set forth in
this Section 7(c) are perpetual and, in any case, shall extend beyond the
Restricted Period and the Severance Period.

(d) Exclusive Property. Executive confirms that all
confidential information is and shall remain the exclusive property of the
Companies. All business records, papers and documents kept or made by Executive
relating to the business of the Companies shall be and remain the property of
the Companies and shall be promptly delivered to the Company within three days
following the Effective Date. Executive shall not, without the consent of the
Board, retain copies of any written materials not previously made available to
the public, records and documents made by Executive or coming into his
possession concerning the business or affairs of the Companies. Executive may
retain records relating exclusively to the terms and conditions of his
employment relationship with the Companies and this Agreement. Executive
understands and agrees that the rights and obligations set forth in this Section
7(d) are perpetual and, in any case, shall extend beyond the Restricted Period
and the Severance Period. All other property of the Companies in Executive's
possession (such as business credit cards, keys and pass cards, computer
hardware and computer software) shall be returned to Company within three days
following the Effective Date.

(e) Stock Ownership. Other than as provided in Section 7(a)
hereof, nothing in this Agreement shall prohibit Executive from acquiring or
holding any issue of stock or securities of any company or other business
entity, provided that, with respect to any class of voting securities listed on
a national securities exchange or quoted on the automated quotation system of
the National Association of Securities Dealers, Inc., Executive and members of
his immediate family do not own at any time during the Restricted Period more
than 5% of the issued and outstanding shares of such class of securities.

<PAGE>

(f) No Public Comment; Press Release. Executive shall refrain
now, or at any time in the future, from directly or indirectly making any
negative or derogatory public comment concerning any of the Companies or their
respective employees, officers, directors and shareholders to the press, any
employees of any of the Companies, or any individual or entity with whom any of
the Companies has a business relationship. In connection with Executive's
resignation hereunder, Executive and the Company agree to the issuance of an
internal statement in the form attached hereto as Exhibit A.

(g) Cooperation in Litigation. In consideration of the
payments hereunder, Executive agrees to cooperate fully with the Companies in
the preparation and assertion of any claim or defense in connection with any
action, suit or proceeding brought by or against any of the Companies; provided,
however, that Executive's obligation under this Section 7(g) shall apply only to
matters in which Executive was involved, or in respect of which Executive
acquired information, as a result of his services as an employee, officer or
director of any of the Companies. The Company shall reimburse Executive for all
reasonable expenses incurred by him (including reasonable attorneys' fees and
expenses) as a result of any request by the Company under this Section 7(g).

(h) Injunctive Relief. Without intending to limit the remedies
available to the Companies, Executive acknowledges that a breach of any of the
covenants contained in this Section 7 may result in material irreparable injury
to the Companies for which there is no adequate remedy at law, that it will not
be possible to measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, the Companies shall be entitled to
obtain a temporary restraining order and/or a preliminary or permanent
injunction restraining Executive from engaging in activities prohibited by this
Section 7, or such other relief as may be required to specifically enforce any
of the covenants in this Section 7.

8. Release; Covenant Not to Sue. In consideration of the benefits
contained in this Agreement:

(a) Covenant Not to Sue. Executive promises not to file a
complaint or charge or to commence any legal proceedings against the Companies,
their directors, officers and employees (the "Released Parties") at an
administrative agency, or in a court of law or equity, exclusive of a claim to
enforce this Agreement, which shall be governed by Section 9 below ("Permitted
Claims"). Executive represents that he has not filed any such complaint or
charge, or commenced any legal proceedings as of the Effective Date. Executive
understands that if his representation contained in the preceding sentence is
untrue on the date he signs the Agreement, or should he bring any lawsuit
against the Released Parties or file any charge or complaint with any
administrative agency relating

<PAGE>

to, or arising out of, his employment relationship or the commencement or
termination of that relationship (other than a Permitted Claim), then he will be
in breach of this Agreement and will be required to return any benefits
received, will forfeit rights to any further benefits, and his stock options
will automatically be deemed to be canceled.

(e) Executive understands that by signing the Agreement he
does not waive rights or claims that arise after the date of this Agreement.

<PAGE>

representation as to liability of any sort, and that this Agreement is made as a
compromise and to terminate all controversy and/or claims by Executive.

(i) Executive acknowledges that he has been given a period of
at least twenty-one (21) days within which to consider this Agreement, including
the release, prior to signing it.

9. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, including, but not limited to, any claim relating to the
validity, interpretation, enforceability or breach of this Agreement, which is
not settled by agreement between the parties, shall be settled by arbitration in
Newark, New Jersey before a panel of three arbitrators, one to be selected by
the Companies, one by Executive and the other by the two persons so selected,
all in accordance with the rules of the American Arbitration Association then in
effect; provided, however, that the Companies shall nevertheless be entitled to
seek relief under Section 7 above in accordance with Section 7(h) thereof. In
consideration of the parties' agreement to submit to arbitration disputes with
regard to this Agreement and with regard to any alleged tort, contract or other
claim arising out of the employment relationship, and in consideration of the
anticipated expedition and minimization of expense of this arbitration remedy,
each party agrees that the arbitration provisions of this Agreement shall
provide it with the exclusive remedy, except as provided in the preceding
sentence, and each party expressly waives any right it might have to seek
redress in any other form except as provided herein. The parties further agree
that the arbitrators acting hereunder shall be empowered to assess no remedy
other than payment of compensatory damages or an order (including temporary,
preliminary or permanent injunctive relief) enforcing the provisions of Section
7 above. Each party shall bear its own expenses in connection with the
arbitration proceeding. Any decision or order of the majority of arbitrators
shall be binding upon the parties hereto, and judgment thereon may be entered in
the Superior Court of the State of New Jersey, or any other court having
jurisdiction.

<PAGE>

10. Nonassignability; Binding Agreement. Neither this Agreement nor any
right, duty, obligation or interest hereunder shall be assignable or delegatable
by Executive without the Company's prior written consent; provided, however,
that nothing in this Section 10 shall preclude Executive from designating any of
his beneficiaries to receive any benefits payable under Section 3(c) upon his
death, or the executors, administrators, or other legal representatives from
assigning any rights hereunder to the person or persons entitled thereto.

11. Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term or
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid and unenforceable
term or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.

12. Amendment; Waiver. This Agreement may not be modified, amended or
waived in any manner, except by an instrument in writing signed by all parties
hereto. The waiver by any party of compliance with any provision of this
Agreement by any other party shall not operate or be construed as a waiver of
any other provision of this Agreement, or of any subsequent breach by such party
of a provision of this Agreement.

13. Notices. Any notice hereunder by any party to any other shall be
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed to
Executive at the address last known to the Company, or if addressed to any of
the Companies, the notice shall be delivered or mailed to the Company at its
executive offices, to the attention of the President. A notice shall be deemed
given, if by personal delivery, on the date of such delivery or, if by certified
mail, on the date shown on the applicable return receipt.

14. Counterparts. This Agreement may be executed by any of the parties
hereto in counterpart, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.

<PAGE>

15. Headings. The headings of sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.

16. Governing Law. All matters affecting this Agreement, including the
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of New Jersey.

IN WITNESS WHEREOF, the Company and SMG-11 have caused the Agreement to
be signed by its officer and Executive has executed this Agreement as of the day
and year first written above.

PATHMARK STORES, INC.

By: /s/Marc Strassler
--------------------------

Title: Vice President
-----------------------

SMG-II HOLDINGS CORPORATION

By: /s/Marc Strassler
--------------------------

Title: Vice President
-----------------------

AGREED AND ACCEPTED:

/s/Ron Rallo
- --------------------
Ron Rallo

<PAGE>

EXHIBIT 12.1

PATHMARK STORES, INC.

STATEMENTS REGARDING COMPUTATION OF RATIO

OF EARNINGS TO FIXED CHARGES

(in thousands)

<TABLE>
<CAPTION>
Fiscal Years
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss) from continuing
operations before taxes........ $ (44,891) $ (34,369) $ 38,661 $ 28,196 $ (33,074)
----------- ----------- ---------- ---------- -----------

Fixed charges:
Interest expense............. 164,168 161,469 164,749 158,503 185,968
Interest portion of rental
expense(1)................. 12,088 10,930 10,533 12,263 13,313
----------- ----------- ---------- ---------- -----------

Total fixed charges..... 176,256 172,399 175,282 170,766 199,281
----------- ----------- ---------- ---------- -----------

Adjusted earnings before
fixed charges.................. $ 131,365 $ 138,030 $ 213,943 $ 198,962 $ 166,207
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------

Ratio of earnings to fixed
charges........................ -- -- 1.22x 1.17x --
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------

Deficiency in earnings
available to cover fixed
charges........................ $ 44,891 $ 34,369 $ -- $ -- $ 33,074
----------- ----------- ---------- ---------- -----------
----------- ----------- ---------- ---------- -----------
- ----------
<FN>
(1) Represents the portion of rentals deemed representative of the interest
included therein.
</FN>
</TABLE>

<PAGE>

EXHIBIT 22.1

PATHMARK STORES, INC.

List of Subsidiaries
<TABLE>
<CAPTION>

Name State of Incorporation
---- ----------------------

<S> <C>
AAL Realty Corp.................................. New York
Bridge Stuart, Inc............................... New York
Bucks Stuart, Inc................................ Pennsylvania
Eatontown Stuart, Inc............................ New Jersey
GAW Properties Corp.............................. New Jersey
Jersey Stuart, Inc............................... New Jersey
Madison Stuart Corporation....................... New Jersey
Pathmark Risk Management Corporation............. New Jersey
Pauls Trucking Corp.............................. New Jersey
Pennsylvania Stuart, Inc......................... Pennsylvania
Plainbridge, Inc................................. Delaware
</TABLE>

<PAGE>

Exhibit 24.1

PATHMARK STORES, INC.

POWER OF ATTORNEY

The undersigned, a director of Supermarkets General Holdings
Corporation (the "Company"), a Delaware corporation, which intends to file with
the United States Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934 (the "'34 Act"), as amended, each year an
Annual Report on Form 10-K, or such other form appropriate for the purpose,
pursuant to Section 13 or 15(d) of the '34 Act, together with possible
amendments thereto, constitutes and appoints Joseph W. Adelhardt and Marc A.
Strassler, and each of them, severally, as true and lawful attorney or
attorneys, with full power of substitution and resubstitution, for him and in
his name, place and stead, to sign in any and all capacities and file or cause
to be filed said Annual Report on Form 10-K, and any and all amendments thereto,
and all instruments necessary or incidental in connection therewith, and hereby
grants to the said attorneys, and each of them, severally, full power and
authority to do and perform in the name and on behalf of the undersigned, and in
any and all capacities, any and all acts and things whatsoever necessary or
appropriate to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
the acts of said attorneys and each of them.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 15th day of April, 1998.

/s/ Robert J. Mylod, Jr.
--------------------------
Robert J. Mylod, Jr.

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PATHMARK
STORES, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 31, 1998 AND CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 60,076
<SECURITIES> 0
<RECEIVABLES> 12,122
<ALLOWANCES> (1,194)
<INVENTORY> 148,775
<CURRENT-ASSETS> 276,207
<PP&E> 912,298
<DEPRECIATION> (382,756)
<TOTAL-ASSETS> 900,372
<CURRENT-LIABILITIES> 385,530
<BONDS> 1,177,898
0
0
<COMMON> 0
<OTHER-SE> (1,077,340)
<TOTAL-LIABILITY-AND-EQUITY> 900,372
<SALES> 3,695,865
<TOTAL-REVENUES> 3,695,865
<CGS> 2,652,289
<TOTAL-COSTS> 2,652,289
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (190)
<INTEREST-EXPENSE> (164,168)
<INCOME-PRETAX> (44,891)
<INCOME-TAX> 16,705
<INCOME-CONTINUING> (28,186)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,488)
<CHANGES> 0
<NET-INCOME> (35,674)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>