1
EXHIBIT 99.3
Directors. Any proxy given by a stockholder may be revoked at any time before
it is exercised, by filing with the Secretary of the Company an instrument
revoking it, by delivering a duly executed proxy bearing a later date, or by
the stockholder's attending the 1997 Annual Meeting and expressing a desire to
vote his or her shares in person.
Proxies for the 1997 Annual Meeting are being solicited by mail directly
and through brokerage and banking institutions. The Company will pay all
expenses in connection with the solicitation of proxies. In addition to the use
of mails, proxies may be solicited by directors, officers and regular employees
of the Company personally or by telephone. The Company does not expect to pay
any fees or compensation for the solicitation of proxies but may reimburse
brokers and other persons holding stock in their names, or in the names of
nominees for their expenses in sending proxy materials to principals and
obtaining their proxies.
All stockholders are urged to complete, sign and promptly return the
enclosed proxy card.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of April 23, 1997 by (i) each
person who is known by the Company to be the beneficial owner of more than 5%
of the Common Stock, (ii) each director and Named Executive Officer of the
Company, individually, and (iii) all current directors and executive officers
as a group:
Amount and Nature of Percent of
Name of Beneficial Ownership Outstanding
Beneficial Owner(1) of Common Stock Common Stock
------------------- -------------------- ------------
Freeman Spogli & Co.(2)..................... 4,389,879 50.8%
J. Frederick Simmons......................
Ronald P. Spogli..........................
William M. Wardlaw........................
Merrill Lynch & Co., Inc.(3)................ 516,900 6.0
Franklin Resources, Inc.(4)................. 656,000 7.6
Pioneering Management Corporation(5)........ 566,500 6.6
Joseph H. Fernandez(6)...................... 225,445 2.6
Robert P. Gannon(7)......................... 3,825 *
Michael P. Malone........................... 1,100 *
Peter J. Sodini............................. 45,000 *
Matt L. Figel............................... 0 *
Thomas C. Young(7).......................... 4,125 *
Wayne S. Peterson(8)........................ 41,478 *
Louis J. Rizzo(9)........................... 32,000 *
John E. Sullivan(10)........................ 53,289 *
Craig A. Wright(11)......................... 8,310 *
All directors and executive
officers as a group (15) persons.......... 4,804,451(12) 55.6%
- -------------
* Less than 1%.
(1) Except as otherwise indicated in this table and the notes thereto, the
persons named have sole voting power and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) All shares indicated are owned of record by FS Equity Partners II, L.F.
("FSEP"), of which Freeman Spogli & Co. ("FS&Co.") is the general partner.
As general partner, FS&Co. has the sole power to vote and dispose of such
shares. Messrs. Simmons, Spogli and Wardlaw (all of whom are directors of
the Company), Mr. Bradford M. Freeman and Mr. John Roth are general
partners of FS&Co., and as such may be deemed to be the beneficial owners
of the shares of Common Stock indicated as beneficially owned by FS&Co.
The business address of FS&Co., its general partners and FSEP is 11100
Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025.
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2
(3) As reported in a Schedule 13G dated February 14, 1997 filed jointly with
the Securities and Exchange Commission (the "Commission") by Merrill Lynch
& Co., Inc. ("Merrill Lynch"), Merrill Lynch Group, Inc. ("ML Group"),
Princeton Services, Inc. ("PSI), Merrill Lynch Asset Management, L.P.
("MLAM") and Merrill Lynch Global Allocation Fund, Inc. ("Merrill Fund"),
Merrill Lynch, ML Group, PSI, MLAM and Merrill Fund have claimed shared
voting and dispositive power with respect to all such shares. Merrill
Lynch, ML Group and PSI are parent holding companies and have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G; MLAM is an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940 (the "Advisers Act"); and Merrill Fund
is an investment company registered under Section 8 of the Investment
Company Act of 1940.
(4) As reported in a Schedule 13G dated February 12, 1997 filed jointly with
the Commission by Franklin Resources, Inc. ("FRI"), Charles B. Johnson,
Rupert H. Johnson, Jr. and Franklin Advisory Services, Inc. ("FAS"), FAS
has claimed sole voting and dispositive power with respect to all such
shares. The securities of the Company reported in the Schedule 13G are
beneficially owned by one or more open or closed-end investment companies
or other managed accounts which are advised by direct and indirect
investment advisory subsidiaries (the "Advisor Subsidiaries") of FRI, the
principal shareholders of which are Messrs. Johnson and Johnson
(collectively, the "Principal Shareholders"). FRI, the Principal
Shareholders and each of the Advisor Subsidiaries have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G.
(5) As reported in a Schedule 13G dated January 21, 1997 filed with the
Commission by Pioneering Management Corporation ("Pioneering"), Pioneering
has claimed sole voting power with respect to all such shares, sole
dispositive power with respect to 20,000 of such shares, and shared
dispositive power with respect to 546,500 of such shares. Pioneering is an
investment adviser registered under Section 203 of the Advisers Act.
(6) Amount includes 107,456 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 5,709 shares held by the Buttrey Company
Retirement Estates, the Company's retirement plan (the "BCRE") for the
account of Mr. Fernandez, based on a plan statement of the BCRE dated
December 31, 1996.
(7) Amount includes 3,125 shares issuable upon exercise of options which will
become fully exercisable on, and only if the recipient continues to serve
as a Director until the Company's 1997 Annual Meeting of Stockholders.
(8) Amount includes 12,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 16,212 shares held by the BCRE for the account
of Mr. Peterson, based on a plan statement of BCRE dated December 31, 1996.
(9) Amount includes 12,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997.
(10) Amount includes 8,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 5,956 shares held by the BCRE for the account of
Mr. Sullivan, based on a plan statement of the BCRE dated December 31,
1996.
(11) Amount includes 8,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 310 shares held by the BCRE for the account of
Mr. Wright, based on a plan statement of the BCRE dated December 31, 1996.
(12) Amount includes an aggregate of 156,706 shares issuable upon exercise of
options which are exercisable as of, or will become exercisable within 60
days of, April 23, 1997. Amount also includes an aggregate of 28,187 shares
held by the BCRE for the accounts of Messrs. Fernandez, Peterson, Rizzo,
Sullivan and Wright, based on a plan statement of the BCRE dated December
31, 1996.
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PROPOSAL 1 - ELECTION OF DIRECTORS
Ten directors are to be elected at the 1997 Annual Meeting to serve
until the next annual meeting of stockholders and until their respective
successors have been elected and qualified. In the absence of instructions to
the contrary, proxies covering shares of Common Stock will be voted in favor of
the election of the persons listed below. In the event that any nominee for
election as director should become unavailable to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, for such substitute nominee
as may be nominated by the Company. Management has no present knowledge that
any of the persons named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any
other person or persons pursuant to which any nominee was or is to be selected
as a director or nominee, other than as provided for Mr. Fernandez in his
employment agreement with the Company. See "Executive Officers, Compensation
and Other Information - Compensation - Employment and Severance Agreements."
None of the nominees has any family relationship to any other nominee or to any
executive officer of the Company.
INFORMATION CONCERNING INCUMBENT DIRECTORS
Information is set forth below concerning the incumbent directors, all
of whom are also nominees for election as directors, and the year in which each
incumbent director was first elected as a director of the Company. Each nominee
has furnished the information as to his beneficial ownership of Common Stock as
of April 23, 1997 and, if not employed by the Company, the nominee's principal
occupation. Each nominee has consented to being named in this Proxy Statement
as a nominee for director and has agreed to serve as a director if elected.
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- --------
Joseph H. Fernandez 44 Chairman of the Board, President 1993
and Chief Executive Officer
Matt L. Figel+ 37 Director 1990
Robert P. Gannon* 52 Director 1992
Michael P. Malone+ 57 Director 1992
J. Frederick Simmons* 42 Director 1990
Peter J. Sodini* 56 Director 1990
Ronald P. Spogli* 49 Director 1990
William M. Wardlaw 50 Director 1990
Thomas C. Young+ 47 Director 1992
Wayne S. Peterson 39 Director 1995
- ----------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
Mr. Fernandez became the President, Chief Operating Officer and a
Director of the Company in March 1993, became the Chief Executive Officer in
September 1993, and was elected as Chairman of the Board in August 1996. From
April 1991 to February 1993, Mr. Fernandez served as Executive Vice President
and Chief Operating Officer for Kings Super Markets, Inc.
Mr. Figel founded Boramar Capital, a private investment firm, in
January 1997. From October 1986 to December 1996, Mr. Figel was employed by
FS&Co. (or its affiliates). FS&Co. is a private investment company that was
founded in 1983. Mr. Figel became a Director of the Company in October 1990.
Mr. Figel is also a member of the Board of Directors of Calmar Inc.
Mr. Gannon became a Director of the Company in May 1992. Mr. Gannon has
served as Vice Chairman of Montana Power Company since January 1996 and as
President since January 1990. Mr. Gannon also served as Chief Operating Officer
of Montana Power Company from June 1992 until January 1996.
4.
4
Mr. Malone became a Director of the Company in August 1992. Since January
1991, Mr. Malone has served as the President of Montana State University.
Mr. Simmons joined FS&Co. in 1986 and became a general partner in January
1991. Mr. Simmons became a Director of the Company in October 1990. Mr. Simmons
is also a member of the Board of Directors of EnviroSource, Inc.
Mr. Sodini became a Director of the Company in October 1990 and, from
October 1990 until March 1993, served as the Company's Chairman of the Board.
Since March 1996, Mr. Sodini has served as the Chief Executive Officer and
Chairman of the Board of The Pantry, Inc. From November 1995 to February 1996,
Mr. Sodini worked as an independent consultant. From December 1991 to October
1995, Mr. Sodini served as Chief Executive Officer and a Director of Purity
Supreme, Inc. ("Purity") and, from March 1993 to October 1995, also served as
the Chairman of the Board of Purity. Mr. Sodini also served as President of
Purity from December 1991 until August 1994. Mr. Sodini is also a member of the
Boards of Directors of The Pantry, Inc. and Pamida Holding Corporation.
Mr. Spogli is a founding partner of FS&Co. Mr. Spogli became a Director of
the Company in October 1990. Mr. Spogli is the Chairman of the Board and a
Director of EnviroSource, Inc. and also serves on the Boards of Directors of
Calmar Inc. and Brylane Inc.
Mr. Wardlaw joined FS&Co. in March 1988 and became a general partner in
January 1991. Mr. Wardlaw became a Director of the Company in October 1990. Mr.
Wardlaw is also a member of the Board of Directors of Calmar Inc.
Mr. Young became a Director of the Company in August 1992. Since December
1994, Mr. Young has served as a Director of the Portland branch of the Federal
Reserve Bank of San Francisco. Since October 1984, he has served as President,
Chief Executive Officer and Chairman of the Board of Northwest National Bank
and Chairman of the Board of Northwest Bancshares, Inc. Mr. Young has also
served as President of Admiralty Leasing, Inc. since October 1984.
Mr. Peterson became a Director of the Company in May 1995, Senior Vice
President of the Company in April 1995, Vice President and Chief Financial
Officer in June 1991, and Secretary in November 1991. From October 1990 until
June 1991, Mr. Peterson served as Vice President and Controller of the Company.
5.
5
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Audit Committee, which presently consists
of Messrs. Malone, Young and Figel, met once during the fiscal year ended
February 1, 1997 ("1996"). The Compensation Committee, which presently consists
of Messrs. Gannon, Simmons, Sodini and Spogli, met once during 1996, and took
various actions by unanimous written consent.
The Audit Committee recommends to the Board of Directors the engagement or
discharge of the Company's independent auditors; reviews with the independent
auditors the scope, timing and plan for the annual audit, any non-audit
services and the fees for audit and other services; reviews outstanding
accounting and auditing issues with the independent auditors; and supervises or
conducts such additional projects as may be relevant to its duties The Audit
Committee is also responsible for reviewing and making recommendations with
respect to the Company's financial condition, its financial controls and
accounting practices and procedures.
The Compensation Committee recommends to the Board of Directors
compensation policies and guidelines for the Company's executives and oversees
the granting of incentive compensation, if any, to such persons. The
Compensation Committee also administers the Company's bonus and stock option
plans. See "Report of the Compensation Committee of the Board of Directors."
MEETINGS AND REMUNERATION
During 1996, the Board of Directors held five meetings and took various
actions by unanimous written consent. Each incumbent director other than
Messrs. Wardlaw and Sodini attended at least 75% of the aggregate of (i) the
total number of meetings held by the Board of Directors during 1996 and (ii)
the total number of meetings held by all committees of the Board of Directors
on which he served during that period.
Each director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified.
Except for non-employee directors of the Company who are not affiliated with
FS&Co. (each, an "Outside Director"), directors do not receive compensation for
services on the Board of Directors or on any Committees of the Board of
Directors. All directors are reimbursed for their out-of-pocket expenses in
serving on the Board of Directors and on any Committees. In 1996, Messrs.
Gannon, Malone and Young (who at the time were the only Outside Directors of
the Company) each received compensation for their services of $1,500 for each
Board meeting attended. In addition, Mr. Malone received an annual retainer of
$5,000 and, at their election and in lieu of such annual retainer, Messrs.
Gannon and Young each received an option to purchase 3,125 shares of Buttrey
Common Stock at an exercise price of $6.40 per share pursuant to the Company's
1996 Directors Plan (as defined below). In 1997, Outside Directors of the
Company (currently Messrs. Figel, Gannon, Malone, Sodini and Young) each will
receive (i) $1,500 for each regular Board meeting attended, plus (ii) either
(x) an annual retainer of 45,000, or (y) at such director's election in lieu of
such annual retainer, an option to purchase shares of Buttrey Common Stock in
an amount and at an exercise price calculated pursuant to the terms of the 1996
Directors Plan. See "Executive Officers, Compensation and Other Information --
Stock Options -- 1996 Directors Plan."
6.
x
6
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices held
by all executive officers of the Company.
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- -----------------
Joseph H. Fernandez 44 Chairman of the Board, President and 1993
Executive Officer
Joseph M. Livorsi 50 Senior Vice President-Sales and 1996
Merchandising
Wayne S. Peterson 39 Senior Vice President, Chief Financial 1990
Officer and Secretary
Louis J. Rizzo 51 Senior Vice President-Retail Operations 1994
and Store Development
John E. Sullivan 44 Vice President - Human Resources 1990
Craig A. Wright 33 Vice President - Non-Perishables 1995
Merchandising
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. No arrangement exists between any
executive officer and any other person or persons pursuant to which any
executive officer was or is to be selected as an executive officer, other than
as provided for Mr. Fernandez in his employment agreement with the Company. See
"--Compensation -- Employment and Severance Agreements." None of the executive
officers has any family relationship to any nominee for director or to any other
executive officer of the Company. Set forth below is a brief description of the
business experience for the previous five years of all executive officers of the
Company except Messrs. Fernandez and Peterson. For information concerning the
business experience of Messrs. Fernandez and Peterson, see "Information
Concerning Incumbent Directors."
Mr. Livorsi became Senior Vice President, Sales and Merchandising of the
Company in October 1996. From July 1995 until July 1996, Mr. Livorsi was Senior
Vice President, Sales and Merchandising for Price Chopper Supermarkets in
Schenectady, New York. From July 1986 to July 1995, Mr. Livorsi held senior
marketing and merchandising positions with Randall's Food Markets in Houston,
Texas.
Mr. Rizzo became Senior Vice President-Merchandising and Store Operations
of the Company in April 1995, and Senior Vice President - Retail Operations and
Store Development in October 1996. From February 1994 until April 1995, Mr.
Rizzo served as Vice President - Sales and Merchandising of the Company. From
June 1991 until October 1993, Mr. Rizzo served as Vice President and Director of
Marketing for the eastern division of Safeway Stores, Inc.
Mr. Sullivan has served as Vice President-Human Resources of the Company
since October 1990.
Mr. Wright became Vice President-Support Services of the Company in April
1995, and Vice President - Non-Perishables Merchandising in October 1996. From
January 1995 to April 1995, Mr. Wright served as Director-Support Services.
From June 1993 to January 1995, Mr. Wright served as Director-Information
Technology, and from October 1990 to June 1993 he served as Manager-Store
Systems/Front-End Operations.
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COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company paid or
accrued by the Company for each of the fiscal years ended January 28, 1995
("1994"), February 3, 1996 ("1995") and February 1, 1997 ("1996"), for (i) the
Company's Chief Executive Officer, and (ii) each of the other four most highly
compensated executive officers of the Company who were serving as executive
officers at February 1, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------- ------------
OTHER SECURITIES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS(1)($) COMPENSATION(2)($) OPTIONS(#) COMPENSATION($)
- ------------------------ ---- --------- ----------- ------------------ ----------- ---------------
Joseph H. Fernandez 1996 300,417 0 0 130,000(3) 11,658(4)
Chairman of the Board, 1995 247,500 200,561 0 30,000(5) 8,923
President and Chief 1994 225,000 25,000 0 15,000(6) 47,248
Executive Officer
Louis J. Rizzo 1996 145,000 0 0 12,000(3) 11,585(7)
Senior Vice President - 1995 140,000 40,518 0 12,000(5) 9,338
Retail Operations and 1994 127,679 0 0 0 31,783
Store Development
Wayne S. Peterson 1996 125,100 0 0 12,000(3) 11,388(8)
Senior Vice President, 1995 117,500 69,006 0 12,000(5) 11,285
Chief Financial Officer 1994 105,600 0 0 0 6,798
and Secretary
John E. Sullivan 1996 104,500 0 0 8,000(3) 9,873(9)
Vice President - Human 1995 100,000 28,942 0 8,000(5) 7,737
Resources 1994 95,000 0 0 0 3,562
Craig A. Wright 1996 90,000 0 0 8,000(3) 7,627(10)
Vice President - 1995 80,000 23,153 0 8,000(5) 6,178
Non-Perishables 1994 51,437 0 0 0 3,134
Merchandising
- ------------
(1) Other than for Mr. Fernandez and Mr. Peterson, represent payments made to
executive officers in March of each year for the prior fiscal year pursuant
to the Buttrey Food and Drug Company Key Management Incentive Plan. See
"Bonus Plan" below. Amounts paid to Mr. Fernandez in each of 1994 and 1995
include $25,000 payments made pursuant to the terms of his employment
agreement. See "Employment and Severance Agreements" below. In addition,
amounts paid to Mr. Fernandez and Mr. Peterson in 1995 include cash bonuses
of $70,000 and $35,000, respectively, as consideration for additional
contributions made by them on behalf of the Company.
(2) Other than the limited special rights attached to certain of the shares
covered by options as described in "Stock Options" below, during each of
1994, 1995 and 1996, no executive officer named above received perquisites
and other personal benefits, securities or property in an aggregate amount
in excess of the lesser of $50,000 of 10% of the total of such officer's
salary and bonus, nor did any such officer receive any restricted stock
award, stock appreciation right or payment under any long term incentive
plan.
(3) Consists of options to purchase shares of Common Stock granted in 1996
pursuant to the Company's 1995 Option Plan (as defined below). See
"--Stock Options."
(4) Of this amount, (i) 7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Fernandez;
(ii) $845 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $666 represents the imputed amount
of insurance premiums set
8.
8
aside by the Company for the benefit of Mr. Fernandez towards the
Company's own long-term disability program; and (iv) $2,687 represents the
imputed amount of insurance premiums set aside by the Company for the
benefit of Mr. Fernandez towards the Company's own medical plan.
(5) Consists of options to purchase shares of Common Stock granted in May
1995 pursuant to the Company's 1995 Option Plan. See "--Stock Options."
(6) Options to purchase 15,000 shares of Common Stock granted in February
1994 outside of the Company's option plans. See "--Stock Options."
(7) Of this amount, (i) 7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Rizzo, (ii)
$838 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $593 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Rizzo
towards the Company's own long-term disability program; and (iv) $2,695
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Rizzo towards the Company's own medical
plan.
(8) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Peterson;
(ii) $721 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $510 represents the imputed amount
of insurance premiums set aside by the Company for the benefit of Mr.
Peterson towards the Company's own long-term disability program; and (iv)
$2,698 represents the imputed amount of insurance premiums set aside by
the Company for the benefit of Mr. Peterson towards the Company's own
medical plan.
(9) Of this amount, (i) $6,152 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Sullivan;
(ii) $600 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $423 represents the imputed amount
of insurance premiums set aside by the Company for the benefit of Mr.
Sullivan towards the Company's own long-term disability program; and (iv)
$2,698 represents the imputed amount of insurance premiums set aside by
the Company for the benefit of Mr. Sullivan towards the Company's own
medical plan.
(10) Of this amount, (i) $4,045 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Wright; (ii)
$519 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $385 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Wright
towards the Company's own long-term disability program; and (iv) $2,677
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Wright towards the Company's own medical
plan.
Bonus Plan. The Company has adopted the Buttrey Food and Drug Company
Key Management Incentive Plan (as amended, the "Bonus Plan") pursuant to which
the Compensation Committee annually establishes guidelines for incentive
compensation to be paid to the Company's officers and key employees. The amount
of an individual's bonus award is based on the attainment of specified Company
performance objectives, such as the achievement of target sales and cash flow
objectives, and is determined as a percentage of the recipient's base salary.
See "Report of the Compensation Committee of the Board of Directors."
Retirement Plan. The Company maintains the Buttrey Company Retirement
Estates (the "BCRE"), a retirement plan that is intended to qualify under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Employees become eligible to participate in the BCRE upon the later of
the attainment of age 21 or the completion of one year of service. The BCRE
provides for contributions by participants and by the Company. Participants can
make pre-tax contributions up to the maximum amount permitted under Section
401(k) of the Code. The Company also makes annual contributions (in the form of
cash or Buttrey Common Stock) to the BCRE, the amount of which is determined by
the Board of Directors in its discretion each year. Seventy-five percent of the
Company's contribution is allocated to participants as a percentage of their
compensation ("Profit Sharing Contributions"), and the remaining 25% is
allocated in proportion to the amount of contributions made by each
9.
9
participant ("Matching Contributions"). In March 1997, the Board of Directors
of the Company authorized the Company to contribute a total of $1.0 million in
cash to the BCRE as the Company's contribution for 1996.
Participants' interests in their own contributions and in the Matching
Contributions on their behalf are fully vested. Participants become vested in
the Profit Sharing Contributions made on their behalf by the Company depending
on their years of service with the Company, and in general begin vesting after
three years of service and are fully vested after seven years of service. In
addition, Participants become fully vested in the Profit Sharing Contributions
made on their behalf upon death, disability, or attainment of age 57 while
employed by the Company. Participants may borrow funds from the BCRE, and
provided certain conditions are satisfied, may receive a distribution of their
contributions prior to termination of employment. Participants may elect that
benefits payable following termination of employment be paid in the form of a
lump sum distribution or in installments over a period of years.
Employment and Severance Agreements. In March 1993, the Company entered
into a three-year employment agreement with Mr. Fernandez. As amended, the
employment agreement currently provides for a base salary of $350,000 and for
an incentive bonus to be paid pursuant to the terms of the Company's Bonus
Plan. See "Bonus Plan." In addition, the employment agreement with Mr.
Fernandez provides for a bonus of $75,000 payable in three annual installments
of $25,000 each beginning in March 1993. The employment agreement provides for
Mr. Fernandez to be employed by the Company as Chairman of the Board, President
and Chief Executive Officer until the earlier of March 1, 2001 or the date that
such employment shall have been terminated as provided therein. In addition,
the employment agreement provides that, so long as Mr. Fernandez remains an
employee of the Company, the Company will include Mr. Fernandez in the
Company's slate of nominees for directors at each such election of directors.
Pursuant to the terms of the employment agreement, in the event Mr. Fernandez
is terminated without cause or resigns for good reason (as such terms are
defined in the employment agreement), or in the event that Mr. Fernandez should
die or become permanently disabled, the Company is required to pay Mr.
Fernandez's base salary for a period of twenty-four consecutive months from the
date of such event. Mr. Fernandez' employment agreement provides that, in the
event that Mr. Fernandez is terminated by the Company for cause or Mr.
Fernandez otherwise terminates his employment under certain circumstances,
then, subject to certain exceptions, Mr. Fernandez will not compete with the
Company for a period of 12 months after such termination.
In March 1993, the Company also entered into a separate agreement with Mr.
Fernandez pursuant to which he will be entitled to receive severance payments
of up to six months' salary upon an involuntary termination of his employment,
other than for cause (as defined therein), upon a resignation for good reason
(as defined therein), or in the event that Mr. Fernandez should die or become
permanently disabled, in each case at any time after the expiration of his term
of employment as specified in his employment agreement (or any subsequent
employment agreement with the Company).
The Company has entered into agreements with Messrs. Peterson, Rizzo and
Sullivan pursuant to which these individuals will be entitled to receive
severance payments of up to six months' salary either upon an involuntary
termination of employment, other than for cause (as defined therein), or upon a
resignation for good reason (as defined therein).
STOCK OPTIONS
1990 Option Plan. The Company has adopted its 1990 Nonqualified
Performance Stock Option Plan (as amended, the "1990 Option Plan"), which
provides for the granting of non-qualified stock options to officers, key
employees and consultants of the Company, including Directors who are also
employees. As of February 1, 1997, an aggregate of 451,500 shares of Common
Stock have been reserved for issuance under the 1990 Option Plan.
The 1990 Option Plan is administered by the Compensation Committee.
Options terminate at the earlier of (i) 90 days after the participant's
termination of employment by the Company (unless such termination results from
the participant's death or disability, or the participant dies within 90 days
after such termination of employment, in which case the option terminates 180
days after the date of the participant's termination of employment), (ii) ten
years from the date of grant, or (iii) on the effective date of certain
dissolutions, liquidations or sales of all of the business, properties and
assets of the Company or upon certain reorganizations, mergers or
consolidations.
10
10
All options under the 1990 Option Plan currently will vest and become
exercisable in full upon a determination by the Compensation Committee that the
Company, on a consolidated basis, has achieved 100% of the amount of a
specified operating cash flow and total net cash flow from operations for any
one of the four fiscal years of the Company beginning with the fiscal year
ended January 1997 and ending with the fiscal year ended January 2000. Upon a
determination by the Compensation Committee that the Company has not achieved
the required levels of operating cash flow and total net cash flow from
operations by January 29, 2000, the options which remain unvested shall
nevertheless vest and become exercisable as of October 5, 2000. The
Compensation Committee periodically reviews the 1990 Option Plan and may, in
good faith, adjust the specified cash flow levels to reflect unanticipated
major events such as catastrophic occurrences and mergers and acquisitions. The
Compensation Committee may, in its sole discretion, elect to accelerate the
vesting of all or any portion of any option.
The holders of options granted under the 1990 Option Plan (other than Mr.
Fernandez) have been granted limited special rights (the "Limited Rights") with
respect to all of the shares of Common Stock covered by such options (the
"Related Options"). The Limited rights become exercisable in circumstances
where the Company has accelerated the Related Options in connection with a
business combination or sale of all or substantially all of the assets or
capital stock of the Company, in each case in which the holders of the
Company's Common Stock receive all cash consideration (an "Extraordinary
Corporate Event"). Upon the exercise of a Limited Right, the Related Option
ceases to be exercisable to the extent of the shares with respect to which the
Limited Right is exercised, and an optionee would receive, for each share of
underlying Common Stock, a cash payment equal to the excess of (i) the cash per
share of Common stock received by the holders of Common Stock in connection
with the Extraordinary Corporate Event, over (ii) the option price per share of
Common Stock underlying the Related Option.
1995 Option Plan. The Company has adopted its 1995 Stock Option Plan (the
"1995 Option Plan") which provides for the granting of either non-qualified or
incentive stock options to officers and key employees of the Company, including
directors who are also employees. Notwithstanding the foregoing, only officers
and key employees who do not own capital stock possessing more than 10% of the
total combined voting power or value of all classes of capital stock of the
Company or the Subsidiary shall be eligible to receive grants of options. As to
February 1, 1997, an aggregate of 500,000 shares of Common Stock have been
reserved for issuance under the 1995 Option Plan.
The 1995 Option Plan is administered by the Compensation Committee. Options
terminate as determined by the Compensation Committee and specified in each
Option Agreement; provided, that such termination date shall be not later than
ten years from the date such option is granted, subject to earlier termination
upon an optionee's termination of employment, in connection with certain
extraordinary corporate transactions, or as otherwise set forth in each
particular Option Agreement.
The purchase price per share of the shares of Common Stock underlying each
option and the vesting schedule for each option will be determined by the
Compensation Committee; provided, that the option price of any incentive stock
option shall not be less than the fair market value of the underlying shares at
the time the incentive stock option is granted, as determined by the
Compensation Committee in accordance with the formula specified in the 1995
Option Plan.
1996 Directors Plan. The Company has adopted its 1996 Non-Employee
Directors Option Plan (the "1996 Directors Plan") which provides for the
granting of non-qualified stock options to Outside Directors of the Company.
The 1996 Directors Plan permits each Outside Director to elect, on the date of
each annual meeting at which he or she is elected or reelected, to receive an
option to purchase shares of the Company's Common stock in lieu of being paid
that part of the director's fee that is not dependent upon attendance at
meetings or services as a chairperson for the ensuing year (the "Retainer
Fee"). If the Outside Director make such an election, on the six-month
anniversary of the date of the election (the "Date of Grant"), such Outside
Director will be granted an option exercisable for a number of shares of the
Company's Common Stock equal to the amount of the Outside Director's Retainer
Fee divided by 20% of the fair market value of a share of Common Stock at the
close of business on the Date of Grant. The exercise price for any such option
will be 80% of the fair market value of the Company's Common Stock on the Date
of Grant. These options vest and are exercisable on the date of the annual
meeting of stockholders following the Date of Grant. All options granted under
the 1996 Directors Plan expire on the earlier of the tenth anniversary of the
Date of Grant or six months after the recipient of the option ceases to be a
director. As of
11
February 1, 1997, an aggregate of 75,000 shares of Common Stock have been
reserved for issuance under the 1996 Directors Plan. Based on the slate of
nominees for directors for the Company's 1997 fiscal year, Messrs. Figel,
Gannon, Malone, Sodini and Young will be eligible to receive options in lieu of
Retainer Fees, if such an election is made.
The following table sets forth information concerning options granted to
the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------
Individual Grants
----------------------------------------------------
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of Stock
Underlying Options Price Appreciation
Options Granted to Exercise or Expira- for Option Term
Granted Employees in Base Price tion ----------------------
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----- ---------- ------------ ----------- -------- ------- ---------
Joseph H. Fernandez............... 30,000(1) 55.2% 7.125 2/28/06 134,662 339,862
100,000(2) 7.375(3) 8/29/06 464,625 1,172,625
Louis J. Rizzo................... 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
Wayne S. Peterson................ 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
John E. Sullivan................. 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
Craig A. Wright.................. 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
- ----------
(1) These options vest and become exercisable in four equal annual installments
beginning on the first anniversary of their date of grant.
(2) 20% of these options were vested and exercisable on their date of grant.
The remaining 80% vest and become exercisable in four annual installments
beginning on the first anniversary of their date of grant.
(3) $7.375 is initial exercise price. Beginning in 1997, the option exercise
price will increase 5% on March 1 and September 1 of each year over then
existing exercise price.
The following table sets forth information concerning the aggregate number
of options exercised during 1996 by each of the Named Executive Officers, and
outstanding options held by each such officer at February 1, 1997.
OPTION EXERCISES AND YEAR-END VALUE TABLE
Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Options at
February 1, 1997 (#) February 1, 1997 ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable(1)
- ---- --------------- -------------- --------------------- ---------------------
Joseph H. Fernandez - - 72,456 / 181,140 73,138 / 174,408
Louis J. Rizzo - - 6,000 / 18,000 3,000 / 16,500
Wayne S. Peterson - - 6,000 / 26,334 3,000 / 29,668
John E. Sullivan - - 4,000 / 31,666 2,000 / 42,072
Craig A. Wright - - 4,000 / 8,000 2,000 / 11,000
- --------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market as of January 31, 1997 was $8.25 per share.
12
As of February 1, 1997, options for the purchase of 134,438 shares of
Common Stock, at a purchase price of $6.67 per share, and options for the
purchase of 56,140 shares of Common Stock, at a purchase price of $7.125 per
share, were outstanding under the 1990 Option Plan, and options for the
purchase of 260,922 shares remained available for issuance. Also as of February
1, 1997, options for the purchase of 2,000 shares of Common Stock, at a
purchase price of $7.50 per share, options for the purchase of 111,000 shares
of Common Stock, at a purchase price of $7.75 per share, options for the
purchase of 135,400 shares of Common Stock, at a purchase price of $7.125 per
share, options for the purchase of 100,000 shares of Common Stock, at a
purchase price of $7.375 per share, and options for the purchase of 2,000
shares of Common Stock, at a purchase price of $8.125 per share, were
outstanding under the 1995 Option Plan, and options for the purchase of 160,300
shares remained available for issuance. In addition, as of February 1, 1997,
options for the purchase of 6,250 shares of Common Stock, at a purchase price
of $6.40 per share, were outstanding under the 1996 Directors Plan. As of
February 1, 1997, options for the purchase of 22,456 shares of Common Stock, at
a purchase price of $7.125 per share, and options for the purchase of 15,000
shares of Common Stock, at a purchase price of $6.725 per share, were
outstanding outside of the Company's option plans. On March 21, 1997, the Board
of Directors of the Company granted options to purchase an aggregate of 17,100
shares of Common Stock, at a purchase price of $9.375 per share, to a total of
57 employees of the Company (excluding executive officers and directors)
pursuant to the 1995 Option Plan. As of March 21, 1997, none of the options
described in this paragraph had been exercised.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1993, Mr. Fernandez purchased 112,280 shares of Common Stock
at a price of $7.125 pursuant to a Stock Subscription Agreement. Of the
purchase price for these shares, $400,000 was paid using a full recourse
promissory note, bearing interest at 7% per annum, payable quarterly, and
secured by a pledge to the Company of the 112,280 shares of Common Stock. In
February 1994, Mr. Fernandez executed a full recourse unsecured promissory note
in the amount of $40,000 in favor of the Company, bearing interest at 7% per
annum, and payable quarterly. As amended, these two promissory notes are due
and payable in full on March 1, 1998.
In April 1997, Mr. Fernandez executed two additional full recourse
promissory notes in favor of the Company, one in the amount of $125,000 which
is secured by a pledge to the Company of the 112,280 shares of Common Stock
purchased by Mr. Fernandez in March 1993, and one in the amount of $75,000
which is unsecured. Each of these promissory notes bears interest at 9.25% per
annum, payable quarterly, and becomes due and payable in full on March 1, 2001.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1996, the Compensation Committee was comprised of Messrs.
Gannon, Simmons, Sodini and Spogli, each an independent non-employee director
of the Company. During 1996, none of the members of the Company's Compensation
Committee had any interlocking relationships as defined by the Commission. For
the fiscal year ending February 1, 1998, the Compensation Committee is
comprised of Messrs. Gannon, Simmons, Sodini and Spogli.
In July 1991, the Company entered into a one-year renewable consulting
agreement with Mr. Sodini which in 1996 provided for a fee of $75,000 and
certain medical benefits through December 1996. This arrangement terminated on
December 31, 1996.
13.
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REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee recommends to the Board of Directors general
compensation policies for the Company, oversees the Company's compensation
plans and specific compensation levels for executive officers, and administers
the Bonus Plan, the 1990 Option Plan and the 1995 Option Plan.
The following is the Compensation Committee's report submitted to the
Board of Directors addressing the compensation of the Company's executive
officers for 1996.
COMPENSATION POLICY
The Company's executive compensation policy is designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers. The Compensation Committee attempts to
achieve these goals by integrating competitive annual base salaries with (a)
bonuses based on corporate performance and on the achievement of specified
performance objectives through the Bonus Plan, and (b) executive stock options.
The Compensation Committee believes that cash compensation in the form of
salary and bonus provides Company executives with short term rewards for
success in operations, and that long term compensation through the award of
stock options encourages growth in management stock ownership which leads to
expansion of management's stake in the long term performance and success of the
Company.
Base Salary. For 1996, the Compensation Committee approved the base
salaries of the Company's executive officers. In determining the base salary of
each of the executive officers, the Company relied primarily on a survey
prepared by Strategic Compensation Associates ("SCA") of salaries paid to
executive officers of publicly traded retail grocery companies with sales and
operating regions generally comparable to that of the Company. The SCA survey
included all of the same companies which comprise the Company's Peer Group
Index (for purposes of the performance graph), as well as two additional retail
grocery companies with sales and operating regions generally comparable to that
of the Company. For 1996, the Compensation Committee set the base salaries of
the Company's executive officers generally near the median level of those
salaries reflected in the SCA survey. In 1996, executive officers received
raises in their annual base salaries.
Bonuses. Annual incentives under the Bonus Plan for the President and Chief
Executive Officer and the other Named Executive Officers are intended to reflect
the Company's belief that management's contribution to stockholder returns (via
increasing stock price) comes from maximizing earnings and the quality of those
earnings. Awards under the Bonus Plan are based on the attainment of specified
Company performance objectives, and the target bonus amount is determined as a
percentage of the recipient's base salary. For 1996, participants in the Bonus
Plan other than the President and Chief Executive Officer maintained their prior
year's baseline target bonus amounts equal to 47.5% of the base salaries paid to
such persons. The target bonus amount for the President and Chief Executive
Officer remained at 70.0% of his base salary until August 1996, at which time he
was elected Chairman of the Board of the Company, and his target bonus amount
was raised to 80% of his base salary. The different percentage for the President
and Chief Executive Officer reflects the Committee's belief that, as an
executive officer's duties and responsibilities in the Company increase, he will
be increasingly responsible for the performance of the Company. Accordingly, a
larger proportion of his compensation should be incentive compensation. Actual
bonuses payable under the Bonus Plan then range from zero to three times the
baseline amount, and depend on the level of achievement of the specified
performance objectives. For 1996, the performance objective necessary to achieve
the baseline amount was the attainment of a specified cash flow amount. During
1996, none of the specified performance objectives were achieved, and no bonuses
were paid to either Mr. Fernandez or any of the other Named Executive Officers.
Stock Options. The Compensation Committee believes that stock option
grants afford a desirable long-term compensation method because they closely
ally the interests of management with stockholder value, and that grants of
stock options are the best way to link directly the financial interests of
management with those of stockholders.
14.
14
In February 1996, the executive officers of the Company, including the
President and Chief Executive Officer, as well as 38 store managers and 18 other
key employees of the Company, were each granted options under the Company's 1995
Option Plan. In addition, in August 1996, the President and Chief Executive
Officer was granted an additional option under the 1995 Option Plan, and in
March 1997, 43 store managers and 14 other key employees of the Company were
each granted options under the 1995 Option Plan. In each case, the number of
options that each executive officer or employee was granted was based primarily
on the executive's or employee's ability to influence the Company's long term
growth and profitability and, with respect to the February 1996 grants, to a
lesser extent as a result of the determination by the Compensation Committee
that vesting before October 2000 of the options previously granted under the
1990 Option Plan is unlikely. The vesting provisions of the options granted
under the 1995 Option Plan are designed to encourage longevity of employment
with the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Mr. Fernandez, the Company's
President and Chief Executive Officer, provides valuable services to the
Company, and that his compensation should therefore be competitive with that
paid to executives at comparable companies. In addition, the Compensation
Committee believes that the compensation of the President and Chief Executive
Officer should be heavily influenced by Company performance. Therefore,
although there is necessarily some subjectivity in setting Mr. Fernandez's
salary, major elements of his compensation package are directly tied to Company
performance.
In August 1996, Mr. Fernandez was elected Chairman of the Board of the
Company and, in connection therewith, his base salary was raised from $247,500
to $350,000, an amount that the Compensation Committee believes is generally
comparable to salaries for other executive officers in Mr. Fernandez' new
position, as set forth in the SCA survey. In addition, in August 1996, in
connection with his election as Chairman of the Board of the Company, the
baseline target bonus payable to Mr. Fernandez under the Bonus Plan was raised
as a percentage of his salary from 70.0% to 80%. As indicated previously, in
1996, none of the performance objectives specified under the Bonus Plan were
achieved, and no bonus was paid to Mr. Fernandez under the Bonus Plan for 1996.
INTERNAL REVENUE CODE SECTION 162(m)
Under Section 162 of the Code, the amount of compensation paid to certain
executives that is deductible with respect to the Company's corporate taxes is
limited to $1,000,000 annually. It is the current policy of the Compensation
Committee to maximize, to the extent reasonably possible, the Company's ability
to obtain a corporate tax deduction for compensation paid to executive
officers of the Company to the extent consistent with the best interests of the
Company and its stockholders.
The foregoing report has been furnished by Messrs. Gannon, Simmons, Sodini
and Spogli.
15.
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COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for the
Company, the S&P 500 Stock Index and a Company-constructed Peer Group Index (as
defined below) for the period during which the Company's Common Stock has been
registered under Section 12 of the Exchange Act. The Company-constructed Peer
Group Index includes the following retail grocery companies: Delchamps, Inc.,
Eagle Food Centers, Inc., Foodarama Supermarkets, Inc., Hannaford Brothers, Co.,
Marsh Supermarkets, Inc., Quality Food Centers, Inc., Riser Foods, Inc., Ruddick
Corp., Schultz Sav-O Stores, Inc., Seaway Food Town, Inc. and Weis Markets, Inc.
COMPARISON OF CUMULATIVEI TOTAL RETURN*
Buttrey Peer S&P 500
Measurement Food & Drug Group Stock
Period Stores Index Index
- ----------- ---------- ----- -------
13 February 1992 $100.00 $100.00 $100.00
09 April 1997 46.88 174.55 282.65
ASSUMES $100 INVESTED ON FEBRUARY 13, 1992.
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
The information contained above under the captions "Report of the
Compensation Committee of the Board of Directors" and "Company Performance"
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") except to the extent that the Company specifically incorporates it by
reference into such filing.
16.