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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended May 3, 1997
Commission file number 1-6049
Dayton Hudson Corporation
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(Exact name of registrant as specified in its charter)
Minnesota 41-0215170
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(State of incorporation or organization) (I.R.S. Employer Identification No.)
777 Nicollet Mall Minneapolis, Minnesota 55402 - 2055
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 370-6948
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None
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Former name, former address and former fiscal year, if changed since last
report.
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 and
(2) has been subject to such filing requirements for the past 90 days.
The number of shares outstanding of common stock as of May 3, 1997 was
217,659,121.
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DAYTON HUDSON CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
NO.
PART I FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Results of Operations for the Three 1
Months and Twelve Months ended May 3, 1997 and May 4, 1996
Condensed Consolidated Statements of Financial Position at 2
May 3, 1997, February 1, 1997 and May 4, 1996
Condensed Consolidated Statements of Cash Flows for the 3
Three Months ended May 3, 1997 and May 4, 1996
Notes to Condensed Consolidated Financial Statements 4-5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS 6-9
AND FINANCIAL CONDITION
PART II OTHER INFORMATION:
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
Signatures 12
Exhibit Index 13
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED Dayton Hudson Corporation
RESULTS OF OPERATIONS and Subsidiaries
(Millions of Dollars, Except Per Share Data) Three Months Ended Twelve Months Ended
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MAY 3, May 4, MAY 3, May 4,
(Unaudited) 1997 1996 1997 1996*
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<S> <C> <C> <C> <C>
REVENUES $ 5,889 $ 5,380 $ 25,879 $ 24,139
COSTS AND EXPENSES
Cost of retail sales, buying and occupancy 4,253 3,949 18,932 17,972
Selling, publicity and administrative 1,034 983 4,340 4,137
Depreciation and amortization 170 157 663 607
Interest expense, net 107 109 440 444
Taxes other than income taxes 117 112 450 426
Real estate repositioning charge - - 134 -
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Total Costs and Expenses 5,681 5,310 24,959 23,586
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Earnings Before Income Taxes and Extraordinary Charge 208 70 920 553
Provision for Income Taxes 82 28 363 211
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NET EARNINGS BEFORE EXTRAORDINARY CHARGE $ 126 $ 42 $ 557 $ 342
Extraordinary Charge from Purchase and Redemption of Debt,
Net of Tax 21 1 31 1
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NET EARNINGS 105 41 526 341
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PRIMARY EARNINGS PER SHARE:
Earnings Before Extraordinary Charge $ .55 $ .17 $ 2.45 $ 1.48
Extraordinary Charge .10 - .14 -
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PRIMARY EARNINGS PER SHARE $ .45 $ .17 $ 2.31 $ 1.48
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FULLY DILUTED EARNINGS PER SHARE:
Earnings Before Extraordinary Charge $ .53 $ .16 $ 2.35 $ 1.42
Extraordinary Charge .09 - .13 -
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FULLY DILUTED EARNINGS PER SHARE $ .44 $ .16 $ 2.22 $ 1.42
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DIVIDENDS DECLARED PER COMMON SHARE $ .16 $ .15 $ .64 $ .59
AVERAGE COMMON SHARES OUTSTANDING (Millions):
Primary 219.8 217.8 219.2 217.2
Fully Diluted 231.7 230.3 230.9 229.6
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* Consisted of 53 weeks.
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS Dayton Hudson Corporation
OF FINANCIAL POSITION and Subsidiaries
MAY 3, February 1, May 4,
(Millions of Dollars) 1997 1997* 1996
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<S> <C> <C> <C>
ASSETS (UNAUDITED) (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 257 $ 201 $ 230
Accounts receivable 1,547 1,720 1,383
Merchandise inventories 3,330 3,031 3,175
Other 391 488 217
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Total Current Assets 5,525 5,440 5,005
PROPERTY AND EQUIPMENT 10,593 10,469 10,389
Accumulated depreciation (3,042) (3,002) (3,006)
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Property and Equipment, net 7,551 7,467 7,383
OTHER 491 482 397
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TOTAL ASSETS $ 13,567 $13,389 $12,785
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt and notes payable $ 338 $ 233 $ 362
Accounts payable 2,356 2,528 2,080
Other 1,329 1,350 1,104
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Total Current Liabilities 4,023 4,111 3,546
LONG-TERM DEBT 5,000 4,808 5,125
DEFERRED INCOME TAXES AND OTHER 623 630 628
CONVERTIBLE PREFERRED STOCK, NET 44 50 51
SHAREHOLDERS' INVESTMENT 3,877 3,790 3,435
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $13,567 $ 13,389 $12,785
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COMMON SHARES OUTSTANDING (Millions) 217.7 217.2 216.3
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* Condensed from the audited financial statements.
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
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CONDENSED CONSOLIDATED Dayton Hudson Corporation
STATEMENTS OF CASH FLOWS and Subsidiaries
(Millions of Dollars) Three Months Ended
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MAY 3, May 4,
(Unaudited) 1997 1996
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OPERATING ACTIVITIES
Net earnings before extraordinary charge $ 126 $ 42
Reconciliation to cash flow:
Depreciation and amortization 169 157
Deferred tax provision (28) (28)
Other non-cash items affecting earnings (3) 44
Changes in operating accounts providing/(requiring) cash:
Accounts receivable 173 127
Merchandise inventories (300) (157)
Accounts payable (188) (167)
Other 23 73
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Cash Flow (Required)/Provided by Operations (28) 91
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INVESTING ACTIVITIES
Expenditures for property and equipment (254) (350)
Proceeds from disposals of property and equipment 102 -
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Cash Flow Required for Investing Activities (152) (350)
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Net Financing Requirements (180) (259)
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FINANCING ACTIVITIES
Increase in notes payable, net 319 131
Additions to long-term debt - 300
Reductions of long-term debt (209) (85)
Sale of subsidiary preferred stock 160 -
Dividends paid (40) (37)
Other 6 5
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Cash Flow Provided by Financing Activities 236 314
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Net Increase in Cash and Cash Equivalents 56 55
Cash and Cash Equivalents at Beginning of Period 201 175
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 257 $ 230
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Amounts in this statement are presented on a cash basis and therefore may differ
from those shown elsewhere in this 10-Q report. Cash paid for income taxes was
$133 million and $95 million for the first three months of 1997 and 1996,
respectively. Cash paid for interest (including interest capitalized) in the
first three months of 1997 and 1996 was $89 million and $69 million,
respectively.
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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NOTES TO CONDENSED CONSOLIDATED Dayton Hudson Corporation
FINANCIAL STATEMENTS and Subsidiaries
ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements should be read in
conjunction with the financial statement disclosures contained in our 1996
Annual Shareholders' Report throughout pages 23-34. As explained on page 33 of
the Annual Report, the same accounting policies are followed in preparing
quarterly financial data as are followed in preparing annual data. In the
opinion of management, all adjustments necessary for a fair presentation of
quarterly operating results are reflected herein and are of a normal, recurring
nature.
Due to the seasonal nature of the retail industry, earnings for periods which
exclude the holiday season are not necessarily indicative of the operating
results that may be expected for the full fiscal year.
PER SHARE DATA
References to earnings per share relate to fully diluted earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted at our fiscal year end.
At that time we will calculate "basic" and "diluted" earnings per share and
restate prior periods. The differences from primary and fully diluted earnings
per share will be immaterial.
LONG-TERM DEBT
During the first quarter of 1997, we repurchased $126 million of long-term debt
for $144 million. We also committed to repurchase an additional $126 million of
long-term debt for $140 million, which settled in the second quarter. The total
debt repurchased had an average rate of approximately 9.5% and an average
remaining maturity of 17 years. An extraordinary charge, net of tax, of $21
million ($.09 per share) for early extinguishment of debt was recorded related
to the transactions. The replacement of this debt with lower interest rate
financing is expected to result in future interest expense savings.
In first quarter 1997, Retail Properties, Inc., a subsidiary of the Corporation,
was formed as a real estate investment trust (REIT) and issued $160 million of
preferred stock with an effective financing cost of 7.9%. The net proceeds from
the offering were used for general corporate purposes. The subsidiary preferred
stock is included in Long-Term Debt in our Consolidated Statement of Financial
Position at May 3, 1997. The preferred stock may be redeemed if, as a result of
a change in tax laws, rules or regulations, certain tax attributes of the REIT
transaction are recharacterized.
REAL ESTATE REPOSITIONING
In first quarter 1997, Mervyn's exited the Florida and Georgia markets and
closed one other under performing store; and DSD closed one store. Exit costs
incurred in the quarter approximated $12 million and were charged against the
reserve established in fourth quarter 1996.
4
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RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current-year
presentation.
SUBSEQUENT EVENT
The Company has historically deducted for income tax purposes the inventory
shortage expense that it has accrued for book purposes, consistent with
industry practice. Effective with the Company's 1983 tax return, the
Internal Revenue Service (IRS) challenged the practice of deducting accrued
shortage not supported with a year-end physical inventory. On June 11, 1997,
the United States Tax Court returned a judgment on this issue in favor of the
IRS. The Company continues to believe strongly in its position and will seek
a review by the full Tax Court and/or an appeal to the U.S. 8th Circuit Court
of Appeals. In the event that the Company's efforts are unsuccessful, the
Corporation will owe $50 to $60 million in federal and state taxes and net
accrued interest. A portion of this potential liability is related to timing
differences and the remainder, if any, will be charged against existing
Company reserves. Accordingly, even in the event that the Company's efforts
are unsuccessful, no impact on the Company's results of operations is
expected.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1997
ANALYSIS OF OPERATIONS
Our first quarter 1997 net earnings were $105 million, or $.44 per share,
compared with $41 million, or $.16 per share, for the same period last year.
First quarter 1997 and 1996 net earnings include extraordinary charges, net of
tax, related to the early extinguishment of debt of $21 million ($.09 per share)
and $1 million, respectively. The improvement in first quarter net earnings is
primarily due to strong sales and profit performance at Target, margin
improvement at Mervyn's and a major operating expense reduction initiative at
DSD.
The following table reflects the significant components of the year-over-year
change in our earnings per share:
First Quarter
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1996 Earnings Per Share $.16
Changes in earnings per share due to:
Revenues .15
Gross margin rate .11
Operating expense rate .12
Start-up expense (.01)
Extraordinary charge from redemption of debt (.09)
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1997 Earnings Per Share $.44
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Strong growth at Target, our lowest margin and expense rate division, continues
to impact our business mix. As a result, the Corporation's overall revenue
growth and total operating expense rate were favorably affected, while the gross
margin rate was unfavorably affected. If the sales mix between divisions had
remained constant with first quarter 1996, the gross margin rate variance would
have been $.04 more favorable while the operating expense rate would have been
$.05 less favorable.
The overall gross margin rate favorability to prior year is the result of
improvement at Target and Mervyn's offset somewhat by higher markdowns at DSD
and Target's growing influence on the Corporation's overall margin structure.
The overall operating expense rate improvement reflects strong sales leveraging
and operating expense improvement at Target, as well as Target's increasing
influence on our expense rate structure, and DSD's significant operating expense
reduction initiative, partially offset by poor sales leveraging at Mervyn's and
DSD.
6
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REVENUES
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Total revenues increased 9% in the first quarter, while comparable-store
revenues (revenues from stores open longer than a year) rose 4%.
Revenues by business segment were as follows:
First Quarter Percentage Change
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MAY 3, May 4, All Comparable
(Millions of Dollars) 1997 1996 Stores Stores
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Target $4,254 $3,723 14% 6%
Mervyn's 946 967 (2) -
DSD 689 690 - (3)
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Total $5,889 $5,380 9% 4%
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Target's increase over the prior year reflects the strength of base-business
sales, new-store expansion and increased sales and credit revenues associated
with the continued growth of the Target Guest Card. Mervyn's and DSD were also
positively impacted by a year-over-year increase in credit revenues. Mervyn's
total revenues decreased 2% reflecting the closure of 25 stores while
comparable-store revenues were equal to first quarter last year. DSD's total
revenues were flat to last year while comparable-store revenues declined as DSD
continues to refine the execution of its merchandise strategy.
OPERATING PROFIT
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Our first quarter 1997 operating profit increased 68% over the prior year.
Operating profit is LIFO earnings from operations before corporate expense,
interest and income taxes.
Operating profit by business segment was as follows:
Three Months Ended
----------------------------------
MAY 3, May 4, Percentage
(Millions of Dollars) 1997 1996 Increase
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Target $ 251 $ 133 88%
Mervyn's 51 39 30
DSD 35 28 26
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Total $ 337 $ 200 68%
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Operating profit reflects a reduction of credit revenues and a reduction of bad
debt expense related to the sale of securitized accounts receivable and, as of
January 1, 1997, the net effect of SFAS No. 125. For the three months ended May
3, 1997, the net impact on operating profit by business segment was a reduction
of $1 million for Target, an increase of $1 million for Mervyn's and no impact
for DSD. In first quarter 1996, the net operating profit reductions were $1
million, $3 million and $2 million for Target, Mervyn's and DSD, respectively.
7
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TARGET'S first quarter operating profit increased 88% over the same period last
year, reflecting comparable-store revenue growth of 6%, as well as gross margin
rate and operating expense rate improvements. Its gross margin rate improved
primarily due to substantially better markup while the operating expense rate
was favorable due to strong sales leveraging and continued progress on Target's
multi-year effort to reduce operating expenses as a percentage of sales. Target
is on-track to realize $60 - $70 million in annualized cost savings identified
as part of its multi-year cost reduction program. For the balance of 1997,
Target's rate of operating profit growth is expected to slow somewhat as the
gross margin rate annualizes against the unusually strong improvements
experienced in the last four quarters. The operating expense rate should
continue to be favorable to last year, reflecting further progress on its
expense reduction program and favorable sales leveraging.
MERVYN'S operating profit increased 30% over first quarter last year. Its gross
margin rate increased over the prior year due to lower markdowns. Despite good
expense control, the operating expense rate was unfavorable to last year due to
poor sales leveraging and higher bad debt expense associated with higher credit
revenues. In 1997, despite lost revenue and profits from the previously
announced 25 to 35 store closings, Mervyn's is expected to continue to achieve
year-over-year operating profit growth through modest comparable-store revenue
growth and moderate gross margin rate favorability versus last year.
DSD'S first quarter operating profit increased 26% over the same period last
year as operating expense improvement was somewhat offset by gross margin
deterioration. The first quarter operating expense rate improved over last year
due to year-to-date savings associated with its $50 million operating expense
reduction initiative. The gross margin rate decreased reflecting higher
markdowns. DSD's 1997 operating profit is expected to be substantially better
than last year, reflecting modest gross margin rate favorability and continued
operating expense rate improvement.
Other Performance Factors
- -------------------------
The last-in, first-out (LIFO) provision, included in cost of retail sales, was
zero for both first quarter 1997 and 1996. The cumulative LIFO provision was
$86 million at May 3, 1997 and February 1, 1997, and $77 million at May 4, 1996.
Net interest expense for the quarter decreased $2 million over last year
reflecting savings from lower average debt balances. Annual interest expense
for 1997 is expected to be somewhat lower than 1996.
The estimated annual effective income tax rate for 1997 is 39.5%, unchanged from
the first quarter 1996 rate.
8
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ANALYSIS OF FINANCIAL CONDITION
Our financial condition remains strong. The ratio of debt to total
capitalization attributable to our retail operations was 52% at the end of first
quarter 1997, compared with 56% a year ago and 50% at year end. Due to the
seasonality of our business, quarterly comparisons will fluctuate, but we expect
the ratio throughout 1997 to remain lower than last year.
At May 3, 1997, working capital was $1,502 million, up 3% compared with a year
ago. Accounts receivable declined 10% from year end, reflecting a typical
reduction from seasonally high levels. However, accounts receivable increased
12% from first quarter last year, primarily as a result of expansion of the
Target Guest Card. Compared with last year, merchandise inventories increased
approximately $155 million, or 5%, as a result of new store growth at Target,
partially offset by good inventory control at all divisions. The inventory
growth was more than fully funded by a $276 million, or 13%, increase in
accounts payable.
First quarter 1997 capital expenditures were $254 million, as expected; this
compares with $350 million for the same period a year ago. Approximately 83% of
these expenditures were made by Target, 5% by Mervyn's and 12% by DSD. Proceeds
of $102 million were received during the quarter from the disposal of property
and equipment, primarily from the sale of Mervyn's Florida and Georgia stores.
We continue to fund the growth in our business through a combination of debt,
securitization of accounts receivable and retained earnings. Our debt has
decreased $149 million compared with a year ago, while our shareholders'
investment has grown by $442 million.
STORE DATA
During the quarter, we opened 16 net new Target stores and 1 Mervyn's store. In
connection with the real estate repositioning initiated in fourth quarter 1996,
we closed 25 Mervyn's stores and one DSD store. At May 3, 1997, Target
operated 752 stores in 39 states, Mervyn's operated 276 stores in 15 states and
DSD operated 64 stores in nine states.
Retail square footage was as follows:
(In thousands, reflects total square MAY 3, February 1, May 4,
feet, less office, warehouse and 1997 1997 1996
vacant space)
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Target 81,353 79,360 73,301
Mervyn's 22,424 24,518 24,281
DSD 13,995 14,111 13,870
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Total 117,772 117,989 111,452
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9
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PART II. OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Company held its Annual Shareholders' Meeting on May 21, 1997.
c) (1). The shareholders voted for four director nominees for three-year
terms. The vote was as follows:
Name of Candidate For Withheld
----------------- ----------- ---------
Betty Ruth Hollander 200,130,783 2,762,244
Richard M. Kovacevich 200,085,405 2,807,622
Solomon D. Trujillo 200,104,031 2,788,996
Robert J. Ulrich 199,817,198 3,075,829
There were no abstentions and no broker non-votes.
(2). The shareholders voted to approve the appointment of Ernst &
Young LLP as independent auditors of the Corporation. The vote
was 201,640,709 for, 488,282 against and 764,036 abstentions.
There were no broker non-votes.
(3). The shareholders voted to amend the Corporation's Long-Term
Incentive Plan of 1981 (the LTIP) for the purpose of permitting
the Corporation to continue deducting for federal tax purposes
certain compensation under the LTIP. The vote was 193,880,789
for, 7,433,939 against and 1,578,299 abstentions. There were no
broker non-votes.
(4). The shareholders voted to amend the Corporation's Executive
Incentive Plan (the EIP) for the purpose of permitting the
Corporation to continue deducting for federal tax purposes
certain compensation under the EIP. The vote was 193,235,212
for, 7,749,442 against and 1,908,373 abstentions. There were no
broker non-votes.
10
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
(2). Not applicable
(4). Instruments defining the rights of security holders,
including indentures. Registrant agrees to furnish the
Commission on request copies of instruments with respect to
long-term debt.
(10). A. Agreement
B. Director Stock Option Plan of 1995 (as amended January
1, 1997)
(11). Statements re Computations of Per Share Earnings
(12). Statements re Computations of Ratios
(15). Not applicable
(18). Not applicable
(19). Not applicable
(22). Not applicable
(23). Not applicable
(24). Not applicable
(27). Financial Data Schedule
(99). Not applicable
b) Reports on form 8-K. Registrant did not file any reports on Form 8-K
during the quarter ended May 3, 1997.
11
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SIGNATURES
----------
Pursuant to the requirements 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.
DAYTON HUDSON CORPORATION
Registrant
Date: June 17, 1997 By /s/ Douglas A. Scovanner
------------------------
Douglas A. Scovanner
Senior Vice President and
Chief Financial Officer
Date: June 17, 1997 By /s/ J.A. Bogdan
----------------------
JoAnn Bogdan
Controller and
Chief Accounting Officer
12
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EXHIBIT INDEX
- -------------
(10). A. Agreement
B. Director Stock Option Plan of 1995 (as amended January 1, 1997)
(11). Statements re Computations of Per Share Earnings
(12). Statements re Computations of Ratios
(27). Financial Data Schedule
13
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AGREEMENT
THIS AGREEMENT is made effective as of the 12 day of March 1997 by
and among DAYTON HUDSON CORPORATION, a Minnesota corporation (the "Company"),
MERVYN'S, a California corporation ( "Mervyn's) and PAUL W. SAUSER
("Executive").
RECITALS
A. Executive is employed by Mervyn's, a wholly-owned subsidiary of
the Company; and
B. The Company, Mervyn's and Executive wish to sever Mervyn's and
Executive's relationship as employer and employee respectively, on the terms and
conditions hereafter set forth; and
C. The Company maintains an Income Continuance Policy (the "ICP")
for which Executive is eligible, the terms and provisions of which Executive has
been subject to and is familiar with; and
D. The Company delivered Notice of Termination to Executive on March
12, 1997, stating that Executive's Effective Date of Termination for ICP
purposes was that same date.
E. The ICP requires a release in writing from Executive; and
F. Executive acknowledges he has been advised and encouraged to
review this Agreement with an attorney and is fully aware of the potential
rights and remedies he may have as a result of the severance; and
1
<PAGE>
G. Executive, the Company and Mervyn's wish to memorialize herein
the resolution and settlement of all their respective rights, remedies and
obligations whatsoever, flowing from Executive's employment and relationships
with Mervyn's and the Company and the severance and termination of the
employment and those relationships.
1. EMPLOYMENT SEVERANCE DATE. Although Executive's Effective Date of
Termination for ICP purposes is March 12, 1997, Executive shall perform duties
assigned to him by the Company through July 31, 1997 (or any earlier date of
termination), when the employer-employee relationship of Mervyn's and Executive
and Executive's relationships with Mervyn's and the Company shall be severed and
terminated (the "Employment Severance Date").
2. SALARY AND BONUS. Executive shall be paid his regular salary for
services rendered as an employee under paragraph 1 hereof through March 15,
1997, subject to all required and voluntary withholdings. Such payments will
otherwise be made in accordance with Mervyn's standard payroll practices as in
effect at the time of payment. Executive acknowledges that he has received a
Short-Term Incentive Plan bonus payment of $426,612 for fiscal year 1996
performance.
3. INCOME CONTINUANCE PAYMENTS. Executive shall be entitled to
forty-eight (48) consecutive equal semi-monthly income continuance payments
pursuant to and subject to the terms and conditions of the ICP, the first
payment commencing on or about March 31, 1997. The gross amount of each
semi-monthly payment, subject to the terms and conditions of the ICP, shall be
$40,275.50. The semi-monthly amount shall be reduced for taxes and other
amounts required to be withheld by the Company.
2
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4. VACATION PAY. The Company shall pay to Executive any unused accrued
vacation due Executive as of the Employment Severance Date.
5. HEALTH INSURANCE. Executive may continue to participate in Mervyn's
medical and dental programs to the extent, if any, permitted by Mervyn's medical
and dental plans. In order to continue such coverage, Executive must maintain
continuous coverage under Mervyn's Plans and pay 102% of the full cost of such
Plans. Executive acknowledges that Mervyn's may modify its premium structure,
the terms of its plans and the coverages of the plans, including the termination
of all or part of a plan. All insurance coverage shall terminate at the earlier
of 18 months from the Employment Severance Date or when the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), permits terminations.
6. LIFE INSURANCE. Executive may take his universal life insurance
policy with him after the Employment Severance Date. In order to continue such
policy, he will be required to make all payments with respect to the policy.
7. PENSION PLAN - SAVINGS PLAN. Executive's rights, if any, under the
Mervyn's Pension Plan and the Dayton Hudson Corporation Supplemental Retirement,
Savings, and Employee Stock Ownership Plan will be determined under the terms of
such plans as amended from time to time.
8. DEFERRED COMPENSATION PLAN. Executive shall be paid his deferred
benefits, if any, under the Dayton Hudson Corporation Deferred Compensation Plan
Senior Management Group and the Dayton Hudson Corporation SMG Executive Deferred
Compensation Plan pursuant to the terms of such plans as amended from time to
time.
3
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9. EXCESS PENSION PLAN. Executive will be paid his benefits, if any,
under the Dayton Hudson Corporation Excess Pension Plan pursuant to the terms of
such plan as amended from time to time.
10. STOCK PLAN. Executive's rights under the Dayton Hudson Corporation
Executive Long Term Incentive Plan of 1981 (the "LTIP") will be determined under
the terms of such plan on the Employment Severance Date. Executive acknowledges
that the extension of option exercise periods under Section 6.1(b)(iii) of the
LTIP, the extension of the performance share earnout period under Section 5.5 of
the LTIP and the proration of restricted stock under Section 7.4 of the LTIP
require the consent of the Compensation Committee of Company's Board of
Directors. Executive further acknowledges that such consent is in the sole
discretion of such Committee. If that consent is given:
(a) Executive's stock options subject to the extension shall continue to vest
and may be exercised for a period of five years from the Employment
Severance Date or ten years and one day after the date of grant of the
option, whichever occurs first;
(b) The period during which Executive's performance shares may be earned shall
continue through the end of each performance period originally established
for such performance shares; and
(c) The shares of Executive's restricted stock to be forfeited upon the
termination of his employment shall be prorated through the Employment
Severance Date.
Provided however, that Executive's stock options, restricted stock and
performance shares may be terminated earlier as provided in paragraph 17 of this
Agreement. The Company will recommend to the Compensation Committee that they
so extend Executive's presently outstanding stock options (but excluding the
stock options granted January 8, 1997) and performance shares and so prorate his
restricted stock.
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11. OTHER BENEFITS. On or before the Termination Date, Executive may
purchase his Company car for a price equal to the value of such car as carried
on the Company's books at the time of such purchase. Except as specifically set
forth herein, Executive shall not be entitled to any other employee benefits,
fringe benefits or other renumeration or compensation.
12. NO-RECRUITING. Executive agrees, unless he has a written agreement
signed by the Chief Personnel Officer of the Company allowing him to recruit
persons named in that agreement, the execution of which agreement shall be in
the sole discretion of the said Chief Personnel Officer, that he will not
recruit for employment, directly or indirectly, any employee of Mervyn's or the
Company or any other subsidiary of the Company, until the later of the dates
upon which Executive has the right to (i) receive payments pursuant to paragraph
3 of this Agreement, or (ii) exercise stock options under the LTIP.
13. CONSULTATION AND COOPERATION. Following the Employment Severance
Date, the Company may request that Executive consult or cooperate with
Company and Mervyn's (including, without limitation, serving as a witness or
testifying on the Company's and Mervyn's behalf without subpoena), and
Executive agrees to be available at mutually agreeable times to perform such
duties and provide such cooperation in connection with various business and
legal matters in which Executive was involved or has knowledge as result of
Executive's employment with Mervyn's.
In so consulting or cooperating, Executive shall be reimbursed his reasonable
out-of-pocket expenses and he shall not be nor represent to anyone that he is an
agent of the Company or Mervyn's, unless expressly authorized in writing to do
so by an authorized officer of the Company or Mervyn's.
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14. DIRECTLY COMPETITIVE EMPLOYMENT. For purposes of Section II.G of the
ICP, "Directly Competitive Employment" shall be employment with Kmart, Kohl's or
Shopko, or any parent, subsidiary, division or affiliate of any such company.
15. CONFIDENTIALITY. Executive understands and agrees that the
existence and terms of this Agreement are confidential and are not to be
disclosed by Executive to anyone other than Executive's spouse, attorney,
financial advisor, tax advisor (each of whom must agree to keep it confidential)
or pursuant to legal process.
Executive represents and warrants that prior to signing this Agreement
he has not disclosed the terms of this Agreement or any information regarding
the negotiations or discussions regarding this Agreement to anyone other than
his spouse, attorney, financial advisor and tax advisor (each of whom has
agreed to keep such information confidential).
Executive recognizes and acknowledges that confidential information of
various kinds; including, but not limited to the Company's and Mervyn's (i)
employee and personnel data and information, (ii) present, past and future
strategies, plans, and proposals (including, but not limited to, the Company's
and Mervyn's customer, merchandising, marketing and store operation strategies),
(iii) financial information, and (iv) present, past and future personnel and
labor relations strategies, plans, practices, policies, training programs and
goals, are valuable, special and unique assets of the Company and Mervyn's.
Executive will not, during or after Executive's employment with Mervyn's,
disclose or use, or cause or permit to be disclosed or used, any such
information, to or by any person, firm, corporation, association or other entity
for any reason or purpose other than for the sole benefit of Company.
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Executive represents that he has not removed and will not remove any
of the Company's or Mervyn's property from the Company's or Mervyn's premises.
This includes but is not limited to business records, manuals, customer lists
and records, business forms, personnel lists, information, plans, training
material, and records, information regarding suppliers and vendors, marketing
and strategy plans, contracts, contract information, correspondence, computer
tapes and diskettes, data processing and other computer reports, and business
files.
16. DETRIMENTAL CONDUCT. Executive agrees that he will not directly or
indirectly in any manner by word or action defame or slander Mervyn's, the
Company or any other subsidiary or division of the Company, or state or utter an
untruth or misstatement of fact that materially affects any of or its or their
reputations.
17. TERMINATION OF PAYMENTS AND BENEFITS. In addition to other remedies
available to the Company and Mervyn's in the event Executive breaches any of his
obligations under this Agreement, (i) the Company shall be relieved of all
liability and obligation to make any payments under this Agreement, (ii) all of
Executive's stock options, performance shares and restricted stock shall
terminate immediately and (iii) the Company may demand the return of any
payments theretofore paid to Executive under paragraph 3. Even if payments and
benefits are terminated pursuant to this paragraph, Executive's obligation under
paragraphs 12, 13, 14, 15 and 16 hereof, and the release set forth in paragraph
18 hereof shall remain in full force and effect.
18. RELEASE.
A. DEFINITIONS. All words used in this Release are intended to have
their plain meanings in ordinary English. Specific terms in this Release have
the following meanings:
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1) "Executive" includes both Executive and anyone who has or
obtains any legal rights or claims through Executive.
2) "Company" means Dayton Hudson Corporation and Mervyn's and
any company related to the Company or Mervyn's in the present or past, any
company providing insurance to the Company or Mervyn's in the present or past,
any present or past employee benefit plan sponsored by the Company or Mervyn's,
the Company's or Mervyn's present or past officers, directors, employees and
agents and any person who acted on behalf of the Company or Mervyn's or on
instructions from the Company or Mervyn's.
3) "Executive Claims" means all of the rights Executive has now
to any relief of any kind from the Company and/or Mervyn's, whether or not
Executive knows about the rights or claims, including without limitation:
a. All claims Executive has now arising out of his
employment with Mervyn's and/or the Company and his employment termination
including, but not limited to, claims for breach of contract; claims for unpaid
compensation or benefits; breach of the covenant of good faith and fair dealing;
promissory or equitable estoppel; breach of fiduciary duty; violation of the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
Civil Rights Act of 1991, Section 1981 of the Civil Rights Act of 1866, the
Equal Pay Act of 1963, Americans with Disabilities Act, The California Fair
Employment and Housing Act and other federal, state, and local civil rights or
discrimination laws; violation of the Employee Retirement Income Security Act of
1974; violation of the National Labor Relations Act; harassment; retaliation or
reprisal; constructive discharge; invasion of privacy; violation of public
policy; Executive's conduct as a "whistleblower"; fraud or misrepresentation;
defamation; intentional or
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negligent infliction of emotional distress; negligence; interference with
contractual or business relationships; interference with prospective economic
advantage; wrongful termination of employment; assault; battery; and any other
claims for unlawful employment practices, including all claims or causes of
action in tort or contract;(1) and
b. All claims for attorneys' fees and costs and other
litigation expenses.
B. AGREEMENT TO RELEASE EMPLOYEE CLAIMS. In consideration of the
Company and Mervyn's having entered into this Agreement, Executive agrees to
give up all Executive Claims against the Company and/or Mervyn's as described
above. Executive will not bring any lawsuits or make any other demands against
the Company and/or Mervyn's based on Executive Claims. The consideration
represented by this Agreement is a full and fair payment to Executive for the
release of Executive Claims. Neither the Company nor Mervyn's owe Executive
anything in addition to what Executive is entitled to pursuant to the Agreement.
This release shall be a release of all claims, whether known or unknown,
and the parties hereby specifically waive and release all rights reserved to
them by Section 1542 of the Civil Code of the State of California, which
provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH A
DEBTOR."
_________________________
(1) Any references to government statutes include any amendments to such
statutes.
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C. ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though the
Company and Mervyn's have agreed to the terms and conditions of this Agreement
to obtain Executive's release of Executive Claims against them, neither the
Company nor Mervyn's admits that it may be responsible or legally obligated to
Executive. In fact, the Company and Mervyn's deny that either is responsible
or legally obligated for Executive Claims or that either has engaged in any
wrongdoing.
19. LOAN REPAYMENT. Executive acknowledges his obligation to pay the
Company $500,000 (the "Loan") pursuant to the terms of that certain Promissory
Note Secured by Deed of Trust, dated July 14, 1993, a copy of which is attached
hereto as Exhibit A (the "Note"). Executive further acknowledges that the Loan
will become due and payable on the Employment Severance Date, pursuant to
paragraph 5(b) of the Note. Accordingly, Executive shall repay the Loan in full
on or before the Employment Severance Date; provided however, that Executive
shall have the option of repaying the Loan by instructing the Company to reduce
the final 40 payments contemplated by paragraph 3 hereof by $12,500 (after tax)
each. To exercise that option, Executive must give the Company notice in
writing no later that July 15, 1997. Executive agrees that in the event he
breaches any of his obligations under this Agreement, such event will be deemed
a default under paragraph 6 of the Note and, without in any way limiting other
remedies of the Company, the Company may declare the entire $500,000 principal
amount of the Loan immediately due and payable. Executive acknowledges and
agrees that under those circumstances none of the amounts deducted from his
payments pursuant to paragraph 3 hereof shall be credited toward his obligation
to repay the Loan.
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20. MISCELLANEOUS. This Agreement shall be binding upon the Company and
Mervyn's and its successors and assigns and the Executive, his heirs, executors,
successors and assigns. This Agreement embodies the entire Agreement and
understandings between the Company and Mervyn's on one hand and Executive on the
other, and supersedes all prior agreements and understandings (oral or written)
among them relating to the subject matter hereof. The terms of this Agreement
may only be modified by an agreement in writing signed by Executive and
authorized officers of the Company and Mervyn's respectively.
21. MINNESOTA LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Minnesota, without giving
effect to conflict of laws principles.
22. SEVERABILITY. Invalidation of any provisions contained in this
Agreement, or of the application thereof to any party, by judgement or court
order shall in no way affect any of the other provisions hereof or the
application thereof to any other party or circumstance and the same shall remain
in full force and effect, unless enforcement of this Agreement as so invalidated
would be unreasonable or grossly inequitable under all the circumstances or
would frustrate the purposes of this Agreement.
PLEASE READ CAREFULLY BEFORE SIGNING
* Executive acknowledges that he has carefully read and understands the
terms of this Agreement and that he has been given at least 14 days to consider
whether to sign this Agreement. Executive acknowledges that if he signs this
Agreement before the end of the 14 day period, it will be Executive's personal,
voluntary decision to do so.
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* Executive acknowledges that he has been advised and encouraged to
consult with an attorney prior to signing this Agreement.
* In agreeing to sign this Agreement, Executive acknowledges that he has
not relied on any statements or explanations made by Company or its attorneys.
* Executive understands that if he revokes this Release he will not
receive any payments or benefits set forth in paragraphs 3 and 10.
IN WITNESS WHEREOF the parties have hereto executed this Agreement.
DAYTON HUDSON CORPORATION
Date: March 12, 1997 By: /s/Larry V. Gilpin
---------------------------
Title: Executive Vice President
---------------------------
MERVYN'S
Date: March 27, 1997 By: /s/D.R. Caspersen
---------------------------
Title Senior Vice President
Team & Community Relations
---------------------------
Date: March 27, 1997 /s/Paul W. Sauser
---------------------------
PAUL W. SAUSER
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EXHIBIT A
PROMISSORY NOTE SECURED BY DEED OF TRUST
US $500,000 Danville, California
July 14, 1993
RECITALS
A. Paul W. Sauser (hereinafter sometimes referred to as "Employee" and
sometimes referred to collectively with Mary Ruth Sauser, his wife, as "the
undersigned") is an employee of Mervyn's, a subsidiary of Dayton Hudson
Corporation, a Minnesota corporation ("the Company").
B. Based on the substantial services to be rendered to and for Mervyn's
by Employee, the Company has agreed to provide the undersigned a loan in order
to assist the undersigned in purchasing a new principal residence in California.
C. The undersigned have agreed to evidence the loan extended by execution
of this note ("Note") and the Deed of Trust of even date herewith (the "Deed of
Trust"), by which this Note is secured.
NOW THEREFORE, FOR VALUE RECEIVED the undersigned promise to pay to the
order of the Company at 777 Nicollet Mall, Minneapolis, MN 55402, Attn:
Controller (or such place as the holder hereof may from time to time designate
in writing to the undersigned) the principal sum of Five Hundred Thousand United
States Dollars (US $500,000) without interest as follows:
1. PRINCIPAL PAYMENTS. The entire unpaid principal balance of this Note,
together with all accrued and unpaid interest thereon, if any, and any and all
other sums payable pursuant to this Note or pursuant to the Deed of Trust (as
hereinafter defined) shall be due and payable on the fifteenth (15th)
anniversary date of this Note in the year 2008. Said date is the "Maturity
Date" herein, except that if the unpaid principal balance of this Note should
become due and payable at an earlier date under paragraph 5 or paragraph 6,
below, then such earlier date shall be the "Maturity Date" herein.
2. INTEREST PAYMENTS; LATE CHARGE. The parties have discussed the
issues raised by the imputed interest rules under the Internal Revenue Code
and regulations promulgated thereunder and notwithstanding such Code and
regulations have agreed that no interest shall accrue under this Note unless
the principal amount, or any portion thereof, is not paid when due. In the
event that any amount of the principal of this note is not paid on or before
the Maturity Date, (1) interest on such unpaid amount shall accrue from the
Maturity Date at the highest rate permissible by law until such delinquent
amount is paid in full, such interest being payable
1.
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immediately upon demand by the holder hereof, and (2) a late charge equal to
five per cent (5%) of the delinquent amount shall be due immediately upon demand
by holder.
3. PROCEEDS. The undersigned warrants that the undersigned will use the
principal amount of this Note to purchase a new principal residence in
California and for no other purpose.
4. SECURITY. This Note is secured by the Deed of Trust of even date
herewith between the undersigned, as Trustor, Chicago Title Company, as Trustee,
and the Company, as Beneficiary, covering that certain real property (the "Real
Property") located at 2139 Las Trampas Road, City of Alamo, State of California,
and more particularly described in the Deed of Trust.
5. ACCELERATION. Acceleration under this Note shall occur at the time
and in the circumstances provided, below:
(a) Upon any sale, conveyance, alienation, hypothecation or other
transfer or encumbrance of the Real Property or any interest therein, or the
cessation of either of the undersigned's occupation of the residence located
thereon as a principal residence, whether voluntary or involuntary, the entire
unpaid balance of principal and all accrued interest, if any, shall become
immediately due and payable.
(b) The date upon which Employee ceases to be a full-time employee of
Mervyn's, whether such cessation of employment is initiated by Employee or
Mervyn's, with or without cause, or results from the death of Employee, the
entire unpaid balance of principal and all accrued interest, if any, shall
become immediately due and payable.
6. DEFAULT. The undersigned shall be in default hereunder upon the
occurrence of any of the following events:
(a) Any failure of the undersigned to make any payment required under
this Note, at the time and in the manner provided herein; or
(b) Any failure of the undersigned to perform any other obligation
under this Note or any of the undersigned's obligations under the Deed of Trust.
In the event of default, and without in any way limiting any other remedies
of the holder hereof, the holder may declare the entire unpaid principal and all
accrued interest, if any, immediately due and payable.
7. PREPAYMENT. The undersigned may prepay all or any part of this Note
at any time without penalty.
8. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Note or in the Deed
of Trust that secures this Note shall be construed to confer upon the Employee
any right to
2.
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continued employment with Mervyn's, the Company, or any other affiliate of the
Company. Without limiting the generality of the foregoing, the undersigned
expressly acknowledges the undersigned's understanding and agreement that,
pursuant to paragraph 5(a) of this Note, a cessation of the Employee's
employment will result in an earlier time at which this Note must be paid in
full.
9. COSTS OF COLLECTION. The undersigned agrees to pay all costs of
collection of this Note and the Deed of Trust, including attorneys' fees and
costs.
10. GOVERNING LAW. This Note shall be governed by the laws of the State of
California as such laws are applied to contracts between California residents
entered into and to be performed entirely within said state.
11. JOINT AND SEVERAL OBLIGATIONS. The obligations of the undersigned
under this Note shall be the joint and several obligations of each of the
undersigned.
12. ASSIGNMENT. Each and all provisions of this Note shall inure to the
benefit of the Company, its successors and assigns.
13. NOTICES. Any notice or other communication under this Note shall be
in writing, signed by or on behalf of the person giving the notice, and shall be
personally delivered or mailed by prepaid certified or registered mail, return
receipt requested, to the person or persons to whom such notice is to be given,
addressed to such person as follows:
If to the Company: Dayton Hudson Corporation
777 Nicollet Mall
Minneapolis, MN 55402
Attn: Controller
If to the
undersigned: at the address of the Real Property
In the case of notices personally delivered, such notice shall be deemed to
have been effectively given upon the earlier of actual delivery or when delivery
has been attempted but cannot be completed. In the case of notices mailed, such
notices shall be deemed to have been effectively given upon the earlier to occur
of receipt by the addressee or on the third (3rd) business day following the
date of mailing. Either party may at any time change its address for notices
(and any holder may change the name of the holder) by giving the other party
written
3.
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notice of such change in accordance with the provisions of this paragraph 13.
IN WITNESS WHEREOF, the undersigned have executed this Note as of the date
first written above.
/s/Paul W. Sauser
---------------------------------
Paul W. Sauser
/s/Mary Ruth Sauser
---------------------------------
Mary Ruth Sauser
[SEAL]
/s/Mona A. Johnson
4.
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DAYTON HUDSON CORPORATION
DIRECTOR STOCK OPTION PLAN OF 1995
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1997)
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 The name of this plan shall be "The Dayton Hudson Corporation Director
Stock Option Plan of 1995" (hereinafter called the "Plan").
1.2 The purpose of the Plan is to advance the interim performance and
long-term growth of the Company by offering long-term incentives, in addition to
current compensation and other benefits, to outside directors of the Company.
ARTICLE II
DEFINITIONS
2.1 AWARD. An "Award" is used at times in the Plan to refer to the act of
granting a Stock Option under the Plan.
2.2 BOARD. "Board" is the Board of Directors of the Company.
2.3 CODE. "Code" is the Internal Revenue Code of 1986, as amended, as now
in force or as hereafter amended.
2.4 COMPANY. "Company" is Dayton Hudson Corporation, a Minnesota
corporation, and any successor thereof.
2.5 DATE OF GRANT. "Date of Grant" in 1995 shall be the date of the
Company's Annual Shareholder's meeting. Each year thereafter, Date of Grant
shall be the second Wednesday in the month of April.
2.6 FAIR MARKET VALUE. "Fair Market Value" of a share of Company common
stock on any date is 100% of the mean between the high and low prices for such
stock as reported for such stock on the New York Stock Exchange Composite
Transactions Listing ("Composite Listing") on such date, or in the absence of
such report 100% of the mean between the high and low prices of such stock on
the New York Stock Exchange on such date or, if no sale has been recorded on the
Composite Listing or made on such Exchange on such date, then on the last
preceding date on which any such sale shall have been made in the order of
primacy above indicated.
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2.7 PARTICIPANT. A "Participant" is a member of the Board who is not an
employee of Company or any of its Subsidiaries.
2.8 PLAN COMMITTEE. The "Plan Committee" is the Committee referenced in
Article VI hereof.
2.9 PLAN YEAR. The "Plan Year" shall be a fiscal year of the Company
falling within the term of this Plan except for the first year of the Plan, for
which the Plan Year shall commence as of the effective date of the Plan and
terminate as of February 3, 1996.
2.10 RELEVANT CHANGE ADJUSTMENTS. Appropriate adjustments in the number
of shares and in the Stock Option price per share designated in Section 2.11 of
this Article II, may be made by the Plan Committee, in its discretion except as
provided in Section 7.6 hereof, to give effect to adjustments made in the number
of shares of Company common stock through a merger, consolidation,
recapitalization, reclassification, combination, spin-off, common stock
dividend, stock split, or other relevant change.
2.11 STOCK OPTION. A "Stock Option" is a right accruing in a Participant
to purchase from the Company one share of the Company's $.3333 par value common
stock at the Fair Market Value of such share of common stock on the Date of
Grant of the Stock Option, and containing the terms and conditions set forth or
allowed under Article VI hereof. Such Stock Option shall be a Non-Qualified
Stock Options that are not intended to qualify under Section 422 of the Code.
2.12 SUBSIDIARY CORPORATION. For purposes of this Plan, the term
"Subsidiary" or "Subsidiary Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, in
which each of the corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain as
determined at the point in time when reference is made to such "Subsidiary" or
"Subsidiary Corporation" in this Plan.
2.13 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(a) a majority of the directors of the Company shall be persons other than
persons
(i) for whose election proxies shall have been solicited by the
Board or
(ii) who are then serving as directors appointed by the Board to
fill vacancies on the Board caused by death or resignation
(but not by removal) or to fill newly-created directorships,
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(b) 30% or more of the outstanding Voting Stock (as defined in Article IV
of the Restated Articles of Incorporation, as amended, of the Company)
of the Company is acquired or beneficially owned (as defined in
Article IV of the Restated Articles of Incorporation, as amended, of
the Company) by any person (as defined in Article IV of the Restated
Articles of Incorporation, as amended, of the Company), or
(c) the shareholders of the Company approve a definitive agreement or plan
to
(i) merge or consolidate the Company with or into another
corporation (other than (1) a merger or consolidation with a
Subsidiary of the Company or (2) a merger in which the
Company is the surviving corporation and either (A) no
outstanding Voting Stock of the Company (other than
fractional shares) held by shareholders immediately prior to
the merger is converted into cash (except cash upon the
exercise by holders of Voting Stock of the Company of
statutory dissenters' rights), securities, or other property
or (B) all holders of outstanding Voting Stock of the
Company (other than fractional shares) immediately prior to
the merger (except those that exercise statutory dissenters'
rights) have substantially the same proportionate ownership
of the Voting Stock of the Company or its parent corporation
immediately after the merger),
(ii) exchange, pursuant to a statutory exchange of shares of
Voting Stock of the Company held by shareholders of the
Company immediately prior to the exchange, shares of one or
more classes or series of Voting Stock of the Company for
shares of another corporation or other securities, cash or
other property,
(iii) sell or otherwise dispose of all or substantially all of the
assets of the Company (in one transaction or a series of
transactions) or
(iv) liquidate or dissolve the Company.
ARTICLE III
GRANTING OF STOCK OPTIONS
3.1 AUTOMATIC GRANT OF STOCK OPTIONS. Each year on the Date of Grant each
Participant shall, without any Plan Committee action, automatically be granted
Stock Options, the number of which will be determined by dividing $100,000 by
the Fair Market Value on the Date of Grant.
3.2 NOTIFICATION TO PARTICIPANTS AND DELIVERY OF DOCUMENTS. As soon as
practicable after the Award, the Participant shall receive a Stock Option
exercisable for purchase of one share of the Company's $.3333 par value common
stock for each Stock Option granted to the Participant
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pursuant to this Plan or indicating the aggregate of such grant, which Stock
Option shall be in conformity with the provisions of Article IV hereof.
ARTICLE IV
STOCK OPTIONS
4.1 STOCK OPTION. The Stock Option shall be evidenced by Stock Option
agreements in such form and not inconsistent with the Plan as the Plan Committee
shall in its sole discretion approve from time to time, which agreements shall
specify the number of shares to which they pertain and the purchase price of
such shares and shall, but without limitation, contain in substance the
following terms and conditions:
(a) OPTION PERIOD. Each Stock Option granted shall expire and all rights
to purchase shares thereunder shall cease ten years and one day after
the Date of Grant of the Stock Option or on such date prior thereto as
may be fixed by the Plan Committee, or on such date prior thereto as
is provided by this Plan in the event of reorganization pursuant to
Section 7.6(b) hereof. No Stock Option shall permit the purchase of
any shares thereunder during the first year after the Date of Grant of
such Stock Option, except as provided in Section 4.2 hereof.
(b) TRANSFERABILITY AND TERMINATION OF OPTIONS. During the lifetime of an
individual to whom a Stock Option is granted, the Stock Option may be
exercised only by such individual and shall terminate at the earlier
of i) five years after the date the Participant ceased to be a
director of Company or, ii) ten years and one day after the Date of
Grant of the Stock Option. Rights of a Participant may, upon the
death of a Participant, be exercised or perfected by his/her duly
designated beneficiary or otherwise by his/her applicable legal
representatives, heirs or legatees to the extent vested in and
unexercised or perfected by the Participant at the date of his/her
death. Provided however, that if a Participant dies, the Stock Option
must be exercised within five years after the date of death or the
life of the Stock Option, whichever is less, but in no event less than
one year after the date of death.
No Stock Option shall be assignable or transferable by the individual
to whom it is granted, except that it may be transferable by will or
the laws of descent and distribution in accordance with the provisions
of the Plan. A Stock Option, if so transferable, may be exercised
after the death of the individual to whom it is granted only by such
individual's beneficiary designated to exercise the Stock Option or
otherwise by his/her applicable legal representatives, heirs or
legatees, and only within the specific time period set forth above.
In no event whether by the Participant directly or by his/her
beneficiary or other representative shall any Stock Option be
exercisable at any time after its expiration
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<PAGE>
date as stated in the Stock Option agreement. When a Stock Option is
no longer exercisable it shall be deemed for all purposes and without
further act to have lapsed and terminated.
(c) EXERCISE OF OPTIONS. An individual entitled to exercise a Stock
Option may, subject to its terms and conditions and the terms and
conditions of the Plan, exercise it in whole at any time, or in part
from time to time, by delivery to the Company at its principal office
of written notice of exercise, specifying the number of whole shares
with respect to which the Stock Option is being exercised. Before
shares may be issued payment must be made in full, in legal United
States tender, in the amount of the purchase price of the shares to be
purchased at the time and any amounts for withholding, if any, as
provided in Section 7.7 hereof; provided, however, in lieu of paying
for the exercise price in cash as described above, the individual may
pay all or part of such exercise price by delivering owned and
unencumbered shares of the Company common stock having a Fair Market
Value on the date of exercise of the Stock Option equal to or less
than the exercise price of the Stock Options exercised, with cash, as
set forth above, for the remainder, if any, of the purchase price.
4.2 CHANGE IN CONTROL. In the event of a Change in Control, all
outstanding Stock Options granted under the Plan shall accelerate and will be
exercisable in full for a period of two hundred ten (210) days after the Change
in Control; provided that no Stock Option shall be exercisable by a Participant
after the termination date of the Stock Option.
ARTICLE V
SHARES OF STOCK SUBJECT TO THE PLAN
5.1 The total number of shares that may be available for issuance under
all Stock Options granted pursuant to the Plan shall not exceed in the aggregate
300,000 shares (which reflects the three-for-one split on July 17, 1996 of the
100,000 shares initially reserved) of the Company's $.3333 par value common
stock. Stock Options which are forfeited for any reason or are not distributed
or are covered by Stock Options that lapse or are canceled before exercise,
shall (unless the Plan shall have been terminated) again be available in the
same relative amounts for other Stock Option grants under the Plan.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1 The Plan will be administered by a committee of two or more members of
the Board appointed from time to time by the Board. Each member of the
committee shall be a "non-employee director" as that term is defined under Rule
16b-3, promulgated under the Securities Exchange Act of 1934, as amended, or any
successor statute or regulation comprehending the same subject matter.
5
<PAGE>
6.2 The Plan Committee shall have and exercise all of the powers and
responsibilities granted expressly or by implication to it by the provisions of
the Plan. Subject to and as limited by such provisions, the Plan Committee may
from time to time enact, amend and rescind such rules, regulations and
procedures with respect to the administration of the Plan as it deems
appropriate or convenient. Notwithstanding any contrary provisions of this
Plan, the Plan Committee shall have no discretion with respect to the granting
of Stock Options to any Participant or to alter or amend any terms, conditions
and eligibility requirements of a Stock Option granted or to be granted to any
Participant under this Plan, it being understood that the granting and terms,
conditions and eligibility requirements of such Stock Options are governed
solely by the provisions set forth in this Plan pertaining thereto.
6.3 All questions arising under the Plan or any Stock Option agreement, or
any rule, regulation or procedure adopted by the Plan Committee shall be
determined by the Plan Committee, and its determination thereof shall be
conclusive and binding upon all parties.
6.4 Any action required or permitted to be taken by the Plan Committee
under the Plan shall require the affirmative vote of a majority of a quorum of
the members of the Plan Committee. A majority of all members of the Plan
Committee shall constitute a "quorum" for Plan Committee business. The Plan
Committee may act by written determination instead of by affirmative vote at a
meeting, provided that any written determination shall be signed by all members
of the Plan Committee, and any such written determination shall be as fully
effective as a majority vote of a quorum at a meeting.
ARTICLE VII
GENERAL PROVISIONS
7.1 AMENDMENT OR TERMINATION. The Board may at any time amend, suspend,
discontinue or terminate the Plan; provided, however, that no amendment by the
Board shall, without further approval of the shareholders of the Company:
(a) except as provided at Section 2.10 hereof increase the total number of
shares of Company common stock which may be made subject to the Plan;
or
(b) except as provided at Section 2.10 hereof change the purchase price of
Company common stock under the Plan; or
(c) change the Date of Grant; or
(d) change the calculation used to determine the number of Stock Options
granted on the Date of Grant.
6
<PAGE>
No action taken pursuant to this Section 7.1 of the Plan shall, without the
consent of a Participant, alter or impair any Stock Options which have been
previously granted to a Participant. Provisions relating to Stock Options may
not be amended more often than once every six months other than to comport with
changes in the Code or the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder
7.2 NON-ALIENATION OF RIGHTS AND BENEFITS. Except as expressly provided
herein, no right or benefit under the Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge and any attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities or torts of the person entitled to
such right or benefit. If any Participant or beneficiary hereunder should
become bankrupt or attempt to anticipate, alienate, sell, assign, pledge,
encumber or charge any right or benefit hereunder, then such right or benefit
shall, in the sole discretion of the Plan Committee, cease and in such event the
Company may hold or apply the same or any or no part thereof for the benefit of
the Participant or beneficiary, his/her spouse, children or other dependents or
any of them in any such manner and in such proportion as the Plan Committee in
its sole discretion may deem proper.
7.3 NO RIGHTS AS SHAREHOLDER. The granting of Stock Option(s) under the
Plan shall not entitle a Participant or any other person succeeding to his/her
rights, to any dividend, voting or other right as a shareholder of the Company
unless and until the issuance of a stock certificate to the Participant or such
other person pursuant to the provisions of the Plan and then only subsequent to
the date of issuance thereof.
7.4 GOVERNMENT REGULATIONS. Notwithstanding any other provisions of the
Plan seemingly to the contrary, the obligation of the Company with respect to
Stock Options granted under the Plan shall at all times be subject to any and
all applicable laws, rules, and regulations and such approvals by any government
agencies as may be required or deemed by the Board or Plan Committee as
reasonably necessary or appropriate for the protection of the Company.
In connection with any sale, issuance or transfer hereunder, the
Participant acquiring the shares shall, if requested by the Company give
assurances satisfactory to counsel of the Company that the shares are being
acquired for investment and not with a view to resale or distribution thereof
and assurances in respect of such other matters as the Company may deem
desirable to assure compliance with all applicable legal requirements.
7.5 EFFECTIVE DATE. Subject to the approval of this Plan by the holders
of a majority of the voting power of the shares present and entitled to vote at
the Company's Annual Meeting of Shareholders to be held May 24, 1995 and any
necessary approval being obtained from any department, board or agency of the
United States or states having jurisdiction, the Plan shall be effective as of
May 24, 1995.
7
<PAGE>
7.6 REORGANIZATION. In case the Company is merged or consolidated with
another corporation, or in case the property or stock of the Company is acquired
by another corporation, or in case of a separation, reorganization or
liquidation of the Company, the Plan Committee or a comparable committee of any
corporation assuming the obligations of the Company hereunder, shall either:
(a) make appropriate provision for the protection of any outstanding Stock
Options granted thereunder by the substitution on an equitable basis
of appropriate stock of the Company, or of the merged, consolidated or
otherwise reorganized corporation which will be issuable in respect to
the shares of the Company's $.3333 par value common stock.
(b) upon written notice to the Participant, provide that all outstanding
Stock Options shall accelerate and become exercisable in full but that
all outstanding Stock Options, whether or not exercisable prior to
such acceleration, must be exercised within not less than sixty days
of the date of such notice or they will be terminated. In any such
case the Plan Committee may, in its discretion, extend the sixty
day-exercise period.
7.7 WITHHOLDING TAXES, ETC. All distributions under the Plan shall be
subject to any required withholding taxes and other withholdings and, in case of
distributions in Company common stock, the Participant or other recipient may,
as a condition precedent to the delivery of the common stock, be required to pay
to the Company the excess, if any, of the amount of required withholding over
the withholdings, if any, from any distributions in cash under the Plan. No
distribution under the Plan shall be made in fractional shares of the Company's
common stock, but the proportional market value thereof shall be paid in cash.
7.8 GENERAL RESTRICTION. Each Stock Option shall be subject to the
requirement that, if at any time the Board shall determine, in its discretion,
that the listing, registration or qualification of the shares subject to such
Stock Option upon any securities exchange or under any state or Federal Law, or
the consent or approval of any government regulatory body, is necessary or
desirable as a condition of, or in connection with the granting of such Stock
Option or the issue or purchase of shares thereunder, such Stock Option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board.
7.9 USE OF PROCEEDS. The proceeds derived from the sale of the stock
pursuant to Stock Options granted under the Plan shall constitute general funds
of the Company.
7.10 HEADINGS. The headings of the Articles and their subparts in this
Plan are for convenience of reading only and are not meant to be of substantive
significance and shall not add to or detract from the meaning of such Article or
subpart to which it refers.
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT (11)
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF PER SHARE EARNINGS
(In Millions, Except Per Share Data)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
-------------------------------------- --------------------------------------
MAY 3, 1997 May 4, 1996 MAY 3, 1997 May 4, 1996
------------------ ------------------ ------------------ ------------------
EARNINGS SHARES Earnings Shares EARNINGS SHARES Earnings Shares
-------- ------ -------- ------ -------- ------ -------- ------
Primary Computations
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings before extraordinary charge........ $ 126 $ 42 $ 557 $ 342
Extraordinary charge, net of tax............ (21) (1) (31) (1)
-------- -------- -------- --------
Net earnings................................ $ 105 $ 41 $ 526 $ 341
-------- -------- -------- --------
-------- -------- -------- --------
Less: Dividend requirements on ESOP
preferred shares, net of tax benefit on
unallocated shares......................... (5) (5) (20) (20)
-------- -------- -------- --------
Adjusted net earnings....................... $ 100 $ 36 $ 506 $ 321
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding 217.4 216.1 217.0 215.7
Average number of common share equivalents:
Stock options.............................. 1.7 0.8 1.4 0.5
Performance shares......................... 0.7 0.9 0.8 1.0
------ ------ ------ ------
Adjusted common equivalent shares
outstanding-primary........................ 219.8 217.8 219.2 217.2
------ ------ ------ ------
------ ------ ------ ------
Primary earnings per share before
extraordinary charge....................... $ 0.55 $0.17 $ 2.45 $ 1.48
Extraordinary charge........................ (0.10) - (0.14) -
-------- -------- -------- --------
PRIMARY EARNINGS PER SHARE $ 0.45 $ 0.17 $ 2.31 $ 1.48
-------- -------- -------- --------
-------- -------- -------- --------
Fully Diluted Computations
- --------------------------
Earnings before extraordinary charge........ $ 126 $ 42 $ 557 $ 342
Extraordinary charge, net of tax............ (21) (1) (31) (1)
-------- -------- -------- --------
Net earnings................................ $ 105 $ 41 $ 526 $ 341
-------- -------- -------- --------
-------- -------- -------- --------
Less: Earnings impact of assumed ESOP
preferred share conversion, net of tax
benefit on unallocated shares.............. (3) (3) (13) (14)
-------- -------- -------- --------
Adjusted net earnings....................... $ 102 $ 38 $ 513 $ 327
-------- -------- -------- --------
-------- -------- -------- --------
Average common and common equivalent
shares-primary............................. 219.8 217.8 219.2 217.2
Additional common share equivalents
attributable to applications of the
treasury stock method...................... 0.5 0.5 0.1 0.2
Assumed conversion of ESOP preferred
shares..................................... 11.4 12.0 11.6 12.2
------ ------ ------ ------
Adjusted common equivalent shares
outstanding-fully diluted.................. 231.7 230.3 230.9 229.6
------ ------ ------ ------
------ ------ ------ ------
Fully diluted earnings per share before
extraordinary charge....................... $ 0.53 $ 0.16 $ 2.35 $ 1.42
Extraordinary charge........................ (0.09) - (0.13) -
-------- -------- -------- --------
FULLY DILUTED EARNINGS PER SHARE $ 0.44 $ 0.16 $ 2.22 $ 1.42
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT (12)
DAYTON HUDSON CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES AND
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS FOR THE
THREE MONTHS ENDED MAY 3, 1997 AND MAY 4, 1996
AND FOR THE FIVE YEARS ENDED FEBRUARY 1, 1997
(MILLIONS OF DOLLARS)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
------------------ -----------------------------------------------
MAY 3, May 4, FEB. 1, Feb 3, Jan. 28, Jan. 29, Jan. 30,
1997 1996 1997 1996 1995 1994 1993
------- ------ ------- ------ ------ ------ ------
RATIO OF EARNINGS TO FIXED CHARGES:
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Consolidated net earnings before extraordinary
charge........................................ $ 126 $ 42 $ 474 $ 311 $ 434 $ 375 $ 383
Income taxes.................................... 82 28 309 190 280 232 228
------ ------ ------ ------ ------ ------ ------
Total earnings before extraordinary charge.... 208 70 783 501 714 607 611
------ ------ ------ ------ ------ ------ ------
Fixed charges:
Interest expense............................... 112 115 464 461 439 459 454
Interest portion of rental expense............. 14 15 59 59 56 45 43
------ ------ ------ ------ ------ ------ ------
Total fixed charges.......................... 126 130 523 520 495 504 497
------ ------ ------ ------ ------ ------ ------
Less:
Capitalized interest........................... (4) (5) (16) (14) (7) (5) (6)
------ ------ ------ ------ ------ ------ ------
Fixed charges in earnings.................... 122 125 507 506 488 499 491
------ ------ ------ ------ ------ ------ ------
Earnings available for fixed charges............ $ 330 $ 195 $1,290 $1,007 $1,202 $1,106 $1,102
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Ratio of earnings before extraordinary charge
to fixed charges.............................. 2.62 1.49 2.46 1.94 2.43 2.19 2.22
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS:
Total fixed charges, as above................... $ 126 $ 130 $ 523 $ 520 $ 495 $ 504 $ 497
Dividends on preferred stock
(pre-tax basis)................................. 9 8 37 37 39 39 39
------ ------ ------ ------ ------ ------ ------
Total fixed charges and preferred
stock dividends.............................. 135 138 560 557 534 543 536
------ ------ ------ ------ ------ ------ ------
Earnings available for fixed charges
and preferred stock dividends.................. $ 330 $ 195 $1,290 $1,007 $1,202 $1,106 $1,102
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Ratio of earnings before extraordinary charge to
fixed charges and preferred stock dividends.. 2.45 1.41 2.30 1.81 2.25 2.04 2.06
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAYTON
HUDSON CORPORATION'S FORM 10Q FOR THE FIRST QUARTER ENDED MAY 3, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 1,678
<ALLOWANCES> 131
<INVENTORY> 3,330
<CURRENT-ASSETS> 5,525
<PP&E> 10,593
<DEPRECIATION> 3,042
<TOTAL-ASSETS> 13,567
<CURRENT-LIABILITIES> 4,023
<BONDS> 5,000
44
0
<COMMON> 73
<OTHER-SE> 3,804
<TOTAL-LIABILITY-AND-EQUITY> 13,567
<SALES> 5,889
<TOTAL-REVENUES> 5,889
<CGS> 4,253
<TOTAL-COSTS> 4,253
<OTHER-EXPENSES> 1,285
<LOSS-PROVISION> 36
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> 208
<INCOME-TAX> 82
<INCOME-CONTINUING> 126
<DISCONTINUED> 0
<EXTRAORDINARY> 21
<CHANGES> 0
<NET-INCOME> 105
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
</TABLE>
