<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ShopKo Stores, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
LOGO
SHOPKO STORES, INC.
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 13, 1997
TO THE SHAREHOLDERS OF SHOPKO STORES, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of ShopKo
Stores, Inc. will be held on Wednesday, August 13, 1997 at 10:00 a.m., local
time, at the Radisson Inn-Green Bay, 2040 Airport Drive, Green Bay, Wisconsin,
for the following purposes:
1) to elect three directors of the Company;
2) to ratify the appointment of Deloitte & Touche LLP to audit the
financial statements of the Company for the fiscal year ending February 28,
1998; and
3) to transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on July 10, 1997 are
entitled to one vote for each share held of record at that time.
IMPORTANT: We hope you will be able to attend the meeting in person and you
are cordially invited to attend. If you expect to attend the meeting, please
check the appropriate box on the proxy card when you return your proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND RETURN YOUR
PROXY PROMPTLY. It is important that all shareholders execute, date and return
the proxy, utilizing the enclosed envelope to which no postage need be affixed
if mailed in the United States.
By Order of the Board of Directors
Richard D. Schepp
Secretary
July 14, 1997
<PAGE>
SHOPKO STORES, INC.
700 PILGRIM WAY
P.O. BOX 19060
GREEN BAY, WISCONSIN 54307-9060
PROXY STATEMENT
This proxy statement is furnished for solicitation by the Board of Directors
of ShopKo Stores, Inc. (hereinafter referred to as the "Company") of proxies
in the enclosed form from holders of Common Stock to be voted at the Annual
Meeting of Shareholders to be held on August 13, 1997 at 10:00 a.m., Green Bay
time, at the Radisson Inn-Green Bay, 2040 Airport Drive, Green Bay, Wisconsin,
and at any adjournment of the meeting. A shareholder may revoke his or her
proxy at any time before it is voted by written notice to the Secretary, or by
filing with the Secretary another proxy bearing a later date. A shareholder
who properly revokes any prior proxy may thereafter vote in person by ballot
at the Annual Meeting of Shareholders. A shareholder's presence at such
meeting does not alone serve to revoke any proxy previously given. All proxies
which are not so revoked will be voted in accordance with the terms thereof.
Unless otherwise indicated, all proxies will be voted for the individuals
nominated to serve as directors and for ratification of the appointment of the
independent auditors.
This proxy statement and accompanying form of proxy will be first mailed or
given to shareholders on or about July 14, 1997.
The cost of soliciting proxies will be borne by the Company. Arrangements
will be made with brokerage houses, custodians, nominees and other fiduciaries
to send proxy materials to their principals, and the Company will reimburse
them for their expenses. In addition to solicitation by mail, certain officers
and directors of the Company, who will receive no compensation for their
services other than their regular salaries, may solicit proxies by telephone,
telecopy and personally.
The Company's Common Stock, $0.01 par value ("Common Stock"), is the only
class of capital stock currently outstanding, and only the holders of Common
Stock of record at the close of business on July 10, 1997 are entitled to vote
at the meeting. Each shareholder is entitled to one vote for each share held
of record on each proposal being voted upon. As of the record date, 25,278,535
shares of Common Stock are eligible to vote at the meeting. A majority of the
shares entitled to vote constitutes a quorum. The affirmative vote of a
majority of the shares represented at the meeting is required for the election
of directors and the ratification of the appointment of the independent
auditors. Any shares abstaining as to any matter will be considered present
and entitled to vote, but will not be considered to have voted in favor of
such matter. Any shares represented by a proxy which does not grant authority
to vote as to any matters (including broker non-votes), shall not be
considered to be present and entitled to vote with respect to such matter.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Set forth in the table below is information regarding the beneficial
ownership of shares of the Common Stock by (i) each person or entity known by
the Company to beneficially own 5% or more of the total number of outstanding
shares of the Common Stock, (ii) each director of the Company, (iii) the
Company's Chief Executive Officer and four most highly compensated executive
officers other than the Chief Executive Officer, and (iv) the directors and
executive officers of the Company as a group (17 persons). Except as otherwise
noted, information with respect to directors and executive officers is as of
February 22, 1997.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE
BENEFICIAL OF BENEFICIAL
OWNER OWNERSHIP(1)(2) PERCENT
---------- ----------------- -------
<S> <C> <C>
Heartland Advisors, Inc. (3)......................... 1,914,700 7.6%
790 Milwaukee Street
Milwaukee, Wisconsin 53202
Jack W. Eugster...................................... 16,000 *
Jeffrey C. Girard (4)................................ 1,000 *
Dale P. Kramer (5)................................... 198,000 *
William J. Tyrrell................................... 15,000 *
Michael W. Wright (4)................................ -- *
Stephen E. Watson (6)................................ -- *
William J. Podany (5)(6)............................. 30,000 *
Roger J. Chustz (5).................................. 41,000 *
Thomas D. Hendra (5)................................. 69,060 *
Jeffrey A. Jones (5)................................. 27,000 *
All directors and executive officers
as a group (17 persons)............................. 560,360 2.2%
</TABLE>
- - --------
* Less than 1%
(1) Except as otherwise noted, the persons named in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Includes shares which may be acquired within 60 days pursuant to stock
options as follows: Mr. Kramer 168,000 shares, Mr. Hendra 69,000 shares,
Mr. Chustz 41,000 shares, Mr. Eugster 15,000 shares, Mr. Tyrrell 15,000
shares, Mr. Jones 27,000 shares and all directors and executive officers
as a group, 524,400 shares.
(3) Based on a Schedule 13G filed on February 14, 1997. Heartland Advisors,
Inc. has sole voting power with respect to 1,636,200 shares and sole
dispositive power with respect to 1,781,100 shares.
(4) Messrs. Wright and Girard are executive officers of Supervalu Inc,
("Supervalu"). Prior to July 2, 1997, Supervalu and a wholly-owned
subsidiary of Supervalu, Supermarket Operators of America, Inc. ("SOA")
beneficially owned 14,731,667 shares of the Common Stock. These shares
were the subject of the Stock Buyback and Offering described herein. See,
"Relationship Between the Company and Supervalu." Mr. Wright is also a
director of Supervalu.
(5) The number of shares shown with respect to the Company's executive
officers does not reflect funds from their respective Profit Sharing and
401(k) Plans invested in Common Stock through the ShopKo Stock Fund. As of
June 30, 1997, such executive officers' approximate ShopKo Stock Fund
account balances were as follows: Mr. Kramer $416,810, Mr. Podany $26,286,
Mr. Hendra $139,697, Mr. Chustz $42,220 and Mr. Jones $73,119.
(6) Messrs. Watson and Podany joined the Company's Board of Directors on July
2, 1997.
2
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon the Company's review of Forms 3, 4 and 5 received by it
during the last fiscal year pursuant to Section 16 of the Securities Exchange
Act of 1934, as amended, all of such forms were filed on a timely basis by
reporting persons.
ELECTION OF DIRECTORS
(Item 1)
On July 2, 1997, the Company's Board of Directors was expanded from five
members to seven members. At that time, Stephen E. Watson and William J. Podany
were elected to fill the two new Board seats for terms expiring at the 1997
Annual Meeting of Shareholders.
On April 24, 1997, the Company, Supervalu and SOA entered into a Stock
Buyback and Secondary Offering Agreement (the "Stock Buyback Agreement")
pursuant to which the Company agreed to repurchase 8,174,387 shares of Common
Stock from Supervalu for $18.35 per share (the "Stock Buyback"). The obligation
of the Company and Supervalu to consummate the Stock Buyback was conditioned
upon completion of a secondary public offering of Supervalu's remaining
6,557,280 shares of Common Stock (the "Offering"). Both the stock Buyback and
the Offering were consummated on July 2, 1997. Pursuant to the terms of the
Stock Buyback Agreement, Messrs. Wright and Girard have submitted their
resignations from the Company's Board of Directors, each of which will be
effective upon the earlier of: (i) the date the Company gives notice that the
Company's Board of Directors has recruited a successor Board member, and (ii)
October 1, 1997. Also pursuant to the terms of the Stock Buyback Agreement, Mr.
Kramer replaced Mr. Wright as the Company's Chairman of the Board on July 2,
1997.
The Board of Directors of the Company is divided into three classes with the
number of directors to be divided as equally as possible among the three
classes. Directors are elected for staggered terms of three years. Messrs.
Eugster and Watson are nominated to serve a three-year term expiring in 2000.
Mr. Podany is nominated to serve a two year term expiring in 1999.
The persons named in the accompanying proxy will vote for the election of
Messrs. Eugster, Watson and Podany, unless authority to vote is withheld. The
Board of Directors is informed that Messrs. Eugster, Watson and Podany are
willing to serve as directors, however, if they are unable to serve or for good
cause will not serve, the proxy may be voted for such other person or persons
as the proxies shall, in their discretion, determine.
Set forth below is certain information, as of July 1, 1997, concerning each
nominee for election as a director of the Company and the four directors of the
Company whose terms of office will continue after the Annual Meeting:
NOMINEE FOR ELECTION AS DIRECTOR FOR TERM EXPIRING AT THE ANNUAL MEETING IN
1999
WILLIAM J. PODANY; 51; director of the Company since July, 1997; Mr. Podany has
been Executive Vice President of ShopKo since November, 1994. He has held
senior merchandising executive officer positions with Allied Stores, May
Department Stores and Carter Hawley Hale since 1978. From 1992 to 1994, Mr.
Podany was Executive Vice President-Merchandise of Carter Hawley Hale, a
federation of four department store chains.
3
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING AT THE ANNUAL MEETING IN
2000
JACK W. EUGSTER; 51; director of the Company since September, 1991; he has
been the Chairman, President and Chief Executive Officer of The Musicland
Group, Inc., a retail music and home video company, since 1980 and has held
the same positions with its parent company, Musicland Stores Corp., since
1988. Mr. Eugster is also a director of Damark Inc., MidAmerican Energy
Corporation, Donaldson Co., and Jostens, Inc.
STEPHEN E. WATSON; 51; director of the Company since July, 1997; he has held
various executive officer positions with Dayton-Hudson Corporation and its
corporate predecessors during the course of his 24 year career with those
companies, including President, Chairman/Chief Executive Officer of the
Department Store Division and member of the Board of Directors from 1991
until his retirement in March, 1996. Watson has served as a member of the
Board of Directors of Norwest Bank Corporation and the Visiting Committee of
Harvard Business School. He served as Chairman of the Board of the Associated
Merchandising Corporation and the Minneapolis Downtown Council.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 1998
JEFFREY C. GIRARD; 49; director of the Company since June 1991; Executive Vice
President and Chief Financial Officer of Supervalu from October 1992 through
July, 1997; prior thereto, he held the positions of Executive Vice President,
Chief Financial Officer and Treasurer of Supermarkets General Holdings
Corporation (a supermarket company not affiliated with the Company) and
Senior Vice President and Chief Financial Officer of Supervalu. On July 3,
1997, Supervalu announced Mr. Girard's resignation, effective at the end of
July, 1997.
DALE P. KRAMER; 58; director of the Company since August 1991; President and
Chief Executive Officer of the Company since February 1991; prior thereto, he
served as the Company's Executive Vice President from April 1983 to February
1986 and as its Executive Vice President and Chief Operating Officer from
February 1986 to February 1991. Mr. Kramer has been employed by the Company
in various other positions since 1971.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 1999
MICHAEL W. WRIGHT; 58; director of the Company since February 1980; Chairman
of the Board from August 1991 to July 1997, and previously served as a Vice
President of the Company from March 1978 to August 1991. Mr. Wright is the
Chairman of the Board, President and Chief Executive Officer of Supervalu. He
has held several other executive level positions since joining Supervalu in
1977. In addition to his position on the board of directors of the Company
and Supervalu, Mr. Wright also serves on the boards of Norwest Corporation,
Honeywell, Inc., Cargill, Inc., and Musicland Stores Corporation. He is
Chairman of the board of directors of Food Marketing Institute and is a
member of the board of directors of Food Distributors International (formerly
the National American Wholesale Grocers Association), and the Food Business
Forum (CIES).
WILLIAM J. TYRRELL; 67; director of the Company since March 1974; Vice
Chairman of the Board since August 1991, and previously served as the
President of the Company from March 1973 to February 1991 and Chairman of the
Company from February 1991 to August 1991.
The Board of Directors held 12 meetings in fiscal 1997. Each incumbent
director attended 75 percent or more of the total number of the meetings of
the Board and those of the committees of which such director is a member (in
each case during the periods that such director served).
4
<PAGE>
The Company's Board of Directors has established a Compensation and Stock
Option Committee that currently is comprised of Messrs. Wright and Eugster. The
duties of the Compensation and Stock Option Committee are to provide a general
review of the Company's compensation and benefit plans to ensure that they meet
corporate objectives. The Compensation and Stock Option Committee has the
authority to administer the 1991 Stock Option Plan, as amended, and the 1995
Stock Option Plan (collectively the "Stock Option Plans") and the 1993
Restricted Stock Plan. In addition, the Compensation and Stock Option Committee
reviews the President's recommendations on (i) compensation of all corporate
officers, (ii) granting of awards under the Company's compensation and benefit
plans other than the Stock Option Plans and the 1993 Restricted Stock Plan and
(iii) adopting and changing major corporate compensation policies and
practices, and reports its recommendations to the full Board of Directors for
approval and to authorize action. The Compensation and Stock Option Committee
met two times in fiscal 1997.
The Company's Board of Directors has established an Audit Committee that is
currently comprised of Mr. Eugster. The duties of the Audit Committee are to
recommend to the full Board of Directors the selection of independent certified
public accountants, to audit annually the financial statements of the Company,
to review the activities and the reports of the independent certified public
accountants and to report the results of such review to the full Board of
Directors. The Audit Committee also monitors the internal audit controls of the
Company. The Audit Committee met two times in fiscal 1997.
The Company does not have a standing nominating committee.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company or Supervalu receives an
annual retainer fee of $25,000, a fee of $1,000 for each board meeting attended
and a fee of $1,000 for each committee meeting attended if such committee
meeting is not held on the same day as a board meeting. The Company also
reimburses all such directors for travel and related expenses incurred in
connection with board and committee meetings.
The Stock Option Plans provide that each non-employee director will be
granted as of the date of such director's first election to the Board, an
option to purchase that number of shares of Common Stock having a fair market
value as of such date equal to $50,000, which will be exercisable 60% on the
second anniversary of the date of grant and an additional 20% on the third and
fourth anniversary of the date of grant. On July 2, 1997, Mr. Watson was
granted options to purchase 1,942 shares of Common Stock at $25.75 per share
pursuant to these provisions.
The Stock Option Plans provide that in addition to the above-referenced
initial stock option grants, each non-employee director will be granted as of
the date of each annual meeting of the Company's shareholders held during the
term of the Stock Option Plans, if such director's term of office continues
after such annual meeting, an option to purchase that number of shares of
Common Stock having a fair market value as of such date equal to $15,000, which
shall become exercisable in full on the second anniversary of the date of
grant. On June 19, 1996, Mr. Tyrrell and Mr. Eugster were each granted options
to purchase 945 shares of Common Stock at $15.875 per share pursuant to these
provisions.
The Company has adopted a deferred compensation plan for non-employee
directors that allows non-employee directors to elect to defer for the next
four years their annual retainers and other fees. This Plan provides that (i)
the participating director must defer 100% (minus applicable tax withholding
5
<PAGE>
and social security tax) of the director's fees under the Plan; (ii) amounts
deferred under the Plan will, at the election of the participating director,
earn interest either at a rate equal to 120% of the 120-month rolling average
of 10-year U.S. Treasury Notes or at a rate equal to the rate earned under one
or more equity portfolios described in the Plan; and (iii) amounts deferred
under the Plan will be payable in ten equal annual installments commencing upon
the earlier of the participating director's termination as a director for any
reason (including death) or the participating director's reaching age 70 1/2
(extended for up to five years for a director's initial deferral under the
Plan). As of July 1, 1997, no current non-employee directors have elected to
participate in this Plan.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table (the "Summary Compensation Table") sets forth the
compensation paid by the Company for each of the last three fiscal years to the
Company's Chief Executive Officer and its other four most highly compensated
executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ---------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION AWARDS ($) SARS COMPENSATION
POSITION YEAR SALARY($) ($) (1) ($) (3) (4) (#) ($)
- - ------------------------ ---- --------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dale P. Kramer.......... 1997 500,000 500,000 5,271 595,000 0 22,332(5)
President & CEO 1996 430,000 174,150 1,131 -- 100,000 20,336
1995 401,700 169,919 1,799 -- 0 22,957
William J. Podany....... 1997 390,793 312,635 2,750 371,875 0 47,445(6)
Executive Vice 1996 340,000 121,569 -- -- 50,000 15,391
President & COO 1995(2) 78,115 0 -- -- 75,000 --
Jeffrey A. Jones........ 1997 285,000 228,000 15 -- 0 12,537(7)
Sr. Vice President & 1996 285,000 93,641 15 -- 45,000 9,212
CFO 1995 227,616 74,886 -- -- 0 12,200
Roger J. Chustz......... 1997 220,000 154,000 10 -- 0 11,359(8)
Sr. Vice President 1996 202,215 63,698 10 -- 30,000 10,582
GMM/Apparel 1995 187,349 61,638 -- -- 0 24,501
Thomas D. Hendra........ 1997 212,000 148,400 20 -- 0 12,471(9)
Sr. Vice President 1996 206,272 64,976 25 -- 30,000 7,985
Special Tactical 1995 194,732 64,067 -- -- 0 10,001
Initiatives
</TABLE>
- - --------
(1) Represents bonuses earned with respect to the indicated fiscal year
pursuant to the Company's Executive Incentive Plan although all or a
portion of the bonus may have been paid during the subsequent fiscal year.
(2) Mr. Podany's employment with the Company commenced November 7, 1994.
(3) Represents above market interest earned under the Deferred Compensation
Plan and, with respect to Messrs. Kramer and Podany, dividends on
restricted stock in the following amounts: Mr. Kramer: $4,400; and Mr.
Podany: $2,750.
(4) On April 17, 1996, Mr. Kramer and Mr. Podany were granted 40,000 and 25,000
shares of restricted stock, respectively, pursuant to the Company's 1993
Restricted Stock Plan. The dollar amount shown equals the number of
restricted shares granted, multiplied by $14.875, the per-share closing
price of the Company's common stock on the date of grant. The dollar values
of these restricted shares based upon the February 21, 1997 per-share
closing price of $15.50 were: Mr. Kramer, $620,000; and Mr. Podany,
$387,500. These valuations do not take into account the diminution in value
attributable to the restrictions applicable to the shares. Mr. Podany's
shares vest in full on April 17, 2001. Mr. Kramer's shares vest upon the
first to occur of: (i) achievement of a specified fair market value of
ProVantage; or (ii) the per-share closing price of the Company's common
stock being above a targeted level for 20 consecutive trading days. On
April 25, 1997, Mr. Kramer waived vesting pursuant to the Company stock
price criteria. Pursuant to the 1993 Restricted Stock Plan, dividends are
paid on all shares of restricted stock at the same rate as on unrestricted
shares.
7
<PAGE>
(5) All Other Compensation for Mr. Kramer includes the following: Company paid
portion of individual life insurance policy: $1,275; 401(k) Company match:
$4,500; and Profit Sharing Plan contributions: $16,557.
(6) All Other Compensation for Mr. Podany includes the following: Company paid
portion of individual life insurance policy: $129; 401(k) Company match:
$4,500; Profit Sharing Plan contributions: $9,485; and relocation expenses
and tax adjustments in connection therewith: $33,331.
(7) All Other Compensation for Mr. Jones includes the following: Company paid
portion of individual life insurance policy: $129; 401(k) Company match:
$3,573; and Profit Sharing Plan contributions: $8,835.
(8) All Other Compensation for Mr. Chustz includes the following: Company paid
portion of individual life insurance policy: $129; 401(k) Company match:
$4,016; and Profit Sharing Plan contributions: $7,214.
(9) All Other Compensation for Mr. Hendra includes the following: Company paid
portion of individual life insurance policy: $813; 401(k) Company match:
$4,500; and Profit Sharing Plan contributions: $7,158.
OPTION EXERCISE AND FISCAL YEAR END VALUE TABLE
The following table sets forth information with respect to the five
executive officers named in the Summary Compensation Table concerning stock
options exercised during the last fiscal year and the number and value of
options outstanding at the end of fiscal 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED OPTIONS/SARS AT FISCAL THE-MONEY OPTIONS/SARS AT
ON VALUE YEAR-END (#) FISCAL YEAR-END($)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dale P. Kramer.......... 0 0 168,000 112,000 158,160 542,440
William J. Podany....... 0 0 30,000 95,000 165,000 491,000
Jeffrey A. Jones........ 0 0 21,000 59,000 112,875 292,600
Thomas D. Hendra........ 0 0 69,000 36,000 71,580 173,820
Roger J. Chustz......... 6,000 31,500 27,000 52,000 25,860 181,820
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide for the indemnification of directors and
officers of the Company to the full extent permitted by the Minnesota
Statutes. The Company has entered into agreements to indemnify its directors,
and may enter into agreements to indemnify certain officers, in addition to
the indemnification provided for in the Bylaws. These agreements will, among
other things, indemnify the Company's directors and certain of its officers to
the full extent permitted by the Minnesota Statutes for any claims,
liabilities, damages, judgments, penalties, fines, settlements, disbursements
or expenses (including attorneys' fees) incurred by such person in any action
or proceeding, including any action by or in the right of the Company, on
account of services as a director or officer of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and officers.
SEVERANCE AGREEMENTS
The Company has entered into change of control severance agreements (the
"Severance Agreements") with certain officers of the Company, including those
officers identified in the Summary Compensation Table above. The Severance
Agreements provide that, if, within two years after a
8
<PAGE>
"Change of Control" (as defined below), the Company terminates the individual's
employment other than for "Cause" (as defined below) or disability, or the
individual terminates the individual's employment for "Good Reason" (as defined
below), then the individual will be entitled to a lump-sum cash payment equal
to (1) a multiple of one, two or three times the individual's annual base
salary, plus (2) a multiple of one, two or three times the individual's average
annual bonus for the three fiscal years immediately preceding the date of
termination. The multiple referred to in this paragraph is three for Mr. Kramer
and two for each of Mr. Podany, Mr. Jones, Mr. Hendra and Mr. Chustz. Each
individual would also receive his salary through the date of termination and
all other amounts owed to the individual at the date of termination under the
Company's benefit plans. In addition, under such circumstances, the individual
will be entitled to continued health and dental coverage for the individual and
the individual's family for a one, two or three year period after the date of
termination. The Severance Agreements provide that if certain amounts to be
paid thereunder constitute "parachute payments," as defined in Section 280(G)
of the Internal Revenue Code of 1986, as amended (the "Code"), the severance
benefits owed to the individual may be decreased, but only if the result is to
give the individual a larger after-tax benefit than if the payments are not
reduced. The individual is permitted to elect the payments to be reduced.
A "Change of Control" is defined as occurring if (1) any person or group
acquires 20% or more of the Company's outstanding common stock or voting
securities, (2) the incumbent directors cease to constitute at least a majority
of the Board of Directors, (3) the shareholders approve a merger,
consolidation, liquidation, dissolution or reorganization of the Company, or
(4) the shareholders approve a complete liquidation or dissolution of the
Company. For purposes of the Severance Agreements, "Cause" means (a) personal
dishonesty by the individual intended to result in his substantial personal
enrichment at the expense of the Company, (b) repeated, willful violations by
the individual of his obligation to devote reasonable time and efforts to carry
out his responsibilities to the Company, or (c) the conviction of the
individual of a felony. "Good Reason" as used in the Severance Agreements means
(i) any reduction of the individual's authority, responsibilities or
compensation (excluding for this purpose specified actions by the Company not
taken in bad faith and which are promptly remedied by the Company upon receipt
of notice), (ii) any required relocation of the individual to a place of
business more than 35 miles from where the individual works at the time of the
Change of Control, (iii) any purported termination of the individual other than
for Cause, or (iv) any failure of a successor to the Company, by merger or
otherwise, to assume the Company's obligations under the Severance Agreements.
OTHER COMPENSATION
The Company provides certain personal benefits and other noncash compensation
to its executive officers. For the fiscal year ended February 22, 1997, the
incremental cost of providing such compensation did not exceed the minimum
amounts required to be disclosed under current Securities and Exchange
Commission rules for each person named in the Summary Compensation Table.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee consists of Messrs. Wright and
Eugster. From March 1978 to August 1991, Mr. Wright was a Vice President of the
Company. See also "Relationship between the Company and Supervalu".
9
<PAGE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
OF THE BOARD OF DIRECTORS
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Executive Compensation Program is designed to align executive
compensation with Company values and objectives, its business strategy and
financial performance. In applying these principles, the Compensation and
Stock Option Committee (the "Committee") believes the Executive Compensation
Program must:
. Attract and retain key executives critical to the long-term success
of the Company by providing compensation levels comparable to those
offered by other leading companies in the industry.
. Reward executives for long-term strategic management and achievement
of business objectives.
. Reward executives for the enhancement of shareholder value.
. Support a performance oriented environment that rewards achievement
of Company goals and Company performance compared to that of the
industry.
. Differentiate compensation amounts according to individual
performance.
EXECUTIVE COMPENSATION PROGRAM
The executive compensation program is comprised of both cash and equity
based compensation. The annual compensation consists of base salary and an
annual Executive Incentive Plan (the "EIP") payment. The Committee determines
the level of base salary for key executive officers. The Committee determines
the base salary based on competitive norms. These competitive norms are based
on a comprehensive retail study including companies having approximately $2
billion in annual sales and not on the more diverse peer retail group used for
purposes of the performance graph. This narrower focus is believed to be that
most appropriate in fixing salaries. Additionally, the Committee seeks to fix
such salaries in the medium range of those companies used for salary survey
data. In establishing the base salary levels, the Committee considers:
. Surveys of external comparable positions.
. Position matching validating responsibilities, organizational level
and title with external comparable positions in the industry.
. Compensation paid to comparable positions in comparably sized
companies based on sales revenues derived from industry surveys.
Of these three referenced factors, the Committee places the most emphasis on
surveys of external comparable positions. The Committee next weighs the
compensation paid comparable positions in comparably sized companies. Finally,
the Committee validates the information derived from the first two factors by
ensuring accurate position matching by evaluation of responsibilities,
organizational level and title.
The Committee also approves the participation of key executives in the EIP.
Awards for key executive officers vary based on the Company's achievement of
certain financial goals. As with base salary, the EIP is intended to be
competitive with bonuses paid by other retail companies having approximately 2
billion dollars in annual sales, but in the medium range.
An analysis of the survey group compensation level indicates that, as it
relates to base salary, the Company's executives, on an individual basis,
receive compensation comparable to the survey norm.
10
<PAGE>
Since the Company has not granted stock options to its executives on an annual
basis, the Company believes comparisons of the Company's stock option grants to
the survey are not meaningful or appropriate.
Long-term incentives are currently provided primarily through grants of stock
options and restricted stock. Under the Company's 1991 Stock Option Plan and
1995 Stock Option Plan (the "Stock Option Plans"), the Committee grants stock
options consistent with the terms of the Stock Option Plans but has the
discretion to determine, among other things, the individuals to whom stock
options are awarded, the number of shares subject to each option, and whether
the stock options will be subject to performance criteria. In determining the
award of options, the Committee considers the number of outstanding stock
options held by each Stock Option Plan participant. This consideration is
applied consistently to all Stock Option Plan participants including executive
officers and the Chief Executive Officer. The size of stock option grants are
based upon competitive practice and position level. Stock option grants align
key executive officers' long-range interests with those of the shareholders by
providing the key executive officers with the opportunity to build a meaningful
stake in the Company. All eligible Stock Option Plan participants were granted
stock option awards in Fiscal Year 1996. The Company intends to issue
additional stock options to all eligible Stock Option Plan participants every
two years. Consistent with this intent, recipients of stock option grants in
Fiscal Year 1997 were limited to new and recently promoted associates.
Restricted stock granted pursuant to the Company's 1993 Restricted Stock Plan
is intended to encourage recipients to continue to serve the Company and its
shareholders. Although the recipient receives dividends at the same rate as may
be granted to owners of unrestricted shares, the restricted stock certificates
are not delivered and such shares may not be sold, transferred or pledged until
they vest.
Key executive officers also participate in the Company's Profit Sharing Plan,
which is funded entirely by Company contributions to such Plan. In this regard,
key executive officers are treated in the same manner as any other Profit
Sharing Plan participant. Committee approval is not required for participation
by key executives in the Profit Sharing Plan. Key executive officers may also
participate in the Company's 401(k) Plan which is available to any associate
meeting minimum length of service and number of hours worked standards. Under
the 401(k) Plan, the Company contributes one-half of an associate's personal
contribution up to a maximum of 3% of the associate's base earnings. Also, key
executive officers may elect to defer certain annual compensation. Deferred
amounts are accounted for as if invested in various accounts.
On occasion, the Committee may make adjustments to a particular executive's
compensation in any given year based on circumstances unique to such executive.
For example, such adjustments may recognize extraordinary efforts on a special
project, or the need to compensate special talents or expertise in order to
retain a key individual.
PRESIDENT/CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee determined the President/Chief Executive Officer's compensation
for Fiscal Year 1997 based upon a number of factors and criteria. The
President/Chief Executive Officer's base salary was established based on:
surveys of external comparable positions; position-matching validating
responsibilities, organizational level and title with external comparable
positions in the industry; compensation paid to comparable positions in
comparably sized companies based on sales revenue derived from industry
surveys; and Committee review of the President/Chief Executive Officer's
individual performance. Individual performance is evaluated through regular
ongoing personal contact with Committee members. As with other executive
officer salaries, comparison was based on a comprehensive retail study
including companies having approximately $2 billion in annual sales, as opposed
to the more diverse peer group used in the Performance Graph. It is noted that
the base salary awarded falls well within industry norms. The EIP award
consideration was based on the
11
<PAGE>
Company's achievement of certain financial goals which include after tax
earnings. For Fiscal Year 1997, it was determined that an EIP payment should be
awarded to the President/Chief Executive Officer in an amount which was 200% of
his targeted EIP payment, or 100% of his base salary. This determination was
made in light of the Company's significantly improved financial performance in
Fiscal Year 1997.
The Committee also awarded the President/Chief Executive Officer 40,000
shares of restricted stock, which vest upon the first to occur of: (i)
achievement of a specified fair market value of ProVantage; or (ii) the per-
share closing price of the Company's Common Stock being above a targeted level
for 20 consecutive trading days. The primary basis for the Committee's
determination to grant such restricted stock was to provide a strong incentive
for him to continue to serve the Company as President/Chief Executive Officer
and to increase the value of the Company during the course of his employment.
The Committee is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of non-
performance based compensation paid to certain executive officers of the
Company to the extent it exceeds $1 million per executive. The Committee
currently intends to recommend compensation amounts and plans which meet the
requirements for deductibility.
Compensation and Stock Option
Committee
Jack W. Eugster, Chairman
Michael W. Wright
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on the Company's Common Stock from February 28, 1992 through
February 22, 1997 with the cumulative total return on the Wilshire 5000 and the
cumulative total return for the S&P Retail Composite Index selected as the
Company's peer group. The comparison assumes $100 was invested on February 28,
1992 in the Company's Common Stock and in each of the comparison groups, and
assumes reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
ShopKo Stores, Inc.
Corporate Performance Graph
Summary of Plotted Points
Index Year Year Year Year Year
At Ending Ending Ending Ending Ending
02/28/92 02/26/93 02/25/94 02/24/95 02/23/96 02/21/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ShopKo Stores, Inc. $100 $97 $75 $61 $77 $111
Wilshire 5000 Index $100 $109 $121 $127 $171 $209
S&P Retail Composite Index $100 $115 $115 $105 $116 $143
</TABLE>
*All returns reflect reinvestment of dividends.
13
<PAGE>
RELATIONSHIP BETWEEN THE COMPANY AND SUPERVALU
The following is a summary of the material features of certain agreements,
arrangements and transactions between the Company and Supervalu. The summaries
of each of the following agreements are qualified in their entirety by
reference to the full text of such agreement, a copy of which has been filed
with the Securities and Exchange Commission and the New York Stock Exchange.
These agreements may be modified and additional agreements, arrangements and
transactions may be entered into by the Company and Supervalu. Any such future
modifications, agreements, arrangements and transactions will be determined
through negotiation between the Company and Supervalu.
STOCK BUYBACK AND SECONDARY OFFERING AGREEMENT
Prior to July 2, 1997, Supervalu, through SOA, beneficially owned 14,731,667
shares of the Company's Common Stock. On April 24, 1997, the Company,
Supervalu and SOA entered into a Stock Buyback and Secondary Offering
Agreement (the "Stock Buyback Agreement") pursuant to which the Company agreed
to repurchase 8,174,387 shares of Common Stock from Supervalu for $18.35 per
share (the "Stock Buyback"). The obligation of the Company and Supervalu to
consummate the Stock Buyback was conditioned upon completion of a secondary
public offering of Supervalu's remaining 6,557,280 shares of Common Stock (the
"Offering"). Both the Stock Buyback and the Offering were consummated on July
2, 1997. The terms of the Stock Buyback Agreement were determined by
negotiations between Supervalu and the Company. The Company's Board of
Directors, without Messrs. Wright and Girard participating, approved the Stock
Buyback Agreement.
Pursuant to the terms of the Stock Buyback Agreement, Messrs. Wright and
Girard have submitted their resignations from the Company's Board of
Directors, each of which will be effective upon the earlier of: (i) the date
the Company gives notice that the Company's Board of Directors has recruited a
successor Board member and (ii) October 1, 1997. Also in accordance with the
terms of the Stock Buyback Agreement, Mr. Kramer replaced Mr. Wright as the
Company's Chairman of the Board on July 2, 1997.
At the price Supervalu's shares of Common Stock were sold in the Offering,
the Stock Buyback Agreement required Supervalu to pay the underwriting
discount and certain other expenses of the Offering estimated in the aggregate
at $8,500,000. The Company and Supervalu each paid the costs and expenses of
their respective counsel and the Company paid certain marketing costs.
INITIAL PUBLIC OFFERING AGREEMENTS
The following agreements were developed in connection with the Company's
initial public offering in October 1991 ("Initial Public Offering") when the
Company was a wholly owned subsidiary of Supervalu, and, therefore, were not
the result of arms'-length negotiations between independent parties. As a
result, while it has been the intention of the Company and Supervalu that such
agreements and the transactions provided for therein, taken as a whole, would
accommodate the parties' interests in a manner that is fair to the parties
while continuing certain mutually beneficial arrangements, there can be no
assurance that each of such agreements, or the transactions provided for
therein, has been or will be effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties.
Food Products Supply Agreement
The Company and Supervalu have entered into a Food Products Supply Agreement
dated as of October 8, 1991 (the "Supply Agreement") whereby the Company has
agreed, under certain conditions, to purchase from Supervalu all of the
Company's requirements for certain products purchased from a wholesaler and
sold in any food store owned or operated by the Company which is located
within the geographic areas serviced by Supervalu until October 16, 1998. The
type of stores
14
<PAGE>
covered by the Supply Agreement are any "supercenter" retail store involving
the sale of food, any retail store which could be reasonably deemed to be a
"food-driven concept" or any retail store offering at least two categories of
perishable food items. The Company does not presently own or operate any such
stores, although it may decide to do so in the future. The Supply Agreement was
terminated as of July 2, 1997.
Indemnification Agreement
The Company and Supervalu have entered into an Indemnification, Tax Matters
and Guarantee Fee Agreement dated as of October 8, 1991 (the "Indemnification
Agreement") with respect to certain liabilities which may arise after the
Initial Public Offering. In general, the Indemnification Agreement provides
that the Company and Supervalu will each indemnify the other party and that
party's directors, officers, employees and agents against certain liabilities
arising from or based upon the operation of their own respective businesses
prior to and following such offering. Since the Company is no longer eligible
to participate in Supervalu's consolidated income tax returns, the
Indemnification Agreement also contains certain agreements by the parties
intended to clarify responsibilities and procedures for the filing of returns,
the payment of taxes and the resolution of disputes regarding taxes following
such offering. The Company has provided standby letters of credit in lieu of
agreed to fees associated with Supervalu guaranteeing certain obligations of
the Company.
The Company was previously a member of the Supervalu consolidated group for
federal income tax purposes. The Company may be held liable for any unpaid
federal income tax liabilities of the Supervalu consolidated group for each
taxable year in which the Company was a member of the Supervalu consolidated
group during any part of such taxable year. The Indemnification Agreement
between the Company and Supervalu provides that, subject to the limitation set
forth below, Supervalu will indemnify the Company for any income tax liability
of the Company for any taxable year ending on or before October 16, 1991.
Supervalu shall not be required to indemnify the Company against any taxes
attributable to the Company for any tax periods ending on or before October 16,
1991 to the extent that such taxes result, directly or indirectly, from any
adjustment made by a taxing authority to the tax liability of the Company for
any period ending after October 16, 1991. Notwithstanding the above limitation,
the Indemnification Agreement also provides that Supervalu will indemnify the
Company for all income tax liabilities attributable to any member of the
Supervalu consolidated group other than the Company for any taxable year.
Insurance Matters Agreement
Prior to the Initial Public Offering, insurance coverage for the Company was
provided under various insurance policies maintained by Supervalu. As a result
of such offering, coverage for the Company ceased under such policies for
certain claims made and occurrences arising after October 16, 1991. The Company
has since obtained its own insurance policies. The Company and Supervalu have
entered into an Insurance Matters Agreement dated as of October 8, 1991 (the
"Insurance Matters Agreement") which provides for the allocation of premiums
and premium adjustments under the Supervalu policies after October 16, 1991 in
accordance with Supervalu's normal annual allocation process. The Insurance
Matters Agreement also provides that Supervalu and the Company will cooperate
in good faith on the handling of claims by the Company under the Supervalu
policies after October 16, 1991, with Supervalu retaining decision-making
authority in connection with any such policies that are liability policies.
Registration Rights Agreement
The Company and SOA, a wholly owned subsidiary of Supervalu, have entered
into a Registration Rights Agreement dated as of October 8, 1991 (the
"Registration Rights Agreement") pursuant to which the Company granted certain
demand and "piggyback" registration rights to SOA (and to certain
15
<PAGE>
affiliates of Supervalu) with respect to shares of Common Stock owned by SOA
(or such affiliates) following the Initial Public Offering. The Registration
Rights Agreement terminated upon SOA's divestiture of its Common Stock on July
2, 1997.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Item 2)
The Board of Directors, upon the recommendation of its Audit Committee, has
appointed Deloitte & Touche LLP to audit the financial statements of the
Company and its subsidiaries for the fiscal year ending February 28, 1998 and
is seeking the ratification of their appointment by the shareholders. Shares
represented by the accompanying proxy will be voted for ratification unless
the proxy indicates to the contrary.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do
so, and are expected to be available to respond to appropriate questions.
VOTE REQUIRED
Ratification requires the affirmative vote of holders of a majority of the
shares present, or represented, and entitled to vote at the meeting. The Board
of Directors recommends a vote FOR the ratification of Deloitte & Touche LLP
as the Company's independent auditors for the fiscal year ending February 28,
1998.
PROPOSALS OF SHAREHOLDERS FOR 1998 ANNUAL MEETING
All proposals of shareholders intended to be presented at the Company's 1998
Annual Meeting of Shareholders must be received by the Company at its
executive offices on or before January 15, 1998, to be included in the proxy
statement for that meeting.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which may
come before the meeting. However, if any matter other than those referred to
above should properly come before the meeting, it is the intention of the
persons named in the enclosed proxy to vote such proxy in accordance with
their discretion.
By Order of the Board of Directors
Richard D. Schepp
Secretary
Dated: July 14, 1997
16
<PAGE>
SHOPKO STORES, INC. PROXY
700 PILGRIM WAY
P.O. BOX 19060
LOGO GREEN BAY, WISCONSIN 54307
1997 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Richard D. Schepp and David A. Liebergen as
the undersigned's agent and proxy, with power of substitution to vote as the
undersigned's proxy in accordance with the specifications appearing below, and,
in their discretion, upon all other matters that may properly come before the
Annual Meeting of Shareholders of ShopKo Stores, Inc., a Minnesota corporation,
to be held on Wednesday, August 13, 1997, at 10:00 a.m., local time, or any
adjournment or adjournments thereof, according to the number of votes that the
undersigned would be entitled to vote if the undersigned were personally
present at said meeting, and hereby revoking all former proxies. The
undersigned hereby acknowledges receipt of the Proxy Statement for the meeting.
1. ELECTION OF DIRECTORS
Nominees: William J. Podany, Jack W. Eugster and Stephen E. Watson
[_]VOTE FOR all nominees listed, except those whose name(s) is (are)
written below.
[_]VOTE WITHHELD for all nominees.
---------------------------------------------------------------------------
2. PROPOSAL TO RATIFY APPOINTMENT OF DELOITTE & TOUCHE LLP
FOR [_] AGAINST [_] ABSTAIN [_]
3. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting.
(over)
THIS PROXY WILL BE VOTED AS DIRECTED, Dated: _______________, 1997
IF NO CHOICE IS (Month) (Day)
SPECIFIED, PROXIES WILL BE VOTED FOR -----------------------------------
ALL ITEMS. Signature of Shareholder
-----------------------------------
(if there are co-owners both must
sign)
The signature(s) should be exactly
as the name(s) appear printed to
the left.
If a corporation, please sign the
corporation name in full by a duly
authorized officer and indicate
the office of the signer. When
signing as executor,
administrator, fiduciary,
attorney, trustee or guardian, or
as custodian for a minor, please
give full title as such. When
signing pursuant to a power of
attorney, please attach photocopy.
If a partnership, sign in the
partnership name by authorized
person.
PLEASE CHECK BOX IF YOU ARE
PLEASE MARK, SIGN, DATE AND RETURN ATTENDING THE ANNUAL MEETING IN
THIS PROXY
CARD PROMPTLY USING THE ENCLOSED PERSON. NUMBER OF
ENVELOPE. SHAREHOLDERS ATTENDING:
