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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended March 27, 1999.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________.
Commission File Number: 33-41791
SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-0593940
(State or Other Jurisdiction) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
850 76TH STREET, S.W.
P.O. BOX 8700
GRAND RAPIDS, MICHIGAN 49518
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (616) 878-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] (Not Applicable)
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of May 22, 1999, was $103,437,521.
The number of shares of the registrant's Class A Common Stock, $2 par
value, outstanding at May 22, 1999, was 10,266,874 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Spartan Stores, Inc., and its subsidiaries, distribute grocery
and related products to retail stores located in Michigan, Illinois,
Indiana, Kentucky, Ohio, Pennsylvania, Tennessee, Georgia, and West
Virginia. As used in this Report on Form 10-K, the term "Spartan" refers
to Spartan Stores, Inc., without its subsidiaries, and the term "Company"
refers to Spartan and its subsidiaries. The owners or operators of the
retail stores served by the Company are referred to as "Customers."
The independently owned grocery store Customers served by the
Company range from single stores to supermarket chains with as many as 25
stores. In addition, Spartan's subsidiary, Valuland, Inc. ("Valuland"),
owns and operates 44 retail grocery stores (the "Company Owned Stores").
Spartan's subsidiaries also distribute candy, tobacco, and other grocery
products to approximately 9,600 convenience stores and other retail
locations. The Company conducts a predominant portion of its business with
retail stores located in Michigan. According to industry sources, the
Company is the ninth largest wholesaler of grocery and related products in
the United States.
In 1917, a group of independent food retailers incorporated the
Grand Rapids Wholesale Grocery Company. These retailers sought to gain
lower food prices and other economies of scale by purchasing together on a
cooperative basis. In 1957, the name was changed to Spartan Stores, Inc.,
to take advantage of the "Spartan" brand name, which is widely recognized
in Michigan. Spartan was incorporated as a cooperative, but in 1973
converted to a Michigan, for-profit business corporation. The Company
expanded its presence in convenience store wholesaling through its
acquisitions of L & L/Jiroch Distributing Company ("L & L/Jiroch") in 1987
and J.F. Walker Company, Inc. ("J.F. Walker") in 1993. The Company
expanded its strategic direction into the retail grocery industry through
the acquisition of eight retail grocery stores in Fiscal 1999 and an
additional 36 stores in Fiscal 2000.
Spartan is authorized to sell shares of its common stock to
Customers of Spartan, employees of the Company ("Associates"), and other
persons designated by the Board of Directors from time to time ("Approved
Holders"). In addition, pursuant to the Bylaws, Spartan may issue shares
of its Class A Common Stock, $2 par value ("Class A Shares"), in connection
with the acquisition of businesses, assets, or capital stock of another
corporation. The Board of Directors has designated as Approved Holders (i)
any shareholder or other equity owner of any Shareholder-Customer who owns
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5 percent or more of the equity interests in the Shareholder-Customer;
(ii) any member of the Board of Directors of Spartan; or (iii) any spouse
of an Associate, any biological or adopted child of an Associate, if the
child is 21 years of age or younger, or any trust created by the Associate
or his or her spouse which is established for the benefit of the Associate
or the spouse or any such child of the Associate.
The Company operates on a 52-53 week fiscal year, with the fiscal
year ending on the last Saturday in March. The principal executive offices
of Spartan are located at 850 76th Street, S.W., P.O. Box 8700, Grand
Rapids, Michigan 49518. Spartan's telephone number is (616) 878-2000.
DESCRIPTION OF BUSINESS
GENERAL
The Company operates in five operating segments: grocery store
distribution; convenience store distribution; retail grocery operations;
insurance sales and underwriting; and real estate and finance. Grocery
store distribution is the Company's largest operating segment. The grocery
store distribution business includes the distribution of grocery and
related products to the Company's Customers, including the Company Owned
Stores, as well as services directly related to the operation of those
stores. The convenience store distribution segment includes product
distribution to convenience stores. The retail grocery operations segment
includes the operations of the Company Owned Stores. The insurance sales
and underwriting segment includes commission and premium income generated
by sales to Customers and others. The real estate and finance segment
represents revenues from real estate activities with Customers and others.
Spartan's seven subsidiaries distribute products; provide support and
insurance services to Customers; operate the Company Owned Stores; and
fulfill other functions for the Company.
Financial information on the operating segments is set forth
under the caption "Operating Segment Information" in the notes to the
Consolidated Financial Statements of the Company set forth in Item 8 of
this Report on Form 10-K.
BUSINESS STRATEGY
The Company's current strategy is to continue to focus on its
core business: the full service distribution of grocery and related
products. However, during the fiscal year ended March 27, 1999, management
expanded the strategic direction of the Company by acquiring retail grocery
stores in an effort to secure existing business and obtain future sales
growth. The Company currently operates 44 retail stores in Michigan and
expects to continue to acquire additional stores as opportunities becomes
available.
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The Company's business strategy emphasizes a philosophy of
service to its Customers. Management of the Company believes that by
providing grocery retailers, including the Company Owned Stores, with a
broad array of products and services, those retailers should be better able
to grow and compete. This growth and success in retail operations should,
in turn, enable the Company's wholesale and retail businesses to grow and
prosper as well.
In addition, Spartan believes that Customers who are also
shareholders of Spartan ("Shareholder-Customers") gain an important
competitive advantage by access to the "Spartan" name and image. The
"Spartan" name and logo are widely recognized by consumers in Michigan and
other parts of the Midwest who have come to associate the "Spartan" name
with service, selection, and quality in their grocery shopping. A majority
of all grocery stores supplied by Spartan display the "Spartan" name and
logo.
GROCERY STORE DISTRIBUTION
GENERAL
The Company's grocery store distribution segment includes the
operations of Spartan, a full-service distributor of grocery and related
products. Spartan provides its Customers with a selection of over 40,000
items, including dry grocery, produce, dairy products, meat, frozen food,
seafood, floral, general merchandise, tobacco, and health and beauty care
items. Spartan supplies its Customers with both nationally advertised
products and with over 2,000 highly recognized "Spartan" brand private
label items. In addition to Spartan brand products, the Company also
supplies its customers with Spartan "Value" brands. The HomeHarvest value
brand includes approximately 360 items and the SAVE RITE brand includes
approximately 55 items. Spartan ships the products from its main warehouse
and distribution center in Grand Rapids, Michigan, and from a warehouse in
Plymouth, Michigan. On October 14, 1998, the Company's Board of Directors
approved an initiative to replace the Company's Plymouth distribution
center with a new multi-commodity distribution center. The initiative
includes the cessation of operations at the Company's existing distribution
center in Plymouth, Michigan by April 2000. To supply its Customers,
Spartan operates a fleet of approximately 122 tractors, 217 conventional
trailers, and 152 refrigerated trailers, substantially all of which are
leased by the Company. Deliveries by Spartan can occur as often as daily
for large stores, or as infrequently as weekly for smaller stores.
Spartan utilizes cost-plus pricing for all services and products
other then general merchandise and meat products. Cost-plus pricing
consists of two parts. The first part is the "cost," which is generally
the cost that the manufacturer charges Spartan, subject to definitions and
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exceptions in the program. The second part is the "plus," which is a
charge generally consisting of: (i) a fixed amount per case times the
number of cases on the invoice; (ii) a percentage of the total invoice
product billing; and (iii) a transportation charge based on a
transportation pricing schedule that reflects Spartan's general
transportation expenses. Through the cost-plus pricing program, Spartan
prices products, services, and transportation as separate elements. The
program is intended to reflect accurately the different costs in
warehousing and distributing various commodities and to assist Spartan and
its Customers to work together to reduce costs. During the fiscal year
ended March 27, 1999, the Company implemented variable markup pricing,
rather than cost-plus pricing, for general merchandise and meat products to
promote increased sales volumes in these price sensitive categories.
Spartan, itself and through its subsidiaries, provides Customers
with a broad spectrum of additional services that the Company believes make
it possible for its Customers to compete with large competitors. Customers
decide individually which services to use and are charged fees for the
services used. Substantially all of the Company's Customers use one or
more of the following value-added services.
SITE IDENTIFICATION AND MARKET ANALYSIS. The Company assists
Customers in identifying potential new store locations. Once the Company
or a Customer has identified a potential site, the Company will undertake
or commission an independent site feasibility analysis of the location,
which includes a study of the demographics of the general area, the
supermarket competitors located in the primary and secondary trading areas,
and the volume a new store should expect to achieve at the location, as
well as the creation of financial projections.
STORE PLANNING AND DEVELOPMENT. The Company assists Customers in new
store development, from site planning through construction, including
financing and lease negotiations, store layout, space management, and
product display. In addition, services available from the Company include
engineering support, contracting assistance, layout strategy, design,
equipment procurement, and assistance in leasing space to other commercial
tenants. Similar services are available to Customers who desire to remodel
existing stores. Other services include consulting services on financial
projections, business valuations, and store divestitures and acquisitions.
MARKETING, PROMOTION, AND ADVERTISING ASSISTANCE. The Company offers
its Customers the services of its in-house advertising department, which
include developing marketing strategies, designing and producing signs and
flyers, and coordinating print and media advertising campaigns. Customers
may use the Company's print shop to print signs, flyers, and other items.
In addition, the Company offers Customers the opportunity to participate in
printed, radio, and television advertising programs conducted in most major
media markets in the Company's distribution area.
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TECHNOLOGY AND INFORMATION SERVICES. The Company provides information
services and customized software programs to Customers using a direct
computer link to many of its Customers' stores. The Company can provide
Customers with a product and price file for products. In addition,
Customers may order inventory directly from the Company using their store-
to-warehouse computer link-up and order entry system. Other than the core
ordering tools, virtually all products are provided as optional services.
Products and services provided include administrative systems; information
technology; consulting, support, and training; hardware and software
resale; marketing and database services; networking and communications
implementation and support; office automation tools; and point-of-sale
systems.
ACCOUNTING AND TAX PREPARATION SERVICES. The Company provides a wide
array of accounting services to Customers ranging from preparing monthly
and annual financial reports to preparing tax returns.
HUMAN RESOURCE SERVICES. The Company offers an extensive variety of
human resource services to its Customers. The services include recruiting;
interviewing and staffing assistance; benefit program planning; handbook
preparation, design, and printing; labor relations assistance; personnel
record keeping; training; and employee development. The services listed
above, as well as many others, are provided on an individual basis and are
tailored to meet the needs of each Customer.
COUPON REDEMPTION AND PRODUCT RECLAMATION. The Company provides
coupon redemption services, making it possible for retailers to send all
consumer value coupons directly to the Company for processing of refunds
from manufacturers. In addition, the Company operates a 20,300 square-foot
product reclamation center in Charlotte, Michigan to handle all damaged
products that Customers may return. Damaged products are returned to
manufacturers, where appropriate, and credits received from manufacturers
are then passed along to the Customers.
FINANCE. The Company may loan funds to Shareholder-Customers to be
used to develop new stores or expand or remodel existing stores. For
qualified Shareholder-Customers, the management of Spartan may approve
loans of up to $100,000. Loans in excess of $100,000 are recommended by
management and approved by the Board of Directors of Spartan. As of March
27, 1999, the Company had 46 loans outstanding to Shareholder-Customers.
Loans are collateralized by the inventory, facilities, or equipment
financed, and some loans may be collateralized by Class A Shares or other
additional assets or by personal assets or guaranties of equity owners of
the Shareholder-Customer. Loans currently are made only on a floating rate
basis, based on the prime rate. Most loans to retailers from the Company
carry interest rates from prime plus 1/2 percent to prime plus 2 percent.
Maturity dates on the loans range from 1999 to 2008. As of the fiscal
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years ended March 1999, 1998, and 1997, the Company had outstanding loans
to Shareholder-Customers totaling approximately $5,740,000, $8,010,000 and
$9,770,000, respectively. Over the last 15 years, the Company has not
experienced significant aggregate losses on loans to Shareholder-Customers.
Impaired loans totaled approximately $500,000 at March 27, 1999, including
the current portion, with related allowances of $500,000. The estimated
fair market value of the loans approximates the net carrying value at
March 27, 1999.
Spartan has guaranteed payment of indebtedness to financial
institutions aggregating $16,421,000 at March 27, 1999, on behalf of
certain Customers. Market Development also has guaranteed three leases by
Customers, two of which expire in 2012 with combined annual rental payments
of $444,500 and one of which expires in 2017 with annual rental payments of
$217,500. The Company charges an annual fee for each loan guarantee and
lease guarantee and requires each Customer receiving a guarantee to commit
to minimum purchase requirements.
CONVENIENCE STORE DISTRIBUTION
Several subsidiaries of the Company operate and are included in
the convenience store distribution operating segment. L & L/Jiroch and
J.F. Walker are wholesale distributors of confections, tobacco products,
specialty foods, and other grocery products to approximately 4,900
convenience stores and other retail locations in Michigan, Illinois,
Indiana, Kentucky, Ohio, Pennsylvania, Georgia, Tennessee, and West
Virginia. United Wholesale Grocery Company ("United Wholesale") operates
13 cash and carry outlets in Michigan and Ohio serving approximately 4,700
convenience stores.
RETAIL GROCERY
As a result of three recent acquisitions, the Company's
subsidiary, Valuland, Inc. ("Valuland"), owns and operates 44 retail
supermarkets. On January 4, 1999, Valuland acquired certain assets of
Ashcraft's Market, Inc., an operator of eight retail grocery stores located
primarily in mid-Michigan. On March 29, 1999, Valuland acquired all the
issued and outstanding shares of Family Fare, Inc., Family Fare Management
Services, Inc. and Family Fare Trucking, Inc. (collectively "Family Fare").
Family Fare operates 13 retail grocery stores, a bakery, a warehouse
facility and a transportation business located primarily in Western
Michigan. On May 19, 1999, Valuland acquired certain assets and assumed
certain liabilities associated with the retail grocery, pharmacy and
transportation business of Glen's Market, Inc., Catt's Realty Co. and
Glen's Pharmacy, Inc. (collectively "Glen's"). As a result of this
acquisition, Valuland operates 23 Glen's retail grocery stores, four
pharmacies and a distribution center located primarily in Northern
Michigan.
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INSURANCE SERVICES
Through its subsidiaries, the Company offers insurance for
Customers and their employees, and employees of the Company. Customers are
offered coverage for fire and other casualties, liability, automobile,
fidelity, theft, bonds, workers' compensation, business interruption, and
group health plans. In addition, individuals are offered automobile and
homeowners coverage. Shield Insurance Services, Inc. ("Shield") and Shield
Benefit Administrators, Inc., a wholly owned subsidiary of Shield, provide
insurance brokerage services and third-party claims administration and
services, respectively. Spartan Insurance Company Ltd. ("Spartan
Insurance") provides insurance underwriting for Customers. Spartan
Insurance, which is incorporated and licensed in Bermuda, issues policies
of another carrier through a fronting agreement. Under this agreement,
Spartan Insurance insures some of the coverage limits and reinsures with
reinsurance companies the balance of the coverage limit. Shield services
the insurance programs offered by Spartan Insurance.
REAL ESTATE
Market Development Corporation ("Market Development"), a
subsidiary of Spartan, owns 18 retail grocery store facilities that are
leased to Customers and other retailers and owns two vacant properties that
are held for sale. Market Development also owns two vacant properties
sites that it intends to develop. Market Development leases 11 other sites
that are subleased to Customers.
The Company finances its direct investment in shopping centers or
new retail food stores through internally generated capital and borrowed
funds.
COMPETITION
The grocery and convenience store industries are characterized by
intense competition and low profit margins. The principal methods of
competition in the grocery industry are price, product quality and variety,
and service. The principal methods of competition in the convenience store
industry are price and product quality, and to a lesser extent, service.
The Company believes that the Company and its Customers are competitive in
their markets. However, the Company competes with a number of grocery and
convenience store wholesalers and with a number of other businesses that
market their products directly to food retailers, including companies
having greater assets and larger sales volume than the Company. Customers
compete with other retailers and with several large chain stores that have
integrated wholesale and retail operations. Customers also compete with
mass merchandisers, limited assortment stores, wholesale membership clubs,
convenience stores, shop-at-home services, restaurants, and fast food
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businesses. The Company's success is in large part dependent upon the
ability of its Customers to compete with the larger grocery store and
convenience store chains. Competition in Michigan and the other states
served by the Company has been, and continues to be, aggressive.
In its nine-state market area of Michigan, Georgia, Illinois,
Indiana, Kentucky, Ohio, Pennsylvania, Tennessee, and West Virginia, the
Company competes at the wholesale level with a number of larger and smaller
food wholesalers, including SUPERVALU, INC., Fleming Companies, Inc.,
Roundy's, Inc., and Nash Finch Company, and convenience store wholesalers
including EBY Brown Company, McLane Company, Inc., and S. Abraham and Sons,
Inc.
In addition, Customers compete with supermarket chains, including
Meijer, Inc.; The Great Atlantic and Pacific Tea Company (A&P); Super K
(Kmart Corporation); and The Kroger Company. Customers also compete with
members-only shopping and discount clubs. Among the largest such clubs
that compete with Customers are Sam's Club (a unit of Wal*Mart Stores,
Inc.) and Costco Companies, Inc.
According to industry sources, the market share of groceries sold
by Shareholder-Customers and the Company Owned Stores is approximately 23
percent in Michigan, consisting of approximately 42 percent in Western
Michigan (a 26 county market area), 12 percent in Eastern and Southern
Michigan (a 24 county market area), and 68 percent in Northern Michigan (an
18 county market area).
The insurance industry also is highly competitive. The Company
believes that it is competitive, but many competitors may have far greater
financial and other resources than those of the Company.
SUPPLIERS
The Company purchases its products from a large number of
national, regional, and local suppliers of name brand and private label
merchandise. The Company is dependent upon these suppliers for brand name
products. However, the Company has not encountered difficulty in procuring
or maintaining an adequate level of products to serve its Customers.
REGULATION
The Company is subject to federal, state, and local laws and
regulations covering the purchase, handling, sale, and transportation of
its products, and is subject to the jurisdiction of the federal Food and
Drug Administration ("FDA"). Management believes that the Company is in
substantial compliance with all FDA and other federal, state and local laws
and regulations governing its businesses.
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SHAREHOLDER-CUSTOMERS/COMPANY OWNED STORES
At March 27, 1999, Spartan was the primary supplier to 445 retail
grocery stores owned by 222 Shareholder-Customers. The average purchases
per store was $4,080,188 during fiscal year 1999. The following table
reflects the number of Shareholder-Customers, the number of stores owned by
the Shareholder-Customers, and the average annual purchases per store
served during the past five years:
<TABLE>
<CAPTION>
END OF NUMBER OF NUMBER OF SHAREHOLDER- AVERAGE ANNUAL PURCHASES
FISCAL SHAREHOLDER- CUSTOMER STORES PER SHAREHOLDER-CUSTOMER
YEAR CUSTOMERS AT YEAR END SERVED AT YEAR END<F*> STORE<F*>
------- --------------------- ---------------------- ------------------------
<S> <C> <C> <C>
1999 222 445 $4,080,188
1998 236 450 3,876,414
1997 232 444 3,910,170
1996 259 465 3,767,745
1995 273 450 3,363,538
<FN>
<F*>Includes eight Company Owned Stores that the Company purchased on
January 4, 1999, from Ashcraft's Market, Inc., a Shareholder-Customer of
the Company prior to the acquisition.
</FN>
</TABLE>
As the above illustrates, the number of stores supplied by
Spartan over the last five years has remained relatively stable. However,
a large number of Shareholder-Customers have expanded or remodeled existing
stores or built new stores. According to industry sources, the trend by
Shareholder-Customers to expand the size of stores, or to build larger
stores to replace smaller stores, follows a national trend in food
retailing toward larger store sizes. While the number of stores supplied
by Spartan has not changed significantly during the past several years, the
average weekly purchases by Customers has increased. In addition,
Spartan's largest Shareholder-Customers grew substantially.
The following table reflects the diversity in the Shareholder-
Customer base of Spartan as of March 27, 1999:
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<TABLE>
<CAPTION>
NUMBER OF SHAREHOLDER- PERCENT OF TOTAL
NUMBER OF CUSTOMERS OPERATING CUSTOMERS
STORES OPERATED THE NUMBER OF STORES SALES<F*>
--------------- ---------------------- ----------------
<S> <C> <C> <C>
1 174 23.0%
2 24 10.0%
3 5 4.0%
4 or more 19 63.0%
<FN>
<F*>Includes eight Company Owned Stores that the Company purchased on
January 4, 1999, from Ashcraft's Market, Inc., a Shareholder-Customer of
the Company prior to the acquisition.
</FN>
</TABLE>
Spartan supplies a diverse group of independent store operators,
ranging from single stores to supermarket chains with as many as 25 stores.
Management believes that the diverse nature of the Customers it now
supplies helps to insulate Spartan from any potential significant adverse
effects of losing a single large Shareholder-Customer or from potential
adverse economic conditions. Spartan does not believe that its success is
dependent upon maintaining the supply business of any one Shareholder-
Customer. Spartan's 10 largest Shareholder-Customers accounted for
approximately 50 percent of its total net sales for fiscal year 1999, but
no single Shareholder-Customer accounted for more than 8 percent of
Spartan's total net sales. Subsequent to year end, Valuland became
Spartan's largest retail Customer with a projected 13 percent of total net
sales. In the last five years, no Shareholder-Customer who was among the
10 largest Shareholder-Customers has terminated all of its business with
Spartan to associate with another distributor.
ASSOCIATES
As of March 27, 1999, the Company employed approximately 3,500
Associates, of which approximately 1,070 were represented by several
unions. Spartan's warehouse and transportation Associates are represented
by different Teamsters Union locals, with contracts expiring in 2000 and
2001. A majority of United Wholesale's Associates also are represented by
various unions, with contract expirations varying by location. Associates
of L & L/Jiroch, J.F. Walker and Valuland are not represented by a union.
The Company considers its relations with all Associates to be satisfactory,
and has not had any work stoppages in the last five years.
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REQUIRED INVESTMENT POLICY
The Board of Directors of Spartan has adopted a policy which
requires Shareholder-Customers to purchase and hold a minimum investment
(the "Required Investment") in the Class A Shares. From time to time, the
Board may change the Required Investment and other terms of the Required
Investment policy.
If a Shareholder-Customer no longer purchases grocery and related
products from Spartan, it is Spartan's policy (but not a contractual
obligation) to redeem, at the Shareholder-Customer's request, that number
of Class A Shares then held by the Shareholder-Customer with an aggregate
Trading Value (see below) which equals the Shareholder-Customer's Required
Investment as of the date the Shareholder-Customer ceased purchasing from
Spartan. Payment for such redeemed Class A Shares is made in six equal
installments over a five-year period.
In addition to Class A Shares sold to Shareholder-Customers to
satisfy the applicable Required Investment, Spartan offers all Shareholder-
Customers the opportunity to purchase Class A Shares at any time and from
time to time. Spartan sells Class A Shares at the Trading Value in effect
at the time of the sale.
TRADING VALUE
The price at which Shareholder-Customers must acquire Class A
Shares from Spartan is the "Trading Value." The Board of Directors
customarily establishes the Trading Value once a year in its sole and
absolute discretion, based on the Company's financial condition, the
results of its operations, operating trends, market conditions, the state
of the economy, and such other factors as the Board deems appropriate. No
specific formula is used to set the Trading Value. Any change adopted by
the Board becomes effective upon acceptance of the Trading Value by the
Michigan Corporation, Securities and Land Development Bureau. Effective
June 21, 1999, the Trading Value was established at $13.30 per share.
During the fiscal years ended March 1999, 1998 and 1997, the Trading Value
was $12.30, $11.30 and $10.50 per share, respectively, as adjusted for the
ten-for-one stock split pursuant to a share dividend paid on July 15, 1997
(the "Stock Split").
TERMS OF SALE AND BAD DEBT EXPERIENCE
The Company furnishes to its Customers in the grocery store and
convenience store distribution segments weekly statements of accounts.
Statements include deliveries through and including the date of the
statement. Payment is due within seven days from date of the statement,
and those not paid within seven days are considered delinquent. Additional
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deliveries occur during this time which are billed on a subsequent
statement. The timing of payments varies among Customers, but the Company
generally may have receivables outstanding at any given time which average
up to two weeks' sales. The Company believes that it adequately monitors
its outstanding receivables. Bad debt expenses have not been material to
the Company's operations.
ITEM 2. PROPERTIES
Spartan owns approximately 1,331,000 square feet of warehouse,
distribution, and office space located on 210 acres in Grand Rapids,
Michigan. Spartan supplies primarily its Western Michigan Customers from
this main warehouse and distribution center. The center is located within
one mile of U.S. 131, a main artery that links Grand Rapids with Kalamazoo
on the south and connects with Interstate 96, one of the major east-west
arteries serving Western Michigan and leading east into the Detroit area.
Approximately 71 acres of the 210-acre complex in Grand Rapids are
presently vacant land.
The main warehouse and distribution center in Grand Rapids
includes a general merchandise warehouse of approximately 233,000 square
feet; refrigerated space of approximately 307,000 square feet; dry grocery
space of approximately 585,000 square feet; general office space, including
a print shop, of approximately 151,000 square feet; and transportation and
salvage buildings of approximately 55,000 square feet. Spartan leases a
416,000 square-foot warehouse, garage, and office complex in Plymouth,
Michigan, a western suburb of Detroit. This warehouse is used to supply
its Customers located in the greater Detroit area and in Eastern Michigan.
The Company has begun the relocation to a new multi-commodity distribution
center that will replace its existing Plymouth distribution center by April
2000.
Spartan also owns a Reclamation Center/Support Services complex
in Charlotte, Michigan consisting of an approximately 11 acre site
containing two warehouses totaling 80,000 square feet. In addition,
Spartan leases for various purposes 52,000 square feet of warehouse and
office space in Grand Rapids, Michigan and a trailer relay station in
Kalkaska, Michigan that consists of four trailer parking stations in a
secured area.
L & L/Jiroch owns approximately 180,000 square feet of warehouse
and office space located on approximately 34 acres in Wyoming, Michigan, to
service its Customers.
Market Development owns approximately 644,000 square feet in nine
shopping centers and an additional 415,000 square feet in nine free-
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standing locations, all of which it leases to Customers and other
retailers. This leased space consists of approximately 819,000 square feet
of grocery retail space and approximately 240,000 square feet of other
retail space. The nine leased shopping centers (the "Shopping Centers")
are located in Brighton, Michigan (78,000 square feet of retail space);
Cascade Township, Michigan (100,000 square feet of retail space); Fenton,
Michigan (77,000 square feet of retail space); Fremont, Michigan (41,000
square feet of retail space); Kentwood, Michigan (78,000 square feet of
retail space); Ludington, Michigan (42,000 square feet of retail space);
Sterling Heights, Michigan (99,000 square feet of retail space);
Stevensville, Michigan (62,000 square feet of retail space); and Three
Rivers, Michigan (67,000 square feet of retail space). All Shopping
Centers are substantially full and each Shopping Center is anchored by a
lease with a retail grocery store, all but one of which is a Shareholder-
Customer. In addition, Market Development owns vacant land in Plymouth,
Indiana and in Milford Township, Macomb Township and Jackson, Michigan.
Market Development plans to sell the vacant land in Plymouth, Indiana, and
Jackson, Michigan. The vacant land in Milford and Macomb Townships will be
co-developed with outside developers to build a supermarket at each
location for a Shareholder-Customer.
Market Development owns 18 retail grocery store facilities
(including those leased in the Shopping Centers) that are leased to
Customers and other retailers, with terms expiring from 1999 to 2017.
Aggregate lease rental income received was $6,959,000, $6,496,000 and
$6,599,000 in fiscal years 1999, 1998, and 1997, respectively. In
addition, Valuland has a sixty-five percent interest in a joint venture
that constructed and now operates a grocery store of approximately 45,700
square feet under a lease that expires in 2018.
Market Development leases 11 sites for sublease to Customers.
Under this program, Market Development has leased approximately 418,000
square feet of real estate with lease terms expiring from 2001 to 2016.
Aggregate lease rental income received pursuant to the subleases was
$2,474,000, $2,697,000 and $2,471,000 in fiscal years 1999, 1998 and 1997,
respectively. Site lease rental expenses were $2,392,000, $2,524,000 and
$2,361,000 for fiscal years 1999, 1998 and 1997, respectively. All stores
that are leased or subleased to Customers are in all material respects
operating according to required lease terms.
J.F. Walker leases 11 locations totaling approximately 69,600
square feet of warehouse and distribution space at its locations in
Michigan, Indiana, Kentucky, Ohio, Pennsylvania, and Tennessee to service
its Customers. J.F. Walker also owns three locations totaling
approximately 172,500 square feet of warehouse and distribution space.
United Wholesale operates 13 "cash and carry" wholesale grocery
facilities, 12 of which are located in Michigan, and one of which is
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<PAGE>
located in Ohio. United Wholesale owns 12 and leases one of these retail
outlets, which have a total of approximately 238,000 square feet.
Valuland leases eight Ashcraft's Market retail grocery stores
totalling approximately 283,000 square feet of retail space; 23 Gen's
Market retail grocery stores totalling approximately 757,000 square feet of
retail space; and a distribution center in Waters, Michigan, with
approximately 50,000 square feet. In addition, Family Fare, Inc., a wholly
owned subsidiary of Valuland, leases thirteen Family Fare retail grocery
stores totalling approximately 519,000 square fee of retail space, a
distribution center in Hudsonville, Michigan, with approximately 52,000
square feet, and a bakery with approximately 18,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
On August 21, 1996, the Attorney General for the State of
Michigan filed an action in Michigan circuit court against the leading
cigarette manufacturers operating in the United States, twelve wholesalers
and distributors of tobacco products in Michigan (including three Company
subsidiaries) and others seeking certain injunctive relief, the
reimbursement of $4 billion in Medicaid and other expenditures incurred or
to be incurred by the State of Michigan to treat diseases allegedly caused
by cigarette smoking and punitive damages of $10 billion. In July 1998,
the court dismissed the claim for punitive damages. On December 7, 1998,
the State of Michigan and the cigarette manufacturers settled the remaining
claims and the case was dismissed by the court without any payment by the
Company or its subsidiaries. Thirty actions have been filed in state
courts in Pennsylvania against the leading cigarette manufacturers
operating in the United States and certain wholesalers and distributors,
including a subsidiary of the Company. All of the Pennsylvania actions
were filed by individual plaintiffs pursuant to a special notice procedure
which does not include any formal complaint. In these separate cases, the
Company expects that the plaintiffs are seeking compensatory, punitive and
other damages, reimbursement of medical and other expenditures and
equitable relief. The Company believes that its subsidiaries have valid
defenses to these legal actions. These actions are being vigorously
defended. All but two of the Pennsylvania actions have been dismissed
without prejudice pursuant to a Dismissal and Tolling Agreement under which
the defendants have agreed not to raise the defense of statute of
limitations or laches if an action is filed by a plaintiff before April 1,
1999. It is anticipated that the Dismissal and Tolling Agreement will be
extended to October 1, 1999, with respect to certain defendants, including
the Company's subsidiaries. One of the cigarette manufacturers named as a
defendant in each action has agreed to indemnify the Company's subsidiaries
from damages arising out of these actions. Management believes that the
ultimate outcome of these actions should not have a material adverse effect
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<PAGE>
on the consolidated financial position, results of operations or liquidity
of the Company.
Various other lawsuits and claims, arising in the ordinary course
of business, are pending or have been asserted against the Company. While
the ultimate effect of such actions cannot be predicted with certainty,
management believes that their outcome will not result in a material
adverse effect on the consolidated financial position, operating results or
liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
There is and has been no established public trading market for
Spartan's securities, including the Class A Shares. Spartan does not
expect an active market for the Class A Shares to develop. In addition,
although Spartan has a policy to redeem Class A Shares under certain
circumstances, Spartan is not obligated to do so and the Company's bank
credit agreement limits the annual permitted redemptions. Only limited
classes of persons are eligible to hold Class A Shares.
A holder may transfer the Class A Shares only to: (i) a
Shareholder-Customer who continues to purchase from Spartan grocery and
related products; (ii) an Associate; (iii) a Qualified Holder; or (iv) an
Approved Holder. A "Qualified Holder" is a person to whom Spartan issues
Class A Shares in connection with the acquisition of businesses, assets, or
capital stock of another corporation. The Board of Directors has
designated as Approved Holders (i) any shareholder or other equity owner of
any Shareholder-Customer who owns 5 percent or more of the equity interests
in the Shareholder-Customer; (ii) any member of the Board of Directors of
Spartan; or (iii) any spouse of an Associate, any biological or adopted
child of an Associate, if the child is 21 years of age or younger, or any
trust created by the Associate or his or her spouse which is established
for the benefit of the Associate or the spouse or any such child of the
Associate.
The Board of Directors from time to time, usually on an annual
basis, establishes the Trading Value for the Class A Shares. The Board
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<PAGE>
determines the Trading Value, in its sole and absolute discretion, based on
the Company's financial condition, results of operations, operating trends,
market conditions, the state of the economy, and such other factors as the
Board deems appropriate. Any change adopted by the Board becomes effective
upon acceptance of the Trading Value by the Michigan Corporation,
Securities and Land Development Bureau. Effective June 21, 1999, the
Trading Value was established at $13.30 per share.
Spartan is authorized to issue 5,000,000 shares of Class B Common
Stock ("Class B Shares") with such preferences, limitations, and voting,
distribution, dividend, liquidation, conversion, participation, redemption,
and other rights as the Board may determine before issuance of the shares.
The Board of Directors may authorize and issue one or more series of Class
B Shares with preferences and rights superior to the rights of the holders
of the Class A Shares. As of the date of this Report, no Class B Shares
are outstanding.
HOLDERS
As of May 22, 1999, there were approximately 515 record holders
of the Company's Class A Shares. There were no holders of the Company's
Class B Shares.
DIVIDENDS
For at least 20 years, the Board of Directors has declared, and
Spartan has paid, a regular quarterly dividend. The amount of such
quarterly dividends for each of the three fiscal years in the period ended
March 27, 1999, was $0.0125 per share. While the Board of Directors
expects to continue to declare dividends quarterly, future dividends will
depend on earnings, capital requirements, financial conditions, and other
relevant factors. The Company's bank credit agreement contains covenants
which provide that the aggregate amount of cash dividends paid in any
twelve-month period shall not exceed $800,000.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial information presented below
as of and for the years ended March 27, 1999, March 28, 1998, March 29,
1997, March 30, 1996, and March 25, 1995, has been derived from
consolidated financial statements, and should be read in conjunction with
the consolidated financial statements and related notes, for each of the
three years in the period ended March 27, 1999, audited by Deloitte &
Touche LLP, independent certified public accountants, appearing elsewhere
in this Report. The following data also should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Report.
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<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
INCOME STATEMENT DATA: FOR THE YEAR ENDED
------------------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29, MARCH 30, MARCH 25,
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $2,671,700 $2,489,249 $2,475,025 $2,554,688 $2,526,128
Volume Incentive
Rebates <F1> $ 0 $ 0 $ 0 $ 15,577 $ 17,584
Costs and Expenses $2,646,722 $2,467,006 $2,459,641 $2,571,279 $2,494,446
Earnings (Loss) Before
Income Taxes and
Extraordinary Item <F2> $ 24,978 $ 22,243 $ 15,384 $ (32,168) $ 14,098
Extraordinary Item (Net of
Income Taxes) $ 1,031
Net Earnings (Loss) <F2> $ 14,799 $ 14,234 $ 9,703 $ (21,668) $ 9,030
Basic and Diluted
Net Earnings (Loss)
Per Share <F2><F3> $ 1.33 $ 1.21 $ 0.80 $ (1.74) $ 0.74
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AS OF
------------------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29, MARCH 30, MARCH 25,
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Working Capital $ 101,984 $ 61,682 $ 59,669 $ 69,284 $ 64,381
Total Assets $ 538,734 $ 406,133 $ 403,731 $ 387,451 $ 386,141
Long-Term Debt and
Capital Lease Obligation $ 269,522 $ 107,666 $ 125,776 $ 124,372 $ 106,794
Shareholders' Equity $ 121,061 $ 114,192 $ 107,258 $ 102,587 $ 125,801
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<PAGE>
Book Value Per
Class A Share <F2><F3> $ 11.16 $ 9.98 $ 8.91 $ 8.23 $ 10.03
Return on Average
Shareholders' Equity <F2> 12.58% 12.86% 9.26% (17.66)% 7.52%
Cash Dividends $ 556 $ 587 $ 606 $ 623 $ 613
Dividends Paid Per Share <F3> $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05
Shares Outstanding <F3> 10,844 11,444 12,033 12,460 12,544
<FN>
<F1> Until February 1996, Spartan's policy was to pay volume incentive
rebates to its Shareholder-Customers based upon each store's order size
from Spartan. Prior to June 14, 1995, volume incentive rebates were paid
approximately 50 percent in cash on a quarterly basis. At Spartan's fiscal
year end, the Shareholder-Customers would receive Class A Shares at the
Trading Value then in effect in exchange for the remaining approximately 50
percent of the volume incentive rebate. On June 14, 1995, the Board of
Directors changed the rebate policy to pay volume incentive rebates on a
quarterly basis approximately 75 percent in cash, and at the fiscal year
end the Shareholder-Customer received Class A Shares at the Trading Value
then in effect in exchange for the remaining 25 percent of the rebate. As
of February 1996, Spartan no longer pays any volume incentive rebates.
<F2> During the years ended March 27, 1999 and March 30, 1996, the Company
incurred restructuring, reorganization, and other charges amounting to
$5,697,738 and $46,439,743, respectively.
<F3> Per share amounts have been restated to reflect a ten-for-one stock
split pursuant to a share dividend paid to shareholders on July 15, 1997.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT CURRENT YEAR DEVELOPMENT
During Fiscal 1999, the Company announced at its Annual Meeting
of Shareholders that the strategic direction of the Company would be
expanded into the retail grocery industry. Since that announcement,
Valuland Inc., a wholly-owned subsidiary of the Company, has completed the
acquisition of 44 retail grocery stores located in Michigan, eight of which
had been acquired by March 27, 1999. Management of the Company believes
that these acquisitions will secure existing market share, provide future
acquisition opportunities and increase the long term value of the Company.
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<PAGE>
The acquisitions were funded by borrowings under a new bank credit
agreement, which also provides credit facilities for future acquisitions in
the retail grocery industry. Management of the Company continues to
evaluate potential acquisitions and anticipates completing future
acquisitions of retail grocery stores. The impact of the eight retail
stores acquired during Fiscal 1999 is discussed in the "Results of
Operations" section below.
RESULTS OF OPERATIONS
The following table sets forth items from the Company's
Consolidated Statements of Earnings as percentages of net sales:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1999 1998 1997
(52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Gross profit 10.2 10.2 9.6
Less:
Operating and administrative expenses 8.9 9.2 8.8
Restructuring charge 0.2
Interest expense 0.3 0.4 0.4
Interest income (0.1) (0.1) (0.1)
Gain on sale of property and equipment (0.2) (0.1)
------ ------ ------
Total 9.3 9.3 9.0
------ ------ ------
Earnings before income taxes and
extraordinary item 0.9 0.9 0.6
Income taxes 0.3 0.3 0.2
------ ------ ------
Earnings before extraordinary item 0.6 0.6 0.4
Extraordinary item (net of income taxes)
------ ------ ------
Net earnings 0.6% 0.6% 0.4%
====== ====== ======
</TABLE>
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<PAGE>
NET SALES
FISCAL 1999
Net sales for the fiscal year ended March 27, 1999 increased
$182.5 million compared to the fiscal year ended March 28, 1998.
Net sales in the grocery store distribution segment for this
period increased $37.7 million. The increase is primarily the result of
increased sales of pharmacy and perishable products and incremental sales
associated with the Company's entrance into the retail grocery industry.
Management of the Company has taken several actions to positively impact
net sales growth in the grocery store distribution segment. The Company
has been successful in securing new pharmacy business with existing retail
customers. Additionally, the Company is focusing its promotional efforts
on higher priced items and has committed a portion of earnings to the
development of promotional programs in conjunction with food manufacturers.
Several of these programs have been established for perishable products,
where many retailers are differentiating themselves from competing formats
such as the supercenter, limited assortment or discount format. During
1999, in an effort to drive sales growth, the Company implemented variable
markup pricing for general merchandise and meat products rather than the
cost-plus pricing strategy used for other products. Finally, the Company
acquired eight retail grocery stores in mid-Michigan on January 4, 1999
that contributed to current year sales growth. Offsetting sales growth to
a certain degree were declines in sales of grocery products due to highly
competitive market conditions, declines in retail store equipment sales
resulting from a reduction in retail store remodeling and expansion
activity, and declines in revenue associated with the discontinuance of the
Company's "Over-the-Road" trucking division. Management expects net sales
in the grocery store distribution segment to continue to be positively
impacted by the acquisition of an additional 36 retail grocery stores
completed subsequent to March 27, 1999, as well as anticipated future
retail store acquisitions.
Net sales in the convenience store distribution segment for the
fiscal year ended March 27, 1999 increased $145.7 million compared to the
fiscal year ended March 28, 1998 primarily due to cigarette price increases
by cigarette manufacturers. The Company experienced four price increases
during the first two quarters of the fiscal year that together resulted in
price inflation of approximately 10%. During the third quarter, the
Company experienced another price increase that resulted in additional
inflation of approximately 33%.
Net sales in the insurance segment for the fiscal year ended
March 27, 1999 were comparable with net sales in the fiscal year ended
March 28, 1998. Net sales in the real estate segment declined by
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<PAGE>
approximately $1.4 million due to management's planned reduction of its
retail property portfolio.
FISCAL 1998
Net sales for the fiscal year ended March 28, 1998 increased
$14.2 million compared to the fiscal year ended March 29, 1997.
Net sales in the grocery store distribution segment increased by
$3.2 million. The increase was due primarily to increases in sales of
pharmacy products and in services provided to customers, offset by declines
in sales of groceries and related products, excluding produce.
Net sales in the convenience store distribution segment increased
$9.9 million. The increase in sales to convenience store retailers was
primarily the result of an acquisition by a subsidiary of the Company,
general increases in convenience store purchases and increases in the
prices of cigarettes. These increases were partially offset by the loss of
two customers and intense pricing pressures from member-only warehouse
discount stores.
Sales in the insurance segment for the fiscal year ended March
28, 1998 declined approximately $.7 million. The decline reflected
increased competitive pressures in the property and casualty insurance
markets.
Sales in the real estate segment during the fiscal year ended
March 28, 1998 were comparable to sales experienced during the fiscal year
ended March 29, 1997.
GROSS PROFIT
FISCAL 1999
Gross profit as a percentage of net sales for the fiscal year
ended March 27, 1999 was 10.2%, unchanged from the fiscal year ended March
28, 1998. The grocery store distribution segment experienced increases in
gross profit as a percentage of sales resulting from a change in the
methodology by which it administers its cost-plus pricing policy.
Additionally, gross profit as a percentage of sales was positively impacted
by the Company's entry into the retail grocery industry, where gross
profits are typically higher as a percentage of sales than in wholesale
operations. Offsetting these increases were disbursements by the Company
to complement promotions offered by manufacturers as discussed in the net
sales section above. The convenience store distribution segment
experienced improvements in gross profit resulting from sales of cigarettes
that were purchased prior to price increases discussed above. The
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<PAGE>
increases in gross profit as a percentage of sales in the grocery and
convenience store distribution segments were offset by declines in sales in
the insurance and real estate segments. Management expects gross profits
as a percentage of net sales to be positively impacted by the Company's
past and future acquisitions of retail grocery stores.
FISCAL 1998
Gross profit as a percentage of net sales for the fiscal year
ended March 28, 1998 was 10.2%, compared to 9.6% in fiscal year ended March
29, 1997. The improvement in gross profit for the fiscal year ended March
28, 1998 was attributable to several factors, including enhanced inventory
procurement practices in the grocery store distribution segment, as the
Company purchased inventories in excess of current needs to take advantage
of promotions offered by vendors. Also, the Company experienced some
improvements in gross profit in the convenience store distribution segment
from the sale of cigarette inventories purchased prior to price increases
in 1998. Finally, during the third quarter, the Company revised the
methodology by which it administers its cost-plus pricing policy to compute
amounts billed based on acquisition cost before considering any promotional
allowance.
RESTRUCTURING CHARGE
On October 14, 1998, the Company's Board of Directors approved an
initiative to replace the Company's Plymouth distribution center with a new
multi-commodity distribution center. The initiative includes the cessation
of operations at the Company's existing distribution center in Plymouth,
Michigan by April 2000 and would result in the displacement of
approximately 300 associates in Plymouth and approximately 100 associates
at its Grand Rapids, Michigan distribution center. In connection with the
initiative, $5,697,738, or .2% of net sales, has been accrued as of March
27, 1999. The charge encompasses accruals for contractual amounts to be
paid under a collective bargaining agreement, additional severance pay, and
amounts due in connection with withdrawal from the union pension plan.
Management expects the accrual to continue to increase as additional
severance costs are recognized over the period of service provided.
OPERATING AND ADMINISTRATIVE EXPENSES
FISCAL 1999
Operating and administrative expenses for the fiscal year ended
March 27, 1999 were 8.9% of net sales compared to 9.2% in the fiscal year
ended March 28, 1998. The decline is primarily the result of the increase
in net sales as discussed above. Actual operating costs increased by
approximately $9.2 million, with a majority of the increase resulting from
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<PAGE>
Company's entrance into the retail grocery industry and incremental costs
associated with volume increases in the convenience store distribution
segment. Management expects operating and administrative expenses to
increase as a percentage of net sales due to the Company's retail store
operations for which operating and administrative expenses are typically
higher as a percentage of net sales than in wholesale operations.
FISCAL 1998
Operating and administrative expenses for the fiscal year ended
March 28, 1998 were 9.2% of net sales, compared to 8.8% for the fiscal year
ended March 29, 1997. The increase was primarily attributable to
information technology costs to address Year 2000 issues, software
amortization expense, declines in warehouse efficiency and the
implementation of an incentive compensation program for management
associates. During January 1998, the Company also paid approximately $1.3
million in settlement of certain employee related claims.
INTEREST EXPENSE AND INCOME
FISCAL 1999
Interest expense for the fiscal year ended March 27, 1999
declined by approximately $1.7 million from the fiscal year ended March 28,
1998. The decline was due primarily to average lower borrowings during the
year as a result of the Company's increase in cash flows generated from
operations. However, management expects interest expense to increase as a
result of a new bank credit agreement entered into during March 1999 that
has resulted in an increase in borrowing rates. This bank credit agreement
is discussed in greater detail in the "Liquidity and Capital Resources"
section below. Interest income for the fiscal year ended March 27, 1999
was slightly lower than the fiscal year ended March 28, 1998 due to lower
notes receivable from retailers and fewer delinquent accounts. This
decline was offset somewhat by increased interest income in the convenience
store segment due to the Company's short-term investment of cash generated
from operations.
FISCAL 1998
Interest expense for the fiscal year ended March 28, 1998
increased by approximately $1.2 million over the fiscal year ended March
29, 1997. The increase in interest expense during 1998 was caused by
additional borrowings under the Company's bank credit agreement, due
primarily to higher cigarette inventories and, to a lesser extent, the
development of retail properties. During fiscal 1997 a major construction
effort related to the development of retail properties in the Eastern
Michigan region required interest incurred during the construction period
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<PAGE>
to be capitalized as part of the cost of the projects rather than expensed.
Interest income declined by approximately $.3 million in the fiscal year
ended March 28, 1998 from the fiscal year ended March 29, 1997. The
reduction in interest income was due primarily to a decrease in notes
receivable. In addition, finance fees earned on past due accounts
decreased as a result of a reduction in past due accounts.
GAIN ON SALE OF PROPERTY AND EQUIPMENT
The gain on sale of property and equipment of $1.2 million for
the fiscal year ended March 27, 1999 was due primarily to approximately
$1.9 million in gains on the sales of three retail properties, offset by
losses of approximately $.7 million on the write-down of certain assets.
These assets included certain technology-related equipment in connection
with the implementation of a logistics software package and assets
associated with the closing of administrative offices in conjunction with
the Company's continuing efforts to centralize existing processes.
Management does not expect significant sales of retail properties to occur
during Fiscal 2000. However, the Company will recognize a gain of
approximately $2.5 million associated with the sale of common stock held in
another entity during Fiscal 2000.
The gain on sale of property and equipment of $3.9 million and
$1.7 million, respectively, for the fiscal years ended March 28, 1998 and
March 27, 1997, were due primarily to the sale of retail properties during
these years and the sale of a distribution facility in Fiscal 1997. The
sales of retail properties were completed in conjunction with a plan to
reduce the Company's debt and real estate portfolio to historical levels.
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
Earnings before income taxes and extraordinary item were $25.0
million for the fiscal year ended March 27, 1999, compared to $22.2 million
for the fiscal year ended March 28, 1998, and $15.4 million for the fiscal
year ended March 29, 1997.
Earnings before income taxes and extraordinary item in the
grocery store distribution segment were $2.3 million for the fiscal year
ended March 27, 1999, compared to $6.5 million for the fiscal year ended
March 28, 1998, and $1.9 million for the fiscal year ended March 29, 1997.
The decline experienced during the fiscal year ended March 27, 1999 was due
primarily to the restructuring charge of approximately $5.7 million,
recorded in connection with management's decision to replace the Company's
Plymouth distribution center. The new multi-commodity distribution center
along with related initiatives is expected to reduce overall operating
costs ,provide better service to existing Customers, and promote expansion
and growth in southern markets. The increase experienced during the fiscal
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<PAGE>
year ended March 28, 1998 was due primarily to improvements in gross
profit.
Earnings before income taxes and extraordinary item in the
convenience store distribution segment were $15.3 million for the fiscal
year ended March 27, 1999, compared to $6.1 million for the fiscal year
ended March 28, 1998, and $6.6 million for the fiscal year ended March 29,
1997. The increase during the fiscal year ended March 27, 1999 was due
primarily to the sale of cigarettes purchased prior to significant price
increases by cigarette manufacturers.
Earnings before income taxes and extraordinary item in the
insurance segment were $3.6 million for the fiscal year ended March 27,
1999, compared to $3.6 million for the fiscal year ended March 28, 1998,
and $3.9 million for the fiscal year ended March 29, 1997.
Earnings before income taxes and extraordinary item in the real
estate segment were $3.8 million for the fiscal year ended March 27, 1999,
compared to $6.0 million for the fiscal year ended March 28, 1998, and $2.9
million for the fiscal year ended March 29, 1997. Earnings in the real
estate segment in each of these years have been positively impacted by
sales of retail properties which are not expected to occur in Fiscal 2000.
EXTRAORDINARY ITEM
During the fourth quarter of the fiscal year ended March 27,
1999, the Company incurred a pre-payment penalty of approximately $1.6
million in connection with the repayment of senior notes outstanding. This
extraordinary item was recorded in the grocery store distribution segment.
The payment of the senior notes was required as a result of the Company's
new bank credit agreement discussed in the liquidity and capital resources
section below.
YEAR 2000 READINESS DISCLOSURE
During Fiscal 1997, the Company began assessing the ability of
its computers and other systems to accurately process date and time data in
connection with the Year 2000. As a result of this assessment, the Company
developed a plan that addressed internally developed systems, purchased
systems, imbedded processors and third party risks. The strategy for
internally developed systems has been to replace or convert non-compliant
systems or eliminate unnecessary systems. The Company is using both
internal resources as well as contracted consultants to assist in this
process. The Company also has completed an inventory of its purchased
systems and imbedded processors, has contacted or attempted to contact the
related vendors or manufacturers to determine their Year 2000 compliance,
and is in the process of replacing, converting or eliminating the purchased
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<PAGE>
systems that the Company has been informed or otherwise has determined are
not Year 2000 compliant. The Company has identified and replaced or
repaired a small number of systems having non-compliant imbedded processors
and anticipates Year 2000 readiness in this area by July 1999. Finally,
the Company has mailed inquiries to its customers, suppliers and financial
institutions relative to their Year 2000 compliance status. The Company
continues to communicate Year 2000 issues to the Company's Customers by
conducting seminars and distributing tool kits and other similar materials.
The Company estimates that it already has replaced or converted
approximately 85% to 90% of its non-compliant systems and that all major
systems are Year 2000 compliant. The Company has spent approximately $5.5
million during the past two fiscal years and expects to incur an additional
$.8 million to address the Year 2000 issues. The Company has delayed other
non-critical development and support initiatives as a result of these
expenditures. The Company believes that due to its current efforts and
future plans the Year 2000 problem will not pose significant operational
problems for the Company's computer systems. If all modifications and
conversions to the Company's systems are not completed timely, however, or
if the Company's customers, suppliers or financial institutions should fail
to adequately modify their computer systems, the Year 2000 problem could
have a material adverse impact on the Company's ability to order and
distribute product as well as operate its insurance, retail and real
estate and finance businesses. Management believes the Company's greatest
exposure exists with its Customers and suppliers and their inability to
process business transactions should they fail to adequately address the
Year 2000 problem. The Company is developing business interruption
contingency plans designed to address adverse consequences potentially
arising from the Year 2000.
This Year 2000 Readiness Disclosure is in part based upon and
repeats information provided to the Company by outside sources, including
its suppliers, Customers, outside consultants and other business partners
and the manufacturers, vendors and licensors of the Company's software,
hardware and other systems and equipment. Although the Company believes
this outside information is accurate, the Company is not the original
source of this outside information and has not independently verified the
information.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $101.9 million at March 27,
1999 compared to $61.7 million at March 28, 1998. The Company's current
ratio increased from 1.35:1.00 at March 28, 1998 to 1.77:1.00 at March 27,
1999. The improvement in liquidity is primarily the result of cash flows
from operations and refinancing in connection with a new bank credit
agreement entered into on March 18, 1999, under which borrowings are
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<PAGE>
classified as long-term. Net cash provided by operating activities
continues to outpace prior year levels at $50 million for the fiscal year
ended March 27, 1999, compared to $29.6 million and $16.4 million for the
fiscal years ended March 28, 1998 and March 29, 1997, respectively. These
increases are primarily the result of improved earnings and the liquidation
of excess cigarette inventories held during the fiscal year ended March 27,
1999.
Net cash used in investing activities was $70.3 million during
the fiscal year ended March 27, 1999, compared to $3.2 million and $35.8
million during the fiscal years ended March 28, 1998 and March 29, 1997,
respectively. The increase in Fiscal 1999 was primarily the result of the
acquisition of eight retail grocery stores prior to fiscal year end and the
deposit of funds to be used for acquisitions completed subsequent to year
end, offset by reductions in capital expenditures and proceeds from the
sale of three retail properties during the year. The decline in Fiscal
1998 was primarily the result of proceeds from the sale of nine retail
properties and reductions in capital expenditures.
Net cash flows provided by financing activities were $27.4
million during the fiscal year ended March 27, 1999, compared to net cash
flows used in financing activities of $23.6 million during the fiscal year
ended March 28, 1998 and net cash flows provided by financing activities of
$13.8 million during the fiscal year ended March 29, 1997. On March 19,
1999, the Company entered into a $425 million senior secured credit
facility to refinance existing debt, support retail store acquisitions,
fund working capital and support other general corporate needs. The new
credit facility resulted in debt issuance costs of approximately $9.0
million. The credit facility consists of (a) a Revolving Credit Facility
in the amount of $100 million with a term of six years, (b) a Term Loan A
in the amount of $100 million with a term of six years, (c) an Acquisition
Facility in the amount of $75 million with a term of seven years and (d) a
Term Loan B in the amount of $150 million with a term of eight years. The
credit facility provides for the issuance of letters of credit of which
$11,810,000 were available for use as of March 27, 1999. Interest rates
payable on amounts borrowed under the senior secured credit facility are
based on the prime rate, the federal funds rate or the eurodollar rate. As
of March 27, 1999, the Company had $100 million outstanding on the Term
Loan A facility bearing interest at 9.00% and $150 million outstanding on
the Term Loan B facility bearing interest at 9.75% per annum. As of March
27, 1999, approximately $78.1 million of the proceeds from the credit
facility were held in a bank escrow account for use in connection with
acquisitions consummated subsequent to year-end.
The Company is also permitted to sell Variable Rate Promissory
Notes under a note offering with a total principal amount of $100,000,000.
The notes are offered in minimum denominations of $1,000 and may be issued
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<PAGE>
by the Company at any time, although the Company's bank credit agreement
restricts the total amount outstanding under the offering to approximately
$16.1 million. As of March 27, 1999, approximately $51.4 million of these
notes have been issued and approximately $15.9 million were outstanding.
CAPITAL STRUCTURE
The following table summarizes the Company's capital structure
for the last two fiscal years:
<TABLE>
<CAPTION>
1999 1998
------------------------- ------------------------
<S> <C> <C> <C> <C>
Average short-term borrowing during the year $ 13,600,000 3.0% $ 29,800,000 10.5%
Long-term debt at year-end 274,136,907 60.4 112,444,327 39.7
Present value at year-end:
Capital leases 1,111,394 0.2 1,765,995 0.6
Operating leases:
Used in operations 28,118,168 6.2 8,885,000 3.1
Subleased to others 15,808,593 3.5 16,281,652 5.8
------------ ------ ------------ ------
Total debt capital 332,775,062 73.3 169,176,974 59.7
Shareholders' equity 121,061,390 26.7 114,192,251 40.3
------------ ------ ------------ ------
Total capitalization $453,836,452 100.0% $283,369,225 100.0%
============ ====== ============ ======
</TABLE>
The Trading Value of the Class A Shares customarily is
established annually by the Board of Directors during the first quarter of
the fiscal year. Any change adopted by the Board becomes effective upon
acceptance of the Trading Value by the Michigan Corporation, Securities and
Land Development Bureau. The Trading Value of the Class A Shares was
$12.30 per share at March 27, 1999. Effective as of June 21, 1999, the new
Trading Value has been established at $13.30 per share.
The Company paid quarterly dividends of $.0125 per share for each
of the past three fiscal years. Dividends were $555,714 for the fiscal
year ended March 27, 1999. The senior secured credit facility contains
covenants which restrict the amount of cash dividends payable by the
Company to $800,000 in any twelve-month period.
On July 15, 1997, the Articles of Incorporation of the Company
were amended to increase the authorized capital stock from 2,000,000 to
20,000,000 shares of Class A common stock and from 500,000 to 5,000,000
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<PAGE>
shares of Class B common stock. The amendment also reduced the par value
of the Class A common stock from $20 per share to $2 per share. On July 15,
1997, the Company also consummated a ten-for-one stock split pursuant to a
share dividend payable to shareholders of record on May 31, 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The
SOP is effective for the Company on March 28, 1999. The SOP will require
the capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. This
SOP will be adopted on a prospective basis and its effect on future
operations has not been determined.
In 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to record derivatives on the balance sheet as assets and
liabilities measured at fair value. The accounting treatment of gains and
losses resulting from changes in the value of derivatives depends on the
use of the derivative and whether it qualifies for hedge accounting. The
Company will adopt SFAS No. 133 as required no later than March 26, 2000,
and is currently assessing the impact of adoption on its consolidated
financial statements.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The matters discussed in this Annual Report on Form 10-K include
forward-looking statements that describe the Company's plans, strategies,
objectives, goals, expectations or projections. These forward-looking
statements are identifiable by words or phrases indicating that the Company
or management "expects," "anticipates," "projects," "plans" or "believes"
that a particular occurrence "may result" or "will likely result" or that a
particular event "may occur" or "will likely occur" in the future, or
similarly stated expectations. In addition to other risks and
uncertainties described in connection with the forward-looking statements
contained in this Annual Report on Form 10-K, there are many important
factors that could cause actual results to be materially different from the
Company's current expectations.
Anticipated future sales are subject to competitive pressures
from many sources. The Company's grocery store and convenience store
distribution segments compete with numerous warehouse discount stores,
supermarkets, pharmacies and product manufacturers. The Company's
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<PAGE>
insurance segment is subject to intense competition from numerous insurance
agents and insurance companies, especially in the property and casualty
insurance markets. Competitive pressures in these and other business
segments may result in unexpected reductions in sales volumes, product
prices or service fees. Additionally, future sales will be dependent on
the number of retail stores owned and operated by the Company and
competitive pressures in the retail industry.
Operating and administrative expenses may be adversely affected
by unexpected costs associated with, among other factors: software
development activities; computer and other system modifications and
upgrades to address Year 2000 issues; unanticipated labor shortages,
stoppages or disputes; business acquisitions, including the Company's
acquisition of retail stores; business divestitures; the transition of the
business operations of recently acquired retail stores; the defense,
settlement or adverse judgments in connection with current or future legal
or administrative proceedings; the cessation of operations at the Company's
existing distribution center in Plymouth, Michigan; the discontinuance of
the "Over-the-Road" freight department; and the adoption of SOP 98-1 and
SFAS No. 133. The Company's future interest expense and income also may
differ from current expectations, depending upon: the amount of additional
borrowings necessary in connection with retail store acquisitions; interest
rate fluctuations; cigarette inventory levels; retail property sales; the
volume of notes receivable; and the amount of fees received on delinquent
accounts, among other factors.
The Company's estimated costs and completion dates for addressing
Year 2000 issues, as well as the estimated potential effects on the
Company's business operations arising from Year 2000 issues, are based upon
management's best estimates. These estimates were derived using numerous
assumptions with respect to future events. Actual results could differ
materially from those anticipated if there are greater than expected
disruptions or costs experienced by the Company or its Customers or
suppliers in connection with the Year 2000, including unanticipated delays
in correcting Year 2000 problems; increased costs of trained personnel;
increased costs associated with the Company's retail store acquisitions;
the interruption of electronic or telephonic communications; the
interruption in banking or commercial payment systems; transportation
delays; the failure of basic utilities; or other similar events or factors.
Accordingly, there can be no guarantee that the Company's estimates will be
achieved.
The foregoing is intended to provide meaningful cautionary
statements for purposes of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The foregoing should not be
construed as an exhaustive list of all economic, competitive, governmental
and technological factors that could adversely affect the Company's
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<PAGE>
expected consolidated financial position, results of operations or
liquidity. The Company disclaims any obligation to update its forward-
looking statements to reflect subsequent events or circumstances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to interest rate risk related to its debt
outstanding and notes receivable from Customers. The interest rate paid on
a majority of the Company's debt outstanding is vulnerable to changes in
either the prime rate, the federal funds rates or the eurodollar rate.
Interest received on notes receivable from Customers is vulnerable to
changes in the prime rate. The Company does not use financial instruments
or derivates for trading or speculative purposes.
The Company manages interest rate risk on a portion of its debt
through the use of an interest rate swap agreement that was entered into
subsequent to the fiscal year-end, and that is effective from June 30, 1999
to June 29, 2003. Under the terms of the agreement, the Company is
protected against increases in interest rates from and after the date of
the contract in the initial aggregate notional amount of $162,500,000,
which amount decreases in proportion to principal payments made on the Term
Loan A and the Term Loan B under the Company's credit facility. The
aggregate notional amount will be $123,666,667 at the end of the contract's
four year term.
The following table sets forth the maturities of the Company's
notes receivable from Customers and debt outstanding as of March 27, 1999:
<TABLE>
<CAPTION>
NOTES DEBT
RECEIVABLE OUTSTANDING
MATURITIES (VARIABLE RATE) (VARIABLE RATE)
---------- --------------- ---------------
<S> <C> <C> <C>
Fiscal 2000 $1,423,410 $ 5,726,153
Fiscal 2001 2,239,402 34,519,242
Fiscal 2002 906,834 21,030,721
Fiscal 2003 759,126 15,816,927
Fiscal 2004 525,168 21,106,159
Thereafter 413,013 177,049,099
---------- ------------
Fair value at March 27, 1999 $6,266,953 $275,248,301
========== ============
Average variable rate at March 27, 1999 8.25% 9.30%
========== ============
</TABLE>
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Spartan Stores, Inc.
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of
Spartan Stores, Inc. and subsidiaries as of March 27, 1999 and March
28, 1998, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the
period ended March 27, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Spartan Stores,
Inc. and subsidiaries as of March 27, 1999 and March 28, 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended March 27, 1999, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
June 4, 1999
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<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
SPARTAN STORES, INC. AND SUBSIDIARIES
<CAPTION>
MARCH 27, MARCH 28,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 44,112,178 $ 37,026,640
Marketable securities 21,058,381 18,333,323
Accounts receivable 75,940,878 74,549,520
Inventories 82,186,247 92,706,414
Prepaid expenses 6,961,948 6,885,828
Deferred taxes on income 5,025,000 7,277,000
------------ ------------
TOTAL CURRENT ASSETS 235,284,632 236,778,725
OTHER ASSETS
Restricted cash 78,143,825
Deposits 43,856,175
Notes receivable 4,883,491 6,539,412
Other 18,217,679 1,703,110
------------ ------------
TOTAL OTHER ASSETS 145,101,170 8,242,522
PROPERTY AND EQUIPMENT
Land and improvements 32,891,952 33,098,220
Buildings and improvements 137,853,451 136,496,867
Equipment 145,270,179 138,663,310
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 316,015,582 308,258,397
Less accumulated depreciation and amortization 157,667,516 147,146,529
------------ ------------
NET PROPERTY AND EQUIPMENT 158,348,066 161,111,868
------------ ------------
TOTAL ASSETS $538,733,868 $406,133,115
============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SPARTAN STORES, INC. AND SUBSIDIARIES
<CAPTION>
MARCH 27, MARCH 28,
LIABILITIES AND SHAREHOLDERS EQUITY 1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 38,500,000
Accounts payable $ 83,333,101 81,690,574
Accrued payroll and benefits 18,848,809 13,447,559
Insurance reserves 14,164,064 15,799,160
Other accrued expenses 11,228,699 19,114,660
Current maturities of long-term debt and capital lease obligation 5,726,153 6,544,777
------------ ------------
TOTAL CURRENT LIABILITIES 133,300,826 175,096,730
DEFERRED TAXES ON INCOME 2,125,000 3,750,000
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 4,970,421 4,784,200
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION 269,522,148 107,665,545
OTHER LONG-TERM LIABILITIES 7,754,083 644,389
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Class A common stock, voting, par value $2 a share;
authorized 20,000,000 shares; outstanding 10,844,416
and 11,443,985 21,688,832 22,887,970
Additional paid-in capital 13,814,823 16,431,937
Retained earnings 85,557,735 74,872,344
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 121,061,390 114,192,251
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $538,733,868 $406,133,115
============ ============
</TABLE>
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<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
SPARTAN STORES, INC. AND SUBSIDIARIES
<CAPTION>
YEAR ENDED
--------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES $2,671,699,778 $2,489,249,469 $2,475,025,242
COSTS AND EXPENSES
Cost of sales 2,397,818,378 2,234,164,773 2,238,364,428
Operating and administrative 238,288,678 229,137,439 216,890,506
Restructuring charge 5,697,738
Interest expense 9,207,704 10,934,034 9,700,440
Interest income (3,102,984) (3,324,089) (3,609,410)
Gain on sale of property and equipment (1,187,360) (3,905,669) (1,704,447)
-------------- -------------- --------------
TOTAL COSTS AND EXPENSES 2,646,722,154 2,467,006,488 2,459,641,517
-------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 24,977,624 22,242,981 15,383,725
INCOME TAXES 9,148,000 8,009,000 5,681,000
-------------- -------------- --------------
EARNINGS BEFORE EXTRAORDINARY ITEM 15,829,624 14,233,981 9,702,725
EXTRAORDINARY ITEM (NET OF INCOME TAXES
OF $554,000) 1,030,638
-------------- -------------- --------------
NET EARNINGS $ 14,798,986 $ 14,233,981 $ 9,702,725
============== ============== ==============
BASIC AND DILUTED EARNINGS
PER CLASS A SHARE:
BEFORE EXTRAORDINARY ITEM $ 1.42 $ 1.21 $ 0.80
============== ============== ==============
NET EARNINGS $ 1.33 $ 1.21 $ 0.80
============== ============== ==============
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<PAGE>
BASIC WEIGHTED AVERAGE CLASS A SHARES 11,157,935 11,785,263 12,136,708
============== ============== ==============
DILUTED WEIGHTED AVERAGE CLASS A SHARES 11,162,374 11,788,723 12,140,470
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SPARTAN STORES, INC. AND SUBSIDIARIES
<CAPTION>
CLASS A ADDITIONAL RETAINED
COMMON STOCK PAID-IN CAPITAL EARNINGS
------------ --------------- --------
<S> <C> <C> <C> <C>
Balance March 31, 1996 $24,920,960 $19,622,472 $58,043,279
Class A common
stock transactions 801,410 shares purchased (1,602,820) (4,367,053) (2,355,162)
373,780 shares issued 747,560 3,151,550
Net earnings 9,702,725
Cash dividends $.05 per share (605,937)
- -----------------------------------------------------------------------------------------------------
Balance March 29, 1997 24,065,700 18,406,969 64,784,905
Class A common
stock transactions 895,256 shares purchased (1,790,512) (4,769,484) (3,559,471)
306,391 shares issued 612,782 2,794,452
Net earnings 14,233,981
Cash dividends $.05 per share (587,071)
- -----------------------------------------------------------------------------------------------------
Balance March 28, 1998 22,887,970 16,431,937 74,872,344
Class A common
stock transactions 846,705 shares purchased (1,693,410) (5,108,183) (3,557,881)
247,136 shares issued 494,272 2,491,069
Net earnings 14,798,986
Cash dividends $.05 per share (555,714)
- -----------------------------------------------------------------------------------------------------
Balance March 27, 1999 $21,688,832 $13,814,823 $85,557,735
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SPARTAN STORES, INC. AND SUBSIDIARIES
<CAPTION>
YEAR ENDED
-------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $14,798,986 $14,233,981 $ 9,702,725
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 21,412,939 21,639,466 20,175,210
Restructuring charge 5,697,738
Postretirement benefits other than pensions 186,221 238,717 444,000
Deferred taxes on income 627,000 (583,000) 4,035,000
Gain on sale of property and equipment (1,187,360) (3,905,669) (1,704,447)
Change in assets and liabilities, net of
acquisitions:
Marketable securities (2,725,058) (727,443) (1,554,272)
Accounts receivable (1,317,903) (1,376,754) 5,546,647
Inventories 14,694,633 (7,497,222) (6,549,385)
Prepaid expenses 894,919 (22,603) (3,795,069)
Accounts payable 1,642,527 3,560,090 (6,738,104)
Accrued payroll and benefits 5,019,928 1,631,848 1,138,090
Insurance reserves (1,635,096) (1,373,182) (1,312,318)
Other accrued expenses (8,118,443) 3,793,733 (2,981,000)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 49,991,031 29,611,962 16,407,077
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (16,418,527) (23,997,384) (46,237,512)
Proceeds from the sale of property
and equipment 6,623,230 20,743,170 7,805,730
Acquisitions, net of cash acquired, and deposits (61,100,457)
Other 554,859 27,517 2,624,384
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (70,340,895) (3,226,697) (35,807,398)
----------- ----------- -----------
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<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in notes payable (13,650,000) 5,000,000 18,500,000
Proceeds from long-term borrowings 97,887,145 9,212,619 37,274,127
Repayment of long-term debt and
capital lease obligation (39,842,991) (30,470,692) (36,939,210)
Debt issuance costs (9,028,905)
Proceeds from sale of common stock 2,985,341 3,407,234 3,899,110
Common stock purchased (10,359,474) (10,119,467) (8,325,035)
Dividends paid (555,714) (587,071) (605,937)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 27,435,402 (23,557,377) 13,803,055
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,085,538 2,827,888 (5,597,266)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,026,640 34,198,752 39,796,018
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $44,112,178 $37,026,640 $34,198,752
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY OWNERSHIP
The Company's common stock is substantially owned by its customers and a
majority of the Company's sales are to its shareholder-customers. A
description of the Company's transactions with its customers is included in
the Operating Segment Information note to the consolidated financial
statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany profits, transactions
and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may be based upon amounts which differ from those estimates.
FISCAL YEAR
The fiscal year of the Company ends on the last Saturday of March. The
fiscal years ended March 27, 1999, March 28, 1998 and March 29, 1997 were
each comprised of fifty-two weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, marketable
securities, accounts and notes receivable, accounts payable, notes payable
and long-term debt reported in the Consolidated Balance Sheets. The
carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable, notes receivable and notes payable approximate fair value
at March 27, 1999 and March 28, 1998 because of the short-term nature of
these financial instruments.
At March 27, 1999, the cost of marketable securities exceeded the estimated
fair value by $129,536. As of March 28, 1998, the fair value of marketable
securities exceeded cost by $24,235.
At March 27, 1999, the estimated fair value of the Company's long-term debt
(including current maturities) approximated the carrying value. At March
28, 1998, the estimated fair value exceeded the carrying value by
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<PAGE>
approximately $763,000. The estimated fair value was based on anticipated
rates available to the Company for debt with similar terms and maturities.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
with an original maturity of three months or less at the date of purchase.
ACCOUNTS RECEIVABLE
Accounts receivable include the current portion of notes receivable of
$1,423,410 in 1999 and $2,709,152 in 1998 and are shown net of allowances
for credit losses of $2,335,000 in 1999 and $1,810,000 in 1998.
INVENTORIES
Inventories are stated at the lower of cost or market using the LIFO (last-
in, first-out) method. If replacement cost had been used, inventories
would have been $49,900,000 and $45,400,000 higher at March 27, 1999 and
March 28, 1998, respectively. During 1999, 1998 and 1997, certain
inventory quantities were reduced. These reductions resulted in
liquidations of LIFO inventory carried at lower costs prevailing in prior
years as compared with the costs of purchases in these years, the effect of
which increased income before taxes in 1999, 1998 and 1997 by $1,394,000,
$51,000 and $441,000, respectively.
RESTRICTED CASH
Restricted cash at March 27, 1999 consists of $78,143,825 held in a bank
escrow account for acquisitions consummated subsequent to fiscal year end.
RECOGNITION OF LOAN IMPAIRMENT
The Company records allowances for loan impairment when it is determined
that the Company will be unable to collect all amounts due according to the
terms of the underlying agreement. Interest income on impaired loans is
recognized only when interest payments are received.
LONG-LIVED ASSETS
The carrying values of long-lived assets are analyzed using undiscounted
future cash flows of the assets. Any adjustment to its carrying value is
recognized on a current basis.
OTHER ASSETS
Included in Other Assets is goodwill of $5,978,000 and non-compete
agreements of $2,014,000 as of March 27, 1999. Goodwill consists of
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<PAGE>
amounts paid in excess of the fair value of net assets acquired and is
being amortized over the estimated period benefited of forty years. Non-
compete agreements are being amortized over the terms of the agreements.
Amortization expense was $55,160, $80,452 and $321,807 for the fiscal years
ended March 27, 1999, March 28, 1998 and March 29, 1997, respectively.
Also included in Other Assets as of March 27, 1999 are debt issuance costs
of $9,028,905 incurred in connection with a new senior secured credit
facility that are being amortized into interest expense over the term of
the credit facility.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the
shorter of the estimated useful lives or lease periods of the assets.
Expenditures for normal repairs and maintenance are charged to operations
as incurred. Depreciation is computed using the straight-line and
declining balance methods as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Land improvements 15 to 40 years
Buildings and improvements 15 to 40 years
Machinery and equipment 5 to 20 years
Furniture and fixtures 3 to 10 years
</TABLE>
Capital leases are initially stated at the present value of future lease
payments and are amortized using the straight-line method over the related
lease terms.
Software development costs are capitalized, and amortization over a five
year period commences as each system is implemented.
ACCOUNTS PAYABLE
Accounts payable include checks in the amount of $15,355,942 and
$18,267,488 at March 27, 1999 and March 28, 1998, respectively, which have
been issued and have not cleared the Company's controlled disbursing bank
accounts.
INSURANCE RESERVES
Insurance reserves represent a provision for reported losses and incurred
but not reported losses. Losses are recorded when reported and consist of
individual case estimates. Incurred but not reported losses are estimated
based on available historical information.
-42-
<PAGE>
TAXES ON INCOME
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. Such
deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities.
EARNINGS PER SHARE
Basic Earnings Per Share ("EPS") excludes dilution and is computed by
dividing net earnings by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed by increasing the
weighted average number of common shares outstanding by the dilutive effect
of the issuance of common stock for options outstanding under the Company's
stock option plan.
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP is
effective for the Company on March 28, 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. This
SOP will be adopted on a prospective basis and its effect on future
operations has not been determined.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
record derivatives on the balance sheet as assets and liabilities measured
at fair value. The accounting treatment of gains and losses resulting from
changes in the value of derivatives depends on the use of the derivative
and whether it qualifies for hedge accounting. The Company will adopt SFAS
No. 133 as required no later than March 26, 2000, and is currently
assessing the impact of adoption on its consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 presentations
in order to conform to the 1999 presentation.
-43-
<PAGE>
SUBSEQUENT EVENT
Subsequent to March 27, 1999, a gain of approximately $2.5 million was
recognized from the sale of common stock held in a supplier.
ACQUISITIONS
On January 4, 1999, the Company's wholly owned subsidiary, Valuland, Inc.
("Valuland") acquired certain assets and assumed certain liabilities of
Ashcraft's Market, Inc., an operator of eight retail grocery stores located
primarily in mid-Michigan. On March 29, 1999, Valuland acquired all the
issued and outstanding shares of Family Fare, Inc., Family Fare Management
Services, Inc. and Family Fare Trucking, Inc. (collectively "Family Fare").
Family Fare is an operator of 13 retail grocery stores, a bakery, a
warehouse facility and a transportation business located primarily in
Western Michigan. On May 19, 1999, Valuland acquired certain assets and
assumed certain liabilities associated with the retail grocery, pharmacy
and transportation business of Glen's Market, Inc., Catt's Realty Co. and
Glen's Pharmacy, Inc. (collectively "Glen's"). As a result of this
acquisition, Valuland operates 23 Glen's retail grocery stores, four
pharmacies and a distribution center located primarily in Northern
Michigan.
The combined purchase price for the three acquisitions amounted to
$144,400,000. The acquisition of Ashcraft's Market has been accounted for
as a purchase and, accordingly, the acquired assets and assumed liabilities
are included in the accompanying consolidated balance sheets at values
representing an allocation of the purchase price. The excess of the
purchase price over the valuation of Ashcraft's tangible assets and
liabilities amounted to $5,978,000. This excess was assigned to goodwill.
Deposits consist of amounts advanced to Family Fare for the redemption of
the Company's Class A common stock and for the acquisition of the stock of
Family Fare.
The consolidated statements of earnings include the operations of
Ashcraft's Market from January 4, 1999. The following unaudited pro forma
summary presents the consolidated statements of earnings of the Company as
if the acquisition had occurred at the beginning of the period presented.
These pro forma results are based upon assumptions considered appropriate
by management and include adjustments as considered necessary in the
circumstances. Such adjustments include the depreciation of property and
equipment, amortization of goodwill, increased interest expense from debt
assumed to have been issued to fund the acquisition, and related income tax
effects of the acquisition. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of results
which would have actually been reported had the acquisition taken place on
the dates indicated or which may be reported in the future.
-44-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA 1999 1998 1997
- ----------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Net sales $2,694,509,026 $2,517,953,228 $2,503,729,001
Earnings before extraordinary item
(net of income taxes of $554,000) $16,671,308
Net earnings $15,640,610 $14,507,631 $9,976,375
Basic and diluted earnings
per Class A share:
Before extraordinary item $1.49
Net earnings $1.40 $1.23 $0.82
</TABLE>
RESTRUCTURING CHARGE
On October 14, 1998, the Company's Board of Directors approved an
initiative to replace the Company's Plymouth distribution center with a new
multi-commodity distribution center. The initiative includes the cessation
of operations at the Company's existing distribution center in Plymouth,
Michigan by April 2000 and would result in the displacement of
approximately 300 associates in Plymouth and approximately 100 associates
at its Grand Rapids, Michigan distribution center. In connection with the
initiative, $5,697,738 has been accrued as of March 27, 1999 and is
included in Other Long-term Liabilities in the accompanying consolidated
balance sheets. The charge encompasses accruals for contractual amounts to
be paid under a collective bargaining agreement, additional severance pay,
and amounts due in connection with withdrawal from the union pension plan.
MARKETABLE SECURITIES
The amortized cost and estimated fair values of marketable securities
available-for-sale as of March 27, 1999 and March 28, 1998 are shown below.
Gross unrealized gains and losses as of March 27, 1999 and March 28, 1998
were not material.
-45-
<PAGE>
<TABLE>
<CAPTION>
1999
-----------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Securities available-for-sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 8,603,906 $ 8,193,958
Debt securities issued by foreign
governments, corporations and agencies 12,584,011 12,864,423
----------- -----------
$21,187,917 $21,058,381
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Securities available-for-sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 7,158,325 $ 7,173,804
Debt securities issued by foreign
governments, corporations and agencies 11,150,763 11,159,519
----------- -----------
$18,309,088 $18,333,323
=========== ===========
</TABLE>
The amortized cost and estimated fair values of investments as of March 27,
1999, by contractual maturity, are shown below:
-46-
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less $ 3,269,759 $ 3,522,962
Due after one year through five years 6,068,944 6,053,517
Due after five years through ten years 7,398,931 7,281,774
Due after ten years through fifteen years 4,450,283 4,200,128
----------- -----------
$21,187,917 $21,058,381
=========== ===========
</TABLE>
NOTES RECEIVABLE
Notes receivable relate to loans to shareholder-customers used to develop
new stores or expand or remodel existing stores. Loans are collateralized
by the inventory, facilities or equipment financed and in some instances by
the Company's Class A shares held by the shareholder-customer. Loans are
made on a floating rate basis, based on the prime rate. Most loans carry
interest rates from prime plus one-half percent to prime plus two percent.
Maturity dates range to 2006 at March 27, 1999. Impaired notes total
approximately $500,000 at March 27, 1999 and $480,000 at March 28, 1998,
including the current portion. The allowance for credit losses on accounts
receivable at March 27, 1999 and March 28, 1998 includes $500,000 and
$290,000, respectively, relating to impaired notes.
NOTES PAYABLE AND LONG-TERM DEBT
On March 18, 1999, the Company entered into $425 million in senior secured
credit facilities to refinance existing debt, support retail store
acquisitions, fund working capital and provide for other general corporate
needs. The credit facilities consist of (a) a Revolving Credit Facility in
the amount of $100 million with a term of six years, (b) a Term Loan A in
the amount of $100 million with a term of six years, (c) an Acquisition
Facility in the amount of $75 million with a term of seven years and (d) a
Term Loan B in the amount of $150 million with a term of eight years. The
credit facilities provide for the issuance of letters of credit of which
$11,810,000 were outstanding and unused as of March 27, 1999. Interest
rates payable on amounts borrowed under the credit facilities are based on
the prime rate, the federal funds rate or the eurodollar rate, plus a
stipulated margin. As of March 27, 1999, the Company had $100 million
outstanding on the Term Loan A facility bearing interest at 9.00% per annum
-47-
<PAGE>
and $150 million outstanding on the Term Loan B facility bearing interest
at 9.75% per annum. The credit facilities contain covenants which include
the maintenance of certain financial ratios, restrictions on additional
indebtedness and payment of cash dividends (restricted to $800,000 in any
twelve-month period). The senior secured credit facilities are secured by
substantially all of the Company's assets.
The weighted average interest rates for 1999 and 1998 were 6.14% and 6.25%,
respectively.
On March 18, 1999, the Company prepaid amounts borrowed under senior
unsecured notes in the amount of $21.5 million. The Company incurred a
pre-payment penalty of approximately $1.6 million which is presented as an
extraordinary item, net of income taxes, on the Statement of Earnings.
The Company's long-term debt and capital lease obligation consists of the
following:
<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
------------ ------------
<S> <C> <C>
Senior notes, unsecured, paid in 1999 $ 27,000,000
Senior credit facility, Term Loan A, due
March, 2005, quarterly principal payments
of $5,000,000 commencing June, 2000 $100,000,000
Senior credit facility, Term Loan B, due
March, 2007, semi-annual principal payments
of $250,000 commencing September, 1999 150,000,000
Bank credit agreement, unsecured, paid in 1999 62,800,000
Variable Rate Promissory Notes, unsecured,
due March 31, 2001, interest payable
quarterly at 1% below the prime rate 14,390,036 14,056,389
Other, including capital lease obligation 10,858,265 10,353,933
------------ ------------
275,248,301 114,210,322
Less current portion 5,726,153 6,544,777
------------ ------------
Total long-term debt and capital lease obligation $269,522,148 $107,665,545
============ ============
</TABLE>
-48-
<PAGE>
At March 27, 1999, long-term debt and capital lease obligation are due as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH,
------------------
<S> <C> <C>
2000 $ 5,726,153
2001 34,519,242
2002 21,030,721
2003 15,816,927
2004 21,106,159
Later 177,049,099
------------
$275,248,301
============
</TABLE>
The Variable Rate Promissory Notes are issued under a note offering which
permits the Company to sell notes with a total principal amount of
$100,000,000. The notes are offered in minimum denominations of $1,000 and
may be issued by the Company at any time, although the Company's bank
credit agreement restricts the total amount outstanding under the offering
to approximately $16.1 million. As of March 27, 1999, approximately $51.4
million of these notes have been issued and approximately $15.9 million
were outstanding. Issued notes are redeemed on March 31 of every other
calendar year after March 31, 1993.
COMMITMENTS AND CONTINGENCIES
The Company has guaranteed payment of indebtedness to financial
institutions aggregating $16,420,000 at March 27, 1999, on behalf of
certain Customers. The Company also has guaranteed three leases by
Customers, two of which expire in 2012 with combined annual rental payments
of $444,500 and one of which expires in 2017 with annual rental payments of
$217,500. The Company charges an annual fee for each loan guarantee and
lease guarantee and requires each Customer receiving a guarantee to commit
to minimum purchase requirements.
On August 21, 1996, the Attorney General for the State of Michigan filed an
action in Michigan circuit court against the leading cigarette
manufacturers operating in the United States, twelve wholesalers and
distributors of tobacco products in Michigan (including three Company
subsidiaries) and others seeking certain injunctive relief, the
reimbursement of $4 billion in Medicaid and other expenditures incurred or
to be incurred by the State of Michigan to treat diseases allegedly caused
-49-
<PAGE>
by cigarette smoking and punitive damages of $10 billion. In July 1998,
the court dismissed the claim for punitive damages. On December 7, 1998,
the State of Michigan and the cigarette manufacturers settled the remaining
claims and the case was dismissed by the court without any payment by the
Company or its subsidiaries. Thirty actions have been filed in state
courts in Pennsylvania against the leading cigarette manufacturers
operating in the United States and certain wholesalers and distributors,
including a subsidiary of the Company. All of the Pennsylvania actions
were filed by individual plaintiffs pursuant to a special notice procedure
which does not include any formal complaint. In these separate cases, the
Company expects that the plaintiffs are seeking compensatory, punitive and
other damages, reimbursement of medical and other expenditures and
equitable relief. The Company believes that its subsidiaries have valid
defenses to these legal actions. These actions are being vigorously
defended. All but two of the Pennsylvania actions have been dismissed
without prejudice pursuant to a Dismissal and Tolling Agreement under which
the defendants have agreed not to raise the defense of statute of
limitations or laches if an action is filed by a plaintiff before April 1,
1999. It is anticipated that the Dismissal and Tolling Agreement will be
extended to October 1, 1999, with respect to certain defendants, including
the Company's subsidiaries. One of the cigarette manufacturers named as a
defendant in each action has agreed to indemnify the Company's subsidiaries
from damages arising out of these actions. Management believes that the
ultimate outcome of these actions should not have a material adverse effect
on the consolidated financial position, results of operations or liquidity
of the Company.
Various other lawsuits and claims, arising in the ordinary course of
business, are pending or have been asserted against the Company. While the
ultimate effect of such actions cannot be predicted with certainty,
management believes that their outcome will not result in a material
adverse effect on the consolidated financial position, operating results or
liquidity of the Company.
LEASES
The Company and certain subsidiaries lease equipment and warehouse and
store facilities. Many of these leases include renewal options. The
following represents property which is leased under a capital lease and
included in property and equipment:
-50-
<PAGE>
<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
---------- ----------
<S> <C> <C> <C>
Buildings $7,300,000 $7,300,000
Less accumulated amortization 6,901,401 6,563,456
---------- ----------
Net buildings $ 398,599 $ 736,544
========== ==========
</TABLE>
Amortization of property under the capital lease was $337,945 in 1999 and
$294,618 in 1998 and 1997.
Future minimum obligations under capital leases in effect at March 27, 1999
are as follows:
<TABLE>
<CAPTION>
USED IN
YEAR ENDING MARCH, OPERATIONS
------------------ ----------
<S> <C> <C>
2000 $ 793,872
2001 396,937
----------
Total future minimum obligations 1,190,809
Less interest 79,415
----------
Present value of net future minimum obligations 1,111,394
Less current portion 722,500
----------
Long-term obligation $ 388,894
==========
</TABLE>
Future minimum obligations under operating leases in effect at March 27,
1999 are as follows:
-51-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDING USED IN SUBLEASED
MARCH, OPERATIONS TO OTHERS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
2000 $ 5,373,350 $ 2,307,288 $ 7,680,638
2001 4,691,436 2,307,288 6,998,724
2002 3,537,336 2,249,967 5,787,303
2003 2,609,542 1,820,007 4,429,549
2004 2,004,090 1,692,456 3,696,546
Later 11,210,834 10,436,208 21,647,042
----------- ----------- -----------
Total future minimum
obligations $29,426,588 $20,813,214 $50,239,802
=========== =========== ===========
</TABLE>
Rental expense under those leases which are classified as operating leases
amounted to $9,800,000, $8,400,000, and $9,690,000 in 1999, 1998 and 1997,
respectively.
One of the Company's subsidiaries leases retail store facilities to non-
related entities. Of the stores leased, several are owned and others were
obtained through leasing arrangements and are accounted for as operating
leases. Substantially all of the leases provide for minimum and contingent
rentals based upon stipulated sales volumes.
Owned assets, included in property and equipment, which are leased to
others are as follows:
<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1999 1998
----------- -----------
<S> <C> <C> <C>
Land and improvements $14,091,261 $15,100,926
Buildings 55,249,280 58,116,191
----------- -----------
69,340,541 73,217,117
Less accumulated depreciation 16,281,090 15,341,306
----------- -----------
Net property $53,059,451 $57,875,811
=========== ===========
</TABLE>
-52-
<PAGE>
Future minimum rentals to be received under operating leases in effect at
March 27, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OWNED LEASED
MARCH, PROPERTY PROPERTY TOTAL
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
2000 $ 7,312,457 $ 2,439,332 $ 9,751,789
2001 7,273,103 2,439,332 9,712,435
2002 7,007,125 2,381,556 9,388,681
2003 6,640,558 1,929,977 8,570,535
2004 6,401,179 1,794,773 8,195,952
Later 53,054,799 10,911,642 63,966,441
----------- ----------- ------------
Total future minimum
rentals $87,689,221 $21,896,612 $109,585,833
=========== =========== ============
</TABLE>
ASSOCIATE RETIREMENT PLANS
The Company's retirement programs include pension plans providing non-
contributory benefits and profit sharing plans providing contributory
benefits. Substantially all of the Company's associates not covered by
collective bargaining agreements are covered by either a non-contributory
cash balance pension plan (Company Plan), a defined contribution plan or
both. Associates covered by collective bargaining agreements are included
in multi-employer pension plans.
Effective as of April 1, 1998, the Company Plan's benefit formula was
redesigned, utilizing a cash balance approach. Under the new cash balance
formula, credits are added annually to a participant's "account" based on a
percentage of the participant's compensation and years of vested service at
the beginning of each calendar year. Interest credits are also added
annually to a participant's "account" based upon the participant's account
balance as of the last day of the immediately preceding calendar year.
Transition credits are also added to a participant's account until the year
2007 if certain age requirements are met. Annual payments to the pension
trust fund are determined in compliance with the Employee Retirement Income
Security Act (ERISA), except that prior years' contributions in excess of
the minimum are being amortized over the period ending March 31, 2016.
Company Plan assets consist principally of common stocks and U.S.
Government and corporate obligations. At March 27, 1999 and March 28,
1998, Company Plan assets included Class A common shares of the Company
valued at $1,722,000 and $1,582,000, respectively.
-53-
<PAGE>
Matching contributions made by the Company to salary reduction defined
contribution plans aggregated $2,030,000, $1,600,000 and $1,371,000 in
1999, 1998 and 1997, respectively.
In addition to the plans described above, the Company participates in
several multi-employer and other defined contribution plans for
substantially all associates covered by collective bargaining agreements.
The expense for these plans aggregated approximately $5,250,000 in 1999,
$4,932,000 in 1998 and $4,740,000 in 1997.
The Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to
establish funding requirements and obligations for employers participating
in multi-employer plans, principally related to employer withdrawal from or
termination of such plans. Separate actuarial calculations of the
Company's position are not available with respect to the multi-employer
plans.
Spartan and certain subsidiaries provide health care benefits to retired
associates who have at least ten years of service and have attained age
fifty-five, and who are not covered by collective bargaining arrangements
during their employment (covered associates). Qualified covered associates
retiring prior to April 1, 1992 receive major medical insurance with
deductible and coinsurance provisions until age sixty-five and Medicare
supplemental benefits thereafter. Covered associates retiring after April
1, 1992, are eligible for monthly post-retirement health care benefits of
five dollars multiplied by the associate's years of service. This benefit
is in the form of a credit against the monthly insurance premium. The
balance of the premium is paid by the retiree. From April 1992 through
December 1997 the Company supplemented the retiree portion of the premium
which was reflected in the computation of the post-retirement benefit
liability. Effective January 1, 1998, the Company began charging retirees
for 100% of the retiree portion of the medical cost, resulting in the prior
service cost adjustment.
The following tables set forth the change in benefit obligation, change in
plan assets, weighted average assumptions used in actuarial calculations
and components of net periodic benefit costs for the Company's pension and
post-retirement benefit plans:
-54-
<PAGE>
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------------- ---------------------------
MARCH 27, MARCH 28, MARCH 27, MARCH 28,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $52,553,318 $44,707,977 $ 4,838,885 $ 4,545,483
Service cost 3,605,230 2,014,359 206,562 170,911
Interest cost 3,174,330 3,335,534 322,270 311,168
Plan amendments (8,324,381)
Actuarial loss (gain) 2,515,958 3,981,951 (110,257) 23,919
Benefits paid (3,714,946) (1,486,503) (319,482) (212,596)
----------- ----------- ----------- -----------
Benefit obligation at end of year $49,809,509 $52,553,318 $ 4,937,978 $ 4,838,885
=========== =========== =========== ===========
CHANGE IN PLAN ASSETS
Plan assets at fair value at beginning of
year $50,929,661 $38,952,059
Actual return on plan assets 4,983,865 11,780,859
Company contributions 54,616 1,683,246 $ 319,482 $ 212,596
Benefits paid (3,714,946) (1,486,503) (319,482) (212,596)
----------- ----------- ----------- -----------
Plan assets at fair value at end of year $52,253,196 $50,929,661 $ $
=========== =========== =========== ===========
Funded status $(2,443,687) $ 1,623,657 $ 4,937,978 $ 4,838,885
Unrecognized net gain/(loss) 1,577,681 3,152,866 (1,284,737) (1,437,724)
Unrecognized prior service cost 6,134,152 (1,827,109) 1,317,180 1,383,039
Unrecognized net transition obligation (37,076) (42,373)
----------- ----------- ----------- -----------
Accrued benefit cost $ 5,231,070 $ 2,907,041 $ 4,970,421 $ 4,784,200
=========== =========== =========== ===========
WEIGHTED AVERAGE ASSUMPTIONS AS OF MARCH 31
Discount rate 7.00% 7.00% 7.00% 7.50%
Expected return on plan assets 9.00% 9.00% N/A N/A
Rate of compensation increase 4.75% 4.75% N/A N/A
</TABLE>
-55-
<PAGE>
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 3,605,230 $ 2,014,359 $ 2,214,766
Interest cost 3,174,330 3,335,534 3,121,058
Annual return on plan assets (4,067,172) (11,785,386) (3,579,463)
Net amortization and deferral (333,743) 8,642,024 1,011,568
----------- ----------- -----------
Net periodic benefit cost $ 2,378,645 $ 2,206,531 $ 2,767,929
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
POST-RETIREMENT BENEFITS
-----------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 206,562 $ 170,911 $ 294,630
Interest cost 322,270 311,168 393,971
Net amortization and deferral (23,129) (30,766) 50,532
----------- ----------- -----------
Net periodic benefit cost $ 505,703 $ 451,313 $ 739,133
=========== =========== ===========
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the post-retirement plan. The assumed health care
cost trend rate used in measuring the accumulated post-retirement benefit
obligation was 5% for the fiscal year ended March 27, 1999 and remains at
that level thereafter. A 1% increase in the assumed health care cost trend
rate would increase the accumulated post-retirement benefit obligation by
1.6% and the periodic post-retirement benefit cost by 1.0%. A 1% decrease
in the assumed health care cost trend rate would decrease the accumulated
post-retirement benefit obligation by 1.4% and periodic post-retirement
benefit cost by .9%.
TAXES ON INCOME
The income tax provision is summarized as follows:
-56-
<PAGE>
<TABLE>
<CAPTION>
MARCH 27, MARCH 28, MARCH 29,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable $7,967,000 $8,592,000 $1,646,000
Net deferred 627,000 (583,000) 4,035,000
---------- ---------- ----------
$8,594,000 $8,009,000 $5,681,000
========== ========== ==========
</TABLE>
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
Amortization of goodwill 0.1 2.4
State income taxes 0.9 0.2 0.2
Other 0.8 0.7 (0.7)
----- ----- -----
Effective income tax rate 36.7% 36.0% 36.9%
===== ===== =====
</TABLE>
Deferred tax assets and liabilities resulting from temporary differences
and carry forwards as of March 27, 1999 and March 28, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Employee benefits $ 6,595,660 $ 5,598,245
Depreciation 314,739 1,119,330
Inventory 974,871 1,231,200
Accounts receivable 813,750 630,000
Lease transactions 383,171 494,000
Insurance reserves 251,883 557,165
Research and development credit 1,309,475 2,729,909
-57-
<PAGE>
Restructuring charge 1,994,208
All other 318,547 441,710
----------- -----------
Total deferred tax assets 12,956,304 12,801,559
----------- -----------
Deferred tax liabilities:
Depreciation 8,017,235 7,053,895
Inventory 1,641,896 1,040,199
All other 397,173 1,180,465
----------- -----------
Total deferred tax liabilities 10,056,304 9,274,559
----------- -----------
Net deferred tax asset $ 2,900,000 $ 3,527,000
=========== ===========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
Payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Interest $10,896,201 $11,264,484 $8,916,115
Income taxes $15,638,456 $ 3,618,017 $2,185,507
</TABLE>
During 1999, the Company refinanced $99,350,0000 of bank borrowings in
connection with the $425 million senior secured credit facility. In
conjunction with the acquisition of Ashcraft's Market, Inc., the Company
assumed certain liabilities approximating $2,600,000. Finally, the Company
received restricted cash of $78,143,825 from proceeds from long-term
borrowings.
During 1998, the Company entered into a $2,500,000 note payable for the
purchase of a distribution center.
SHAREHOLDERS' EQUITY
The Company's Articles of Incorporation provide that the Board of Directors
may at any time, and from time to time, provide for the issuance of up to
5,000,000 shares of Class B common stock in one or more series, each with
such designations, and, relative to the Class A common stock and to other
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<PAGE>
series of Class B common stock, such voting, distribution, dividend and
other rights and restrictions as shall be stated in the resolution(s)
providing for the issuance thereof. At March 27, 1999, there were no Class
B shares outstanding.
Under the Company's Bylaws, the Board of Directors establishes the price at
which the Company issues and purchases its Class A common stock (the
"Trading Value").
The Company's shareholder-customers are required to own Class A common
stock of the Company in an amount relative to their purchases up to a
maximum of $125,000 of common stock per store. The current Company policy
is to redeem, at the request of the shareholder, stock held in excess of
the required investment. This policy does not create or evidence any
obligation on the Company's behalf and the Board of Directors may revise or
terminate the policy at any time. At March 27, 1999, there were 8,021,000
shares outstanding in excess of the maximum requirement.
The Company has a shareholder approved stock option plan covering 500,000
shares of the Company's Class A common stock. The plan provides for the
granting of incentive stock options as well as non-qualified stock options
to corporate officers. The Company accounts for stock option grants in
accordance with Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting For Stock-Based Compensation," and as allowed by this statement
the Company recognizes expense using the intrinsic value method prescribed
by Accounting Principles Bulletin Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
stock option grants since the options have exercise prices equal to the
Trading Value. Options must be exercised within ten years of the date of
grant. The authorization to grant options under the plan terminates on
October 31, 2001.
The Company's stock option grants vest immediately. If compensation cost
for stock option grants had been determined based on the fair value at the
grant dates consistent with the method prescribed by SFAS No. 123, the
Company's net earnings and earnings per share would have been adjusted to
the pro forma amounts indicated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net earnings as reported $14,798,986 $14,233,981 $9,702,725
Net earnings - Pro forma $14,771,426 $14,191,627 $9,660,475
-59-
<PAGE>
Basic and diluted earnings per share -
as reported $ 1.33 $ 1.21 $ 0.80
Basic and diluted earnings per share -
Pro forma $ 1.32 $ 1.20 $ 0.80
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield 0.10% 0.11% 0.12%
Expected volatility 8.79% 7.60% 5.04%
Risk-free interest rate 5.87% 6.88% 6.82%
Expected life of option 10 yrs. 10 yrs. 10 yrs.
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED FAIR VALUE
SHARES AVERAGE OF OPTIONS
UNDER OPTIONS EXERCISE PRICE GRANTED
------------- -------------- ----------
<S> <C> <C> <C>
OPTIONS OUTSTANDING AT MARCH 31, 1996 43,000 $ 9.19
Granted 13,000 10.50 $5.00
Terminated (17,000) 9.50
------------- -------- ----------
OPTIONS OUTSTANDING AT MARCH 29, 1997 39,000 $ 9.49
Granted 12,000 11.30 $5.43
Exercised (24,000) 9.72
------------- -------- ----------
OPTIONS OUTSTANDING AT MARCH 28, 1998 27,000 $10.09
Granted 8,000 12.30 $5.30
Exercised (3,000) 10.60
------------- -------- ----------
OPTIONS OUTSTANDING AT MARCH 27, 1999 32,000 $10.59
------------- --------
------------- --------
OPTIONS EXERCISABLE AT MARCH 27, 1999 32,000 $10.59
------------- --------
</TABLE>
-60-
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE YRS.
--------------- ----------- ---------------------
<S> <C> <C> <C>
$8.40 3,000 3.1
8.80 3,000 4.1
9.30 3,000 5.1
10.00 4,000 6.1
10.50 4,000 7.1
11.30 7,000 8.2
12.30 8,000 9.1
------------ ------ ----
$8.40-$12.30 32,000 6.89
</TABLE>
The Company has a shareholder-approved stock bonus plan covering 500,000
shares of the Company's Class A common stock. Under the provisions of this
plan, officers and certain key employees of the Company may elect to
receive a portion of their annual bonus in Class A shares rather than cash
and will be granted additional shares of stock worth thirty percent of the
portion of the bonus they elect to receive in stock. The value of shares
issued under the plan is the Trading Value. At March 27, 1999, 383,103
shares remained unissued under the plan.
An associate stock purchase plan approved by the shareholders covers
500,000 shares of the Company's Class A common stock. The plan provides
that associates of the Company and its subsidiaries may purchase shares at
the Trading Value. At March 27, 1999, 469,330 shares remained unissued
under the plan.
On May 28, 1997, the Board of Directors approved an Amendment to the
Articles of Incorporation to increase the authorized capital stock from
2,000,000 to 20,000,000 shares of Class A common stock and 500,000 to
5,000,000 shares of Class B common stock and authorized a ten-for-one stock
split for shareholders of record on May 31, 1997. The amendment also
reduced the par value of the Class A common stock from $20 per share to $2
per share. Accordingly, share and per share amounts have been restated
throughout the consolidated financial statements.
OPERATING SEGMENT INFORMATION
Using the management approach as required by SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," the Company's
operating segments were identified by products sold and customer profile
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<PAGE>
and include grocery store distribution, convenience store distribution,
insurance and real estate.
The Company's grocery store distribution operating segment includes the
sale of over 40,000 items, including dry grocery, produce, dairy products,
meat, frozen food, seafood, floral, general merchandise, tobacco, and
health and beauty care items to both independently owned and Company owned
retail grocery stores located in Michigan, Indiana and Ohio. The grocery
store distribution operating segment also includes the sales of Company
owned retail grocery stores located in Michigan. Sales in the grocery store
distribution operating segment are presented after the elimination of
intra-segment sales. The Company ships the products from its main
warehouse and distribution center in Grand Rapids, Michigan, and from a
warehouse in Plymouth, Michigan. The Company also provides its Customers
with a broad spectrum of additional services. Revenue is recognized when
the product is shipped or service provided.
The Company's convenience store distribution operating segment includes the
sale of confections, tobacco products, specialty foods, and other grocery
products to convenience stores and other retail locations in Michigan,
Illinois, Indiana, Kentucky, Ohio, Pennsylvania, Georgia, Tennessee, and
West Virginia. Additionally, the Company operates 13 cash and carry
outlets in Michigan and Ohio serving convenience stores. Revenue is
recognized when the product is shipped.
The Company's insurance operating segment offers commercial insurance
coverage for fire and other casualties, liability, automobile, fidelity,
theft, bonds, workers' compensation, business interruption, and group
health plans. In addition, individuals are offered automobile and
homeowners coverage. The insurance business segment also provides
insurance brokerage services and third-party claims administration and
services. Additionally, the insurance business segment provides insurance
underwriting for Customers. The underwriting operations are incorporated
and licensed in Bermuda and issue policies of another carrier through a
fronting agreement. Under this agreement, the Company insures some of the
coverage limits and reinsures with reinsurance companies the balance of the
coverage limit. Commissions are recognized as of the policy billing dates,
which approximate effective dates of the applicable policies. Third-party
claims administration revenues are recognized as services are performed and
underwriting revenues are recognized over the life of the policies.
The Company's real estate business segment owns retail grocery store
facilities that are leased to Customers and other retailers and leases
other sites that are subleased to Customers. The real estate properties
are located in Michigan, Indiana and Ohio. Revenue is recognized according
to the terms of the lease or loan.
-62-
<PAGE>
Identifiable assets represent total assets directly associated with the
various operating segments. Eliminations in assets identified to segments
include intercompany receivables, payables and investments.
Sales and interest between segments are eliminated upon consolidation.
The following table sets forth, for each of the last three fiscal years,
information required by SFAS No. 131:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES
Grocery store distribution $1,838,122,873 $1,800,428,294 $1,797,217,868
Convenience store distribution 841,793,241 696,088,886 686,145,991
Insurance 15,845,415 15,943,559 16,620,923
Real estate 10,509,850 11,899,971 11,994,849
Less - Eliminations (34,571,601) (35,111,241) (36,954,389)
-------------- -------------- --------------
Total $2,671,699,778 $2,489,249,469 $2,475,025,242
============== ============== ==============
RESTRUCTURING CHARGE
Grocery store distribution $ 5,697,738
==============
INTEREST EXPENSE
Grocery store distribution $ 5,309,442 $ 6,135,951 $ 6,676,950
Convenience store distribution 2,293,673 2,724,633 2,127,563
Insurance 25 3,171,389 1,133
Real estate 2,364,906 0 2,199,634
Less - Eliminations (760,342) (1,097,939) (1,304,840)
-------------- -------------- --------------
Total $ 9,207,704 $ 10,934,034 $ 9,700,440
============== ============== ==============
INTEREST INCOME
Grocery store distribution $ (2,149,065) $ (3,163,967) $ (3,935,458)
Convenience store distribution (435,855) (110,970) (415,607)
Insurance (1,389,977) (1,318,214) (1,383,315)
Real estate (27,700) (29,670) (126,167)
Less - Eliminations 899,613 1,298,732 2,251,137
-------------- -------------- --------------
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<PAGE>
Total $ (3,102,984) $ (3,324,089) $ (3,609,410)
============== ============== ==============
DEPRECIATION AND AMORTIZATION
Grocery store distribution $ 16,372,532 $ 16,377,316 $ 15,245,648
Convenience store distribution 2,523,312 2,524,726 2,476,767
Insurance 167,695 153,137 181,905
Real estate 2,349,400 2,584,287 2,270,890
-------------- -------------- --------------
Total $ 21,412,939 $ 21,639,466 $ 20,175,210
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
EARNINGS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM
Grocery store distribution $ 2,327,793 $ 6,543,232 $ 1,944,333
Convenience store distribution 15,323,540 6,105,477 6,643,022
Insurance 3,527,381 3,592,234 3,881,824
Real estate and finance 3,798,910 6,002,038 2,914,546
-------------- -------------- --------------
Total $ 24,977,624 $ 22,242,981 $ 15,383,725
============== ============== ==============
INCOME TAXES
Grocery store distribution $ 1,014,000 $ 2,327,000 $ 917,000
Convenience store distribution 5,526,000 2,282,000 2,281,000
Insurance 1,239,000 1,299,000 1,455,000
Real estate and finance 1,369,000 2,101,000 1,028,000
-------------- -------------- --------------
Total $ 9,148,000 $ 8,009,000 $ 5,681,000
============== ============== ==============
EXTRAORDINARY ITEM (NET OF
INCOME TAXES OF $554,000)
Grocery store distribution $ 1,030,698
==============
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<PAGE>
CAPITAL EXPENDITURES
Grocery store distribution $ 12,061,163 $ 18,948,363 $ 21,362,152
Convenience store distribution 2,692,108 1,534,410 1,115,895
Insurance 185,744 425,136 126,596
Real estate and finance 1,479,512 3,089,475 23,632,869
-------------- -------------- --------------
Total $ 16,418,527 $ 23,997,384 $ 46,237,512
============== ============== ==============
TOTAL ASSETS
Grocery store distribution $ 442,247,305 $ 231,337,933 $ 237,105,654
Convenience store distribution 84,693,147 87,180,899 69,420,897
Insurance 30,354,134 29,792,534 28,687,628
Real estate 60,698,644 66,345,812 74,328,798
Less - Eliminations (79,259,362) (8,524,063) (5,811,863)
-------------- -------------- --------------
Total $ 538,733,868 $ 406,133,115 $ 403,731,114
============== ============== ==============
</TABLE>
-65-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, and principal occupations of directors, nominees
for director, and executive officers of Spartan as of June 25, 1999, are
set forth below.
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST FIVE YEARS
Russell H. VanGilder, Jr. (65) Chairman of the Board since 1998; Vice
Chairman of the Board from 1992 to 1998
and director since 1970; Chairman of the
Board, V.G.'s Food Center, Inc. (retail
grocery chain)
Parker T. Feldpausch (67) Vice-Chairman of the Board since 1998
and Director since 1990; President,
G & R Felpausch Co. (retail grocery
chain)
Roger L. Boyd (53) Secretary of the Board since 1993 and
director since 1992; President and
General Manager, Bob's Market House,
Inc. (retail grocery store); President
and General Manager, Hillsdale Market
House, Inc. (retail grocery store)
James G. Buick (66) Director since 1995; Retired; Former
President and Chief Executive Officer,
The Zondervan Corporation (1984 to 1993)
(producer and distributor of Christian
books and gifts)
John S. Carton (58) Director since 1995; Chairman of the
Board, Pine View Golf Club, Inc., and
Turfside, Inc. (golf course and
restaurant)
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<PAGE>
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST FIVE YEARS
Alex J. DeYonker (49) Director since 1999; General Counsel and
Assistant Secretary since May 1995;
partner of Warner Norcross & Judd LLP
(law firm)
Ronald A. DeYoung (65) Director since 1974; President, Great
Day, Inc. (retail grocery chain)
Martin P. Hill (54) Director since 1996; President, Harding
& Hill, Inc. (retail grocery chain);
Director, Secretary and Treasurer,
Harding's Markets - West, Inc. (retail
grocery chain)
Dan R. Prevo (49) Director since 1996; President, Prevo's
Family Market, Inc. (retail grocery
chain)
James B. Meyer (53) Chief Executive Officer since July 1997;
President and director since August
1996; Chief Operating Officer from
August 1996 to July 1997; Treasurer
since 1994; Senior Vice President
Corporate Support Services from June
1994 to August 1996; Chief Financial
Officer and Assistant Secretary from
October 1990 to August 1996; Senior Vice
President from 1981 to 1994
Charles B. Fosnaugh (49) Vice President Development since April
1998; Senior Vice President Business
Development and Finance from September
1996 to April 1998; Senior Vice
President Business Development from July
1994 to September 1996; Vice President
Business Development from 1990 to 1994;
President, Valuland, Inc. since 1992;
President, Market Development
Corporation since 1990
David deS. Couch (48) Vice President Information Technology
since May 1996; Director of Management
Information Services from December 1991
to May 1996
-67-
<PAGE>
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST FIVE YEARS
Michael D. Frank (47) Vice President Logistics since July
1997; Vice President Distribution,
Associated Wholesale Grocers, Inc. from
1987 to July 1997 (supermarket
cooperative)
J. Kevin Schlosser (49) Vice President Sales since September
1997; Director of Team Sales, RJR
Nabisco Food Groups, Inc. from
September 1985 to September 1997
(tobacco and food company)
Richard C. Deming (54) Vice President Human Resources since
August 1998; Vice President Human
Resources, AP Parts International, Inc.
from 1994 to 1998; Vice President Human
Resources, Pirelli Cables North America
from 1991 to 1994
Directors are elected at annual meetings of shareholders and hold
office for a term of three years and until their successors are elected and
qualified. Annual elections of directors are held to elect approximately
one-third of the members of the Board. Mr. Donald J. Koop and Mr. Glen A.
Catt resigned from the Board of Directors on December 9, 1998 and April 5,
1999, respectively. Mr. Alex J. DeYonker was appointed to the Board of
Directors on March 31, 1999. The terms of Messrs. Buick, Hill, Prevo, and
VanGilder expire in 1999; Messrs. Feldpausch, Meyer and DeYonker expire in
2000; and Messrs. Boyd, Carton and DeYoung expire in 2001. The election of
directors will be held at the Annual Meeting of Shareholders currently
scheduled to be held on July 21, 1999. Nominees for election to the Board
of Directors are Messrs. Buick, Hill, Prevo, and VanGilder. Executive
officers are appointed by the Board of Directors at its organizational
meeting following each annual meeting of shareholders and serve until their
successors are appointed.
Because the Company's capital stock is not registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, the
directors, officers, and persons owning greater than 10 percent of any
class of the Company's equity securities are not subject to Section 16 of
that Act.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.
The following table sets forth the cash and non-cash compensation
earned during the fiscal years ended March 27, 1999, March 28, 1998 and
March 29, 1997 by the persons who served as the Chief Executive Officer of
Spartan during the last completed fiscal year, and the four most highly
compensated executive officers (other than the Chief Executive Officer) of
Spartan at the end of the last completed fiscal year.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES ALL OTHER
FISCAL ----------------------- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS <F1> OPTIONS <F2> SATION <F3>
- --------------------------- ------ ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
James B. Meyer 1999 $371,540 $220,566 4,000 $ 8,136
(President and Chief 1998 350,494 106,712 4,000 6,348
Executive Officer) 1997 308,250 24,500 2,000 6,348
Charles B. Fosnaugh 1999 $200,980 $ 90,576 1,000 $ 7,949
(Vice President 1998 195,330 52,555 2,000 5,921
Development) 1997 190,640 18,688 2,000 5,921
David deS. Couch 1999 $168,260 $ 68,349 1,000 $ 7,313
(Vice President 1998 127,214 35,602 1,000 6,027
Information Technology) 1997 120,330 7,500 0 6,824
Michael D. Frank 1999 $154,405 $ 65,717 1,000 $ 3,036
(Vice President Logistics) 1998 88,920 35,847 0 3,009
1997 N/A N/A N/A N/A
J. Kevin Schlosser 1999 $138,500 $ 47,187 1,000 $33,752
(Vice President Sales) 1998 N/A N/A N/A N/A
1997 N/A N/A N/A N/A
<FN>
____________________
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<PAGE>
<F1> The amounts listed in this column include bonus amounts elected under
the 1991 Stock Bonus Plan, as amended, plus an amount equal to 30 percent
of such bonus amounts, to be received in Class A Shares. The amounts
listed in this column also include cash bonuses accrued in fiscal year 1998
and 1999 for payment in the following year pursuant to the Company's Annual
Incentive Plan.
<F2> All reported awards were under the 1991 Stock Option Plan, as amended
(the "1991 Stock Option Plan"), and have been adjusted to reflect the
results of the July 1997 ten-for-one stock split. These awards have vested
and are exercisable at the date of grant.
<F3> The compensation listed in this column for fiscal year 1999 consists
of: (i) amounts paid by Spartan for split dollar and term life insurance;
(ii) Spartan's matching contributions under its Savings Plus Plan; and
(iii) amounts paid for relocation expenses in connection with acceptance of
employment. The amounts included for each such factor for fiscal year 1999
are:
(I) (II) (III)
------ ------ -------
Mr. Meyer $1,598 $6,538 $ 0
Mr. Fosnaugh 2,098 5,851 0
Mr. Couch 2,074 5,239 0
Mr. Frank 3,036 0 0
Mr. Schlosser 2,478 5,537 25,737
</FN>
</TABLE>
STOCK OPTIONS
Under the 1991 Stock Option Plan, options to purchase Class A
Shares may be granted to officers of Spartan. The following tables set
forth information concerning stock options granted under the 1991 Stock
Option Plan during the fiscal year ended March 27, 1999, to the named
executive officers and the unexercised options held by them as of the end
of the fiscal year.
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<PAGE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR <F1>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------ POTENTIAL
PERCENT REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL
OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE EXPIRA- FOR OPTION TERM
OPTIONS IN FISCAL PRICE PER TION --------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
- ------------------- ---------- ---------- --------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
James B. Meyer 4,000 50.00% $12.30 5/2008 $30,942 $78,412
Charles B. Fosnaugh 1,000 12.50 12.30 5/2008 7,735 19,603
David deS. Couch 1,000 12.50 12.30 5/2008 7,735 19,603
Michael D. Frank 1,000 12.50 12.30 5/2008 7,735 19,603
J. Kevin Schlosser 1,000 12.50 12.30 5/2008 7,735 19,603
<FN>
_____________________
<F1> The per share exercise price of each option equals the Trading Value
of the Class A Shares effective as of June 21, 1998. All options were
granted for a term of 10 years. Options terminate, subject to limited
exercise provisions, in the event of death, retirement, or other
termination of employment. All options are exercisable at the date of
grant. The exercise price of the options may be paid in cash, by
delivering Class A Shares which are already owned by the option holder, or
any combination thereof.
</FN>
</TABLE>
-71-
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END <F1>
NUMBER OF SHARES -------------------------- ---------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ---------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James B. Meyer 0 $0 18,000 0 $33,000 $0
Charles B. Fosnaugh 0 0 10,000 0 20,600 0
David deS. Couch 0 0 2,000 0 1,000 0
Michael D. Frank 0 0 1,000 0 0 0
J. Kevin Schlosser 0 0 1,000 0 0 0
<FN>
<F1> Represents the difference between the exercise price of the options
for the Class A Shares and the Trading Value of $12.30 per share at fiscal
year-end.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The officers of Spartan are appointed annually by and serve at
the pleasure of the Board of Directors or the Chief Executive Officer. On
August 14, 1996, the Board of Directors appointed Mr. Meyer President and
Chief Operating Officer of Spartan, and as of that date Mr. Meyer entered
into an employment agreement with Spartan. As of July 1997, he became the
President and Chief Executive Officer of Spartan, pursuant to the terms of
the employment agreement. Under the employment agreement, Mr. Meyer's
annual base salary is to be and has been revised upon mutual agreement of
Spartan and Mr. Meyer on a year-to-year basis. Under the employment
agreement, Spartan provides Mr. Meyer with an automobile and certain other
fringe benefits. The employment agreement may be terminated upon mutual
agreement, upon Mr. Meyer's death or disability, by either party at its
option upon 90 days' written notice to the other, for cause, or upon
certain other events. Upon termination by Spartan for any reason other
than for cause or Mr. Meyer's death or disability, or upon termination by
Mr. Meyer for good reason, Mr. Meyer will receive life, health, accident,
and dental insurance benefits and an amount equal to his current salary for
one year after the date of severance. In addition, all options held by
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<PAGE>
Mr. Meyer to acquire Class A Shares will immediately vest and become
exercisable for 90 days after the date of severance, all risks of
forfeiture applicable to any restricted stock granted to Mr. Meyer will
lapse and no longer apply, and Spartan will purchase and transfer to Mr.
Meyer the automobile then furnished to him.
In February 1999, each of the named executive officers (referred
to as "executives" in the following discussion) entered into an Executive
Severance Agreement with Spartan. Under these agreements, if the
executive's employment with Spartan terminates during a Termination Period
(which is defined for Mr. Meyer as the 36-month period and for the other
executives as the 18-month period beginning on a Change in Control (as
described below) of Spartan), then the executive will receive payment of
(1) the executive's unpaid base salary through the date of termination; (2)
any earned or payable benefit awards and bonus payments pursuant to any
plans; (3) the executive's target bonus under Spartan's Annual Incentive
Plan pro rated for the time the executive was employed in the fiscal year
of termination; (4) a bonus under Spartan's Long Term Incentive Plan
payable upon termination of the executive's employment without cause; and
(5) the amount of salary and estimated bonus that would have been payable
to the executive had his employment continued until the end of the
Termination Period. Each executive other than Mr. Meyer also will receive
the additional amount he would have been eligible to receive under the
Pension Plan and Supplemental Executive Retirement Plan ("SERP") had his
employment continued until the end of the Termination Period. With certain
exceptions, these payments will not be made if the executive's employment
is terminated by Spartan for cause, by the executive other than with notice
and for good reason, or as a result of the executive's death, disability or
retirement (a "Nonqualifying Termination").
The SERP establishes a target amount for payment to Mr. Meyer
depending upon the date of his termination. Under Mr. Meyer's Executive
Severance Agreement, if Mr. Meyer's employment terminates at any time and
for any reason after a Change in Control, Mr. Meyer will receive the target
amount under the SERP to the extent it is not otherwise paid under the
Pension Plan and the SERP on the date of termination (assuming the election
of lump sum payment options under those plans). If Mr. Meyer's employment
terminates for any reason other than a Nonqualifying Termination, the SERP
target amount will be determined by adding the following additional years
to Mr. Meyer's date of termination: five years if the termination occurs
in 1999, four years if the termination occurs in 2000, three years if the
termination occurs in 2001, two years if the termination occurs between
2001 and 2010, and one year if the termination occurs in 2010.
The Executive Severance Agreements further provide that upon a
Change in Control, all unvested stock options will vest and all
restrictions on ownership of stock previously issued to the executive will
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lapse. Each agreement also provides certain "gross up" payments if the
payments under the agreement cause certain excise taxes under the Internal
Revenue Code to be payable by the executive. With certain exceptions,
Spartan also will maintain in full force and effect for the benefit of the
executive and his spouse and covered dependents all employee benefit plans,
programs and arrangements that the executive and his spouse and covered
dependents were entitled to participate in immediately prior to the date of
termination until the earlier of the end of the Termination Period or (as
to any particular benefit) the date upon which the executive receives a
substantially equal benefit from a new employer. The agreements also
provide for certain automobile privileges and outplacement services.
The term "Change in Control" is defined in the agreements
generally as (1) the acquisition by any person or group of 20% or more of
the outstanding common stock or voting power of Spartan, (2) the majority
of the Board of Directors being comprised of persons other than the current
members of the Board of Directors or their successors whose nominations
were approved by at least two-thirds of the board, or (3) the approval by
the shareholders of certain mergers, reorganizations, plans of dissolution
or sales of substantially all of Spartan's assets.
PENSION PLAN
Effective as of April 1, 1998, the Pension Plan benefit formula
was redesigned, utilizing a cash balance approach. Under the new cash
balance formula, principal credits are added annually to a participant's
"account." There are two types of principal credits--basic credits and
transition credits. The basic credit equals a percentage of the
participant's compensation based upon a participant's years of vested
service at the beginning of each calendar year in accordance with the
following table:
<TABLE>
<CAPTION>
YEARS OF VESTED SERVICE PERCENTAGE OF
AS OF JANUARY 1 PARTICIPANT'S COMPENSATION
----------------------- --------------------------
<S> <C> <C>
0 - 5 4%
6 - 10 5
11 - 15 6
16 - 20 7
21 - 25 8
26 or more 9
</TABLE>
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<PAGE>
In addition to the basic credit, a participant may be eligible to
receive a transition credit equal to a percentage of the participant's
compensation based upon the participant's age on the first day of the
calendar year as follows:
<TABLE>
<CAPTION>
PARTICIPANT'S AGE PERCENTAGE OF
AS OF JANUARY 1 PARTICIPANT'S COMPENSATION
----------------- --------------------------
<S> <C> <C>
Under 35 0%
35 - 39 2
40 - 44 4
45 - 49 6
50 - 54 8
55 and over 10
</TABLE>
Transition credits will be available for the 1998 - 2007 calendar
years. However, if a participant has fewer than ten years of benefit
service as of December 31, 1997, the participant is eligible for transition
credits only for the number of calendar years equal to the participant's
complete years of benefit service as of December 31, 1997.
In addition to the principal credits, interest credits are also
added annually to a participant's "account" based upon the participant's
account balance as of the last day of the immediately preceding calendar
year. The interest rate used for this purpose is the average of 30-year
Treasury constant maturities yields over the 12 months ending in November
of the prior calendar year.
Upon termination of employment, a participant will be entitled to
his or her vested accrued benefit which can be distributed either in a
monthly annuity or in a lump sum. If distributed in a lump sum, the
participant's benefit generally will be equal to the participant's account
balance. For persons who were participants prior to April 1, 1998, the
Pension Plan provides that the retirement benefit will not be less than the
benefit accrued as of March 31, 1998.
Spartan also maintains the SERP, which provides nonqualified
deferred compensation benefits to Spartan's executive officers. The
purpose of the SERP is to provide the executive officers with the benefits
which they are otherwise denied under the Pension Plan due to the annual
dollar limit on compensation and other limitations of the Internal Revenue
Code (which are known collectively as the "statutory limits").
Accordingly, each officer's benefit under the SERP is equal to the
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<PAGE>
officer's benefit that would have accrued under the Pension Plan but for
the operation of the statutory limits, minus the accrued benefit actually
payable to the officer under the Pension Plan calculated in accordance with
the statutory limits. However, Mr. Meyer's SERP benefit is expressed as a
target amount which is equal to the benefit that would have accrued but for
the operation of statutory limits under the Pension Plan's formula that was
in effect prior to April 1, 1998, minus his actual accrued benefit under
the Pension Plan.
Benefits under the SERP are paid from Spartan's general assets.
There is no separate trust which has been established to fund benefits. As
of March 27, 1999, the estimated total benefits payable under the Pension
Plan and the SERP upon retirement at normal retirement age (age 65) for
Messrs. Meyer, Fosnaugh, Couch, Frank and Schlosser are expected to be
approximately $4,240,000, $1,040,000, $1,010,000, $350,000 and $290,000,
respectively.
COMPENSATION OF DIRECTORS
Each director receives a base compensation of $10,000 per year
and $1,000 per day for attendance at each meeting of the Board or a
committee of the Board. Directors also are reimbursed for travel expenses
for meetings attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Buick,
DeYoung and Hill. Messrs. DeYoung and Hill each have an ownership interest
in a business which is a Shareholder-Customer of the Company and purchases
groceries, perishables, general merchandise, and other products and
services from the Company on an ongoing basis. For a discussion of
transactions with entities related to directors and the Board's policy with
respect to transactions in which a director has an interest, see "Item 13 -
Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of the Class A Shares as of May 22, 1999 of (i) each
of the directors and nominees for director of Spartan, (ii) each of the
named executive officers of Spartan, and (iii) all directors and executive
officers of Spartan as a group. As of May 22, 1999, D&W Food Centers, Inc.
is the only person known to the Company to be the beneficial owner of more
than five percent of the Class A Shares.
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP <F1> PERCENT OF CLASS
- ------------------------ ------------------------- ----------------
<S> <C> <C>
D&W Food Centers, Inc. 559,110 5.44%
Parker T. Feldpausch 508,390 4.92
Russell H. VanGilder, Jr. 507,410 4.91
Martin P. Hill 330,090 3.20
Ronald A. DeYoung 224,130 2.17
Roger L. Boyd 169,310 1.64
Dan R. Prevo 101,103 <F*>
James B. Meyer <F2> 46,689 <F*>
Charles B. Fosnaugh <F2> 12,291 <F*>
David deS. Couch <F2> 5,377 <F*>
Michael D. Frank <F2> 4,536 <F*>
J. Kevin Schlosser <F2> 2,447 <F*>
James G. Buick 1,000 <F*>
John S. Carton 1,000 <F*>
Alex J. DeYonker 0 <F*>
All Directors and Executive
Officers as a group <F2> 1,914,773 18.54%
<FN>
_____________________
<F*> Less than one percent.
<F1> Except for Messrs. Buick, Carton and Meyer, the Class A Shares
reported as beneficially owned by each director are directly owned by a
corporation that is a Customer of the Company and with whom the director is
affiliated. Thus, each such director indirectly owns the Class A Shares
through the corporation which he controls either individually or with
others. The Class A Shares owned by each such corporation are included in
the amount reported for the appropriate director. For the name of each
such entity related to each director, see "Item 10 - Directors and
Executive Officers of the Registrant" above. Mr. Meyer and the named
executive officers directly own the Class A Shares reported to be owned by
each and hold the sole voting and dispositive power with respect to those
shares.
<F2> Includes shares that may be acquired through the exercise of stock
options that are exercisable within 60 days. The number of shares subject
to such stock options for each person is shown below. The reported shares
include the shares subject to options granted on May 19, 1999.
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<PAGE>
Mr. Meyer 22,000
Mr. Fosnaugh 11,000
Mr. Couch 3,000
Mr. Frank 2,000
Mr. Schlosser 2,000
All Executive Officers as a group 41,000
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Spartan's directors (except Messrs. Buick, Carton, DeYonker and
Meyer) have ownership interests in businesses which are Shareholder-
Customers and purchase groceries, perishables, general merchandise, and
other products and services from the Company on an ongoing basis. To the
extent that the Company engages in transactions and offers services that
benefit its Customers, the businesses in which such directors have
ownership interests may benefit. Consequently, a director may have a
conflict of interest between the best interests of the Company and the
business or businesses in which the director has an ownership interest.
For any transaction involving a sale in the ordinary course of
business of groceries, perishables, general merchandise, insurance, or
other products or services of the Company to a Customer of the Company in
which the director owns an equity interest or is an officer, director, or
employee or otherwise has an interest (a "Related Entity"), it is the
Company's policy and practice that the sale is deemed fair to the Company,
and Board approval is not specifically required, if the sale is made at
prices and on terms, including discounts and rebates, no less favorable
than those offered generally to Customers that are not affiliated with any
director.
For any other transaction in which a director has an interest
(including, without limitation, the Company's leasing, purchasing, or
selling any property involving any loan or guarantee of an obligation by
the Company in a transaction involving a Related Entity), it is the
Company's policy and practice that the director shall proceed with the
transaction only if the material facts of the transaction and the
director's interest in the transaction have been disclosed to the Board,
the Board determines that it is fair to the Company, and the transaction is
approved by the affirmative vote of a majority of the Board of Directors
who have no interest in the transaction. Each such transaction is made on
terms no less favorable to the Company than those offered generally to
Customers that are not affiliated with any director.
During the fiscal year ended March 27, 1999, in the aggregate,
Related Entities paid to the Company approximately $669,000,000 for grocery
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and related products (25.0 percent of the Company's total net sales for
fiscal year 1999). No single Related Entity accounted for more than 5.2
percent of the Company's total net sales in fiscal year 1999. In
connection with the purchases of such products, the Company paid to the
Related Entities, discounts, and allowances on purchases at the same rates
and on the same terms as applicable to all Customers. For the name of the
entity related to each director, see "Item 10 - Directors and Executive
Officers of the Registrant."
In addition, in the aggregate, Related Entities:
(a) in the fiscal year ended March 27, 1999, paid to the
Company insurance premiums and commissions equal to approximately
$2,900,000, or 18.3 percent of all premiums and commissions paid
(no single Related Entity accounted for more than 3.6 percent of
the total insurance premiums and commissions paid); and
(b) in the fiscal year ended March 27, 1999, made lease and
rental payments to the Company in the amount of approximately
$4,000,000, or 38.5 percent of all lease and rental payments made
(no single Related Entity accounted for more than 20.6 percent of
lease and rental payments made).
Management believes all such leases have been made in the
ordinary course, on fair and reasonable terms and on an arm's-length
basis. All such leases are current on all required payments, and none
of these leases were delinquent in payment or in default as of March
27, 1999.
Mr. DeYonker is a partner in the law firm of Warner Norcross & Judd
LLP. During the past year and the current year, Spartan has retained
Warner Norcross & Judd LLP for certain legal services.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. FINANCIAL STATEMENTS.
Independent Auditors' Report of Deloitte & Touche LLP dated
June 4, 1999
Consolidated Balance Sheets at March 27, 1999 and March 28,
1998
Consolidated Statements of Earnings for each of the three
years in the period ended March 27, 1999
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<PAGE>
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended March 27, 1999
Consolidated Statements of Cash Flows for each of the three
years in the period ended March 27, 1999
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES.
SCHEDULE DOCUMENT
II Valuation and Qualifying Accounts
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<PAGE>
3. EXHIBITS.
EXHIBIT
NUMBER DOCUMENT
2.1 Asset Purchase Agreement dated March 5, 1999 by and between
Glen's Market, Inc., Catt's Realty Co. and Glen's Pharmacy,
Inc. as Sellers and Valuland, Inc. as Buyer and joined in by
certain shareholders of Sellers as the Shareholders and by
Universal Land Company as the Real Estate Company and by
Spartan Stores, Inc. as the Parent of the Buyer. Previously
filed as an exhibit to the Registrant's Current Report on
Form 8-K dated June 3, 1999. Here incorporated by
reference.
2.2 Amendment to Asset Purchase Agreement made as of May 19,
1999, by and between Valuland, Inc. and Glen's Market, Inc.,
Catt's Realty Co. and Glen's Pharmacy, Inc. Previously
filed as an exhibit to the Registrant's Current Report on
Form 8-K dated June 3, 1999. Here incorporated by reference
3.1<F*> Restated Articles of Incorporation of Spartan Stores, Inc.
3.2 Certificate of Amendment to Articles of Incorporation of
Spartan Stores, Inc. Previously filed as an exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 28, 1998. Here incorporated by reference.
3.3<F*> Bylaws of Spartan Stores, Inc.
4.1<F*> Articles III, V, VI and IX of the Restated Articles of
Incorporation--Included in Exhibit 3.1 and incorporated
herein by reference.
4.2<F*> Articles II, III, IV, VII, VIII and IX of the Bylaws--
Included in Exhibit 3.3 and incorporated herein by
reference.
4.3<F*> Form of Spartan Stores, Inc. Stock Subscription Agreement--
Shareholder Customers.
4.4<F*> Form of Spartan Stores, Inc. Customer Agreement.
4.5<F*> Form of Spartan Stores, Inc. Class A Common Stock
Certificate.
10.1<F*> Warehouse Lease Agreement, dated October 14, 1975, between
Connecticut Mutual Life Insurance Company and Spartan
Stores, Inc.
10.2<F**> Spartan Stores, Inc. 1991 Stock Bonus Plan. Previously
filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 29, 1997. Here
incorporated by reference.
10.3<F**> Spartan Stores, Inc. 1991 Stock Option Plan as amended.
Previously filed as an exhibit to the Registrant's Form S-1
Registration Statement filed July 23, 1993. Here
incorporated by reference.
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<PAGE>
10.4<F**> Spartan Stores, Inc. 1991 Associate Stock Purchase Plan.
Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 29,
1997. Here incorporated by reference.
10.5<F**> Spartan Stores, Inc. Supplemental Executive Retirement Plan.
10.6 Warehouse Lease Agreement, dated November 8, 1993, between
Walker Realty Co. and J.F. Walker Company, Inc. Previously
filed as an exhibit to the Registrant's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-1
filed March 16, 1994. Here incorporated by reference.
10.7 Employment Agreement, dated August 14, 1996, between Spartan
Stores, Inc. and James B. Meyer. Previously filed as an
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 29, 1997. Here incorporated by
reference.
10.8<F**> Spartan Stores, Inc. Long-Term Incentive Plan. Previously
filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 28, 1998. Here
incorporated by reference.
10.9<F**> Spartan Stores, Inc. Annual Incentive Plan. Previously filed
as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended March 28, 1998. Here incorporated
by reference.
10.10 Credit Agreement dated as of March 18, 1999 among Spartan
Stores, Inc., ABN AMRO Bank N.V., as Arranger, Syndication
Agent and Collateral Agent, Michigan National Bank, as Co-
Arranger and Administrative Agent, and NBD Bank, as Document
Agent. Previously filed as an exhibit to the Registrant's
Current Report on Form 8-K dated June 3, 1999. Here
incorporated by reference.
10.11<F**> Form of Executive Severance Agreement between Spartan
Stores, Inc. and certain executive officers.
10.12<F**> Executive Severance Agreement dated February 23, 1999
between Spartan Stores, Inc. and James B. Meyer.
21 Subsidiaries of Registrant.
23 Consent and Report on Schedule of Deloitte and Touche LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
____________________
<F*> Previously filed as an exhibit to the Registrant's Form S-1
Registration Statement filed July 18, 1991. Here incorporated by
reference.
<F**> These documents are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-K.
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<PAGE>
(b) Reports on Form 8-K:
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SPARTAN STORES, INC.
(Registrant)
By /S/ JAMES B. MEYER
James B. Meyer
President and Chief Executive Officer
Date: June 25, 1999
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
June 25, 1999 By /S/ RUSSELL H. VANGILDER, JR.*
Russell H. VanGilder, Jr.
Chairman of the Board and Director
June 25, 1999 By /S/ ROGER L. BOYD*
Roger L. Boyd
Secretary of the Board and Director
June 25, 1999 By /S/ JAMES G. BUICK*
James G. Buick
Director
June 25, 1999 By /S/ JOHN S. CARTON*
John S. Carton
Director
June 25, 1999 By /S/ ALEX J. DEYONKER*
Alex J. DeYonker
Director
June 25, 1999 By /S/ RONALD A. DEYOUNG*
Ronald A. DeYoung
Director
June 25, 1999 By /S/ PARKER T. FELDPAUSCH*
Parker T. Feldpausch
Vice Chairman of the Board and Director
June 25, 1999 By /S/ MARTIN P. HILL*
Martin P. Hill
Director
June 25, 1999 By /S/ JAMES B. MEYER
James B. Meyer
Director
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<PAGE>
June 25, 1999 By /S/ DAN R. PREVO*
Dan R. Prevo
Director
June 25, 1999 By /S/ CHARLES B. FOSNAUGH
Charles B. Fosnaugh
Vice President Development
(Principal Financial and Accounting
Officer)
June 25, 1999 *By /S/ JAMES B. MEYER
James B. Meyer
Attorney-in-Fact
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<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
In Appendix A to this Form 10-K, Spartan is furnishing
supplementally to the Securities and Exchange Commission a copy of the
Proxy Statement, form of Proxy, and other proxy soliciting material sent by
Spartan to its shareholders in connection with the Annual Meeting of
Shareholders to be held on July 21, 1999.
As of the date of this Form 10-K, Spartan has not yet furnished,
for the fiscal year ending March 27, 1999, an annual report to its
shareholders. Spartan plans to furnish an annual report to its
shareholders subsequent to the filing of this Form 10-K. Spartan shall
furnish copies of such annual report to the Securities and Exchange
Commission when it is sent to the shareholders.
The foregoing material shall not be deemed to be "filed" with the
Securities and Exchange Commission or otherwise subject to the liabilities
of Section 18 of the Securities Exchange Act of 1934.
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<PAGE>
SCHEDULE II
<TABLE>
SPARTAN STORES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
- -------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
- ----------------- ---------- ---------- ---------- --------------- -----------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS <FA> END OF YEAR
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
Year ended 3/29/97 $2,635,000 $1,710,556 $1,186,588 $3,158,968
Year ended 3/28/98 $3,158,968 $2,024,205 $3,037,691 $1,810,000
Year ended 3/27/99 $1,810,000 $1,534,842 $1,009,842 $2,335,000
<FN>
<FA> Represents the write-off of uncollectible accounts
</FN>
</TABLE>
F-1
<PAGE>
SUPPLEMENTAL INFORMATION FURNISHED PURSUANT
TO THE INSTRUCTIONS TO FORM 10-K
APPENDIX A
June 22, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Spartan Stores, Inc., to be held on JULY 21, 1999, AT THE
GRAND TRAVERSE RESORT, 100 GRAND TRAVERSE VILLAGE BOULEVARD, ACME,
MICHIGAN, commencing at 10:00 a.m., local time. Your Board of Directors
looks forward to greeting personally those shareholders able to attend.
At the meeting, you will be asked to elect four directors to
terms of three years each. Enclosed are the Notice of the Meeting and the
Proxy Statement, which includes information about each of the nominees for
the Board of Directors.
Regardless of the size of your holdings, it is important that
your shares are represented and voted at the meeting. To ensure a quorum,
please take a moment now to sign and date the enclosed Proxy and return it
to us in the enclosed self-addressed envelope. If you attend the meeting
and request us to do so, we will return the Proxy to you to vote your
shares at the meeting.
Thank you.
Sincerely,
/s/ James B. Meyer
James B. Meyer
President and Chief Executive Officer
A-1
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
The Annual Meeting of Shareholders of Spartan Stores, Inc., will
be held at the Grand Traverse Resort, 100 Grand Traverse Village Boulevard,
Acme, Michigan, on July 21, 1999, at 10 a.m., local time, to consider and
vote upon:
1. The election of four directors to terms of three years each;
2. The ratification of the acts or proceedings, or both, of the
directors and officers of Spartan Stores that may be submitted to the
meeting; and
3. Any other business as may properly come before the meeting.
Shareholders of record at the close of business on May 22, 1999,
are entitled to notice of and to vote at the meeting and any adjournment
thereof. The following Proxy Statement and enclosed Proxy are being
furnished to shareholders on or about June 22, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Alex J. DeYonker
Alex J. DeYonker
Assistant Secretary
June 22, 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE
MEETING. EVEN IF YOU EXPECT TO ATTEND THE MEETING,
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY.
A-2
<PAGE>
SPARTAN STORES, INC.
850 76TH STREET, S.W.
POST OFFICE BOX 8700
GRAND RAPIDS, MICHIGAN 49518
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JULY 21, 1999
INTRODUCTION
The Board of Directors of Spartan Stores, Inc. ("Spartan Stores"
or the "Company") solicits your proxy for use at the Annual Meeting of
Shareholders to be held at the Grand Traverse Resort, 100 Grand Traverse
Village Boulevard, Acme, Michigan, on Wednesday, July 21, 1999, at 10:00
a.m., local time, and any adjournment thereof, for the purposes set forth
in the accompanying Notice of Annual Meeting of Shareholders.
A form of proxy is enclosed. Shares of Spartan Stores' Class A
Common Stock, $2 par value ("Class A Shares"), represented by a proxy in
the enclosed form that is properly signed and returned to Spartan Stores
will be voted at the meeting and any adjournment thereof. If a shareholder
specifies a choice, the shares represented by the proxy will be voted as
specified. If no choice is specified, the shares represented by the proxy
will be voted for the election of the four director nominees named in this
Proxy Statement for three-year terms; for the ratification of the acts or
proceedings, or both, of the directors and officers of Spartan Stores that
may be submitted to the meeting; and in accordance with the judgment of the
designated proxies with respect to any other matter that may come before
the meeting or any adjournment thereof.
A proxy may be revoked at any time before it is voted at the
Annual Meeting by giving notice in writing to the Secretary of Spartan
Stores, by submitting a proxy bearing a later date, or by attending the
meeting, requesting a return of the proxy and voting in person. Spartan
Stores will return the proxy to each shareholder who attends the meeting
and notifies the Company that the shareholder intends to vote in person.
This Proxy Statement is being mailed on or about June 22, 1999 to the
shareholders of Spartan Stores.
A-3
<PAGE>
VOTING RIGHTS
Holders of record of Class A Shares at the close of business on
May 22, 1999 will be entitled to notice of and vote at the Annual Meeting
of Shareholders to be held July 21, 1999, and any adjournment thereof.
As of May 22, 1999, 10,266,874 Class A Shares were issued and
outstanding. Each Class A Share issued and outstanding entitles its holder
to one vote on each matter presented for shareholder action at the Annual
Meeting of Shareholders.
ELECTION OF DIRECTORS
The Board consists of ten directors and is divided into three
classes, with the term of one class expiring in each successive year.
Three current directors are serving terms that will expire in 2000 and
three current directors are serving terms that will expire in 2001. At the
Annual Meeting of Shareholders, four directors are to be elected for terms
of three years each and until their successors are elected and qualified.
The persons designated as proxies intend to vote for the election of the
four nominees named below.
Each of the nominees is willing to be elected and to serve. If
any nominee should become unable to serve or is otherwise unavailable for
election, which is not expected, the incumbent Board of Directors may or
may not select a substitute nominee. If a substitute nominee is selected,
the proxies will be voted for the election of the substitute nominee
selected by the incumbent Board of Directors. If a substitute nominee is
not selected, all proxies will be voted for the election of the remaining
nominees. Proxies will not be voted for a number of persons greater than
the number of nominees named in this Proxy Statement.
Directors will be elected by a plurality of the votes cast by
shareholders who are present in person or represented by proxy at the
meeting. For the purpose of counting votes on the election of directors,
abstentions and other shares not voted will not be counted as shares voted
and the number of shares of which a plurality is required will be reduced
by the number of shares not voted.
The following table shows certain information as of May 22, 1999,
supplied by each director whose term will continue and each nominee for
director.
A-4
<PAGE>
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST 5 YEARS
NOMINEES TO BE ELECTED
TERMS EXPIRING IN 2002
James G. Buick (age 66) Director since 1995; Retired;
Former President and Chief
Executive Officer, The Zondervan
Corporation (1984 to 1993)
(producer and distributor of
Christian books and gifts)
Martin P. Hill (age 54) Director since 1996; President,
Harding & Hill, Inc. (retail
grocery chain); Director, Secretary
and Treasurer, Harding's Markets -
West, Inc. (retail grocery chain)
Dan R. Prevo (age 49) Director since 1996; President,
Prevo's Family Market, Inc. (retail
grocery chain)
Russell H. VanGilder, Jr. (age 65) Chairman of the Board since
December 1998; Vice Chairman of the
Board from 1992-1998 and director
since 1970; Chairman of the Board,
V.G.'s Food Center, Inc. (retail
grocery chain)
INCUMBENT DIRECTORS
TERMS EXPIRING IN 2000
Parker T. Feldpausch (age 67) Vice Chairman of the Board since
December 1998 and director since
1990; President, G & R Felpausch
Co. (retail grocery chain)
James B. Meyer (age 53) Chief Executive Officer of the
Company since July 1997; President
and director since August 1996;
Chief Operating Officer from August
1996 to July 1997; Treasurer since
1994; Senior Vice President
Corporate Support Services from
June 1994 to August 1996; Chief
Financial Officer and Assistant
A-5
<PAGE>
POSITION AND PRINCIPAL
NAME AND AGE OCCUPATION FOR LAST 5 YEARS
Secretary from October 1990 to
August 1996; Senior Vice President
from 1981 to 1994
Alex J. DeYonker (age 49) Director since March 1999; General
Counsel and Assistant Secretary
since May 1995; partner of Warner
Norcross & Judd LLP (law firm)
INCUMBENT DIRECTORS
TERMS EXPIRING IN 2001
Roger L. Boyd (age 53) Secretary of the Board since 1993
and director since 1992; President
and General Manager, Bob's Market
House, Inc. (retail grocery store);
President and General Manager,
Hillsdale Market House, Inc.
(retail grocery store)
John S. Carton (age 58) Director since 1995; Chairman of
the Board, Pine View Golf Club,
Inc., and Turfside, Inc. (golf
course and restaurant)
Ronald A. DeYoung (age 65) Director since 1974; President,
Great Day, Inc. (retail grocery
chain)
YOUR BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR ELECTION OF ALL NOMINEES AS DIRECTORS
BOARD COMMITTEES AND MEETINGS
During fiscal year 1999, there were eight meetings of the Board
of Directors. The Board of Directors has four standing committees: the
Executive Committee, the Audit Committee, the Compensation Committee and
the Nominating Committee. Each of the incumbent directors attended at
least 75 percent of the aggregate number of meetings of the Board of
Directors and meetings of committees on which he served during fiscal year
1999. Mr. Donald J. Koop resigned from the Board of Directors on December
9, 1998 and Mr. Glen A. Catt resigned from the Board of Directors on April
5, 1999. Mr. Alex J. DeYonker was appointed to the Board of Directors on
March 31, 1999.
A-6
<PAGE>
EXECUTIVE COMMITTEE. The Executive Committee has the full power
and authority of the Board of Directors to manage the business affairs and
property of the Company between meetings of the full Board. The Executive
Committee can also declare distributions and dividends and authorize the
issuance of stock, as permitted by the Company's Bylaws and applicable
laws. In addition, the Executive Committee recommends to the Board of
Directors a successor to the Chief Executive Officer when a vacancy occurs.
Messrs. Boyd, DeYonker, Feldpausch, Meyer and VanGilder currently serve on
the Executive Committee. Mr. VanGilder is Chairman of the Executive
Committee. The Executive Committee met nine times during fiscal year 1999.
AUDIT COMMITTEE. The Audit Committee recommends to the Board of
Directors the employment of independent accountants; consults with the
internal auditor, if any, and independent accountants regarding the
adequacy of the Company's internal financial controls; reviews the
compensation, terms of engagement and independence of independent
accountants; reviews the results of audits by independent accountants;
reviews the appointment and replacement of the internal auditor; and
reviews the Company's annual financial statements and any disputes between
management and the independent accountants. Messrs. Carton, DeYoung,
Feldpausch and Prevo currently serve on the Audit Committee. Mr. DeYoung
is Chairman of the Audit Committee. The Audit Committee met four times
during fiscal year 1999.
COMPENSATION COMMITTEE. The Compensation Committee administers
the stock option, bonus and purchase plans of the Company; reviews the
salaries, bonuses, stock options and other benefits of executive officers;
authorizes the issuance of stock pursuant to the stock plans of the
Company; and reviews policies regarding and the operation of the Company's
executive compensation programs. Messrs. Buick, DeYoung and Hill currently
serve on the Compensation Committee. Mr. Buick is Chairman of the
Compensation Committee. The Compensation Committee met one time during
fiscal year 1999.
NOMINATING COMMITTEE. The Nominating Committee identifies
potential nominees for election as directors, reviews their qualifications
and recommends to the Board of Directors qualified candidates; recommends
to the Board of Directors the directors to be selected for membership on
the various Board of Directors' committees; and establishes standards for
membership on the Board of Directors and any committee of the Board of
Directors. Messrs. Boyd, Prevo and VanGilder currently serve on the
Nominating Committee. Mr. VanGilder is Chairman of the Nominating
Committee. The Nominating Committee met one time during fiscal year 1999.
A-7
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the
beneficial ownership of the Class A Shares as of May 22, 1999 of (i) each
of the directors and nominees for director of Spartan Stores, (ii) each of
the named executive officers of Spartan Stores, and (iii) all directors and
executive officers of Spartan Stores as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP <F1> PERCENT OF CLASS
- ------------------------ ------------------------- ----------------
<S> <C> <C>
Parker T. Feldpausch 508,390 4.92%
Russell H. VanGilder, Jr. 507,410 4.91
Martin P. Hill 330,090 3.20
Ronald A. DeYoung 224,130 2.17
Roger L. Boyd 169,310 1.64
Dan R. Prevo 101,103 <F*>
James B. Meyer <F2> 46,689 <F*>
Charles B. Fosnaugh <F2> 12,291 <F*>
David deS. Couch <F2> 5,377 <F*>
Michael D. Frank <F2> 4,536 <F*>
J. Kevin Schlosser <F2> 2,447 <F*>
James G. Buick 1,000 <F*>
John S. Carton 1,000 <F*>
Alex J. DeYonker 0 <F*>
All Directors and Executive
Officers as a group <F2> 1,914,773 18.54%
<FN>
_____________________
<F*> Less than one percent.
<F1> Except for Messrs. Buick, Carton and Meyer, the Class A Shares
reported as beneficially owned by each director are directly owned by a
corporation that is a customer of the Company and with whom the director is
affiliated. Thus, each such director indirectly owns the Class A Shares
through the corporation which he controls either individually or with
others. The Class A Shares owned by each such corporation are included in
the amount reported for the appropriate director. For the name of each
such entity related to each director, see "ELECTION OF DIRECTORS," above.
Mr. Meyer and the named executive officers directly own the Class A Shares
reported to be owned by each and hold the sole voting and dispositive power
with respect to those shares.
A-8
<PAGE>
<F2> Includes shares that may be acquired through the exercise of stock
options that are exercisable within 60 days. The number of shares subject
to such stock options for each person is shown below. The reported shares
include the shares subject to options granted on May 19, 1999.
Mr. Meyer 22,000
Mr. Fosnaugh 11,000
Mr. Couch 3,000
Mr. Frank 2,000
Mr. Schlosser 2,000
All Executive Officers as a group 41,000
</FN>
</TABLE>
EXECUTIVE COMPENSATION AND OTHER BENEFITS
The following table sets forth the cash and non-cash compensation
earned during the fiscal years ended March 27, 1999, March 28, 1998 and
March 29, 1997 by the persons who served as the Chief Executive Officer of
Spartan Stores during the last completed fiscal year, and the four most
highly compensated executive officers (other than the Chief Executive
Officer) of Spartan Stores at the end of the last completed fiscal year.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES ALL OTHER
FISCAL ----------------------- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS <F1> OPTIONS <F2> SATION <F3>
- --------------------------- ------ ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
James B. Meyer 1999 $371,540 $220,566 4,000 $ 8,136
(President and Chief 1998 350,494 106,712 4,000 6,348
Executive Officer) 1997 308,250 24,500 2,000 6,348
Charles B. Fosnaugh 1999 $200,980 $ 90,576 1,000 $ 7,949
(Vice President 1998 195,330 52,555 2,000 5,921
Development) 1997 190,640 18,688 2,000 5,921
David deS. Couch 1999 $168,260 $ 68,349 1,000 $ 7,313
(Vice President 1998 127,214 35,602 1,000 6,027
Information Technology) 1997 120,330 7,500 0 6,824
A-9
<PAGE>
Michael D. Frank 1999 $154,405 $ 65,717 1,000 $ 3,036
(Vice President Logistics) 1998 88,920 35,847 0 3,009
1997 N/A N/A N/A N/A
J. Kevin Schlosser 1999 $138,500 $ 47,187 1,000 $33,752
(Vice President Sales) 1998 N/A N/A N/A N/A
1997 N/A N/A N/A N/A
<FN>
____________________
<F1> The amounts listed in this column include bonus amounts elected under
the Company's 1991 Stock Bonus Plan, as amended, plus an amount equal to 30
percent of such bonus amounts to be received in Class A Shares. The
amounts listed in this column also include cash bonuses accrued in fiscal
years 1998 and 1999 for payment in the following year pursuant to the
Company's Annual Incentive Plan.
<F2> All reported awards were under the Company's 1991 Stock Option Plan,
as amended, and have been adjusted to reflect the results of the July 1997
ten-for-one stock split. These awards have vested and are exercisable at
the date of grant.
<F3> The compensation listed in this column for fiscal year 1999 consists
of: (i) amounts paid by Spartan Stores for split dollar and term life
insurance; (ii) Spartan Stores' matching contributions under its Savings
Plus Plan; and (iii) amounts paid for relocation expenses in connection
with acceptance of employment. The amounts included for each such factor
for fiscal year 1999 are:
(I) (II) (III)
------ ------ -------
Mr. Meyer $1,598 $6,538 $ 0
Mr. Fosnaugh 2,098 5,851 0
Mr. Couch 2,074 5,239 0
Mr. Frank 3,036 0 0
Mr. Schlosser 2,478 5,537 25,737
</FN>
</TABLE>
STOCK OPTIONS
Under the 1991 Stock Option Plan, options to purchase Class A
Shares may be granted to officers of Spartan Stores. The following tables
set forth information concerning stock options granted under the 1991 Stock
Option Plan during the fiscal year ended March 27, 1999 to the named
executive officers and the unexercised options held by them as of the end
of the fiscal year.
A-10
<PAGE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR <F1>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------ POTENTIAL
PERCENT REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL
OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE EXPIRA- FOR OPTION TERM
OPTIONS IN FISCAL PRICE PER TION --------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
- ------------------- ---------- ---------- --------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
James B. Meyer 4,000 50.00% $12.30 5/2008 $30,942 $78,412
Charles B. Fosnaugh 1,000 12.50 12.30 5/2008 7,735 19,603
J. Kevin Schlosser 1,000 12.50 12.30 5/2008 7,735 19,603
David deS. Couch 1,000 12.50 12.30 5/2008 7,735 19,603
Michael D. Frank 1,000 12.50 12.30 5/2008 7,735 19,603
<FN>
____________________
<F1> The per share exercise price of each option equals the "Trading Value"
of the Class A Shares effective as of June 21, 1998. All options were
granted for a term of 10 years. Options terminate, subject to limited
exercise provisions, in the event of death, retirement, or other
termination of employment. All options are exercisable at the date of
grant. The exercise price of the options may be paid in cash, by
delivering Class A Shares which are already owned by the option holder, or
any combination thereof.
</FN>
</TABLE>
A-11
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END <F1>
NUMBER OF SHARES -------------------------- ---------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ---------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James B. Meyer 0 $0 18,000 0 $33,000 $0
Charles B. Fosnaugh 0 0 10,000 0 20,600 0
David deS. Couch 0 0 2,000 0 1,000 0
Michael D. Frank 0 0 1,000 0 0 0
J. Kevin Schlosser 0 0 1,000 0 0 0
<FN>
<F1> Represents the difference between the exercise price of the options
for the Class A Shares and the Trading Value of $12.30 per share at fiscal
year-end.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The officers of Spartan Stores are appointed annually by and
serve at the pleasure of the Board of Directors or the Chief Executive
Officer. On August 14, 1996, the Board of Directors appointed Mr. Meyer
President and Chief Operating Officer of Spartan Stores, and as of that
date Mr. Meyer entered into an employment agreement with Spartan Stores.
As of July 1997, he became the President and Chief Executive Officer of
Spartan Stores, pursuant to the terms of the employment agreement. Under
the employment agreement, Mr. Meyer's annual base salary is to be and has
been revised upon mutual agreement of Spartan Stores and Mr. Meyer on a
year-to-year basis. Under the employment agreement, Spartan Stores
provides Mr. Meyer with an automobile and certain other fringe benefits.
The employment agreement may be terminated upon mutual agreement, upon Mr.
Meyer's death or disability, by either party at its option upon 90 days'
written notice to the other, for cause, or upon certain other events. Upon
termination by Spartan Stores for any reason other than for cause or Mr.
Meyer's death or disability, or upon termination by Mr. Meyer for good
reason, Mr. Meyer will receive life, health, accident, and dental insurance
benefits and an amount equal to his current salary for one year after the
A-12
<PAGE>
date of severance. In addition, all options held by Mr. Meyer to acquire
Class A Shares will immediately vest and become exercisable for 90 days
after the date of severance, all risks of forfeiture applicable to any
restricted stock granted to Mr. Meyer will lapse and no longer apply, and
Spartan Stores will purchase and transfer to Mr. Meyer the automobile then
furnished to him.
In February 1999, each of the named executive officers (referred
to as "executives" in the following discussion) entered into an Executive
Severance Agreement with Spartan Stores. Under these agreements, if the
executive's employment with Spartan Stores terminates during a Termination
Period (which is defined for Mr. Meyer as the 36-month period and for the
other executives as the 18-month period beginning on a Change in Control
(as described below) of Spartan Stores), then the executive will receive
payment of (1) the executive's unpaid base salary through the date of
termination; (2) any earned or payable benefit awards and bonus payments
pursuant to any plans; (3) the executive's target bonus under Spartan
Stores' Annual Incentive Plan pro rated for the time the executive was
employed in the fiscal year of termination; (4) a bonus under Spartan
Stores' Long Term Incentive Plan payable upon termination of the
executive's employment without cause; and (5) the amount of salary and
estimated bonus that would have been payable to the executive had his
employment continued until the end of the Termination Period. Each
executive other than Mr. Meyer also will receive the additional amount he
would have been eligible to receive under the Pension Plan and Supplemental
Executive Retirement Plan ("SERP") had his employment continued until the
end of the Termination Period. With certain exceptions, these payments
will not be made if the executive's employment is terminated by Spartan
Stores for cause, by the executive other than with notice and for good
reason, or as a result of the executive's death, disability or retirement
(a "Nonqualifying Termination").
The SERP establishes a target amount for payment to Mr. Meyer
depending upon the date of his termination. Under Mr. Meyer's Executive
Severance Agreement, if Mr. Meyer's employment terminates at any time and
for any reason after a Change in Control, Mr. Meyer will receive the target
amount under the SERP to the extent it is not otherwise paid under the
Pension Plan and the SERP on the date of termination (assuming the election
of lump sum payment options under those plans). If Mr. Meyer's employment
terminates for any reason other than a Nonqualifying Termination, the SERP
target amount will be determined by adding the following additional years
to Mr. Meyer's date of termination: five years if the termination occurs
in 1999, four years if the termination occurs in 2000, three years if the
termination occurs in 2001, two years if the termination occurs between
2001 and 2010, and one year if the termination occurs in 2010.
The Executive Severance Agreements further provide that upon a
Change in Control, all unvested stock options will vest and all
A-13
<PAGE>
restrictions on ownership of stock previously issued to the executive will
lapse. Each agreement also provides certain "gross up" payments if the
payments under the agreement cause certain excise taxes under the Internal
Revenue Code to be payable by the executive. With certain exceptions,
Spartan Stores also will maintain in full force and effect for the benefit
of the executive and his spouse and covered dependents all employee benefit
plans, programs and arrangements that the executive and his spouse and
covered dependents were entitled to participate in immediately prior to the
date of termination until the earlier of the end of the Termination Period
or (as to any particular benefit) the date upon which the executive
receives a substantially equal benefit from a new employer. The agreements
also provide for certain automobile privileges and outplacement services.
The term "Change in Control" is defined in the agreements
generally as (1) the acquisition by any person or group of 20% or more of
the outstanding common stock or voting power of Spartan Stores, (2) the
majority of the Board of Directors being comprised of persons other than
the current members of the Board of Directors or their successors whose
nominations were approved by at least two-thirds of the board, or (3) the
approval by the shareholders of certain mergers, reorganizations, plans of
dissolution or sales of substantially all of Spartan Stores' assets.
PENSION PLAN
Effective as of April 1, 1998, the Company's Pension Plan benefit
formula was redesigned, utilizing a cash balance approach. Under the new
cash balance formula, principal credits are added annually to a
participant's "account." There are two types of principal credits--basic
credits and transition credits. The basic credit equals a percentage of
the participant's compensation based upon a participant's years of vested
service at the beginning of each calendar year in accordance with the
following table:
<TABLE>
<CAPTION>
YEARS OF VESTED SERVICE PERCENTAGE OF
AS OF JANUARY 1 PARTICIPANT'S COMPENSATION
----------------------- --------------------------
<S> <C> <C>
0 - 5 4%
6 - 10 5
11 - 15 6
16 - 20 7
21 - 25 8
26 or more 9
</TABLE>
A-14
<PAGE>
In addition to the basic credit, a participant may be eligible to
receive a transition credit equal to a percentage of the participant's
compensation based upon the participant's age on the first day of the
calendar year as follows:
<TABLE>
<CAPTION>
PARTICIPANT'S AGE PERCENTAGE OF
AS OF JANUARY 1 PARTICIPANT'S COMPENSATION
----------------- --------------------------
<S> <C> <C>
Under 35 0%
35 - 39 2
40 - 44 4
45 - 49 6
50 - 54 8
55 and over 10
</TABLE>
Transition credits are available for the 1998 - 2007 calendar
years. However, if a participant had fewer than ten years of benefit
service as of December 31, 1997, the participant is eligible for transition
credits only for the number of calendar years equal to the participant's
complete years of benefit service as of December 31, 1997.
In addition to the principal credits, interest credits are also
added annually to a participant's "account" based upon the participant's
account balance as of the last day of the immediately preceding calendar
year. The interest rate used for this purpose is the average of 30-year
Treasury constant maturities yields over the twelve months ending in
November of the prior calendar year.
Upon termination of employment, a participant will be entitled to
his or her vested accrued benefit, which can be distributed either in a
monthly annuity or in a lump sum. If distributed in a lump sum, the
participant's benefit generally will be equal to the participant's account
balance. For persons who were participants prior to April 1, 1998, the
Pension Plan provides that the retirement benefit will not be less than the
benefit accrued as of March 31, 1998.
The Company also maintains the SERP, which provides nonqualified
deferred compensation benefits to the Company's executive officers. The
purpose of the SERP is to provide the executive officers with the benefits
which they are otherwise denied under the Pension Plan due to the annual
dollar limit on compensation and other limitations of the Internal Revenue
Code (which are known collectively as the "statutory limits").
Accordingly, each officer's benefit under the SERP is equal to the
A-15
<PAGE>
officer's benefit that would have accrued under the Pension Plan but for
the operation of the statutory limits, minus the accrued benefit actually
payable to the officer under the Pension Plan calculated in accordance with
the statutory limits. However, Mr. Meyer's SERP benefit is expressed as a
target amount which is equal to the benefit that would have accrued but for
the operation of statutory limits under the Pension Plan's formula that was
in effect prior to April 1, 1998, minus his actual accrued benefit under
the Pension Plan.
Benefits under the SERP are paid from the Company's general
assets. There is no separate trust which has been established to fund
benefits. As of March 27, 1999, the estimated total benefits payable under
the Pension Plan and the SERP upon retirement at normal retirement age (age
65) for Messrs. Meyer, Fosnaugh, Couch, Frank and Schlosser are expected to
be approximately $4,240,000, $1,040,000, $1,010,000, $350,000 and $290,000,
respectively.
COMPENSATION OF DIRECTORS
Each director receives a base compensation of $10,000 per year
and $1,000 per day for attendance at each meeting of the Board or a
committee of the Board. Directors also are reimbursed for travel expenses
for meetings attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Buick,
DeYoung and Hill. Messrs. DeYoung and Hill each have an ownership interest
in a business which is a customer of the Company and purchases groceries,
perishables, general merchandise, and other products and services from the
Company on an ongoing basis. For a discussion of transactions with
entities related to directors and the Board's policy with respect to
transactions in which a director has an interest, see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Spartan's directors (except Messrs. Buick, Carton, DeYonker and
Meyer) have ownership interests in businesses which are customers of the
Company and purchase groceries, perishables, general merchandise, and other
products and services from the Company on an ongoing basis. To the extent
that the Company engages in transactions and offers services that benefit
its customers, the businesses in which such directors have ownership
interests may benefit. Consequently, a director may have a conflict of
interest between the best interests of the Company and the business or
businesses in which the director has an ownership interest.
A-16
<PAGE>
For any transaction involving a sale in the ordinary course of
business of groceries, perishables, general merchandise, insurance, or
other products or services of the Company to a customer of the Company in
which the director owns an equity interest or is an officer, director, or
employee or otherwise has an interest (a "Related Entity"), it is the
Company's policy and practice that the sale is deemed fair to the Company,
and Board approval is not specifically required, if the sale is made at
prices and on terms, including discounts and rebates, no less favorable
than those offered generally to customers that are not affiliated with any
director.
For any other transaction in which a director has an interest
(including, without limitation, the Company's leasing, purchasing or
selling any property involving any loan or guarantee of an obligation by
the Company in a transaction involving a Related Entity), it is the
Company's policy and practice that the director shall proceed with the
transaction only if the material facts of the transaction and the
director's interest in the transaction have been disclosed to the Board,
the Board determines that it is fair to the Company, and the transaction is
approved by the affirmative vote of a majority of the Board of Directors
who have no interest in the transaction. Each such transaction is made on
terms no less favorable to the Company than those offered generally to
customers that are not affiliated with any director.
Mr. DeYonker is a partner with the law firm of Warner Norcross &
Judd LLP. During the past year and the current year, Spartan Stores has
retained Warner Norcross & Judd LLP for certain legal services.
APPOINTMENT OF AUDITORS AND OTHER MATTERS
The Board of Directors has appointed Deloitte & Touche LLP as the
Company's independent auditors for fiscal year 2000. Representatives of
Deloitte & Touche LLP are expected to be present at the annual meeting,
will have the opportunity to make a statement if they desire to do so, and
are expected to be available to answer appropriate questions.
The Company will bear the cost of soliciting proxies. The
Company expects to solicit proxies primarily by mail, but certain directors
and officers may solicit proxies personally or by telephone. The Company
does not expect to engage anyone for the purpose of soliciting proxies.
OTHER BUSINESS
At the date of this Proxy Statement, the management of Spartan
Stores has no knowledge of any business, other than that described above,
that will be presented at the meeting. If any other business should come
A-17
<PAGE>
before the meeting, the proxies named in the enclosed form of proxy will
have discretionary authority to vote on those matters.
By the Order of the Board of Directors,
/s/ Alex J. DeYonker
Grand Rapids, Michigan Alex J. DeYonker
June 22, 1999 Assistant Secretary
A-18
<PAGE>
SPARTAN STORES, INC.
PROXY
The undersigned acknowledges receipt of a Notice of Annual Meeting and a
Proxy Statement dated June 22, 1999, and appoints Ronald A. DeYoung or
James B. Meyer, and each of them, attorneys and proxies of the undersigned,
each with full power of substitution, to vote all stock that the
undersigned is entitled to vote at the ANNUAL MEETING OF SHAREHOLDERS OF
SPARTAN STORES, INC. at the Grand Traverse Resort, 100 Grand Traverse
Village Boulevard, Acme, Michigan 49610-0404, on July 21, 1999, at 10:00
a.m., local time, and any adjournment thereof. This Proxy is solicited on
behalf of the Board of Directors.
I. ELECTION OF DIRECTORS
[ ] For all nominees listed below for three-year terms
[ ] Withhold authority to vote for all nominees listed below
JAMES G. BUICK, MARTIN P. HILL, DAN R. PREVO AND RUSSELL H. VANGILDER, JR.
(Instruction: To withhold authority to vote for any individual
nominee, write the nominee's name in the space provided below.)
II. IN THEIR DISCRETION, TO RATIFY THE ACTS OR PROCEEDINGS, OR BOTH, OF
THE DIRECTORS OR OFFICERS OF SPARTAN STORES THAT MAY BE SUBMITTED TO THE
MEETING.
[ ] For discretionary authority [ ] Withhold discretionary authority
III IN THEIR DISCRETION, TO VOTE IN ACCORDANCE WITH THEIR JUDGMENT ON ANY
OTHER MATTER THAT MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
[ ] For discretionary authority [ ] Withhold discretionary authority
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED.
IF NO DIRECTION IS INDICATED, THEY WILL BE VOTED FOR THE ELECTION OF
ALL OF THE DIRECTORS NOMINATED BY THE BOARD,
FOR RATIFICATION OF THE ACTS OR PROCEEDINGS SUBMITTED TO
THE MEETING, AND IN THE DISCRETION OF THE PERSONS NAMED AS PROXIES
ON ANY OTHER MATTER THAT MAY COME BEFORE THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF SUCH ITEMS.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY.
A-19
<PAGE>
Dated: ___________________________, 1999
Note: Signature(s) should be identical with
the name(s) appearing on the certificates that
you own. Joint owners should each sign
personally. Persons signing as attorney,
executor, administrator, trustee, or guardian
should indicate their capacity as such. If
a corporation, please sign in full corporate
name by President or other authorized officer,
and indicate full title as such. If a
partnership, please sign in partnership name
by authorized person.
Store No. ______________________________________
Total Number of Shares _________________________
X_______________________________________________
Signature of Shareholder
X_______________________________________________
(Joint Owner, if applicable)
A-20
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
2.1 Asset Purchase Agreement dated March 5, 1999 by and between
Glen's Market, Inc., Catt's Realty Co. and Glen's Pharmacy,
Inc. as Sellers and Valuland, Inc. as Buyer and joined in by
certain shareholders of Sellers as the Shareholders and by
Universal Land Company as the Real Estate Company and by
Spartan Stores, Inc. as the Parent of the Buyer. Previously
filed as an exhibit to the Registrant's Current Report on
Form 8-K dated June 3, 1999. Here incorporated by
reference.
2.2 Amendment to Asset Purchase Agreement made as of May 19,
1999, by and between Valuland, Inc. and Glen's Market, Inc.,
Catt's Realty Co. and Glen's Pharmacy, Inc. Previously
filed as an exhibit to the Registrant's Current Report on
Form 8-K dated June 3, 1999. Here incorporated by reference
3.1<F*> Restated Articles of Incorporation of Spartan Stores, Inc.
3.2 Certificate of Amendment to Articles of Incorporation of
Spartan Stores, Inc. Previously filed as an exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended March 28, 1998. Here incorporated by reference.
3.3<F*> Bylaws of Spartan Stores, Inc.
4.1<F*> Articles III, V, VI and IX of the Restated Articles of
Incorporation--Included in Exhibit 3.1 and incorporated
herein by reference.
4.2<F*> Articles II, III, IV, VII, VIII and IX of the Bylaws--
Included in Exhibit 3.3 and incorporated herein by
reference.
4.3<F*> Form of Spartan Stores, Inc. Stock Subscription Agreement--
Shareholder Customers.
4.4<F*> Form of Spartan Stores, Inc. Customer Agreement.
4.5<F*> Form of Spartan Stores, Inc. Class A Common Stock
Certificate.
10.1<F*> Warehouse Lease Agreement, dated October 14, 1975, between
Connecticut Mutual Life Insurance Company and Spartan
Stores, Inc.
10.2<F**> Spartan Stores, Inc. 1991 Stock Bonus Plan. Previously
filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 29, 1997. Here
incorporated by reference.
10.3<F**> Spartan Stores, Inc. 1991 Stock Option Plan as amended.
Previously filed as an exhibit to the Registrant's Form S-1
Registration Statement filed July 23, 1993. Here
incorporated by reference.
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10.4<F**> Spartan Stores, Inc. 1991 Associate Stock Purchase Plan.
Previously filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 29,
1997. Here incorporated by reference.
10.5<F**> Spartan Stores, Inc. Supplemental Executive Retirement Plan.
10.6 Warehouse Lease Agreement, dated November 8, 1993, between
Walker Realty Co. and J.F. Walker Company, Inc. Previously
filed as an exhibit to the Registrant's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-1
filed March 16, 1994. Here incorporated by reference.
10.7 Employment Agreement, dated August 14, 1996, between Spartan
Stores, Inc. and James B. Meyer. Previously filed as an
exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 29, 1997. Here incorporated by
reference.
10.8<F**> Spartan Stores, Inc. Long-Term Incentive Plan. Previously
filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 28, 1998. Here
incorporated by reference.
10.9<F**> Spartan Stores, Inc. Annual Incentive Plan. Previously filed
as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended March 28, 1998. Here incorporated
by reference.
10.10 Credit Agreement dated as of March 18, 1999 among Spartan
Stores, Inc., ABN AMRO Bank N.V., as Arranger, Syndication
Agent and Collateral Agent, Michigan National Bank, as Co-
Arranger and Administrative Agent, and NBD Bank, as Document
Agent. Previously filed as an exhibit to the Registrant's
Current Report on Form 8-K dated June 3, 1999. Here
incorporated by reference.
10.11<F**> Form of Executive Severance Agreement between Spartan
Stores, Inc. and certain executive officers.
10.12<F**> Executive Severance Agreement dated February 23, 1999
between Spartan Stores, Inc. and James B. Meyer.
21 Subsidiaries of Registrant.
23 Consent and Report on Schedule of Deloitte and Touche LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
____________________
<F*> Previously filed as an exhibit to the Registrant's Form S-1
Registration Statement filed July 18, 1991. Here incorporated by
reference.
<F**> These documents are management contracts or compensation plans or
arrangements required to be filed as exhibits to this Form 10-K.
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EXHIBIT 10.5
SPARTAN STORES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
____________________________________
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 HISTORY OF THE PLAN.
Spartan Stores, Inc., a Michigan corporation, established a
retirement benefit plan to be known as the Spartan Stores, Inc.
Supplemental Executive Retirement Plan. The Plan was established effective
as of April 1, 1990 and has been periodically amended.
1.2 PURPOSE.
Employer desires to retain the services of a select group of
executives who contribute to the profitability and success of Employer.
Employer adopted the Plan to provide additional retirement income to the
executives who participate in the Plan.
1.3 THIS DOCUMENT.
Employer is redesigning, amending and restating the Pension Plan
as of April 1, 1998. By this document, Employer is amending and restating
this Plan as of the same date - April 1, 1998. The Plan shall be comprised
of this Plan document and the Appendices.
1.4 STATUS OF PLAN UNDER ERISA.
The Plan is intended to be "unfunded" and maintained "primarily
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees" for purposes of ERISA.
Accordingly, the Plan is not intended to be covered by Parts 2 through 4 of
Subtitle B of Title I of ERISA.
<PAGE>
ARTICLE II
DEFINITIONS
The following terms shall have the meanings described in this
Article unless the context clearly indicates another meaning. All
references in the Plan to specific Articles or Sections shall refer to
Articles or Sections of the Plan unless otherwise stated.
2.1 ACCRUED BENEFIT.
"Accrued Benefit" has the same meaning as in the Pension Plan.
2.2 ACTUARIAL EQUIVALENT.
"Actuarial Equivalent" means the equality in value of the
aggregate amount of benefits to be received under different forms of
payment. Actuarially Equivalent benefits shall be determined using
actuarial assumptions used for determining actuarially equivalent benefits
in the Pension Plan.
2.3 ANNUITY STARTING DATE.
"Annuity Starting Date" has the same meaning as in the Pension
Plan.
2.4 BENEFICIARY.
"Beneficiary" has the same meaning as in the Pension Plan.
2.5 CODE.
"Code" means the Internal Revenue Code of 1986, as amended.
2.6 DEATH BENEFIT.
"Death Benefit" has the same meaning as in the Pension Plan.
2.7 DISABILITY RETIREMENT BENEFIT.
"Disability Retirement Benefit" has the same meaning as in the
Pension Plan.
2.8 EARLY RETIREMENT BENEFIT.
"Early Retirement Benefit" has the same meaning as in the Pension
Plan.
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2.9 EMPLOYEE.
"Employee" means any common-law employee of Employer. An
individual who is treated by Employer as an independent contractor or self-
employed individual for purposes of income tax withholding by Employer is
not an Employee.
2.10 EMPLOYER.
"Employer" means Spartan Stores, Inc.
2.11 ERISA.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.12 NORMAL RETIREMENT BENEFIT.
"Normal Retirement Benefit" has the same meaning as in the
Pension Plan.
2.13 PARTICIPANT.
"Participant" means an Employee or former Employee of Employer
who has met the requirements for participation under Article III, and who
is or may become eligible to receive a retirement benefit from the Plan.
2.14 PENSION PLAN.
"Pension Plan" means the Spartan Stores, Inc. Cash Balance
Pension Plan (formerly, the Spartan Stores, Inc. Pension Plan), as
currently in effect as of April 1, 1998 and as it may be amended in the
future.
2.15 PLAN.
"Plan" means the Spartan Stores, Inc. Supplemental Executive
Retirement Plan.
2.16 PLAN ADMINISTRATOR.
"Plan Administrator" means the named fiduciary responsible for
the operation and administration of the Plan as provided in Article VII.
2.17 SINGLE LIFE ANNUITY.
"Single Life Annuity" has the same meaning as in the Pension
Plan.
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2.18 SPOUSE.
"Spouse" has the same meaning as in the Pension Plan.
2.19 STATUTORY LIMITS.
"Statutory Limits" mean any limits imposed by the Code on
benefits under the Pension Plan. This includes, but is not limited to, the
limits imposed by Sections 401(a)(17) and 415 of the Code.
ARTICLE III
PARTICIPATION
3.1 ELIGIBILITY FOR PARTICIPATION.
The Plan Administrator may periodically designate, in writing,
Employees to participate in the Plan. It is intended that participation be
limited to Employees who are participants in the Pension Plan and who will
qualify as members of a "select group of management or other highly
compensated employees" under Title I of ERISA. An Employee shall begin to
participate in the Plan upon the date designated by the Plan Administrator.
Upon becoming eligible to participate, each Employee shall
complete and submit to Employer the application for participation form
attached to the Plan as Appendix A.
3.2 TERMINATION OF ACTIVE PARTICIPATION.
The Plan Administrator may remove an Employee from further active
participation in the Plan. If this occurs, the Employee shall not earn any
additional benefits under the Plan. The amount of the Employee's benefits,
if any, under the Plan shall be determined as of the date he ceases active
participation. The Employee's benefits shall be paid only if he satisfies
the other requirements of the Plan.
ARTICLE IV
BENEFITS
4.1 ELIGIBILITY.
A Participant shall be eligible for a benefit under the Plan if
he terminates employment with Employer and receives one of the following
types of benefits from the Pension Plan: Normal Retirement Benefit, Early
Retirement Benefit, or Disability Retirement Benefit. Further, a
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Participant shall be eligible for a benefit under the Plan if he terminates
employment with Employer on or after June 1, 1998 and receives a Deferred
Vested Benefit from the Pension Plan. Similarly, the Spouse or Beneficiary
of a Participant shall be eligible for a benefit under the Plan if the
Participant dies before his Annuity Starting Date under the Pension Plan
and his Spouse or Beneficiary is eligible for a Death Benefit under the
Pension Plan.
4.2 AMOUNT OF BENEFIT.
Except as otherwise provided in an Appendix, the benefits payable
to an eligible Participant or Spouse or Beneficiary shall be equal to the
amount, if any, by which (a) exceeds (b):
(a) The Accrued Benefit that would have been payable to the
Participant or Spouse or Beneficiary under the Pension Plan, but for
the operation of the Statutory Limits.
(b) The Accrued Benefit payable to the Participant or
Spouse or Beneficiary from the Pension Plan.
For this purpose, the Participant's Accrued Benefit shall be calculated in
accordance with the Pension Plan as in effect as of April 1, 1998 and as it
may be amended in the future.
The Participant's Accrued Benefit shall be converted to a lump
sum amount for purposes of Section 4.3, in accordance with the Actuarial
Equivalent principles set forth in the Pension Plan.
4.3 PAYMENT.
(a) BENEFIT PAYMENT TO PARTICIPANT. Prior to April 1, 1998
(when the Plan was amended and restated), a Participant's benefit was
distributed in a Single Life Annuity (if to a unmarried Participant)
or a joint and 50% survivor annuity (if to a married Participant).
However, the Participant could waive the automatic form and elect a
ten-year certain and life annuity.
Effective as of April 1, 1998, the Participant may elect to
receive his benefit in one of the following forms:
(i) SINGLE LUMP SUM PAYMENT. A lump sum distribution
of the Participant's benefit under the Plan.
(ii) FIVE ANNUAL INSTALLMENT PAYMENTS. Five annual
installment payments of the Participant's benefit under the Plan.
If a Participant dies before receiving all of the installments,
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the remaining installments shall be paid to his Beneficiary.
After the first annual installment, each subsequent installment
shall be increased annually for interest. For this purpose, the
interest rate shall equal the yield on five-year Treasury notes
on the date the first annual installment is paid.
(iii) TEN ANNUAL INSTALLMENT PAYMENT. Ten annual
installment payments of the Participant's benefit under the Plan.
If a Participant dies before receiving all of the installments,
the remaining installments shall be paid to his Beneficiary.
After the first annual installment, each subsequent installment
shall be increased annually for interest. For this purpose, the
interest rate shall equal the yield on ten-year Treasury notes on
the date the first annual installment is paid.
Each Participant must make an irrevocable election regarding
the form in which his benefit shall be paid. For Employees who become
Participants in the Plan on or before October 13, 1998, this election
must be made by no later than November 13, 1998. For Employees who
become Participants after October 13, 1998, an irrevocable election
must be made within 30 days of becoming a Participant. An irrevocable
election must be made by completing an Employer-provided distribution
election form and returning the form to Employer.
Notwithstanding the provisions of the immediately preceding
paragraph, after the date of the Participant's election and before the
date benefits are payable, the Participant may submit a written
request to an administrative committee appointed by Employer's Board
of Directors to change the form in which his Plan benefits are
distributed. The Participant's request shall not be binding on the
administrative committee nor shall the Participant have any ability to
require the administrative committee to grant his request. Rather,
the administrative committee will act in its sole discretion in
granting or denying the request. If the Participant is a member of
the administrative committee, the Participant shall abstain from
voting and shall take no action with respect to his request for a
change in the form in which his benefits are payable. If the
administrative committee approves the request, benefits shall be
payable in the alternate form.
Benefits shall be paid to the Participant as of the first
day of the month following the month during which the Participant
terminates employment with Employer.
For purposes of (ii) and (iii), the Participant's
Beneficiary shall be designated in accordance with the rules in the
Pension Plan and shall be the same individual the Participant has
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designated as his Beneficiary under the Pension Plan UNLESS the
Participant completes a separate Employer-provided Beneficiary
designation form with respect to the distribution of this Plan's
benefit and returns it to Employer. The Participant may change his
Beneficiary designation at any time prior to death by completing a new
Beneficiary designation form and filing it with Employer.
(b) BENEFIT PAYMENT TO SPOUSE OR BENEFICIARY. If the
Participant dies before his Annuity Starting Date under the Plan, his
Spouse or Beneficiary may be eligible for a Death Benefit under this
Plan. The Death Benefit under this Plan shall be paid in the form of
a single lump sum payment (which shall be the Actuarial Equivalent of
a Single Life Annuity) and shall be made as of the first day of the
month following the month of the Participant's death. The Beneficiary
of the Death Benefit shall be the same individual the Participant has
designated as his Beneficiary under the Pension Plan UNLESS the
Participant completes a separate Employer-provided Beneficiary
designation form with respect to the distribution of this Plan's Death
Benefit and returns it to Employer. The Participant may change his
Beneficiary designation at any time prior to death by completing a new
Beneficiary designation form and filing it with Employer.
4.4 TAX WITHHOLDING.
Benefit payments from the Plan shall be subject to all applicable
tax withholdings.
ARTICLE V
CHANGE IN CONTROL
5.1 ELIGIBILITY FOR BENEFIT.
A Participant shall have a nonforfeitable, fully vested right to
the benefit the Participant shall have earned under the Plan from and after
the date Employer has a change in control. For purposes of this Article,
the term "change in control" means:
(a) The acquisition by any individual, entity, or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), of beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or
more of either (i) the then outstanding shares of common stock of
Employer (the "Outstanding Employer Common Stock") or (ii) the
combined voting power of the then outstanding securities of Employer
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<PAGE>
entitled to vote generally in the election of directors (the
"Outstanding Employer Voting Securities"); provided, however, that the
following acquisitions shall not constitute a change in control: (A)
any acquisition by Employer, (B) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by Employer or
any corporation controlled by Employer, (C) any acquisition by any
corporation pursuant to a reorganization, merger, or consolidation
involving Employer, if, immediately after such reorganization, merger,
or consolidation, each of the conditions described in (i), (ii), and
(iii) of subsection (c) shall be satisfied, or (D) with respect to an
individual Participant, any acquisition by the Participant or any
group of persons including the Participant; and provided further that,
for purposes of (A), if any Person (other than Employer or any
employee benefit plan (or related trust) sponsored or maintained by
Employer or any corporation controlled by Employer) shall become the
beneficial owner of 20% or more of the Outstanding Employer Common
Stock or 20% or more of the Outstanding Employer Voting Securities by
reason of an acquisition by Employer and such Person shall, after such
acquisition by Employer, become the beneficial owner of any additional
shares of the Outstanding Employer Common Stock or any additional
Outstanding Employer Voting Securities, such additional beneficial
ownership shall constitute a change in control;
(b) Individuals who, as of April 1, 1998, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of such Board; provided, however, that any individual
who becomes a director of Employer subsequent to April 1, 1998 whose
election, or nomination for election by Employer's shareholders, was
approved by the vote of at least two-thirds of the directors then
comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of Employer in which such person is
named as a nominee for director, without objection to such nomination)
shall be deemed to have been a member of the Incumbent Board; and
provided further, that no individual who was initially elected as a
director of Employer as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person
other than the Board, shall be deemed to have been a member of the
Incumbent Board;
(c) Approval by the shareholders of Employer of a
reorganization, merger, or consolidation unless, in any such case,
immediately after such reorganization, merger, or consolidation, (i)
more than 50% of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger, or
consolidation and more than 50% of the combined voting power of the
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then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
or entities who were the beneficial owners, respectively, of the
Outstanding Employer Common Stock and the Outstanding Employer Voting
Securities immediately prior or such reorganization, merger, or
consolidation and in substantially the same proportions relative to
each other as their ownership, immediately prior to such
reorganization, merger, or consolidation, of the Outstanding Employer
Common Stock and the Outstanding Employer Voting Securities, as the
case may be, (ii) no Person (other than: (A) Employer, any employee
benefit plan (or related trust) sponsored or maintained by Employer or
the corporation resulting from such reorganization, merger, or
consolidation (or any corporation controlled by Employer), or (B) any
Person which beneficially owned, immediately prior to such
reorganization, merger, or consolidation, directly or indirectly, 20%
or more of the Outstanding Employer Common Stock or the Outstanding
Employer Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of the then outstanding shares of
common stock of such corporation or 20% or more of the combined voting
power of the then outstanding securities of such corporation entitled
to vote generally in the election of directors, and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger, or consolidation were
members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such
reorganization, merger, or consolidation; or
(d) Approval by the shareholders of Employer of (i) a plan
of complete liquidation or dissolution of Employer or (ii) the sale or
other disposition of all or substantially all of the assets of
Employer other than to a corporation with respect to which,
immediately after such sale or other disposition, (A) more than 50% of
the then outstanding shares of common stock thereof and more than 50%
of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Employer Common
Stock and the Outstanding Employer Voting Securities immediately prior
to such sale or other disposition and in substantially the same
proportions relative to each other as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Employer
Common Stock and the Outstanding Employer Voting Securities, as the
case may be, (B) no Person (other than Employer, any employee benefit
plan (or related trust) sponsored or maintained by Employer or such
corporation (or any corporation controlled by Employer), or any Person
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which beneficially owned, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Employer Common Stock or the Outstanding Employer Voting Securities as
the case may be) beneficially owns, directly or indirectly, 20% or
more of the then outstanding shares of Common stock thereof or 20% or
more of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors and
(C) at least a majority of the members of the board of directors
thereof were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing
for such sale or other disposition.
5.2 AMOUNT OF BENEFITS.
A Participant's benefit shall be the amount determined under
Section 4.2, subject to Section 5.1, as of the date of the Participant's
termination of employment.
5.3 PAYMENT.
Benefits shall be paid in accordance with Section 4.3.
5.4 FUNDING OF BENEFITS.
If a change in control occurs, Employer shall establish a grantor
trust of the type referred to as a "rabbi trust" to fully fund all
Participants' vested Plan benefits, the assets of which will be subject to
the claims of creditors of Employer in the event of its insolvency. The
benefits that become payable under the Plan to a Participant or his
Beneficiary shall be paid from the assets of that trust to the extent they
are not paid directly by Employer.
ARTICLE VI
OTHER TERMINATION OF EMPLOYMENT
AND NONCOMPETITION
6.1 OTHER TERMINATION OF EMPLOYMENT.
Notwithstanding any other provisions of the Plan, no benefits
shall be payable to the Participant or his Spouse or Beneficiary under the
Plan in either of the following situations:
(a) If the Participant terminates employment before
becoming entitled to benefits under the Plan; or
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(b) If the Participant's employment with Employer is
terminated by Employer for cause, as defined in Section 6.2.
6.2 TERMINATION OF EMPLOYMENT FOR CAUSE.
(a) For purposes of Section 6.1, a Participant is
terminated for "cause" if his employment is terminated for any of the
reasons set forth in this Section.
(i) GENERAL DEFINITION OF CAUSE. Except upon a change
in control (see (ii) below), a Participant is terminated for
"cause" if his employment is terminated for any of the following
reasons:
(A) Gross negligence, fraud, dishonesty or
willful violation of any law or significant Employer policy,
committed in connection with his employment and resulting in
a material adverse effect on Employer; or
(B) Failure to substantially perform (for reasons
other than disability) the duties reasonably assigned to him
in a manner consistent with prior practice.
(ii) DEFINITION OF CAUSE UPON A CHANGE IN CONTROL.
Notwithstanding (i) above, upon a change in control, a
Participant is terminated for "cause" if his employment is
terminated for any of the following reasons:
(A) The willful and continued failure by the
Participant to substantially perform his duties with
Employer (other than any such failure resulting from
Participant's incapacity due to physical or mental injury or
illness, or any such actual or anticipated failure resulting
from Participant's termination for "good reason" (as that
term is defined in the Participant's Executive Severance
Agreement with Employer) after a demand for substantial
performance is delivered to the Participant by the Board of
Directors (which demand shall specifically identify the
manner in which the Board of Directors believes that the
Participant has not substantially performed his duties); or
(B) The willful engaging by the Participant in
gross misconduct materially and demonstrably injurious to
Employer.
For this purpose, no act or failure to act on the part
of the Participant shall be considered "willful" unless done or
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omitted to be done by the Participant not in good faith and
without reasonable belief that his action(s) or omission(s) was
in the best interests of Employer. Notwithstanding the
foregoing, the Participant shall not be deemed to have been
terminated for cause unless and until Employer provides
Participant with a copy of a resolution adopted by an affirmative
vote of not less than two-thirds of the entire membership of the
Board of Directors at a meeting of the Board of Directors called
and held for the purpose (after reasonable notice to the
Participant and an opportunity for the Participant, with counsel,
to be heard before the Board of Directors), finding that in the
good faith opinion of the Board of Directors the Participant has
been guilty of conduct set forth in (i) or (ii) above, setting
forth the particulars in detail. A determination for cause by
the Board of Directors shall not be binding upon or entitled to
deference by any finder of fact in the event of a dispute, it
being the intent of the parties that such finder of fact shall
make an independent determination of whether the termination was
for "cause" as defined in (i) or (ii) above.
(b) The definition of "cause" in this Section is relevant
only for purposes of eligibility for benefits under this Plan, and is
not intended to change the status of a Participant as an "at will"
Employee of Employer.
(c) If Employer determines that a Participant is ineligible
for benefits because the Participant's employment was terminated for
cause and the Participant disputes that determination, the
Participant's sole remedy after exhausting the claims procedure of
Section 7.5 shall be arbitration. The arbitration procedure is
attached to the Plan as Appendix B.
6.3 NONCOMPETITION.
Any Participant who retires under the Plan shall not engage in
"competition" with Employer within three years after retirement. For this
purpose, a Participant is engaged in "competition" if he accepts
employment, is retained as a consultant or receives any consideration,
financial or otherwise, by or from a competing business (as determined by
Employer's Board of Directors).
If a Participant violates this noncompetition provision, his
benefits under the Plan shall be reduced by the amount of "compensation"
received from the competing business during the three-year noncompetition
period described in the immediately preceding paragraph. For this purpose,
"compensation" includes the total value of any monetary compensation and
nonmonetary compensation, including any amounts deferred during the three-
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year noncompetition period. If the Participant is self-employed,
"compensation" means gross income before expenses.
Employer shall have the right to obtain sufficient information
regarding compensation from a competing retail business to calculate the
reduction in benefits described in this Section. If the Participant fails
to provide timely or complete information, benefit payments shall be ceased
until such information is provided.
However, in the event of a change in control, as described in
Section 5.1, this Section shall be deleted and shall have no effect.
ARTICLE VII
ADMINISTRATION
7.1 PLAN ADMINISTRATOR.
Employer shall have the sole responsibility for the
administration of the Plan and is designated as named fiduciary and Plan
Administrator.
7.2 APPOINTMENT OF ADMINISTRATIVE COMMITTEE.
Employer may delegate all or a portion of its duties as Plan
Administrator to an Administrative Committee. The members of the
administrative committee shall be selected by Employer. If an
administrative committee is appointed, it shall have the power and duties
of the Plan Administrator which are described in this Article and which are
delegated to the administrative committee.
7.3 POWERS OF PLAN ADMINISTRATOR.
The Plan Administrator shall have all discretionary powers
necessary to administer, and satisfy its obligations under the Plan,
including, but not limited to, the following:
(a) Maintain records pertaining to the Plan.
(b) Interpret the terms and provisions of the Plan.
(c) Establish procedures by which Participants may apply
for pension benefits under the Plan and appeal a denial of pension
benefits.
(d) Determine the rights under the Plan of any Participant
applying for or receiving pension benefits.
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<PAGE>
(e) Administer the claims procedure provided in this
Article.
(f) Perform all acts necessary to meet the reporting and
disclosure obligations imposed by Sections 101 through 111 of ERISA.
(g) Delegate specific responsibilities for the operation
and administration of the Plan to such employees or agents as it deems
advisable and necessary.
7.4 STANDARD OF CARE.
The Plan Administrator shall administer the Plan solely in the
interest of Participants and for the exclusive purposes of providing
pension benefits to such Participants and their beneficiaries. The Plan
Administrator shall administer the Plan with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person,
acting in a like capacity and familiar with such matters, would use in the
conduct of an enterprise of a like character and with like aims.
The Plan Administrator shall not be liable for any act or
omission relating to its duties under the Plan, unless the act or omission
violates the standard of care described in this Section.
7.5 CLAIMS PROCEDURE.
Any Participant whose application for benefits under the Plan has
been denied, in whole or in part, shall be given written notice of the
denial of benefits by the Plan Administrator. The notice shall be in
easily understood language and shall indicate the reasons for denial and
the specific provisions of the Plan on which the denial is based. The
notice shall explain that the Participant may request a review of the
denial and the procedure for requesting review. The notice shall describe
any additional information necessary to perfect the Participant's claim and
explain why such information is necessary.
A Participant may make a written request to the Plan
Administrator for a review of any denial of benefits under this Plan. The
request for review must be in writing and must be made within 90 days after
the mailing date of the notice of denial. The request shall refer to the
provisions of the Plan on which it is based and shall set forth the facts
relied upon as justifying a reversal or modification of the determination
being appealed.
A Participant who requests a review of a denial of benefits in
accordance with this claims procedure may examine pertinent documents and
submit pertinent issues and comments in writing. A Participant may have a
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<PAGE>
duly authorized representative act on his behalf in exercising his right to
request a review and any other rights granted by this claims procedure.
The Plan Administrator shall provide a review of the decision denying the
claim for benefit within 60 days after receiving the written request for
review.
However, in the event of a change in control as described in
Section 5.1, the dispute resolution procedure set forth in Schedule 11(c)
of the Participant's Executive Severance Agreement with Employer shall be
substituted for the claims procedure set forth in this Section and in
Appendix B. Further, in the event of a change in control as described in
Section 5.1 and a dispute between the Participant and Employer and/or the
Plan Administrator, the determinations of Employer and/or the Plan
Administrator shall not be entitled to deference, it being the intent of
the parties that there shall be independent determinations of any disputed
fact or issue through the dispute resolution procedure.
ARTICLE VIII
MISCELLANEOUS
8.1 FUNDING OF BENEFITS.
The Plan shall be unfunded, except as provided in Section 5.4.
Although Employer may make corporate investments to fund its potential
liability under the Plan, all benefits shall be paid directly by Employer
from its general assets to Participants who qualify for benefits.
Employer's obligation to pay benefits under the Plan shall be unsecured.
8.2 SPENDTHRIFT PROVISION.
No benefit or interest under the Plan is subject to assignment or
alienation, whether voluntary or involuntary. Any assignment or alienation
of benefits shall be void.
8.3 EMPLOYMENT RIGHTS.
The existence of the Plan shall not grant a Participant any legal
right to continue as an Employee nor affect the right of Employer to
discharge a Participant.
8.4 AMENDMENT OR TERMINATION.
Employer shall have the right to amend or terminate the Plan at
any time by action of its Board of Directors. However, no amendment or
termination shall reduce a Participant's benefits to an amount less than
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the benefit to which the Participant would be entitled under the Plan if he
had terminated employment as of the date of the amendment or termination.
The effect of Employer's amendment or termination of the Plan on a
Participant's benefit, as set forth in the immediately preceding sentence,
is subject to Section 5.1 (which requires a Participant's benefits to be
nonforfeitable and fully vested upon a change in control) and the terms of
any applicable employment agreement between Employer and a Participant.
8.5 CONSTRUCTION.
Words used in the masculine shall apply to the feminine where
applicable; and wherever the context of the Plan dictates, the plural shall
be read as the singular and the singular as the plural.
8.6 EXECUTIVE SEVERANCE AGREEMENT.
Each Participant shall enter into an Executive Severance
Agreement with Employer. It is intended that the terms of the Plan with
respect to a Participant be interpreted in a manner consistent with that
Participant's Executive Severance Agreement. Thus, with respect to a
Participant, in the event of a conflict between the terms of the Plan and
the terms of the Participant's Executive Severance Agreement, the terms of
the Executive Severance Agreement shall control.
8.7 GOVERNING LAW.
To the extent that Michigan law is not preempted by ERISA, the
provisions of the Plan shall be governed by the laws of the state of
Michigan.
IN WITNESS OF WHICH, Employer has adopted the Plan this 23RD day
of FEBRUARY, 1999.
SPARTAN STORES, INC.
By /S/ RUSSELL H. VANGILDER, JR.
Its Chairperson of the Board of
Directors
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APPENDIX A
SPARTAN STORES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
APPLICATION FOR PARTICIPATION
[Omitted.]
<PAGE>
APPENDIX B
SPARTAN STORES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARBITRATION PROCEDURE
[Omitted.]
<PAGE>
APPENDIX C
SPARTAN STORES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
BENEFIT FOR JAMES B. MEYER
[Omitted.]
<PAGE>
EXHIBIT 10.11
Spartan Stores, Inc. entered into the following Executive Severance
Agreement with the following executives on the dates indicated:
EXECUTIVE DATE
Charles B. Fosnaugh February 22, 1999
David deS. Couch February 22, 1999
Michael D. Frank February 22, 1999
Richard C. Deming February 22, 1999
J. Kevin Schlosser February 22, 1999
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the ___ day of _________,
1999 (the "Effective Date"), by and between SPARTAN STORES, INC. a Michigan
corporation ("Company"), and _______________________ ("Executive").
W I T N E S S E T H:
WHEREAS, Executive currently serves as a key employee of the
Company and/or its subsidiaries and his services and knowledge are valuable
to the Company in connection with the management of one or more of the
Company's principal operating facilities, divisions, or subsidiaries; and
WHEREAS, the Company considers the establishment and maintenance
of a sound and vital management to be essential to protecting and enhancing
the best interests of the Company and its shareholders; and
WHEREAS, the Board has determined that it is in the best
interests of the Company and its shareholders to secure Executive's
continued services and to ensure Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or
other action that could lead to, or create the possibility of, a Change in
Control (as hereafter defined) of the Company, without concern as to
whether Executive might be hindered or distracted by personal uncertainties
and risks created by any such possible Change in Control, and to encourage
Executive's full attention and dedication to the Company and/or its
subsidiaries, the Board has authorized the Company to enter into this
Agreement.
NOW, THEREFORE, COMPANY AND EXECUTIVE AGREE AS FOLLOWS:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
<PAGE>
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) the willful and continued failure by
Executive to substantially perform his duties with Company (other
than any such failure resulting from Executive's incapacity due
to physical or mental injury or illness, or any such actual or
anticipated failure resulting from Executive's termination for
Good Reason) after a demand for substantial performance is
delivered to Executive by the Board (which demand shall
specifically identify the manner in which the Board believes that
Executive has not substantially performed his or her duties); or
(2) the willful engaging by Executive in gross misconduct
materially and demonstrably injurious to the Company. For
purposes of this Section, no act or failure to act on the part of
Executive shall be considered "willful" unless done or omitted to
be done by Executive not in good faith and without reasonable
belief that his action(s) or omission(s) was in the best
interests of the Company. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause
unless and until the Company provides Executive with a copy of a
resolution adopted by an affirmative vote of not less than two-
thirds of the entire membership of the Board at a meeting of the
Board called and held for the purpose (after reasonable notice to
Executive and an opportunity for Executive, with counsel, to be
heard before the Board), finding that in the good faith opinion
of the Board the Executive has been guilty of conduct set forth
in subsections (1) or (2) above, setting forth the particulars in
detail. A determination for Cause by the Board shall not be
binding upon or entitled to deference by any finder of fact in
the event of a dispute, it being the intent of the parties that
such finder of fact shall make an independent determination of
whether the termination was for "Cause" as defined in (1) or (2) above.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity, or
group (a "Person"), including any "person" within the
meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 20% or more of either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding securities of
the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change in Control: (A) any acquisition by the
Company, (B) any acquisition by an employee benefit plan (or
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<PAGE>
related trust) sponsored or maintained by the Company or any
Person controlled by the Company, (C) any acquisition by any
corporation pursuant to a reorganization, merger, or
consolidation involving the Company, if, immediately after
such reorganization, merger, or consolidation, each of the
conditions described in clauses (i), (ii), and (iii) of
subsection (c)(3) shall be satisfied, or (D) any acquisition
by the Executive or any group of persons including the
Executive; and provided further that, for purposes of clause
(A), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company)
shall become the beneficial owner of 20% or more of the
Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an
acquisition by the Company and such Person shall, after such
acquisition by the Company, become the beneficial owner of
any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Voting Securities, such
additional beneficial ownership shall constitute a Change in
Control;
(2) individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided,
however, that any individual who becomes a director of the
Company subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by the vote of at least two-thirds of the directors
then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director,
without objection to such nomination) shall be deemed to
have been a member of the Incumbent Board; and provided
further, that no individual who was initially elected as a
director of the Company as a result of an actual or
threatened election contest, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act, or any other actual or threatened solicitation of
proxies or consents by or on behalf of any Person other than
the Board, shall be deemed to have been a member of the
Incumbent Board;
(3) approval by the shareholders of the Company of a
reorganization, merger, or consolidation unless, in any such
case, immediately after such reorganization, merger, or
consolidation, (i) more than 50% of the then outstanding
shares of common stock of the corporation resulting from
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<PAGE>
such reorganization, merger, or consolidation and more than
50% of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals or entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior
to such reorganization, merger, or consolidation and in
substantially the same proportions relative to each other as
their ownership, immediately prior to such reorganization,
merger, or consolidation, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the
case may be, (ii) no Person (other than (A) the Company, any
employee benefit plan (or related trust) sponsored or
maintained by the Company or the corporation resulting from
such reorganization, merger, or consolidation (or any
corporation controlled by the Company), or (B) any Person
which beneficially owned, immediately prior to such
reorganization, merger, or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common
Stock or the Outstanding Company Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of
such corporation or 20% or more of the combined voting power
of the then outstanding securities of such corporation
entitled to vote generally in the election of directors, and
(iii) at least a majority of the members of the board of
directors of the corporation resulting from such
reorganization, merger, or consolidation were members of the
Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such
reorganization, merger, or consolidation; or
(4) approval by the shareholders of the Company of
(i) a plan of complete liquidation or dissolution of the
Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company other than to
a corporation with respect to which, immediately after such
sale or other disposition, (A) more than 50% of the then
outstanding shares of common stock thereof and more than 50%
of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the
election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior
to such sale or other disposition and in substantially the
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<PAGE>
same proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or such
corporation (or any corporation controlled by the Company),
or any Person which beneficially owned, immediately prior to
such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of Common stock thereof or 20%
or more of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the
election of directors and (C) at least a majority of the
members of the board of directors thereof were members of
the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such
sale or other disposition.
Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a
Change in Control and Executive reasonably demonstrates that such
termination was at the request of or in response to a third party
who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party"), and
who subsequently effectuates a Change in Control, then for all
purposes of this Agreement, the date of a Change in Control shall
mean the date immediately prior to the date of such termination
of Executive's employment.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the common stock of the Company,
$2.00 par value per share.
(f) "Company" means Spartan Stores, Inc., a Michigan
corporation, and any corporation or other entity in which Spartan
Stores, Inc. has a direct or indirect ownership interest of 50%
or more of the total combined voting power of the then
outstanding securities of such corporation or other entity
entitled to vote generally in the election of directors.
(g) "Date of Termination" means the effective date on which
Executive's employment by the Company terminates as specified in
a Notice of Termination by the Company or Executive, as the case
may be. Notwithstanding the previous sentence, (i) if the
Executive's employment is terminated for Disability, as defined
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<PAGE>
in Section 1(h), then such Date of Termination shall be no
earlier than thirty (30) days following the date on which a
Notice of Termination is received, and (ii) if the Executive's
employment is terminated by the Company other than for Cause,
then such Date of Termination shall be no earlier than thirty
(30) days following the date on which a Notice of Termination is
received.
(h) "Disability" means Executive's failure to be available
to substantially perform his duties with the Company on a full-
time basis for at least one hundred eighty (180) consecutive days
as a result of Executive's incapacity due to mental or physical
illness.
(i) "Good Reason" means, without Executive's express
written consent, the occurrence of any of the following events
after or in connection with a Change in Control:
(1) (i) the assignment to Executive of any duties
inconsistent in any material adverse respect with
Executive's position(s), duties, responsibilities, or status
with the Company immediately prior to such Change in
Control, (ii) a material adverse change in Executive's
reporting responsibilities, titles or offices with the
Company as in effect immediately prior to such Change in
Control, (iii) any removal or involuntary termination of
Executive by the Company otherwise than as expressly
permitted by this Agreement (including any purported
termination of employment which is not effected by a Notice
of Termination), or (iv) any failure to re-elect Executive
to any position with the Company held by Executive
immediately prior to such Change in Control;
(2) a reduction by the Company in Executive's rate of
annual base salary as in effect immediately prior to such
Change in Control or as the same may be increased from time
to time thereafter;
(3) any requirement of the Company that Executive
(i) be based anywhere other than the facility where
Executive is located at the time of the Change in Control or
reasonably equivalent facilities within Kent County,
Michigan or (ii) engage in business travel to an extent
substantially more burdensome than the travel obligations of
Executive immediately prior to such Change in Control;
(4) the failure of the Company to continue the
Company's executive incentive plans or bonus plans in which
Executive is participating immediately prior to such Change
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<PAGE>
in Control or a reduction of the Executive's target
incentive award opportunity under any such bonus plan,
unless Executive is permitted to participate in other plans
providing Executive with substantially comparable benefits
or receives compensation as a substitute for such plans
providing Executive with a substantially equivalent economic
benefit;
(5) the failure of the Company to (i) continue in
effect any employee benefit plan or compensation plan in
which Executive is participating immediately prior to such
Change in Control, unless Executive is permitted to
participate in other plans providing Executive with
substantially comparable benefits or receives compensation
as a substitute for such plans providing Executive with a
substantially equivalent after-tax economic benefit, or the
taking of any action by the Company which would adversely
affect Executive's participation in or materially reduce
Executive's benefits under any such plan, (ii) provide
Executive and Executive's dependents with welfare benefits
(including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans
and programs) in accordance with the most favorable plans,
practices, programs, and policies of the Company in effect
for Executive immediately prior to such Change in Control,
(iii) provide other fringe benefits in accordance with the
most favorable plans, practices, programs, and policies of
the Company in effect for Executive immediately prior to
such Change in Control, or (iv) provide Executive with paid
vacation in accordance with the most favorable plans,
policies, programs and practices of the Company as in effect
for Executive immediately prior to such Change in Control;
(6) the failure of the Company to pay any amounts owed
Executive as salary, bonus, deferred compensation or other
compensation;
(7) the failure of the Company to obtain any
assumption agreement contemplated in Section 9(b);
(8) any purported termination of Executive's
employment which is not effected pursuant to a Notice of
Termination which satisfies the requirements of a Notice of
Termination; or
(9) any other material breach by Company of its
obligations under this Agreement.
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<PAGE>
For purposes of this Agreement, any good faith determination
of Good Reason made by Executive shall be conclusive on the
parties; provided, however, that an isolated and insubstantial
action taken in good faith and which is remedied by the Company
within ten (10) days after receipt of notice thereof given by
Executive shall not constitute Good Reason. Any event or
condition described in this Section 1(i) which occurs prior to a
Change in Control, but which Executive reasonably demonstrates
was at the request of or in response to a Third Party who
effectuates a Change in Control or who has indicated an intention
or taken steps reasonably calculated to effect a Change in
Control, shall constitute Good Reason following a Change in
Control for purposes of this Agreement notwithstanding that it
occurred prior to the Change in Control.
Executive may not terminate the employment for "Good Reason"
unless:
(i) Executive notifies the Board of Directors in
writing, within 60 days after Executive becomes aware of the
act or omission constituting Good Reason that the act or
omission in question constitutes Good Reason and explaining
why the Executive considers it to constitute Good Reason;
(ii) the Company fails, within 10 days after notice
from Executive under (i) above, to revoke the action or
correct the omission and make the Executive whole; and
(iii) Executive gives notice of termination within
30 days after expiration of the 10-day period under (ii)
above.
Executive's failure to give notice as provided in (i) above
will not waive Executive's right to resign with Good Reason,
provided that he follows the above procedure, with regard to any
subsequent act or omission constituting Good Reason.
Executive need not fulfill the above conditions a second
time if the Company repeats the act or omission constituting Good
Reason.
(j) "Nonqualifying Termination" means a termination of
Executive's employment (1) by the Company for Cause, (2) by
Executive for any reason other than for Good Reason with Notice
of Termination, (3) as a result of Executive's death, (4) by the
Company due to Executive's Disability, unless within thirty (30)
days after Notice of Termination is provided to Executive,
Executive shall have returned (or offered to return, if not
permitted by the Company to do so) to substantial performance of
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<PAGE>
Executive's duties on a full-time basis, or (5) as a result of
Executive's Retirement.
(k) "Notice of Termination" means a written notice by the
Company or Executive, as the case may be, to the other, which
(1) indicates the specific reason for Executive's termination,
(2) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of Executive's employment, and (3) specifies the
termination date. The failure by Executive or the Company to set
forth in such notice any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of
Executive or the Company hereunder or preclude Executive or the
Company from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
(l) "Retirement" means termination of employment by either
the Executive or the Company on or after the Executive's normal
retirement date under the terms of retirement plans of the
Company, but not earlier than the age of 65.
(m) "SERP" means the Spartan Stores, Inc. Supplemental
Executive Retirement Plan, as amended from time to time.
(n) "Termination Period" means the period of time beginning
with a Change in Control and ending 18 months following such
Change in Control.
2. TERM OF AGREEMENT. This Agreement shall commence on the Effective
Date and shall continue in effect until the Company has fulfilled all
of its obligations under this Agreement following any termination of
Executive's employment with the Company.
3. SEVERANCE BENEFITS. If the employment of Executive with the Company
shall terminate during the Termination Period, other than by reason of
a Nonqualifying Termination, then Executive shall receive the
following severance benefits as compensation for services rendered:
(a) LUMP SUM CASH PAYMENT. Within five (5) days after the
Date of Termination, Executive shall receive a lump sum cash
payment in an amount equal to the sum of the following:
(1) Executive's unpaid base salary from the Company
through the Date of Termination at the rate in effect
(without taking into account any reduction of base salary
constituting Good Reason), just prior to the time a Notice
of Termination is given plus any benefit awards (including
both the cash and stock components) and bonus payments which
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pursuant to the terms of any plans have been earned or
become payable, to the extent not theretofore paid;
(2) A bonus will be paid under the Company's Annual
Incentive Plan or any successor plan ("Annual Plan") for the
time Executive was employed by the Company in the fiscal
year of termination, in an amount equal to the product of
(i) the number of days Executive was employed by the Company
prior to the Date of Termination in the year of termination
divided by the number of days in the year, multiplied by
(ii) 100% of the Executive's current year target bonus (with
such calculations to be made as though the target level has
been achieved for each Performance Goal (as defined in the
Annual Plan)).
(3) A bonus will be paid under the Long Term Incentive
Plan or any successor Plan ("Long Term Plan"), in an amount
equal to the payment called for under the Long Term Plan (as
in effect on the date of this Agreement) upon termination of
Executive's employment without Cause during a year.
(4) An amount equal to the number of years
remaining in the Termination Period (counting each full
or partial month as 1/12th of a year, and rounded to
the nearest 1/100th of a year) times the sum of (i) the
higher of the Executive's annual rate of base salary
from the Company in effect on the Date of Termination
or in effect on the day before the Change in Control;
and (ii) the higher of the (A) payment to Executive
under Section 3(a)(2) above adjusted to be an
annualized bonus or (B) the bonus awarded to the
Executive under the Annual Plan for the fiscal year
immediately preceding the Change in Control.
(b) BENEFITS. Except for any retirement plans covered by
Section 4 below, the Company shall maintain in full force and
effect for the benefit of Executive and his spouse and covered
dependents all employee benefit plans, programs and arrangements
that the Executive and his spouse and covered dependents were
entitled to participate in immediately prior to the Date of
Termination until the earlier of the end of the Termination
Period or (as to any particular benefit) the date upon which the
Executive receives a substantially equal benefit from a new
employer. If the participation of the Executive and his spouse
and covered dependents in any such plans or programs is not
permitted by the terms of any such plans or programs, or would
cause the Executive to experience adverse tax consequences, the
Company shall provide comparable benefits eliminating the adverse
tax consequences but providing substantially the same after-tax
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<PAGE>
benefit levels as the Executive, spouse and covered dependents
previously received under such plans and programs.
(c) AUTOMOBILE. The Company shall cause the title to
Executive's Company-provided automobile to be transferred to
Executive, free and clear.
(d) OUTPLACEMENT SERVICES. The Company will provide the
Employee with outplacement services through an outplacement
services firm selected by the Company with the Employee's
approval, which shall not be withheld if the firm selected is
reputable at a cost not to exceed an amount equal to 15 percent
of the Executive's base salary at the time of the termination.
(e) CERTAIN REDUCTIONS DISREGARDED. In computing the
payments under sections (a) through (d) above, any reduction in
Executive's base salary, bonus or fringe benefits shall be
disregarded if such reduction constituted "Good Reason" as
defined in this Agreement.
4. RETIREMENT BENEFITS.
(a) The Executive is a Participant in the SERP. If the
employment of Executive with the Company shall terminate during
the Termination Period other than by reason of a Nonqualifying
Termination, then Executive shall receive (as a lump sum, to be
paid within five (5) days after the Date of Termination) an
amount equal to the difference between (i) the total amounts the
Executive is eligible to receive as of the Date of Termination
under the Spartan Stores, Inc. Cash Balance Pension Plan and any
successor plan ("Pension Plan") and the SERP (assuming election
by Executive of the lump sum payment options under the Pension
Plan and SERP); and (ii) the total amounts the Executive would
have been eligible to receive under the Pension Plan and SERP had
the Executive's employment continued until the end of the
Termination Period.
(b) The payments to Executive under this Section 4 shall be
in addition to any payments under Section 3 of this Agreement and
any payments under the Pension Plan and SERP.
5. ACCELERATION OF VESTING UPON CHANGE IN CONTROL. Effective at the time
of a Change in Control, all unvested stock options and stock
previously issued to Executive as to which rights of ownership are
subject to forfeiture shall immediately vest; all risk of forfeiture
of the ownership of stock or stock options and restrictions on the
exercise of options shall lapse; and, Executive shall be entitled to
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exercise any or all options, such that the underlying shares will be
considered outstanding at the time of the Change in Control.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, if any payments or distributions by the Company
to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise ("Payments")) trigger application of the
excise tax imposed by Section 4999 of the Code, or any successor
Code provision (such excise tax, together with any interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), or any interest or penalties are incurred by
Executive with respect to Excise Tax on such amount, then
Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without
limitation, any income and employment taxes (and any interest and
penalties imposed with respect thereto) and any Excise Tax,
imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments, it being the intent of this section that the Executive
shall be held harmless from all Excise Tax and interest and
penalties on Excise Tax.
(b) Subject to the provisions of Section 6(c), all
determinations required to be made under this Section 6,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the
public accounting firm that is retained by the Company as of the
date immediately prior to the Change in Control (the "Accounting
Firm") which shall provide detailed supporting calculations both
to the Company and Executive within fifteen (15) business days of
the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company or
Executive (collectively, the "Determination"). In the event that
the Accounting Firm is serving as accountant or auditor for the
individual, entity, or group affecting the Change in Control,
Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 6, shall be
paid by the Company to Executive within five (5) days of the
receipt of the Determination. If the Accounting Firm determines
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that no Excise Taxes are payable by Executive, it shall furnish
Executive with a written opinion that failure to report the
Excise Tax on Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be
binding upon the Company and Executive; however, as a result of
the uncertainty in the application of Section 4999 of the Code at
the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 6(c) and Executive
thereafter is required to make payment of any Excise Tax that
qualifies for a Gross-Up Payment in accordance with this Section
6, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten (10) business days after Executive is informed in
writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be
paid. Executive shall not pay such claim prior to the expiration
of the 30-day period following the date on which Executive gives
such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim,
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim;
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provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for
any Excise Tax or income or employment tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings, and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct Executive to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided further, that if
the Company directs Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or
income or employment tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
provided further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 6, Executive becomes
entitled to receive, and receives, any refund with respect to
such claim, Executive shall (subject to the Company's complying
with the requirements of Section 6) promptly pay to the Company
the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the
receipt by Executive of an amount advanced by the Company
pursuant to Section 6, a determination is made that Executive
shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
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amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
7. WITHHOLDING TAXES. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local, or other law, the Company is
required to withhold therefrom.
8. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under or related to this Agreement involving termination of
Executive's employment with the Company or involving the failure or
refusal of the Company to perform fully in accordance with the terms
hereof, the Company shall reimburse Executive, on a current basis, for
all legal fees and expenses, if any, incurred by Executive in
connection with such contest or dispute regardless of the result
thereof.
9. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the
surviving or resulting corporation or as a result of any transfer
of all or substantially all of the assets of the Company. In the
event of any such merger, consolidation, or transfer of assets,
the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to
which such assets are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in this
Section 9, it will cause any successor or transferee
unconditionally to assume, by written instrument delivered to
Executive (or his beneficiary or estate), all of the obligations
of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger,
consolidation, or transfer of assets shall be a breach of this
Agreement and shall constitute Good Reason hereunder and shall
entitle Executive to compensation and other benefits from the
Company in the same amount and on the same terms as Executive
would be entitled hereunder if Executive's employment were
terminated following a Change in Control other than by reason of
a Nonqualifying Termination. For purposes of implementing the
foregoing, the date on which any such merger, consolidation, or
transfer becomes effective shall be deemed the date Good Reason
occurs, and shall be the Date of Termination if requested by
Executive.
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(c) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive shall die while any amounts
would be payable to Executive hereunder had Executive continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to
such person or persons appointed in writing by Executive to
receive such amounts or, if no person is so appointed, to
Executive's estate.
10. NOTICE. For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or received by
facsimile transmission or five (5) days after deposit in the United
States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
________________________
________________________
________________________
If to the Company:
Spartan Stores, Inc.
850 76th Street, S.W.
P. O. Box 8700
Grand Rapids, Michigan 49518
or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
11. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
(a) The Company's obligation to make any payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall
Executive be obligated to seek other employment or take other
action by way of mitigation of the amounts payable to Executive
under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not Executive obtains other
employment.
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(b) If there shall be any dispute between the Company and
Executive in the event of any termination of Executive's
employment then, until there is a final, nonappealable,
determination pursuant to arbitration declaring that such
termination was for Cause, that the determination by Executive of
the existence of Good Reason was not made in good faith, or that
the Company is not otherwise obligated to pay any amount or
provide any benefit to Executive and his dependents or other
beneficiaries, as the case may be, under Sections 3 and 4, the
Company shall pay all amounts, and provide all benefits, to
Executive and his dependents or other beneficiaries, as the case
may be, that the Company would be required to pay or provide
pursuant to Sections 3 and 4 as though such termination were by
the Company without Cause or by Executive with Good Reason;
provided, however, that the Company shall not be required to pay
any disputed amounts pursuant to this Section 11 except upon
receipt of an undertaking by or on behalf of Executive to repay
all such amounts to which Executive is ultimately determined by
the arbitrator not to be entitled.
(c) ARBITRATION. Any dispute or controversy under this
Agreement shall be settled exclusively by arbitration in Grand
Rapids, Michigan, in accordance with the rules of the American
Arbitration Association then in effect; provided, however, that
Executive shall be entitled to seek specific performance of his
right to be paid pursuant to Section 11(b) during a dispute.
Judgment may be entered on the arbitration award in any court
having jurisdiction. The Company shall bear all costs and
expenses arising in connection with any arbitration proceeding
pursuant to this Section 11(c).
12. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Michigan
without regard to the principle of conflicts of laws. The invalidity
or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement, which other provisions shall remain in full force and
effect.
13. ESTABLISHMENT OF TRUST. Immediately prior to a Change in Control, the
Company shall establish and maintain a Trust in the form attached as
Exhibit A. Upon the occurrence of a Change in Control the Company
shall pay into the Trust the amounts called for under Exhibit A, and
shall thereafter make such additional payments as called for under
Exhibit A. No payment to the Trust by the Company shall reduce the
Company's obligations to make payments to Executive under this
Agreement.
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14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all
of which together shall constitute one and the same instrument.
15. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company, or such
waiver is signed by the waiving party. No waiver by either party
hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. Failure by Executive or the Company to insist upon
strict compliance with any provision of this Agreement or to assert
any right Executive or the Company may have hereunder, including
without limitation, the right of Executive to terminate employment for
Good Reason, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement. The rights
of, and benefits payable to, Executive, his estate, or his
beneficiaries pursuant to this Agreement are in addition to any rights
of, or benefits payable to, Executive, his estate, or his
beneficiaries under any other employee benefit plan or compensation
program of the Company, except that no benefits pursuant to any other
employee plan or compensation program that become payable or are paid
in accordance with this Agreement shall be duplicated by operation of
this Agreement. No agreements or representations, oral or otherwise,
express or implied, with regard to the subject matter hereof have been
made by either party which are not expressly set forth in this
Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer of the Company. Executive has
executed this Agreement as of the day and year written below.
SPARTAN STORES, INC.
By: ______________________________________
James B. Meyer
President and Chief Executive Officer
"Company"
AGREED TO THIS ____ DAY OF _________, 1999
__________________________________________
"Executive"
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EXHIBIT A
SPARTAN STORES, INC.
EXECUTIVE SEVERANCE AGREEMENT AND SERP TRUST
[Omitted.]
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EXHIBIT 10.12
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the 23rd day of February,
1999 (the "Effective Date"), by and between SPARTAN STORES, INC. a Michigan
corporation ("Company"), and JAMES B. MEYER ("Executive").
W I T N E S S E T H:
WHEREAS, Executive currently serves as a key employee of the
Company and/or its subsidiaries and his services and knowledge are valuable
to the Company in connection with the management of one or more of the
Company's principal operating facilities, divisions, or subsidiaries; and
WHEREAS, the Company considers the establishment and maintenance
of a sound and vital management to be essential to protecting and enhancing
the best interests of the Company and its shareholders; and
WHEREAS, the Board has determined that it is in the best
interests of the Company and its shareholders to secure Executive's
continued services and to ensure Executive's continued dedication and
objectivity in the event of any threat or occurrence of, or negotiation or
other action that could lead to, or create the possibility of, a Change in
Control (as hereafter defined) of the Company, without concern as to
whether Executive might be hindered or distracted by personal uncertainties
and risks created by any such possible Change in Control, and to encourage
Executive's full attention and dedication to the Company and/or its
subsidiaries, the Board has authorized the Company to enter into this
Agreement.
NOW, THEREFORE, COMPANY AND EXECUTIVE AGREE AS FOLLOWS:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (1) the willful and continued failure by
Executive to substantially perform his duties with Company (other
than any such failure resulting from Executive's incapacity due
to physical or mental injury or illness, or any such actual or
anticipated failure resulting from Executive's termination for
Good Reason) after a demand for substantial performance is
delivered to Executive by the Board (which demand shall
specifically identify the manner in which the Board believes that
Executive has not substantially performed his or her duties); or
(2) the willful engaging by Executive in gross misconduct
<PAGE>
materially and demonstrably injurious to the Company. For
purposes of this Section, no act or failure to act on the part of
Executive shall be considered "willful" unless done or omitted to
be done by Executive not in good faith and without reasonable
belief that his action(s) or omission(s) was in the best
interests of the Company. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause
unless and until the Company provides Executive with a copy of a
resolution adopted by an affirmative vote of not less than two-
thirds of the entire membership of the Board at a meeting of the
Board called and held for the purpose (after reasonable notice to
Executive and an opportunity for Executive, with counsel, to be
heard before the Board), finding that in the good faith opinion
of the Board the Executive has been guilty of conduct set forth
in subsections (1) or (2) above, setting forth the particulars in
detail. A determination for Cause by the Board shall not be
binding upon or entitled to deference by any finder of fact in
the event of a dispute, it being the intent of the parties that
such finder of fact shall make an independent determination of
whether the termination was for "Cause" as defined in (1) or (2)
above.
(c) "Change in Control" means:
(1) the acquisition by any individual, entity, or
group (a "Person"), including any "person" within the
meaning of Sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of
beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 20% or more of either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding securities of
the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change in Control: (A) any acquisition by the
Company, (B) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any
Person controlled by the Company, (C) any acquisition by any
corporation pursuant to a reorganization, merger, or
consolidation involving the Company, if, immediately after
such reorganization, merger, or consolidation, each of the
conditions described in clauses (i), (ii), and (iii) of
subsection (c) (3) shall be satisfied, or (D) any
acquisition by the Executive or any group of persons
including the Executive; and provided further that, for
purposes of clause (A), if any Person (other than the
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Company or any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company) shall become the beneficial owner
of 20% or more of the Outstanding Company Common Stock or
20% or more of the Outstanding Company Voting Securities by
reason of an acquisition by the Company and such Person
shall, after such acquisition by the Company, become the
beneficial owner of any additional shares of the Outstanding
Company Common Stock or any additional Outstanding Voting
Securities, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided,
however, that any individual who becomes a director of the
Company subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by the vote of at least two-thirds of the directors
then comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director,
without objection to such nomination) shall be deemed to
have been a member of the Incumbent Board; and provided
further, that no individual who was initially elected as a
director of the Company as a result of an actual or
threatened election contest, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act, or any other actual or threatened solicitation of
proxies or consents by or on behalf of any Person other than
the Board, shall be deemed to have been a member of the
Incumbent Board;
(3) approval by the shareholders of the Company of a
reorganization, merger, or consolidation unless, in any such
case, immediately after such reorganization, merger, or
consolidation, (i) more than 50% of the then outstanding
shares of common stock of the corporation resulting from
such reorganization, merger, or consolidation and more than
50% of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals or entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior
to such reorganization, merger, or consolidation and in
substantially the same proportions relative to each other as
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their ownership, immediately prior to such reorganization,
merger, or consolidation, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the
case may be, (ii) no Person (other than (A) the Company, any
employee benefit plan (or related trust) sponsored or
maintained by the Company or the corporation resulting from
such reorganization, merger, or consolidation (or any
corporation controlled by the Company), or (B) any Person
which beneficially owned, immediately prior to such
reorganization, merger, or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common
Stock or the Outstanding Company Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 20%
or more of the then outstanding shares of common stock of
such corporation or 20% or more of the combined voting power
of the then outstanding securities of such corporation
entitled to vote generally in the election of directors, and
(iii) at least a majority of the members of the board of
directors of the corporation resulting from such
reorganization, merger, or consolidation were members of the
Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such
reorganization, merger, or consolidation; or
(4) approval by the shareholders of the Company of
(i) a plan of complete liquidation or dissolution of the
Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company other than to
a corporation with respect to which, immediately after such
sale or other disposition, (A) more than 50% of the then
outstanding shares of common stock thereof and more than 50%
of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the
election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior
to such sale or other disposition and in substantially the
same proportions relative to each other as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related
trust) sponsored or maintained by the Company or such
corporation (or any corporation controlled by the Company),
or any Person which beneficially owned, immediately prior to
such sale or other disposition, directly or indirectly, 20%
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or more of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of Common stock thereof or 20%
or more of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the
election of directors and (C) at least a majority of the
members of the board of directors thereof were members of
the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such
sale or other disposition.
Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a
Change in Control and Executive reasonably demonstrates that such
termination was at the request of or in response to a third party
who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party"), and
who subsequently effectuates a Change in Control, then for all
purposes of this Agreement, the date of a Change in Control shall
mean the date immediately prior to the date of such termination
of Executive's employment.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the common stock of the Company,
$2.00 par value per share.
(f) "Company" means Spartan Stores, Inc., a Michigan
corporation, and any corporation or other entity in which Spartan
Stores, Inc. has a direct or indirect ownership interest of 50%
or more of the total combined voting power of the then
outstanding securities of such corporation or other entity
entitled to vote generally in the election of directors.
(g) "Date of Termination" means the effective date on which
Executive's employment by the Company terminates as specified in
a Notice of Termination by the Company or Executive, as the case
may be. Notwithstanding the previous sentence, (i) if the
Executive's employment is terminated for Disability, as defined
in Section 1(h), then such Date of Termination shall be no
earlier than thirty (30) days following the date on which a
Notice of Termination is received, and (ii) if the Executive's
employment is terminated by the Company other than for Cause,
then such Date of Termination shall be no earlier than thirty
(30) days following the date on which a Notice of Termination is
received.
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(h) "Disability" means Executive's failure to be available
to substantially perform his duties with the Company on a full-
time basis for at least one hundred eighty (180) consecutive days
as a result of Executive's incapacity due to mental or physical
illness.
(i) "Good Reason" means, without Executive's express
written consent, the occurrence of any of the following events
after or in connection with a Change in Control:
(1) (i) the assignment to Executive of any duties
inconsistent in any material adverse respect with
Executive's position(s), duties, responsibilities, or status
with the Company immediately prior to such Change in
Control, (ii) a material adverse change in Executive's
reporting responsibilities, titles or offices with the
Company as in effect immediately prior to such Change in
Control, (iii) any removal or involuntary termination of
Executive by the Company otherwise than as expressly
permitted by this Agreement (including any purported
termination of employment which is not effected by a Notice
of Termination), or (iv) any failure to re-elect Executive
to any position with the Company held by Executive
immediately prior to such Change in Control;
(2) a reduction by the Company in Executive's rate of
annual base salary as in effect immediately prior to such
Change in Control or as the same may be increased from time
to time thereafter;
(3) any requirement of the Company that Executive
(i) be based anywhere other than the facility where
Executive is located at the time of the Change in Control or
reasonably equivalent facilities within Kent County,
Michigan or (ii) engage in business travel to an extent
substantially more burdensome than the travel obligations of
Executive immediately prior to such Change in Control;
(4) the failure of the Company to continue the
Company's executive incentive plans or bonus plans in which
Executive is participating immediately prior to such Change
in Control or a reduction of the Executive's target
incentive award opportunity under any such bonus plan,
unless Executive is permitted to participate in other plans
providing Executive with substantially comparable benefits
or receives compensation as a substitute for such plans
providing Executive with a substantially equivalent economic
benefit;
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(5) the failure of the Company to (i) continue in
effect any employee benefit plan or compensation plan in
which Executive is participating immediately prior to such
Change in Control, unless Executive is permitted to
participate in other plans providing Executive with
substantially comparable benefits or receives compensation
as a substitute for such plans providing Executive with a
substantially equivalent after-tax economic benefit, or the
taking of any action by the Company which would adversely
affect Executive's participation in or materially reduce
Executive's benefits under any such plan, (ii) provide
Executive and Executive's dependents with welfare benefits
(including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans
and programs) in accordance with the most favorable plans,
practices, programs, and policies of the Company in effect
for Executive immediately prior to such Change in Control,
(iii) provide other fringe benefits in accordance with the
most favorable plans, practices, programs, and policies of
the Company in effect for Executive immediately prior to
such Change in Control, or (iv) provide Executive with paid
vacation in accordance with the most favorable plans,
policies, programs and practices of the Company as in effect
for Executive immediately prior to such Change in Control;
(6) the failure of the Company to pay any amounts owed
Executive as salary, bonus, deferred compensation or other
compensation;
(7) the failure of the Company to obtain any
assumption agreement contemplated in Section 9(b);
(8) any purported termination of Executive's
employment which is not effected pursuant to a Notice of
Termination which satisfies the requirements of a Notice of
Termination; or
(9) any other material breach by Company of its
obligations under this Agreement.
For purposes of this Agreement, any good faith determination
of Good Reason made by Executive shall be conclusive on the
parties; provided, however, that an isolated and insubstantial
action taken in good faith and which is remedied by the Company
within ten (10) days after receipt of notice thereof given by
Executive shall not constitute Good Reason. Any event or
condition described in this Section 1(i) which occurs prior to a
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Change in Control, but which Executive reasonably demonstrates
was at the request of or in response to a Third Party who
effectuates a Change in Control or who has indicated an intention
or taken steps reasonably calculated to effect a Change in
Control, shall constitute Good Reason following a Change in
Control for purposes of this Agreement notwithstanding that it
occurred prior to the Change in Control.
Executive may not terminate the employment for "Good Reason"
unless:
(i) Executive notifies the Board of Directors in
writing, within 60 days after Executive becomes aware of the
act or omission constituting Good Reason that the act or
omission in question constitutes Good Reason and explaining
why the Executive considers it to constitute Good Reason;
(ii) the Company fails, within 10 days after notice
from Executive under (i) above, to revoke the action or
correct the omission and make the Executive whole; and
(iii) Executive gives notice of termination within
30 days after expiration of the 10-day period under (ii)
above.
Executive's failure to give notice as provided in (i) above
will not waive Executive's right to resign with Good Reason,
provided that he follows the above procedure, with regard to any
subsequent act or omission constituting Good Reason.
Executive need not fulfill the above conditions a second
time if the Company repeats the act or omission constituting Good
Reason.
(j) "Nonqualifying Termination" means a termination of
Executive's employment (1) by the Company for Cause, (2) by
Executive for any reason other than for Good Reason with Notice
of Termination, (3) as a result of Executive's death, (4) by the
Company due to Executive's Disability, unless within thirty (30)
days after Notice of Termination is provided to Executive after
such Disability Executive shall have returned (or offered to
return, if not permitted by the Company to do so) to substantial
performance of Executive's duties on a full-time basis, or (5) as
a result of Executive's Retirement.
(k) "Notice of Termination" means a written notice by the
Company or Executive, as the case may be, to the other, which
(1) indicates the specific reason for Executive's termination,
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(2) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of Executive's employment, and (3) specifies the
termination date. The failure by Executive or the Company to set
forth in such notice any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of
Executive or the Company hereunder or preclude Executive or the
Company from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
(l) "Retirement" means termination of employment by either
the Executive or the Company on or after the Executive's normal
retirement date under the terms of retirement plans of the
Company, but not earlier than the age of 65.
(m) "SERP" means the Spartan Stores, Inc. Supplemental
Executive Retirement Plans, as amended from time to time.
(n) "Target Amount" means the amount set forth in Column 1
of the Table to Appendix C of the SERP for the "Date of
Termination of Employment with Eligibility for Plan Benefit" as
designated in the Table that applies to the Employee for his
termination of employment as of the Date of Termination, as the
Table may be amended from time to time.
(o) "Termination Period" means the period of time beginning
with a Change in Control and ending 3 years following such Change
in Control.
2. TERM OF AGREEMENT. This Agreement shall commence on the Effective
Date and shall continue in effect until the Company has fulfilled all
of its obligations under this Agreement following any termination of
Executive's employment with the Company.
3. SEVERANCE BENEFITS. If the employment of Executive with the Company
shall terminate during the Termination Period, other than by reason of
a Nonqualifying Termination, then Executive shall receive the
following severance benefits as compensation for services rendered:
(a) LUMP SUM CASH PAYMENT. Within five (5) days after the
Date of Termination, Executive shall receive a lump sum cash
payment in an amount equal to the sum of the following:
(1) Executive's unpaid base salary from the Company
through the Date of Termination at the rate in effect
(without taking into account any reduction of base salary
constituting Good Reason), just prior to the time a Notice
of Termination is given plus any benefit awards (including
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both the cash and stock components) and bonus payments which
pursuant to the terms of any plans have been earned or
become payable, to the extent not theretofore paid;
(2) A bonus will be paid under the Company's Annual
Incentive Plan or any successor plan ("Annual Plan") for the
time Executive was employed by the Company in the fiscal
year of termination, in an amount equal to the product of
(i) the number of days Executive was employed by the Company
prior to the Date of Termination in the year of termination
divided by the number of days in the year, multiplied by
(ii) 100% of the Executive's current year target bonus (with
such calculations to be made as though the target level has
been achieved for each Performance Goal (as defined in the
Annual Plan)) .
(3) A bonus will be paid under the Long Term Incentive
Plan or any successor Plan ("Long Term Plan"), in an amount
equal to the payment called for under the Long Term Plan (as
in effect on the date of this Agreement) upon termination of
Executive's employment without Cause during a year.
(4) An amount equal to the number of years
remaining in the Termination Period (counting each full
or partial month as 1/12th of a year, and rounded to
the nearest 1/100th of a year) times the sum of (i) the
higher of the Executive's annual rate of base salary
from the Company in effect on the Date of Termination
or in effect on the day before the Change in Control;
and (ii) the higher of the (A) payment to Executive
under Section 3(a)(2) above adjusted to be an
annualized bonus or (B) the bonus awarded to the
Executive under the Annual Plan for the fiscal year
immediately preceding the Change in Control.
(b) BENEFITS. Except for any retirement plans covered by
Section 4 below, the Company shall maintain in full force and
effect for the benefit of Executive and his spouse and covered
dependents all employee benefit plans, programs and arrangements
that the Executive and his spouse and covered dependents were
entitled to participate in immediately prior to the Date of
Termination until the earlier of the end of the Termination
Period or (as to any particular benefit) the date upon which the
Executive receives a substantially equal benefit from a new
employer. If the participation of the Executive and his spouse
and covered dependents in any such plans or programs is not
permitted by the terms of any such plans or programs, or would
cause the Executive to experience adverse tax consequences, the
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Company shall provide comparable benefits eliminating the adverse
tax consequences but providing substantially the same after-tax
benefit levels as the Executive, spouse and covered dependents
previously received under such plans and programs.
(c) AUTOMOBILE. The Company shall cause the title to
Executive's Company-provided automobile to be transferred to
Executive, free and clear of all liens or encumbrances.
(d) CERTAIN REDUCTIONS DISREGARDED. In computing the
payments under sections (a) through (c) above, any reduction in
Executive's base salary, bonus or fringe benefits shall be
disregarded if such reduction constituted "Good Reason" as
defined in this Agreement.
4. RETIREMENT BENEFITS.
(a) The Executive is a Participant in the SERP. If the
employment of Executive with the Company shall terminate at any
time after a Change in Control other than by reason of a
Nonqualifying Termination, then Executive shall receive (as a
lump sum, to be paid within five (5) days after the Date of
Termination) an amount equal to the Target Amount for the date of
termination designated under the SERP, as the Target Amount is
adjusted by Exhibit A to this Agreement, to the extent the Target
Amount is not paid under the Spartan Stores, Inc. Cash Balance
Pension Plan and any successor plan ("Pension Plan") and the SERP
(assuming election by Executive of the lump sum payment options
under the Pension Plan and SERP).
(b) If the employment of Executive with the Company shall
terminate at any time after a Change in Control for any reason
(including but not limited to a Nonqualifying Termination), then
Executive shall receive (as a lump sum, to be paid within five
(5) days after the Date of Termination) an amount equal to the
Target Amount for the date of termination designated under the
SERP that applies to the Date of Termination to the extent the
Target Amount is not paid under the terms of the Pension Plan and
any successor plan and the SERP on the Date of Termination
(assuming election by Executive of the lump sum payment options
under the Pension Plan and SERP) or under Subsection 4(a) above.
(c) The payments to Executive under this Section 4 shall be
in addition to any payments under Section 3 of this Agreement and
any payments under the Pension Plan and SERP.
5. ACCELERATION OF VESTING UPON CHANGE IN CONTROL. Effective at the time
of a Change in Control, all unvested stock options and stock
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previously issued to Executive as to which rights of ownership are
subject to forfeiture shall immediately vest; all risk of forfeiture
of the ownership of stock or stock options and restrictions on the
exercise of options shall lapse; and, Executive shall be entitled to
exercise any or all options, such that the underlying shares will be
considered outstanding at the time of the Change in Control.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, if any payments or distributions by the Company
to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise ("Payments")) trigger application of the
excise tax imposed by Section 4999 of the Code, or any successor
Code provision (such excise tax, together with any interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), or any interest or penalties are incurred by
Executive with respect to Excise Tax on such amount, then
Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes) including, without
limitation, any income and employment taxes (and any interest and
penalties imposed with respect thereto) and any Excise Tax,
imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments, it being the intent of this section that the Executive
shall be held harmless from all Excise Tax and interest and
penalties on Excise Tax.
(b) Subject to the provisions of Section 6(c), all
determinations required to be made under this Section 6,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the
public accounting firm that is retained by the Company as of the
date immediately prior to the Change in Control (the "Accounting
Firm") which shall provide detailed supporting calculations both
to the Company and Executive within fifteen (15) business days of
the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company or
Executive (collectively, the "Determination"). In the event that
the Accounting Firm is serving as accountant or auditor for the
individual, entity, or group affecting the Change in Control,
Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
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Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 6, shall be
paid by the Company to Executive within five (5) days of the
receipt of the Determination. If the Accounting Firm determines
that no Excise Taxes are payable by Executive, it shall furnish
Executive with a written opinion that failure to report the
Excise Tax on Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be
binding upon the Company and Executive; however, as a result of
the uncertainty in the application of Section 4999 of the Code at
the time of the Determination, it is possible that Gross-Up
Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 6(c) and Executive
thereafter is required to make payment of any Excise Tax that
qualifies for a Gross-Up Payment in accordance with this Section
6, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten (10) business days after Executive is informed in
writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be
paid. Executive shall not pay such claim prior to the expiration
of the 30-day period following the date on which Executive gives
such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim,
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
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<PAGE>
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceeding relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for
any Excise Tax or income or employment tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 6(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings, and
conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct Executive to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided further, that if
the Company directs Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
Executive on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or
income or employment tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
provided further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 6, Executive becomes
entitled to receive, and receives, any refund with respect to
such claim, Executive shall (subject to the Company's complying
with the requirements of Section 6) promptly pay to the Company
the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the
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<PAGE>
receipt by Executive of an amount advanced by the Company
pursuant to Section 6, a determination is made that Executive
shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
7. WITHHOLDING TAXES. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local, or other law, the Company is
required to withhold therefrom.
8. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise
under or related to this Agreement involving termination of
Executive's employment with the Company or involving the failure or
refusal of the Company to perform fully in accordance with the terms
hereof, the Company shall reimburse Executive, on a current basis, for
all legal fees and expenses, if any, incurred by Executive in
connection with such contest or dispute regardless of the result
thereof.
9. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the
surviving or resulting corporation or as a result of any transfer
of all or substantially all of the assets of the Company. In the
event of any such merger, consolidation, or transfer of assets,
the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to
which such assets are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in this
Section 9, it will cause any successor or transferee
unconditionally to assume, by written instrument delivered to
Executive (or his beneficiary or estate), all of the obligations
of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger,
consolidation, or transfer of assets shall be a breach of this
Agreement and shall constitute Good Reason hereunder and shall
entitle Executive to compensation and other benefits from the
Company in the same amount and on the same terms as Executive
would be entitled hereunder if Executive's employment were
terminated following a Change in Control other than by reason of
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<PAGE>
a Nonqualifying Termination. For purposes of implementing the
foregoing, the date on which any such merger, consolidation, or
transfer becomes effective shall be deemed the date Good Reason
occurs, and shall be the Date of Termination if requested by
Executive.
(c) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive shall die while any amounts
would be payable to Executive hereunder had Executive continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to
such person or persons appointed in writing by Executive to
receive such amounts or, if no person is so appointed, to
Executive's estate.
10. NOTICE. For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or received by
facsimile transmission or five (5) days after deposit in the United
States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
James B. Meyer
4529 Hidden Ridge Drive
Hudsonville, Michigan 49426
If to the Company:
Spartan Stores, Inc.
850 76th Street, S.W.
P. O. Box 8700
Grand Rapids, Michigan 49518
or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
11. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
(a) The Company's obligation to make any payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall
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Executive be obligated to seek other employment or take other
action by way of mitigation of the amounts payable to Executive
under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not Executive obtains other
employment.
(b) If there shall be any dispute between the Company and
Executive in the event of any termination of Executive's
employment then, until there is a final, nonappealable,
determination pursuant to arbitration declaring that such
termination was for Cause, that the determination by Executive of
the existence of Good Reason was not made in good faith, or that
the Company is not otherwise obligated to pay any amount or
provide any benefit to Executive and his dependents or other
beneficiaries, as the case may be, under Sections 3 and 4, the
Company shall pay all amounts, and provide all benefits, to
Executive and his dependents or other beneficiaries, as the case
may be, that the Company would be required to pay or provide
pursuant to Sections 3 and 4 as though such termination were by
the Company without Cause or by Executive with Good Reason;
provided, however, that the Company shall not be required to pay
any disputed amounts pursuant to this Section 11 except upon
receipt of an undertaking by or on behalf of Executive to repay
all such amounts to which Executive is ultimately determined by
the arbitrator not to be entitled.
(c) ARBITRATION. Any dispute or controversy under this
Agreement shall be settled exclusively by arbitration in Grand
Rapids, Michigan, in accordance with the rules of the American
Arbitration Association then in effect; provided, however, that
Executive shall be entitled to seek specific performance of his
right to be paid pursuant to Section 11(b) during a dispute.
Judgment may be entered on the arbitration award in any court
having jurisdiction. The Company shall bear all costs and
expenses arising in connection with any arbitration proceeding
pursuant to this Section 11(c).
12. GOVERNING LAW; VALIDITY. The interpretation, construction and
performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Michigan
without regard to the principle of conflicts of laws. The invalidity
or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement, which other provisions shall remain in full force and
effect.
13. ESTABLISHMENT OF TRUST. Immediately prior to a Change in Control, the
Company shall establish and maintain a Trust in the form attached as
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Exhibit B. Upon the occurrence of a Change in Control, the Company
shall pay into the Trust the amounts called for under Exhibit B, and
shall thereafter make such additional payments as called for under
Exhibit B. No payment to the Trust by the Company shall reduce the
Company's obligations to make payments to Executive under this
Agreement.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all
of which together shall constitute one and the same instrument.
15. MISCELLANEOUS. No provision of this Agreement may be modified or
waived unless such modification is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company, or such
waiver is signed by the waiving party. No waiver by either party
hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. Failure by Executive or the Company to insist upon
strict compliance with any provision of this Agreement or to assert
any right Executive or the Company may have hereunder, including
without limitation, the right of Executive to terminate employment for
Good Reason, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement. The rights
of, and benefits payable to, Executive, his estate, or his
beneficiaries pursuant to this Agreement are in addition to any rights
of, or benefits payable to, Executive, his estate, or his
beneficiaries under any other employee benefit plan or compensation
program of the Company, except that no benefits pursuant to any other
employee plan or compensation program that become payable or are paid
in accordance with this Agreement shall be duplicated by operation of
this Agreement. No agreements or representations, oral or otherwise,
express or implied, with regard to the subject matter hereof have been
made by either party which are not expressly set forth in this
Agreement.
16. EMPLOYMENT AGREEMENT. This Agreement shall not affect the Employment
Agreement dated August 14, 1996 between Executive and the Company,
except that (a) only the terms of this Agreement shall control in
determining whether Executive is entitled to the payments, benefits
and protections of this Agreement; and (b) if Executive receives the
severance benefits provided under Section 3 of this Agreement the
Executive will not be entitled to the severance benefits that would
otherwise be due under Section 7(a)(i), (ii), (iii), (iv) and (vi) of
the Employment Agreement; and (c) if Executive receives the payments
provided under Section 4 of this Agreement but is not entitled to the
payments provided under Section 3 of this Agreement the Executive will
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not be entitled to the benefits that would otherwise be due under
Section 7(a)(v) of the Employment Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer of the Company. Executive has
executed this Agreement as of the day and year written below.
SPARTAN STORES, INC.
By:/S/RUSSELL H. VAN GILDER, JR.
Russell H. Van Gilder, Jr.
Its: Chairman of the Board
"Company"
/S/JAMES B. MEYER
James B. Meyer
"Executive"
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EXHIBIT A
If, after a Change in Control, The following years shall be added
the Date of Termination to the "Date of Termination of
occurs within the following year: Employment with Eligibility for
Plan Benefit" in the Table to
Appendix C of the SERP:
Year 1999 5 years
Year 2000 4 years
Year 2001 3 years
Year 2002 and
each year thereafter
until Year 2009 2 years
Year 2010 1 year
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EXHIBIT B
SPARTAN STORES, INC.
EXECUTIVE SEVERANCE AGREEMENT AND SERP TRUST
[Omitted.]
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EXHIBIT 21
LIST OF SUBSIDIARIES OF SPARTAN STORES, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
1. UNITED WHOLESALE GROCERY COMPANY
Jurisdiction of Incorporation: Michigan
Names under which business is conducted: United Wholesale Grocery Company
2. L & L/JIROCH DISTRIBUTING COMPANY
Jurisdiction of Incorporation: Michigan
Names under which business is conducted: L & L/Jiroch Distributing Company
Thrifty Leasing Company
3. SHIELD INSURANCE SERVICES, INC. (Formerly Shield Insurance Agency, Inc.)
Jurisdiction of Incorporation: Michigan
Names under which business is conducted: Shield Insurance Services, Inc.
Shield Insurance Services, Inc. also has a wholly owned subsidiary, Shield Benefit
Administrators, Inc., which is incorporated in Michigan.
4. SPARTAN INSURANCE COMPANY LTD.
Jurisdiction of Incorporation: Bermuda
Names under which business is conducted: Spartan Insurance Company Ltd.
5. VALULAND, INC.
Jurisdiction of Incorporation: Michigan
Names under which business is conducted: Valuland, Inc.
Glen's Markets
Ashcraft's Markets
Valuland, Inc. also has three wholly owned subsidiaries as follows, each of which conducts
business under its official name:
a. Jurisdiction of Incorporation: Michigan
Name: Family Fare, Inc.
b. Jurisdiction of Incorporation: Michigan
Name: Family Fare Management Services, Inc.
c. Jurisdiction of Incorporation: Michigan
Name: Family Fare Trucking, Inc.
<PAGE>
Furthermore, Valuland, Inc. has a 65% interest in MDP, L.L.C., a Michigan limited liability
company.
6. MARKET DEVELOPMENT CORPORATION
Jurisdiction of Incorporation: Michigan
Names under which business is conducted: Market Development Corporation
7. J.F. WALKER COMPANY, INC.
Jurisdiction of Incorporation: Michigan
Names under which business is conducted: J. F. Walker Company, Inc.
</TABLE>
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
Board of Directors of Spartan Stores, Inc.
Grand Rapids, Michigan
We consent to the incorporation by reference in Registration Statement No.
33-47442 Spartan Stores, Inc. 1991 Stock Bonus Plan, Registration Statement
No. 33-47493 Spartan Stores, Inc. 1991 Stock Option Plan and Registration
Statement No. 33-49074 Spartan Stores, Inc. 1991 Associate Stock Purchase
Plan on Form S-8 of our repot dated June 4, 1999, appearing in this Annual
Report on Form 10-K of Spartan Stores, Inc. for the year ended March 27,
1999.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Spartan Stores,
Inc. (the "Company"), listed in Item 14(a)(2). This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
June 25, 1999
<PAGE>
EXHIBIT 24
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 18, 1999 /S/ROGER L. BOYD
Roger L. Boyd, Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 17, 1999 /S/JAMES G. BUICK
James G. Buick, Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 17, 1999 /S/JOHN S. CARTON
John S. Carton, Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 25, 1999 /S/ALEX J. DEYONKER
Alex J. DeYonker, Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 18, 1999 /S/RONALD A. DEYOUNG
Ronald A. DeYoung, Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 20, 1999 /S/PARKER T. FELDPAUSCH
Parker T. Feldpausch, Vice Chairman of
the Board and Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 18, 1999 /S/MARTIN P. HILL
Martin P. Hill, Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
May 18, 1999 /S/DAN R. PREVO
Dan R. Prevo, Director
<PAGE>
FORM 10-K
POWER OF ATTORNEY
The undersigned, in his capacity as a director or officer, or
both, as the case may be, of Spartan Stores, Inc., does hereby appoint
JAMES B. MEYER or ALEX J. DEYONKER, and both of them severally, his
attorneys or attorney to execute in his name, place, and stead, a Form 10-K
Annual Report of Spartan Stores, Inc. for its fiscal year ended March 27,
1999, and any and all amendments thereto, and to file it or them with the
Securities and Exchange Commission.
DATE SIGNATURE
June 24, 1999 /S/Russell H. VanGilder, Jr.
Russell H. VanGilder, Jr.
Chairman of the Board and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF SPARTAN STORES,
INC. AND SUBSIDIARIES FOR THE YEAR ENDED MARCH 27, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR<F1>
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-START> MAR-29-1998
<PERIOD-END> MAR-27-1999
<CASH> 44,112
<SECURITIES> 21,058
<RECEIVABLES> 78,276
<ALLOWANCES> (2,335)
<INVENTORY> 82,186
<CURRENT-ASSETS> 235,285
<PP&E> 316,016
<DEPRECIATION> (157,668)
<TOTAL-ASSETS> 538,734
<CURRENT-LIABILITIES> 133,301
<BONDS> 269,522
<COMMON> 21,689
0
0
<OTHER-SE> 99,373
<TOTAL-LIABILITY-AND-EQUITY> 538,734
<SALES> 2,671,700
<TOTAL-REVENUES> 2,671,700
<CGS> 2,397,818
<TOTAL-COSTS> 2,397,818
<OTHER-EXPENSES> 241,264
<LOSS-PROVISION> 1,535
<INTEREST-EXPENSE> 6,105<F2>
<INCOME-PRETAX> 24,978
<INCOME-TAX> 9,148
<INCOME-CONTINUING> 15,830
<DISCONTINUED> 0
<EXTRAORDINARY> 1,031
<CHANGES> 0
<NET-INCOME> 14,799
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.33
<FN>
<F1>52 Weeks
<F2>Net of interest income of $3,103
</FN>
</TABLE>
