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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended February 1, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19802
BUTTREY FOOD
AND DRUG STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 81-0466189
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
601 6th Street, S.W.
Great Falls, Montana 59404
(Address of principal executive offices)
Registrant's telephone number, including area code: (406) 761-3401
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
par value $.01 per share
(Title of class)
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. [_]
The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant on April 23, 1997, based on the closing price
of the Common Stock on the Nasdaq National Market on such date, was $34,937,096.
The number of shares of the registrant's Common Stock outstanding at April
23, 1997 was 8,640,556 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Annual Meeting of Stockholders to be
held May 28, 1997 are incorporated by reference into Part III hereof.
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BUTTREY FOOD AND DRUG STORES COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended February 1, 1997
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PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 6
Item 3. Legal Proceedings............................................... 6
Item 4. Submission of Matters to a Vote of
Security Holders........................................... 7
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............................ 7
Item 6. Selected Financial Information and Other Data................... 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................................... 10
Item 8. Financial Statements and Supplementary Data..................... 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 16
Item 11. Executive Compensation.......................................... 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................... 16
Item 13. Certain Relationships and Related Transactions.................. 16
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K......................... 17
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PART I
ITEM 1. BUSINESS
As used in this Annual Report on Form 10-K ("Form 10-K"), unless the
context indicates otherwise, the terms "Company" and "Buttrey" refer to Buttrey
Food and Drug Stores Company, a Delaware corporation, its wholly-owned
subsidiary, Buttrey Food and Drug Company, a Delaware corporation, and its
predecessor companies. Unless otherwise indicated, as used in this Form 10-K
(i) all references to square feet are to gross square feet, rather than net
selling space, (ii) all references to a year shall mean the fiscal year of the
Company which commences in such year (for example, the fiscal year commencing
February 4, 1996 and ending February 1, 1997 is referred to herein as "fiscal
1996" or "1996"), and (iii) all per share data and information relating to the
number of shares of the Company's Common Stock outstanding have been adjusted to
give effect to a three-for-two stock split effected as a stock dividend in
December 1991.
GENERAL
Buttrey is a food and drug retailer in Montana and in the market areas it
serves in Wyoming and western North Dakota. Founded in Montana in 1896, the
Company currently operates 43 stores (including the recently opened replacement
store in Bozeman, Montana and the recently acquired store in Cody, Wyoming), as
well as a mail order pharmacy business which began operations during the second
quarter of 1994. The Company is the successor to the Buttrey Food and Drug
division (the "Predecessor Division") of Skaggs Alpha Beta, Inc. ("Skaggs"), an
indirect, wholly-owned subsidiary of American Stores Company ("ASC"). The
Company acquired certain assets and liabilities of the Predecessor Division in
October 1990 in a transaction (the "Acquisition") organized by Freeman Spogli &
Co. Incorporated, a private investment firm ("FS&Co.").
The Company's executive offices are located at 601 6th Street, S.W., Great
Falls, Montana 59404, its telephone number is (406) 761-3401, and its mailing
address is P.O. Box 5008, Great Falls, Montana 59403.
RISK FACTORS
The following risk factors should be carefully considered, in addition to
other information contained in this Form 10-K.
Certain Restrictions Imposed by Lenders
The Company's credit agreement contains significant financial and operating
covenants including, among other things, limitations on the amount of the
Company's capital expenditures, restrictions on the ability of the Company to
incur indebtedness, to pay dividends and to take certain other corporate
actions, and requirements that the Company maintain certain financial ratios and
satisfy certain financial tests. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Competition
The food and drug retailing business is highly competitive. The Company's
competitors include, among others, multi-regional supermarket chains, smaller,
independent supermarket chains, drug stores, convenience stores, discount
hardware stores and large chain discount retailers. Some of these competitors
have substantially greater resources than the Company. The Company expects
competition from large chain discount retailers to further increase as stores
are opened in market areas served by the Company. See "Business--Competition."
Expansion Plans
The Company's plans for 1997 include the opening of its fifth Buttrey Big
Fresh store in Bozeman, Montana (replacing a smaller, outmoded Buttrey Food &
Drug store previously located there) which occurred in February 1997, the
acquisition of a store in Cody, Wyoming, which occurred in April 1997, and the
remodeling of approximately two stores. In addition, the Company continues to
seek sites for new store construction and
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intends to continue acquisitions of existing stores. These plans are subject to
site availability and financing, competition, zoning and other governmental
regulations and general economic conditions, and no assurances can be given that
such plans will not be revised as a result of such factors. In addition, the
Company historically has experienced temporary disruptions and lost sales during
store remodelings, and believes that this will continue in connection with
future remodelings. See "Business--Store Remodeling and Development" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
Control of the Company
A majority of the members of the Board of Directors of the Company are
affiliated with FS&Co., which controls FS Equity Partners II, L.P., the
Company's principal stockholder ("FSEP"). FSEP currently holds 50.8% of the
outstanding Common Stock of the Company. As a result, FS&Co. controls and will
continue to control the Company's management policy and financing decisions.
STORE FORMATS
Buttrey's 43 stores are comprised of five Buttrey Big Fresh stores in
Montana and Wyoming; 29 Buttrey Food & Drug combination stores in Montana (19),
North Dakota (2), and Wyoming (8); and nine Buttrey Fresh Foods conventional
supermarkets in Montana and Wyoming. The Company's stores are located in market
areas ranging from rural towns of 2,500 people to cities of up to 100,000
people.
During 1995, the Company introduced the Buttrey Big Fresh format, which has
been designed to emphasize perishables excellence in expanded produce, meat,
deli, bakery, seafood and floral departments, while offering exceptional
selections of grocery and non-foods items at competitive prices. This format
also features a food court, the "Savings Stack" (an entire aisle of special
offers on grocery items), and expanded beer and wine departments. In addition,
one of the Company's Big Fresh stores includes the Company's first drive-through
pharmacy. The Company's five Big Fresh stores average 54,100 square feet.
Although this average is higher than the average for the Company's other stores,
square footage it is not necessarily the determining factor in converting a
store to this format. The Company plans to undertake the construction of new
future Big Fresh stores and conversions based upon a review of a number of
factors, including the priority of capital investment, the competitive
environment, and the physical size of existing stores.
The Company's combination stores are designed to serve larger market areas
and range in size up to approximately 51,000 square feet, with an average size
of approximately 40,400 square feet. In addition to a complete food
presentation, including grocery, dairy, frozen food, meat, produce, bakery and
deli departments, the Company's combination stores offer over-the-counter drugs,
pharmaceutical, health and beauty care, and general merchandise.
The Company's conventional supermarkets average approximately 14,500 square
feet and are niche stores serving smaller markets than those served by the
Company's combination stores. Accordingly, these stores have more limited
product offerings, particularly in general merchandise, over-the-counter drugs
and health and beauty care.
The Company's new store construction prototypes include Big Fresh and
combination stores that range in size from 25,000 to 55,000 square feet. The
selection of store size is influenced by a number of factors including, but not
limited to, the population size of the area in which the store will be located,
other local demographics within the market area that the store will serve, and
space availability. Additionally, the Company intends to use smaller existing
buildings for new stores should the location of such buildings be deemed the
most appropriate for the new store.
STORE REMODELING AND DEVELOPMENT
The Company is conducting an ongoing store development and remodeling
program. The Company's typical store remodel requires approximately three to
four months and generally does not result in an expansion of gross square
footage. A major remodel takes the form of either a conversion to the Big Fresh
format, as described
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above, or a more traditional remodel which may involve painting, repairs, new
lighting and fixtures, modernization of decor and other general improvements to
the store's appearance and operation. In addition, the remodel of a store may
involve the expansion of the store's perishables, frozen food and dairy, and
beer and wine departments, and may result in improved pharmacy, cosmetics, books
and magazines, video rental and greeting cards sales areas. During 1996, the
Company completed the conversion of one Great Falls, Montana store to the Big
Fresh format, expanded and converted its Lewistown, Montana store to the Big
Fresh format, and expanded and remodeled its conventional store in Malta,
Montana. Capital expenditures in 1996 related to these three stores totaled
approximately $6.4 million. In 1997, the Company estimates that it will spend
approximately $7.2 million for the remodels of two stores and for the ongoing
maintenance of its existing store base and support functions.
Management also has adopted a strategy for the construction of new stores
and has created separate real estate and construction departments dedicated to
store site selection, acquisition and construction supervision. During 1996,
the Company acquired one store in Cheyenne, Wyoming (the Company had two
existing stores in this market) and one store and a pharmacy business in
Laramie, Wyoming (the Company had one existing store in this market). The
purchase price for the new Cheyenne store was $5.2 million for real property,
fixtures and equipment and a non-compete agreement, plus $0.3 million for
inventory. The Laramie acquisition involved the purchase of two businesses: a
conventional grocery store, and a pharmacy business. The combined purchase
price was $0.8 million for fixtures and equipment and non-compete agreements,
plus $0.6 million for inventory; the Company also entered into a lease with the
seller of the business for the real property on which the grocery store was
located. Also during 1996, the Company replaced its existing Bozeman, Montana
store with a larger store under the Big Fresh format. This store opened in
February 1997, subsequent to the end of fiscal 1996. The Company spent
approximately $5.8 million for leasehold improvements and fixtures and equipment
related to this new store. In April 1997, the Company completed the acquisition
of a conventional store in Cody, Wyoming, the Company's first store in this
market. The purchase price was $2.4 million for fixtures and equipment and a
non-compete agreement, plus $0.3 million for inventory; the Company also entered
into a lease with the seller of the business for the real property on which the
store was located.
The average cost of fixturing and equipping a new store is approximately
$2.0 million to $2.4 million, depending on prototype size (excluding the cost of
any land purchased, building and construction costs as well as the costs of any
site improvements). In general, the development of new stores is subject to
site availability and financing, competition, zoning and other governmental
regulations, and general economic conditions. The Company also may expand the
number of stores that it operates through the selective acquisition of existing
food or drug stores that will complement the Company's operations.
MERCHANDISING AND MARKETING
Buttrey stores offer a complete food presentation, including grocery,
dairy, frozen food, meat and produce departments, as well as over-the-counter
drugs, health and beauty care and general merchandise. The Company maintains
high quality control standards for all perishable merchandise categories. All
Buttrey Big Fresh stores and all of the Company's 29 combination stores have
fully staffed pharmacies, and many stores contain specialty departments
including bakery, delicatessen, fresh seafood, pizza, floral, video rental and
wine. The Company focuses much of its attention on product variety throughout
the food departments and believes that this variety is an integral part of its
total marketing plan. In addition, the Big Fresh stores and most of the
combination stores offer extensive non-food product lines including film and
camera, a full-line of cosmetics, greeting cards and gift wrap supplies,
vitamins, seasonal merchandise, and over-the-counter drugs.
Customer services are also an important part of the Company's marketing
strategy. These services, which are available in most stores, include one-hour
or one-day photo processing, utility bill payment centers, postage stamp, money
order and Western Union services, Federal Express and United Parcel Service
pick-up, local event ticket sales, free notary public services, the sale of
various licenses, including hunting and fishing licenses, and in-store banking.
These expanded services are consistent with the one stop shopping concept,
particularly in smaller and more rural markets.
In May 1991, Buttrey implemented a new private label program within most
grocery categories to provide its customers with a choice relative to other
private label and national brands. These brands are positioned to create
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store loyalty and to establish an ongoing franchise with Buttrey's customer
base. The "Shurfine(TM)," "Shurfresh(TM)" and "Buttrey(R)" brand names are used
for the Company's private label items. In August 1992, the Company implemented a
private label program in the drug and general merchandise categories which also
utilized the "Shurfine(TM)" and "Buttrey(R)" brand names.
In addition to offering a broad product selection, the Company's
merchandising strategy emphasizes competitive pricing and service while
maintaining a reputation for high quality food, over-the-counter drug and
general merchandise products. In-store promotional activities include off-shelf
display programs, point-of-sales signing, freshness code dating, unit pricing,
food informational pamphlets, product samplings and demonstrations and refund
offers. The Company publishes newspaper advertisements, separate multi-page,
full color weekly advertising circulars for grocery and over-the-counter drug
products, and selected radio and television advertisements which promote special
prices on popular, high visibility products. Nationally advertised, brand-name
products are frequently included in the Company's advertising in order to
enhance its reputation for high quality products. The Company's suppliers have
the opportunity to participate in its cooperative advertising program, which
enables suppliers to promote their products on a chain-wide basis using all of
Buttrey's advertising media. From time to time, the Company also distributes
coupon books to its customers through a direct mail program.
PURCHASING, DISTRIBUTION AND INVENTORY CONTROL
Management believes that Buttrey is one of the largest volume purchasers of
food and food products in its market areas. The Company's purchasing and
distribution operations are centrally managed at Buttrey's Great Falls, Montana
headquarters utilizing computerized inventory and warehouse management control
systems. From time to time, the Company engages in forward buy programs to take
advantage of special prices or to delay the impact of upcoming price increases
by purchasing and warehousing larger quantities of merchandise than immediately
required.
The Company operates a full-line food distribution facility adjacent to its
Great Falls, Montana headquarters and a produce and floral distribution facility
in Salt Lake City, Utah. As a result of these warehouse facilities, the Company
is able to purchase many of its product requirements directly from the
manufacturer, enabling it to take advantage of volume purchase discounts and to
reduce freight costs. Until May 1996, the Company also operated a forward buy
warehouse in Butte, Montana.
The Great Falls facility is a 337,033 square foot office and full-line
grocery distribution facility which stocks dry grocery, dairy, meat, frozen
food, bakery, fresh deli and seafood products as well as store supplies, and
features a narrow-aisle, high-rise racking system with wire guided order
selection equipment.
The Salt Lake City facility is a 52,000 square foot produce and floral
distribution center which opened in October 1991. The geographic location of
the facility allows the Company to purchase from produce markets in the
southwestern United States, California and Mexico, as well as from local produce
markets.
Until May 1996, the Company leased a 231,000 square foot food warehouse
facility in Butte, Montana. The facility was utilized to store forward buy
product and to provide the Company with extra frozen food capacity. The Company
had concluded that alternatives exist for excess storage requirements and as
such, determined not to renew the lease for the Butte facility when its initial
term expired at the end of May 1996. There were no material costs associated
with the termination of this lease or the relocation of any remaining product in
this facility.
Until April 1995, the Company also operated a 263,600 square foot over-the-
counter, pharmaceutical, health and beauty aid and general merchandise
distribution facility in Payson, Utah (the "Payson Distribution Center"). On
April 17, 1995, the Company completed the sale of this facility, including all
inventory located there, to Associated Food Stores, Inc. of Salt Lake City, Utah
("Associated"). See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
conjunction with the sale of the Payson Distribution Center, the Company also
entered into a supply agreement with Associated whereby the Company continues to
purchase from Associated certain products previously distributed from the Payson
Distribution Center. In addition, in March 1996, the Company negotiated a new
supply agreement with
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McKesson Drug Company for the purchase of pharmaceutical products. Associated
continues to supply over-the-counter product, health and beauty care items and
general merchandise.
Buttrey ships from the Great Falls distribution center using predominantly
its own fleet of trucks and drivers, supplemented as necessary by contract
carriers. The Company's fleet includes 28 tractors and 59 trailers, of which 53
are refrigerated. The Company has a full service maintenance shop for its
trucks and tractors at the Great Falls distribution center. Contract carriers
are used for shipping from the Salt Lake City distribution center.
Buttrey's data center is located at the Company's corporate offices in
Great Falls, Montana and includes an IBM ES-9000-150 mainframe computer. The
Company also utilizes two IBM AS-400 computers to provide systems support and
communication at the Salt Lake City produce and floral distribution center and
in the Company's human resources department for payroll and employee benefits
processing. All of Buttrey's stores have NCR point-of-sale hardware and
software, and the Company utilizes an NCR Teradata Database computer to collect
and analyze store level scanning information.
COMPETITION
The food and drug retailing business is highly competitive. The Company's
competitors include multi-regional supermarket chains, smaller, independent
supermarket chains, drug stores, convenience stores, discount hardware stores
and large chain discount retailers. Some of these competitors have
substantially greater resources than the Company. The Company expects
competition from large chain discount retailers to further increase as more
stores are opened in market areas served by the Company.
Principal competitive factors include convenience of store locations,
price, customer service, product selection and quality and store condition and
cleanliness. With respect to price, the Company does not seek to offer the
lowest price on all products (as is the practice of some large chain discount
retailers), but instead seeks to generally provide a combination of price,
quality and service that gives the customer a high perceived value and to offer
the lowest prices only on a limited number of high visibility products.
EMPLOYEES
As of February 1, 1997, Buttrey employed 2,700 persons, approximately 1,492
of whom are full-time and 1,208 of whom are part-time. Approximately 2,478 were
employed in the Company's stores, 115 were employed in transportation and the
distribution centers, and 107 were employed in the district offices and in the
Company's corporate headquarters in Great Falls, Montana.
Approximately 43% of the Company's employees are represented by unions.
These employees work under a large number of separate collective bargaining
agreements with various locals of the United Food and Commercial Workers Union,
the Bakery, Confectionery and Tobacco Workers Union, and the International
Brotherhood of Teamsters. These collective bargaining agreements have varying
renewal dates and typically have three to five year terms.
Pursuant to its collective bargaining agreements, Buttrey contributes to
various union-sponsored multi-employer pension plans. The Company also provides
a full range of benefits for its employees who are not covered by collective
bargaining agreements, including 401(k) plan contributions.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company is subject to regulation by a variety of governmental
authorities, including federal, state and local agencies which regulate the
distribution and sale of alcoholic beverages, pharmaceutical products, milk and
other agricultural products, as well as various other food and drug items.
Trade practices, building standards, labor, health, safety and environmental
matters are also regulated. Management believes that the Company is in material
compliance with all applicable regulations.
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Prior to the Acquisition, soil and groundwater contamination was discovered
at a shopping center owned by Skaggs located in Bozeman, Montana (the "Shopping
Center Property"). In connection with the Acquisition, the Company leased a
site at the Shopping Center Property, and Skaggs and ASC entered into an
environmental indemnity agreement for the benefit of Buttrey against any
liability relating to the existence and clean-up of hazardous materials at the
Shopping Center Property. In October 1991, the Department of Health and
Environmental Sciences of the State of Montana issued an interim order to
Skaggs, the owner of the site, and Jewel Companies, Inc., the site's previous
owners, requiring certain investigative and clean-up actions at the Shopping
Center Property, including removal of a septic tank and implementation of a
groundwater monitoring program. The Company has not been named as a responsible
party in this matter and has not been required to participate in the clean-up.
Management believes that Buttrey has not contributed to the contamination at the
Shopping Center Property and that the environmental indemnity agreement, among
other arrangements, will minimize the Company's liability, if any, with respect
to the Shopping Center Property.
TRADEMARKS
The Company owns rights in a number of trademarks, including the marks
"Buttrey(R)," "Big Fresh(R)," "Buttrey Big Fresh(R)" and "Buttrey Fresh
Foods(TM)." The Company considers the "Buttrey(R)," "Big Fresh(R)" and "Buttrey
Big Fresh(R)" marks to be important to its business and has registered these
marks with the United States Patent and Trademark Office. The marks
"Shurfine(TM)" and "Shurfresh(TM)" are trademarks held by the supplier of the
Company's private label food products.
ITEM 2. PROPERTIES
The Company owns 20 of its stores, representing a total of 781,434 square
feet, and leases 23 stores, representing a total of 789,607 square feet. Store
leases have various expiration dates through 2017, and the average remaining
term of the Company's leases (including all renewal options) is approximately 22
years. Renewal options range up to 35 years.
Buttrey owns the 337,033 square foot food distribution center and office
facility located on approximately 14.3 acres in Great Falls, Montana. The
Company leases its 52,000 square foot produce and floral distribution facility
in Salt Lake City, Utah. The lease on this facility expires in 1998, subject to
a five year renewal option.
As previously discussed, the Company believes that alternatives exist for
its excess storage requirements and, as such, determined not to renew the lease
for the Butte food warehouse when its initial term expired in May 1996.
Management believes that its remaining facilities, along with available public
warehousing, will satisfy the Company's warehouse needs for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
The Internal Revenue Service ("IRS") has completed its examination of the
Company's income tax returns for the periods ended February 1, 1992 and February
2, 1991, the period of the Company's initial acquisition of assets. On December
1, 1995, the Company received notice from the IRS of proposed adjustments for
the Company's fiscal periods 1991 to 1994 which would eliminate the Company's
net operating loss and alternative minimum tax credit carryover and would result
in additional federal taxes of $5.6 million plus interest from the date when
such additional taxes are asserted to have been due to the date of payment.
These adjustments generally relate to the Company's allocation of purchase price
among the assets initially acquired by the Company and the treatment of certain
of these assets for tax depreciation and amortization purposes.
The Company, after consultation with tax counsel, continues to believe in
the propriety of its positions set forth in its tax returns, and it will
vigorously contest the adjustments being proposed by the IRS. If the IRS were
to ultimately prevail, in whole or in part, with respect to its proposed
adjustments, the Company would account for such change in its tax liability by
adjusting deferred tax assets and liabilities to reflect the revised tax basis
of its
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assets, by adjusting the current tax liability to reflect the prior year taxes
due, and by applying the effect of those adjustments to increase goodwill. Any
interest related to prior year taxes due would be expensed when accruable.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotations System ("Nasdaq") National Market System
under the symbol BTRY. The quarterly high and low closing sale prices for the
Common Stock as reported on the Nasdaq National Market during 1995, 1996 and the
first quarter of 1997 are as follows:
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1995 High Low
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First quarter............................. $ 9.50 $7.25
Second quarter............................ $ 8.00 $6.75
Third quarter............................. $ 8.25 $6.75
Fourth quarter............................ $ 7.56 $6.57
1996
First quarter............................. $ 7.75 $6.88
Second quarter............................ $ 8.25 $7.38
Third quarter............................. $ 8.25 $7.25
Fourth quarter............................ $ 8.63 $8.00
1997
First quarter (through April 23, 1997).... $9.875 $8.25
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As of April 23, 1997, the number of stockholders of record of the Company's
Common Stock was 114.
The Company has not declared or paid cash dividends to its stockholders.
The Company anticipates that all of its earnings in the near future will be
retained for the development and expansion of its business and, therefore, does
not anticipate paying dividends on its Common Stock in the foreseeable future.
Declaration of dividends on the Common Stock will depend, among other things,
upon levels of indebtedness, future earnings, the operating and financial
condition of the Company, its capital requirements and general business
conditions. The agreements governing the Company's indebtedness contain
provisions which prohibit the Company from paying dividends on its Common Stock.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
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ITEM 6. SELECTED FINANCIAL INFORMATION AND OTHER DATA.
The selected financial information and other data of the Company presented
on the next page are qualified by and should be read in conjunction with the
financial statements and notes to financial statements included elsewhere in
this Form 10-K. The selected financial information presented on the next page
as of and for the 52 weeks ended January 28, 1995, as of and for the 53 weeks
ended February 3, 1996, and as of the 52 weeks ended February 1, 1997 have been
derived from financial statements of the Company audited by KPMG Peat Marwick
LLP and included elsewhere in this Form 10-K. The selected financial
information presented on the next page as of and for the 52 weeks ended January
30, 1993 and as of and for the 52 weeks ended January 29, 1994 have been derived
from financial statements of the Company audited by KPMG Peat Marwick LLP not
included in this Form 10-K.
SELECTED FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OPERATING DATA)
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BUTTREY
FISCAL YEAR ENDED(1)
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FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1997 1996 1995 1994 1993
(52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
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OPERATING RESULTS:
Sales................................................. $ 371,302 $ 368,135 $ 382,123 $ 428,746 $ 461,382
Cost of sales and related occupancy expenses.......... 284,134 280,242 290,670 323,842 347,720
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Gross profit.......................................... 87,168 87,893 91,453 104,904 113,662
Marketing, general and administrative expenses........ 79,609 81,830 86,248 101,273 98,877
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Operating income...................................... 7,559 6,063 5,205 3,631 14,785
Other income (expense):
Gain on disposal of assets............................ (50) 251 3,984 1,088 --
Interest income....................................... 132 320 419 170 243
Interest expense(2)................................... (2,909) (2,865) (3,917) (4,286) (4,476)
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(2,827) (2,294) 486 (3,028) (4,233)
Income before income taxes and........................ 4,732 3,769 5,691 603 10,552
extraordinary charge...............
Income taxes.......................................... 1,139 1,419 2,161 700 2,973
---------- ---------- ---------- ---------- ----------
Net income (loss) before.............................. 3,593 2,350 3,530 (97) 7,579
extraordinary charge...............
Extraordinary charge (net of tax...................... 0 (51) (127) (137) (3,683)
benefit)(3)........................
---------- ---------- ---------- ---------- ----------
Net income (loss)..................................... $ 3,593 $ 2,299 $ 3,403 $ (234) $ 3,896
========== ========== ========== ========== ==========
OTHER DATA:
Depreciation and amortization(4)................. $ 9,018 $ 10,789 $ 11,826 $ 14,536 $ 13,668
PER SHARE DATA:
Net income (loss) per share before
extraordinary charge................................ $ 0.42 $ 0.28 $ 0.41 $ (0.01) $ 0.92
Extraordinary charge per share
(net of tax benefit)(3)............................. 0.00 (0.01) (0.01) (0.02) (0.45)
---------- ---------- ---------- ---------- ----------
Net income (loss) per share........................... $ 0.42 $ 0.27 $ 0.40 $ (0.03) $ 0.47
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding....................... 8,638,754 8,602,915 8,529,810 8,271,508 8,220,291
OPERATING DATA:
Number of stores (at beginning of period)............. 40 39 44 44 43
Number of stores opened/closed during
period.............................................. 2/0 1/0 1/6 2/2 2/1
Number of stores (at end of period).............. 42 40 39 44 44
"Comparable store" sales increase (decrease)(5).. 0.6% (1.0)% (4.0)% (9.3)% (7.6)%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
BUTTREY
----------------------------------------------------------------------------------
BALANCE SHEET DATA: AT FEBRUARY 1, AT FEBRUARY 3, AT JANUARY 28, AT JANUARY 29, AT JANUARY 30,
1997 1996 1995 1994 1993
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Working capital................................. $ 17,110 $ 24,737 $ 34,144 $ 28,257 $ 32,567
Total assets.................................... 157,998 144,631 165,380 181,400 192,724
Long-term debt, excluding current installments
and obligations retired(6)...................... 18,569 13,510 16,271 35,081 45,635
Obligations retired(7).......................... -- -- 10,889 -- --
Total outstanding indebtedness(8)............... 34,082 25,499 43,903 52,939 57,909
Stockholders' equity............................ 91,898 88,305 85,967 81,427 79,527
- ---------------
</TABLE>
(1) Unless otherwise indicated, references herein to a year or years are to the
Company's 52 week year, which ends on the Saturday closest to January 31 in
the following calendar year.
(2) Amount includes amortization of deferred debt issuance costs of $50, $35,
$91, $127 and $235 for 1996, 1995, 1994, 1993 and 1992, respectively.
(3) Extraordinary charges of $85 ($51, or $0.01 per share, on an after-tax
basis) for 1995, $212 ($127, or $0.01 per share, on an after-tax basis) for
1994 and $228 ($137, or $0.02 per share, on an after-tax basis) for 1993
were recorded as a result of the early retirement of debt. Additionally,
extraordinary charges of $5,585 ($3,683, or $0.45 per share, on an after-
tax basis) were recorded during 1992 as a result of the early retirement of
debt from the proceeds of the Company's initial public offering and the
refinancing of the Company's bank credit facility. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations" and Notes 4 and 6 of Notes to
Consolidated Financial Statements included elsewhere in this Form 10-K.
(4) Represents aggregate depreciation and amortization included in cost of
sales and related occupancy expenses and in marketing, general and
administrative expenses. Amount includes aggregate amortization expense
associated with Acquisition related items, including amortization expense
included in cost of sales and related occupancy expenses and in marketing,
general and administrative expenses of $91, $195, $232, $2,982 and $3,897
for 1996, 1995, 1994, 1993 and 1992, respectively. Does not include amounts
for amortization of deferred debt issuance costs included in interest
expense, as described in footnote (2) above. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) The calculation of comparable store sales in 1996 and 1995 excludes sales
associated with the 53rd week in 1995. In 1995, the Company modified its
definition of "comparable store" sales increase (decrease), in order to be
more consistent with industry practice, to the following: a store becomes a
comparable store in the monthly accounting period following the first year
anniversary of its opening. Expansions and remodels of existing stores are
considered comparable stores, whereas replacement stores are not considered
to be comparable stores. The figures for "comparable store" sales increase
(decrease) on the prior page have been calculated using this modified
definition. Prior to 1995, the Company's calculation of "comparable store"
sales increase (decrease) had excluded the sales of a store for any period
if the store was not opened during the entire preceding fiscal year. In
addition, if a store's selling square footage had not been increased as a
result of a remodel, the store continued to be treated as a "comparable
store." Using the prior definition, the Company's comparable store sales
increase was identical at 0.6% in 1996, and the Company's comparable store
sales declines were 1.2%, 3.9%, 9.6% and 7.7% in 1995 (in both 1996 and
1995, excluding sales associated with the 53rd week), 1994, 1993 and 1992,
respectively.
(6) See Note 6 of Notes to Consolidated Financial Statements included elsewhere
in this Form 10-K for a description of items included in long-term debt.
(7) Amount represents debt which was outstanding at the end of the applicable
fiscal year and was repaid by the Company early in the following fiscal
year prior to filing the Form 10-K for the prior fiscal year. In the first
quarter of 1995, the Company repaid $10,889 under the Amended and Restated
Credit Agreement with the proceeds from the sale of the Payson Distribution
Center and other asset sales, and excess cash on hand. All amounts
described above have been excluded from long-term debt and are classified
as obligations retired. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 6 of Notes to
Consolidated Financial Statements included elsewhere in this Form 10-K.
(8) Includes current and non-current portion of short-term debt, long-term bank
debt, Senior Subordinated Notes, capital lease obligations, notes payable
and obligations retired.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements and related notes and "Selected Financial Information and Other Data"
included elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth certain operating items expressed as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
(52 WEEKS) (53 WEEKS) (52 WEEKS)
------------ ----------- -------------
<S> <C> <C> <C>
Sales................................................. 100.0% 100.0% 100.0%
Cost of sales and related occupancy expenses.......... 76.5 76.1 76.1
----- ----- -----
Gross profit.......................................... 23.5 23.9 23.9
Marketing, general and administrative expenses........ 21.4 22.3 22.5
----- ----- -----
Operating income...................................... 2.1 1.6 1.4
Other income (expense):
Gain on disposal of assets......................... 0.0 0.1 1.0
Interest income.................................... 0.0 0.1 0.1
Interest expense................................... (0.8) (0.8) (1.0)
----- ----- -----
(0.8) (0.6) 0.1
----- ----- -----
Income before income taxes and extraordinary charge... 1.3 1.0 1.5
Income taxes.......................................... 0.3 0.4 0.6
----- ----- -----
Net income (loss) before extraordinary charge......... 1.0 0.6 0.9
Extraordinary charge (net of tax benefit)............. 0.0 0.0 0.0
----- ----- -----
Net income (loss)..................................... 1.0% 0.6% 0.9%
====== ===== =====
</TABLE>
52 Weeks Ended February 1, 1997 ("1996") Compared to 53 Weeks Ended
February 3, 1996 ("1995")
Sales increased $3.2 million, or 0.9%, from $368.1 million for 1995 to
$371.3 million for 1996. Fiscal 1995 was a 53 week year for the Company.
Excluding the sales for the 53rd week in 1995, sales increased $9.5 million, or
2.6%, from $361.8 million for 1995 to $371.3 million for 1996. The increase in
sales reflects the additional sales from the Company's acquired stores in
Cheyenne and Laramie, Wyoming and an increase in comparable store sales of 0.6%.
The Company achieved an increase in comparable store sales despite a more
aggressive competitive environment, the loss of sales during the remodeling of
three stores, a reduction in Montana tourism, a shortened holiday selling
period, the severity of this year's winter weather and limited inflation. The
Company is conducting an ongoing store development and remodeling program, and
believes that it will continue to experience temporary disruptions and lost
sales during store remodelings in the future.
On a quarterly basis during the fiscal year, the Company reported the
following 1996 increases in comparable store sales versus 1995 (using its
modified definition and excluding sales associated with the 53rd week in 1995):
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- --------- -------- -------- --------
0.3% 1.1% 0.0% 1.1%
Based in part on the anticipated impact of proposed and recent new store
openings and remodelings by competitors, management believes that market
conditions will remain highly competitive. In response to this highly
competitive environment, the Company has introduced the Buttrey Big Fresh
format, which has been designed to emphasize perishables excellence in expanded
produce, meat, deli, bakery, seafood and floral departments, while offering
exceptional selections of grocery and non-foods items at competitive prices.
This format also features a food court, the "Savings Stack" (an entire aisle of
special offers on grocery items), and expanded beer and wine departments).
Depending upon the physical size and location of the store, it may also include
a drive-through pharmacy. The Company continues to utilize electronic and print
media combined with an extensive in-store
10
<PAGE>
merchandising program. The intent of this strategy is to focus the customer on
the Company's competitive prices, expanded variety and customer service. The
in-store merchandising strategy is based on an integrated store signing program
designed to direct the customer to advertised items, unadvertised specials, 30-
day specials and club pack items merchandised throughout the store in order to
enhance sales to the Company's existing store base. The Company's merchandising
strategy also calls for passing lower prices along to the customer from
reductions in the Company's cost of goods as well as from operating
efficiencies. Finally, the Company continues the use of market research in
order to maintain a better understanding of customer behavior and trends in
certain markets.
Gross profit decreased $0.7 million from $87.9 million, or 23.9% of sales,
in 1995 to $87.2 million, or 23.5% of sales, in 1996. The decrease in gross
profit is attributable to the Company's aggressive pricing strategies in
response to the increase in competitive activity, as well as an increase in the
Company's LIFO provision. The LIFO provision increased $0.1 million, from $0.3
million in 1995 to $0.4 million in 1996.
Marketing, general and administrative expenses ("MG&A") expenses decreased
$2.2 million from $81.8 million, or 22.3% of sales, in 1995 to $79.6 million, or
21.4% of sales, in 1996. The decrease in MG&A expenses is primarily
attributable to reductions in depreciation and amortization expenses due to
certain assets acquired from ASC becoming fully depreciated at the end of the
third quarter 1995, as well as to reductions in employee benefit costs and store
labor expenses. The Company continues to review alternatives to reduce MG&A and
cost of goods expenses in order to provide opportunities to pass additional
savings along to its customers in the form of price reductions in certain
categories.
Operating income increased $1.5 million from $6.1 million, or 1.6% of
sales, in 1995 to $7.6 million, or 2.1% of sales, in 1996. The increase in
operating income reflects the impact of the reduction in MG&A expenses offset by
the decline in gross profit.
Interest expense (net of interest income) increased $0.3 million from $2.5
million, or 0.7% of sales, in 1995 to $2.8 million, or 0.8% of sales, in 1996.
The increase reflects additional long-term debt outstanding. See "--Liquidity
and Capital Resources".
Income taxes decreased $0.3 million from $1.4 million, or 0.4% of sales, in
1995 to $1.1 million, or 0.3% of sales, in 1996. The decrease is attributable
to a reduction in the deferred tax valuation allowance of approximately $0.6
million, or $0.07 per share.
Net income before extraordinary charge increased $1.2 million from $2.4
million, or $0.28 per share, in 1995 to $3.6 million, or $0.42 per share, in
1996. Before giving effect to the change in deferred tax valuation allowance
described in the preceding paragraph, net income before extraordinary charge
increased $0.6 million from $2.4 million, or $0.28 per share, in 1995 to $3.0
million, or $0.35 per share, in 1996.
Extraordinary charges of $0.1 million ($0.1 million, or $0.01 per share, on
an after-tax basis) in 1995 were recorded as a result of the early retirement of
debt. After giving effect to these extraordinary charges, net income increased
$1.3 million from $2.3 million, or $0.27 per share, in 1995 to $3.6 million, or
$0.42 per share ($0.35 per share before giving effect to the change in deferred
tax valuation allowance), in 1996. See "--Liquidity and Capital Resources" and
Notes 4 and 6 of Notes to Consolidated Financial Statements included elsewhere
in this Form 10-K.
53 Weeks Ended February 3, 1996 ("1995") Compared to 52 Weeks Ended January
28, 1995 ("1994")
Sales decreased $14.0 million, or 3.7%, from $382.1 million for 1994 to
$368.1 million for 1995. Fiscal year 1995 was a 53 week year for the Company.
Excluding the sales for the 53rd week, sales decreased $20.3 million, or 5.3%,
from $382.1 million for 1994 to $361.8 million for 1995. The decrease in the 52
week sales comparison is directly attributable to the divestiture of the six
stores in Washington during 1994. Excluding the sales from the Washington
stores in 1994, sales increased, for the 52 week comparison, $10.4 million, or
3.0%, from $351.4 million for 1994 to $361.8 million for 1995. The increase in
sales reflects the additional sales from the Company's new stores in Missoula
and Butte, Montana, partially offset by a 1.0% decline in comparable store
sales. The decline in comparable store sales is attributable to the deflection
of sales to the new Missoula store (the
11
<PAGE>
Company's third store in this market) and to the new Butte store (the Company's
second store in this market), the temporary loss of sales during the remodeling
of the Company's two highest volume stores in Great Falls, Montana, the
Company's strategy to reduce prices, and limited inflation.
On a quarterly basis during the fiscal year, the Company reported the
following 1995 store sales declines versus 1994 (using its modified definition
and excluding sales associated with the 53rd week in 1995):
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
0.5% 2.5% 0.4% 0.5%
Gross profit decreased $3.6 million from $91.5 million, or 23.9% of sales,
in 1994 to $87.9 million, or 23.9% of sales, in 1995. The decrease in gross
profit is attributable to the decrease in sales. As a percentage of sales,
gross profit was equal in both years as the impact of the Company's aggressive
merchandising strategy's was offset by a decrease in the Company's LIFO
provision. The LIFO provision decreased $0.2 million, from $0.5 million in 1994
to $0.3 million in 1995.
MG&A expenses decreased $4.4 million from $86.2 million, or 22.5% of sales,
in 1994 to $81.8 million, or 22.3% of sales, in 1995. The decrease in MG&A
expenses are attributable to the divesting of the Washington stores, increased
labor productivity, and reductions in depreciation expense due to certain assets
acquired from ASC becoming fully depreciated at the end of the third quarter
1995.
Operating income increased $0.9 million from $5.2 million, or 1.4% of
sales, in 1994 to $6.1 million, or 1.6% of sales, in 1995. The increase in
operating income reflects the impact of the reduction in MG&A expenses offset by
the decline in gross profit.
The Company recorded a net gain of $0.3 million before tax on the disposal
of assets during 1995, primarily from the sale of excess land and the Payson
Distribution Center. In 1994, the Company recorded a net gain of $4.0 million
before tax on the disposal of assets, of which $4.2 million is attributable to
the sale of the Company's six stores in Washington.
Interest expense (net of interest income) decreased $1.0 million from $3.5
million, or 0.9% of sales, in 1994 to $2.5 million, or 0.7% of sales, in 1995.
The decrease reflects reductions in both long-term debt and in interest rates.
See "--Liquidity and Capital Resources".
Income taxes decreased $0.8 million from $2.2 million, or 0.6% of sales, in
1994 to $1.4 million, or 0.4% of sales, in 1995.
Net income before extraordinary charge decreased $1.0 million from $3.5
million, or $0.41 per share, in 1994 to $2.4 million, or $0.28 per share, in
1995. Excluding the net gain of $4.2 million attributable to the sale of the
Company's Washington stores, net income before extraordinary charge would have
been $0.9 million, or $0.11 per share, in 1994.
Extraordinary charges of $0.1 million ($0.1 million, or $0.01 per share, on
an after-tax basis) in 1995 and extraordinary charges of $0.2 million ($0.1
million, or $0.01 per share, on an after-tax basis) in 1994 were recorded as a
result of the early retirement of debt. After giving effect to these
extraordinary charges, net income decreased $1.1 million from $3.4 million, or
$0.40 per share, in 1994 to $2.3 million, or $0.27 per share, in 1995. See "--
Liquidity and Capital Resources" and Notes 4 and 6 of Notes to Consolidated
Financial Statements included elsewhere in this Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on its
indebtedness and the funding of the Company's capital expenditure and working
capital requirements. The Company has financed its liquidity needs primarily
using cash flow from operations, lease and debt financing of capital
expenditures, cash provided by certain asset sales, temporary borrowings under
the Company's working capital facility, and the public sale of equity
12
<PAGE>
securities in an initial public offering of Common Stock in February 1992. See
Notes 5 and 6 of Notes to Consolidated Financial Statements included elsewhere
in this Form 10-K.
On September 7, 1995, the Company entered into a new credit facility with
The CIT Group/Business Credit, Inc. ("CITBC") and The CIT Group/Equipment
Financing, Inc. ("CEF") which provides available credit of up to $42.8 million
(the "Financing Agreement"). The new facility includes a $30.0 million
revolving credit facility (with a $10.0 million sublimit for letters of credit)
and includes variable rate term loans totaling $12.8 million, which the Company
used to refinance existing equipment financing loans, resulting in lower
interest rates and extended maturities. The borrowing base under which the
revolving credit facility can be utilized is equal to 65% of Eligible Inventory
(essentially non-perishable inventory). The approximate borrowing base as of
February 1, 1997 was $23.8 million. During the third quarter of 1996, the
Financing Agreement was amended to provide for a third term loan in the amount
of up to $5.0 million ("Term Loan III") which the Company used to finance a
substantial portion of the purchase price related to its June 1996 acquisition
of the Cheyenne, Wyoming store, to increase the flexibility of the covenants
relating to capital expenditures contained therein, and to make other technical
changes. Under the Financing Agreement, interest is determined, at the
Company's option, at a defined prime rate or at the London Interbank Offered
Rate ("LIBOR") for each applicable loan as follows:
<TABLE>
<S> <C>
$30.0 million Revolving Credit Facility prime rate plus 0.50% or LIBOR plus 2.00%
$8.1 million Term Loan I prime rate plus 1.00% or LIBOR plus 2.25%
$4.7 million Term Loan II prime rate plus 1.50% or LIBOR plus 2.65%
$5.0 million Term Loan III prime rate plus 1.50% or LIBOR plus 2.25%
</TABLE>
The Financing Agreement matures five years from inception; however, the
principal portion of Term Loans I and II are amortized on a straight-line basis
over 84 months, and the principal portion of Term Loan III is amortized on a
straight-line basis over 60 months. In the event that the Financing Agreement
is not extended at the end of five years, all three term loans will become due
and payable. The Financing Agreement also provides that the maturity date of
all balances shall become accelerated upon a specified change in control or
ownership in the Company.
Borrowings under the Financing Agreement are secured by the Great Falls
Distribution Center, a retail store location in Butte, Montana, and all of the
personal property of the Company. The Financing Agreement contains certain
financial and operating covenants, including limitations on the amount of the
Company's capital expenditures, its ability to pay dividends, and its ability to
incur additional debt. The Financing Agreement also requires the maintenance of
certain financial ratios and the satisfaction of certain tests which require
escalating levels of performance over time. The Company is currently in
compliance with all such financial ratios and tests. The principal financial
covenants defined in the Financing Agreement, compared to the Company's actual
results for the 52 weeks ended February 1, 1997, are as follows:
<TABLE>
<CAPTION>
ACTUAL TEST
---------------- --------------
<S> <C> <C>
Minimum Net Worth $91.9 Million $72.5 Million
Maximum Capital Expenditures $22.9 Million $26.9 Million
Maximum Net Capital Expenditures $12.3 Million $20.9 Million
Minimum Interest Coverage Ratio 6.23 4.50
</TABLE>
As of February 1, 1997, the Company had borrowings outstanding under the
revolving credit facility of $1.6 million and letter of credit commitments of
$2.6 million. The outstanding balance under Term Loan I was $6.5 million (of
which $1.2 million is classified as current), under Term Loan II was $3.7
million (of which $0.7 million is classified as current), and under Term Loan
III was $4.5 million (of which $1.0 million is classified as current). The
Company's borrowing requirements for working capital are somewhat seasonal,
reflecting increases in inventory in the fourth calendar quarter due to holiday
purchases and, historically, the Company's funding of employee benefit program
contributions in the first calendar quarter of each year. In February 1995,
1996 and
13
<PAGE>
1997, the Company's Board of Directors authorized the Company to contribute in
cash to the Buttrey Company Retirement Estates, the Company's employee
retirement plan (the "Retirement Plan"), a total of $975,000, $1,000,000 and
$1,000,000, respectively, as the Company's annual contribution to the Retirement
Plan for each of 1994, 1995 and 1996. The Company also uses working capital to
fund tax payments. The Company has made estimated tax payments of $2.0 million
towards its regular income tax liability for 1996.
The Company has utilized equipment financing from time to time in order to
finance purchases of store equipment and vehicles. The proceeds from each of
Term Loan I and Term Loan II were used by the Company to repay the remaining
outstanding obligations of all prior equipment financing loans. In addition to
these loans, on September 1, 1995, the Company completed a $1.2 million
financing of new store equipment for the Company's new store in Butte, Montana.
The loan bears interest at LIBOR plus 2.65%, and is payable in equal monthly
installments over four years. On July 26, 1996, the Company completed a $4.0
million loan transaction with NationsBanc Leasing Corporation ("NationsBanc") in
order to finance the purchase of new equipment for the recently completed Great
Falls, Montana remodels and to upgrade the Company's transportation fleet.
Approximately $3.5 million of this loan bears interest at a fixed rate of 8.03%,
while the remaining $0.5 million bears interest at LIBOR plus 2.35%. The loan
is payable in monthly installments over 48 months. On November 4, 1996, the
Company completed an additional loan transaction with NationsBanc in an amount
of approximately $1.6 million, which proceeds were used by the Company to
finance the Lewistown, Montana remodel and to further upgrade the Company's
transportation fleet. The new loan is payable in monthly installments over 48
months and bears interest at LIBOR plus 2.35%. As of February 1, 1997, the
outstanding obligation under these equipment loans aggregated $5.9 million (of
which $1.6 million is classified as current).
The Company has also entered into commitments to finance a portion of its
1997 capital expenditures. The first commitment is with MetLife Capital
Corporation to finance up to $2.0 million of new store equipment. Loans made
pursuant to this commitment will bear interest at the 30 day commercial paper
rate plus 1.80%. The second commitment is with General Electric Capital
Corporation to finance up to $10.0 million of new store equipment. Loans made
pursuant to this commitment will bear interest at LIBOR plus 2.18%.
The Company has entered into a number of capital lease obligations for
store facilities. The Company's total outstanding capital lease obligation as
of February 1, 1997 was $9.4 million (of which $0.4 million is classified as
current). See Note 5 of Notes to Consolidated Financial Statements included
elsewhere in this Form 10-K.
On June 11, 1996, the Company completed the acquisition of one store in
Cheyenne, Wyoming. The purchase price for the new Cheyenne store was $5.2
million for real property, fixtures and equipment, and a non-compete agreement,
plus $0.3 million for inventory.
On September 4, 1996, the Company completed the acquisition of a grocery
store and pharmacy business in Laramie, Wyoming. The combined purchase price
was $0.8 million for fixtures and equipment and non-compete agreements, plus
$0.6 million for inventory. The Company also entered into a lease with the
seller of the business for the real property on which the grocery store was
previously located.
During the 52 weeks ended February 1, 1997, net cash provided by operating
activities was $14.5 million, reflecting noncash charges of $8.8 million in
depreciation expense and $0.3 million in amortization expense during this
period. Net cash provided by operating activities was favorably impacted by an
increase in trade payables of $2.2 million and a decrease in inventories of $0.6
million, partially offset by increases in accounts receivable of $0.4 million
and prepaid expenses of $0.3 million and a decrease in accrued expenses of $0.2
million.
The Company spent an aggregate $22.9 million, $10.0 million and $8.8
million on capital expenditures (primarily for acquisitions, store remodelings
and the ongoing maintenance of its existing store base and support functions),
during 1996, 1995 and 1994, respectively. Of these amounts, the Company has
funded approximately $10.6 million, $1.2 million and $9.2 through equipment and
real estate financings in 1996, 1995 and 1994, respectively. The Company plans
to continue its store remodeling and development program. In 1997, the Company
estimates that it will spend approximately $7.2 million for remodels and for the
ongoing maintenance of its existing store base and support functions. In April
1997, the Company completed the acquisition of a conventional store in Cody,
Wyoming, the Company's first store in this market. The purchase price was $2.4
14
<PAGE>
million for fixtures and equipment and a non-compete agreement, plus $0.3
million for inventory; the Company also entered into a lease with the seller of
the business for the real property on which the grocery store was previously
located. For 1997, capital expenditures by the Company, including the
foregoing, are estimated to be approximately $19.0 million. Additionally, the
Company may expand the number of stores it operates through the selective
acquisition of existing food or drug stores that will complement the Company's
operations.
Based upon the foregoing, and considering current and projected operating
results as well as the current budgeted capital expenditures described above,
the Company believes that it will have sufficient cash available, including
amounts available under the Financing Agreement and cash generated from
operations, and amounts available from lease and mortgage financings, to meet
its liquidity needs for debt service, its capital expenditure program, working
capital and general corporate purposes for the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item will be contained in the
Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28,
1997, to be filed with the Securities and Exchange Commission within 120 days
after February 1, 1997, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be contained in the
Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28,
1997, to be filed with the Securities and Exchange Commission within 120 days
after February 1, 1997, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be contained in the
Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28,
1997, to be filed with the Securities and Exchange Commission within 120 days
after February 1, 1997, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be contained in the
Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28,
1997, to be filed with the Securities and Exchange Commission within 120 days
after February 1, 1997, and is incorporated herein by reference.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) INDEX TO FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
Independent Auditors' Report........................................................ F-1
Consolidated Balance Sheets - February 1, 1997, February 3, 1996 and January 28, F-2
1995................................................................................
Consolidated Statements of Operations - For the Fiscal years ended February 1,
1997, F-3
February 3, 1996 and January 28, 1995...............................................
Consolidated Statements of Stockholders' Equity - For the Fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995............................. F-4
Consolidated Statements of Cash Flows - For the Fiscal years ended February 1, 1997,
February 3, 1996 and January 28, 1995............................................... F-5
Notes to Consolidated Financial Statements.......................................... F-6
</TABLE>
(a)(1) INDEX TO FINANCIAL STATEMENT SCHEDULES:
None.
(A)(2) EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
NUMBER
------
3.1++ Certificate of Incorporation of the Company, as amended and
currently in effect.
3.2+ Bylaws of the Company, as amended to date.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
- ---------------------------------------------
10.1+ 1990 Employee Stock Subscription Plan of the Company, dated
as of October 17, 1990 ("Subscription Plan").
10.2+ Form of Stock Subscription Agreement by and among the
Company, FSEP and three management investors who purchased
Common Stock under the Subscription Plan, dated as of
October 17, 1990 (with forms of Secured Promissory Note and
Stock Pledge Agreement attached as exhibits thereto).
10.3+ Form of Stock Subscription Agreement by and among the
Company, FSEP and management investors who purchased Common
Stock under the Subscription Plan with cash and promissory
note, dated as of October 17, 1990 (with forms of Secured
Promissory Note and Stock Pledge Agreement attached as
exhibits thereto).
10.4+ Form of Stock Subscription Agreement by and among the
Company, FSEP and management investors who purchased Common
Stock under the Subscription Plan with cash only, dated as
of October 17, 1990 (with form of Stock Pledge Agreement
attached as an exhibit thereto).
10.5+ 1990 Nonqualified Performance Stock Option Plan of the
Company, dated as of October 17, 1990 ("Option Plan").
10.6+ Form of Nonqualified Performance Stock Option Agreement by
and between the Company and certain Participants under the
Option Plan, dated as of November 8, 1990.
17
<PAGE>
EXHIBIT DESCRIPTION
------- -----------
NUMBER
------
10.7+ Form of Indemnity Agreement dated as of October 31, 1990
made by and between the Company and Buttrey Food and Drug
Company ("BFDC"), on the one hand, and each of the members
of the Board of Directors of the Company and of BFDC, on the
other hand.
10.8+ Stock Subscription Agreement made and entered into as of
October 17, 1990 by and among the Company, FSEP and Peter J.
Sodini.
10.9+ Employment Agreement dated as of October 31, 1990 entered
into among the Company, BFDC and Edward C. Agnew.
10.10+ Letter Agreement dated as of October 17, 1990 by and between
the Company and Edward C. Agnew.
10.11+ Form of Severance Agreement dated as of October 31, 1990
entered into among the Company, BFDC and certain executives
of the Company.
10.12+ Consulting Agreement made and entered into as of July 1,
1991 by and between BFDC and Peter J. Sodini ("Sodini
Consulting Agreement").
10.13+++ 1990 Nonqualified Performance Stock Option Plan of the
Company, as amended and restated as of July 21, 1992
("Option Plan").
10.14+++ Form of Amendment to Nonqualified Performance Stock Option
Agreement by and between the Company and certain
participants under the Option Plan.
10.15***** Extension and Modification to Consulting Agreement dated
April 29, 1993 by and between the Company and Peter J.
Sodini.
10.16* Employment Agreement dated as of March 1, 1993 entered into
among the Company, BFDC and Joseph H. Fernandez ("Fernandez
Employment Agreement").
10.17* Nonqualified Stock Option Agreement entered into as of March
1, 1993 by and between the Company and Joseph H. Fernandez.
10.18* Letter Agreement dated March 1, 1993 by and between BFDC and
Joseph H. Fernandez.
10.19*** Forms of Letter Amendment to Stock Subscription Agreements
in connection with refinancing of Secured Promissory Notes
by and between the Company and certain participants under
the Subscription Plan.
10.20*** Form of Letter Agreement regarding Execution of New
Promissory Notes in connection with refinancing of Secured
Promissory Notes by and between the Company and certain
participants under the Subscription Plan.
10.21***** Extension to Sodini Consulting Agreement dated October 28,
1993.
10.22***** Continuing Employment and Severance Agreement dated January
28, 1994 by and between the Company and Edward C. Agnew.
10.23***** Nonqualified Stock Option Agreement entered into as of
February 23, 1994 by and between the Company and Joseph H.
Fernandez.
10.24++++++++ 1995 Option Plan of the Company, dated as of April 24, 1995
("1995 Option Plan").
10.25++++++++ Form of Nonqualified Stock Option Agreement entered into by
and between the Company and certain Participants under the
1995 Option Plan, dated as of April 25, 1995.
10.26++++++++ Form of Incentive Stock Option Agreement for certain
Participants under the 1995 Option Plan.
10.27++++++++ Amendment dated March 10, 1995 to Fernandez Employment
Agreement.
10.28__ Extension to Sodini Consulting Agreement dated November 20,
1995.
10.29__ Consulting Agreement and Release dated May 23, 1995 by and
between the Company and H.N. Dusenberry.
10.30 Amendment dated April 24, 1995 to Fernandez Employment
Agreement.
10.31 Amendment dated August 29, 1996 to Fernandez Employment
Agreement.
10.32 Letter Agreement dated April 7, 1997 by and among the
Company, FSEP and Joseph H. Fernandez.
10.33 Secured Promissory Note made by Joseph H. Fernandez in favor
of the Company dated April 7, 1997.
10.34 Promissory Note made by Joseph H. Fernandez in favor of the
Company dated April 7, 1997.
10.35 Extension and Modification to Sodini Consulting Agreement
dated November 25, 1996.
18
<PAGE>
EXHIBIT DESCRIPTION
------- -----------
NUMBER
------
10.36 1996 Non-Employee Directors Stock Option Plan of the
Company, dated as of April 26, 1996 (the "1996 Directors
Plan").
10.37 Form of Nonqualified Stock Option Agreement entered into by
and between the Company and certain directors under the 1996
Directors Plan.
OTHER MATERIAL CONTRACTS
- -------------
10.38+ Asset Purchase Agreement made as of the 15th day of August
1990 by and between Skaggs Alpha Beta, Inc.
10.39+ Noncompetition Agreement made as of October 31, 1990 by and
between BFDC, American Stores Company ("ASC") and Skaggs.
10.40+ Supply Agreement made as of the 31st day of October, 1990 by
and between ASC and BFDC.
10.41++++ Amended and Restated Credit Agreement dated as of April 28,
1992 by and among the Company, BFDC, Bankers Trust Company
as Agent, and the various Lenders listed therein.
10.42+ Company Security Agreement dated as of October 31, 1990 made
by BFDC to Bankers Trust Company.
10.43+ Environmental Indemnity entered into as of October 31, 1990
by ASC and Skaggs to and for the benefit of the Company and
BFDC.
10.44+ Loan Commitment made as of the 31st day of October, 1990 by
Skaggs in favor of BFDC.
10.45+ Promissory Note executed by BFDC in favor of Skaggs, in the
amount of $2,800,000, dated as of October 31, 1991.
10.46+ Securities Purchase Agreement dated as of October 31, 1990
among the Company, BFDC and each of the Purchasers listed
therein.
10.47+ Form of Common Stock Purchase Warrant, dated as of October
31, 1990, issued to each of the Purchasers pursuant to the
Securities Purchase Agreement.
10.48+ Equity Rights Agreement dated as of October 31, 1990 among
the Company, FSEP and the Purchasers.
10.49+ Environmental Indemnity entered into as of October 31, 1990
by BFDC to and for the benefit of the Purchasers.
10.50+ Stock Subscription Agreement made and entered into as of
October 31, 1990 by and among the Company, FSEP and Bankers
Trust New York Corporation.
10.51+ Stock Subscription Agreement made and entered into as of
October 31, 1990 by and among the Company, FSEP and Morgan
Capital Corporation.
10.52+ Stock Subscription Agreement made and entered into as of
October 31, 1990 by and among the Company, FSEP and Buttrey
Investors L.P.
10.53+ Loan and Security Agreement dated as of August 23, 1991
entered into by and between BFDC and The CIT Group/Equipment
Financing, Inc.
10.54+++ First Amendment to Loan and Security Agreement entered into
by and between the Company and the CIT Group/Equipment
Financing, Inc. dated as of August 6, 1992.
10.55** Second Amendment dated as of May 10, 1993 to Loan and
Security Agreement dated as of August 23, 1991 by and
between the Company and the CIT Group/Equipment Financing,
Inc.
10.56**** First Amendment dated as of August 27, 1993 to Amended and
Restated Credit Agreement dated as of April 28, 1992 by and
among the Company, Bankers Trust Company as Agent and the
various Lenders listed therein.
10.57***** Letter dated as of December 3, 1993 relating to Loan and
Security Agreement dated as of August 23, 1991 and amended
as of May 10, 1993 by and between the Company and The CIT
Group/Equipment Financing, Inc.
19
<PAGE>
EXHIBIT DESCRIPTION
------- -----------
NUMBER
------
10.58***** Second Amendment dated as of April 22, 1994 to Amended and
Restated Credit Agreement dated as of April 28, 1992 by and
among the Company, Bankers Trust Company as Agent and the
various Lenders listed therein.
10.59++ Loan Agreement made the 5th day of July, 1994 by and between
BFDC and TriCon Capital.
10.60++ Security Agreement made the 5th day of July, 1994 by and
between BFDC and TriCon Capital.
10.61++ Guaranty dated July 5, 1994 made by BFDC, as Guarantor, in
favor of TriCon Capital.
10.62++++ Asset Purchase Agreement dated August 15, 1995 by and among
the Company, BFDC, Thrifty Foods of Eastern Washington, Inc.
("Thrifty") and Associated Grocers, Incorporated ("AGI").
10.63++++ Asset Purchase Agreement dated August 15, 1994 by and among
the Company, BFDC and AGI.
10.64++++ Real Estate Purchase and Sale Agreement dated August 15,
1994 by and among BFDC, Supermarket Development Corporation
("SDC") and AGI, concerning real property located in
Richland, Washington.
10.65++++ Real Estate Purchase and Sale Agreement dated August 15,
1994 by and among BFDC, SDC and AGI, concerning real
property located in Kennewick, Washington.
10.66++++++ Wholesale Supply Agreement made and entered into as of
November 15, 1994 by and between Associated Food Stores,
Inc. and BFDC.
10.67++++++ Agreement of Purchase and Sale made and entered into as of
November 15, 1994 by and between BFDC and Associated Food
Stores, Inc.
10.68++++++++ Third Amendment dated as of December 12, 1994 to Loan and
Security Agreement dated as of August 23, 1991 and amended
as of May 10, 1993 by and between the Company and The CIT
Group/ Equipment Financing, Inc.
10.69_ Note and Security Agreement made the 8th day of August, 1995
by and between BFDC and NationsBanc Leasing Corporation.
10.70_ Guaranty dated August 14, 1995 made by BFDC, as Guarantor,
in favor of NationsBanc Leasing Corporation.
10.71_ Financing Agreement made the 7th day of September, 1995 by
and between BFDC and The CIT Group/Business Credit, Inc. and
The CIT Group/Equipment Financing, Inc.
10.72_ Guaranty dated September 7, 1995 made by the Company, as
Guarantor, in favor of The CIT Group/Business Credit, Inc.
as Agent.
10.73___ Letter Amendment dated August 5, 1996 to Financing Agreement
dated September 7, 1995 by and among the Company, CITBC and
CEF.
22.1+ Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
________________
+ Filed as an exhibit to the Company's Registration Statement on Form S-
1 (Registration No. 33-44646) on December 20, 1991.
++ Filed as an exhibit to the Company's Registration Statement on Form 8-
A (File No. 0-19802) on January 16, 1992.
+++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 1, 1992 (File No. 0-19802) on
September 15, 1992.
++++ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended February 1, 1992 (File No. 0-19802) on May 18,
1992.
* Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993 (File No. 0-19802) on April 30,
1993.
** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1993 (File No. 0-19802) on June 15,
1993.
20
<PAGE>
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 1993 (File No. 0-19802) on September
14, 1993.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 30, 1993 (File No. 0-19802) on
December 14, 1993.
***** Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 29, 1994 (File No. 0-19802) on April 29,
1994.
++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 30, 1994 (File No. 0-19802) on September
12, 1994.
++++ Filed as an exhibit to the Company's Current Report on Form 8-K (File
No. 0-19802) on August 30, 1994.
++++++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 29, 1994 (File No. 0-19802) on
December 12, 1994. Certain portions of Exhibit 10.58 have been
omitted from the copies filed as part of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended October 29, 1994 and
are the subject of an order granting confidential treatment with
respect thereto.
++++++++ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 28, 1995 (File No. 0-19802) on April 28,
1995.
_ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 29, 1995 (File No. 0-19802) on September
12, 1995.
__ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended February 3, 1996 (File No. 0-19802) on May 3,
1997.
___ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 3, 1996 (File No. 0-19802) on
September 17, 1996.
(B) REPORTS ON FORM 8-K
None.
21
<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.
Date: May 1, 1997 Buttrey Food and Drug Stores Company
By: /s/ Joseph H. Fernandez
------------------------------------
Joseph H. Fernandez
Chairman of the Board, President
and Chief Executive Officer
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Joseph H. Fernandez Chairman of the Board, President May 1, 1997
- ----------------------------- and Chief Executive Officer
Joseph H. Fernandez (Principal Executive Officer)
/s/ Wayne S. Peterson Senior Vice President, Chief May 1, 1997
- ----------------------------- Financial Officer and Secretary (Principal
Wayne S. Peterson Financial Accounting Officer)
/s/ Matt L. Figel Director May 1, 1997
- -----------------------------
Matt L. Figel
/s/ Robert P. Gannon Director May 1, 1997
- -----------------------------
Robert P. Gannon
/s/ Michael P. Malone Director May 1, 1997
- -----------------------------
Michael P. Malone
/s/ J. Frederick Simmons Director May 1, 1997
- -----------------------------
J. Frederick Simmons
/s/ Peter J. Sodini Director May 1, 1997
- -----------------------------
Peter J. Sodini
/s/ Ronald P. Spogli Director May 1, 1997
- -----------------------------
Ronald P. Spogli
/s/ William M. Wardlaw Director May 1, 1997
- -----------------------------
William M. Wardlaw
/s/ Thomas C. Young Director May 1, 1997
- -----------------------------
Thomas C. Young
</TABLE>
22
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Buttrey Food and Drug Stores Company:
We have audited the accompanying consolidated balance sheets of Buttrey Food and
Drug Stores Company and subsidiary as of February 1, 1997, February 3, 1996 and
January 28, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the fiscal years in the three-
year period ended February 1, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Buttrey Food and
Drug Stores Company and subsidiary at February 1, 1997, February 3, 1996 and
January 28, 1995, and the results of their operations and their cash flows for
each of the fiscal years in the three-year period ended February 1, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Billings, Montana
April 11, 1997
- --------------------------------------------------------------------------------
F-1
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(Amounts in Thousands, Except Share Data)
- ---------------------------------------------------------------------------------------------------------
February 1, February 3, January 28,
Fiscal year end, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,075 6,140 16,765
Accounts receivable 4,905 4,488 3,573
Inventories 42,741 43,304 48,710
Prepaid expenses 1,514 1,230 1,360
Deferred tax asset 544 1,271 2,863
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 54,779 56,433 73,271
Property and equipment, at cost 152,900 130,174 125,803
Less accumulated depreciation 54,417 45,765 37,695
- ---------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 98,483 84,409 88,108
Intangible assets, net 4,145 3,259 3,543
Other assets 591 530 458
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $157,998 144,631 165,380
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 6,128 2,205 6,565
Current obligations under capital leases 428 379 334
Accounts payable 18,561 16,345 19,575
Accrued payroll and benefits 7,552 7,530 7,119
Accrued expenses and reserves 4,869 5,106 4,996
Accrued interest payable 131 111 460
Notes payable - 20 78
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 37,669 31,696 39,127
Obligations retired - - 10,889
Long-term debt 18,569 13,510 16,271
Obligations under capital leases 8,957 9,385 9,766
Deferred tax liability 905 1,735 3,359
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 66,100 56,326 79,412
Commitments and contingencies
Stockholders' equity:
Preferred stock $.01 par value, authorized 1,000,000 shares - - -
Common stock $.01 par value, authorized 15,000,000 shares;
issued and outstanding 8,639,056 shares at the end of
fiscal 1996, 1995 and 1994 86 86 86
Paid-in capital 79,133 79,133 79,133
Retained earnings 13,079 9,486 7,187
- ---------------------------------------------------------------------------------------------------------
92,298 88,705 86,406
Less stock subscriptions receivable 400 400 438
- ---------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 91,898 88,305 85,968
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $157,998 144,631 165,380
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
February 1, February 3, January 28,
Fiscal year ended, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $ 371,302 368,135 382,123
Cost of sales and related occupancy expenses 284,134 280,242 290,670
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 87,168 87,893 91,453
Marketing, general, and administrative expenses 79,609 81,830 86,248
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 7,559 6,063 5,205
Other income (expense):
Gain (loss) on disposal of assets (50) 251 3,984
Interest income 132 320 419
Interest expense (2,909) (2,865) (3,917)
---------------------------------------------------------------------------------------------------------------------------------
(2,827) (2,294) 486
Income before income taxes
and extraordinary charge 4,732 3,769 5,691
Income tax expense 1,139 1,419 2,161
- ----------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary charge 3,593 2,350 3,530
Extraordinary charge, net of income tax benefit -- (51) (127)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,593 2,299 3,403
==================================================================================================================================
Income per share before extraordinary item $ .42 .28 .41
Extraordinary charge per share -- (.01) (.01)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share $ .42 .27 .40
==================================================================================================================================
Weighted average common and common
equivalent shares outstanding 8,638,754 8,602,915 8,529,810
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
(Amounts in Thousands, Except Share Data)
- -----------------------------------------------------------------------------------------------------------------
Stock
Common Paid-in Retained subscriptions Stockholders'
stock capital earnings receivable equity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 29, 1994 $84 78,035 3,784 (476) 81,427
Issuance of 212,048 shares of common
stock to profit sharing plan 2 1,098 - - 1,100
Payments on stock subscriptions - - - 38 38
Net income - - 3,403 - 3,403
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 28, 1995 86 79,133 7,187 (438) 85,968
- -----------------------------------------------------------------------------------------------------------------
Payments on stock subscriptions - - - 38 38
Net income - - 2,299 - 2,299
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 3, 1996 86 79,133 9,486 (400) 88,305
- -----------------------------------------------------------------------------------------------------------------
Net income - - 3,593 - 3,593
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 1, 1997 $86 79,133 13,079 (400) 91,898
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------
(Amounts In Thousands)
- ---------------------------------------------------------------------------------------------------------
February 1, February 3, January 28,
Fiscal year ended, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,593 2,299 3,403
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 8,755 10,532 11,548
Amortization 300 289 369
Deferred income taxes (103) (32) 259
Extraordinary charge on debt retirement - 85 212
Loss (gain) on sale of property and equipment 50 (251) (3,984)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (417) (915) 242
Decrease in inventories 563 5,406 13,844
Decrease (increase) in prepaid expenses (284) 130 81
Increase (decrease) in accounts payable 2,216 (3,230) (7,353)
Increase (decrease) in accrued payroll and benefits 22 411 (2,097)
Increase (decrease) in accrued expenses and reserves (237) 220 (1,506)
Increase (decrease) in accrued interest payable 20 (349) 28
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,478 14,595 15,046
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property and equipment (22,929) (10,072) (8,777)
Proceeds from sales of property and equipment, net 50 3,490 11,358
Increase in intangible and other assets (1,247) (272) (513)
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (24,126) (6,854) 2,068
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - - 1,100
Collections on stock subscriptions receivable - 38 38
Payments on long-term debt (3,201) (32,034) (17,857)
Proceeds from issuance of long-term debt 12,183 14,024 9,158
Payments on capital lease obligations (379) (336) (299)
Payments on notes payable (20) (58) (53)
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 8,583 (18,366) (7,913)
- ---------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,065) (10,625) 9,201
Cash and cash equivalents at beginning of period 6,140 16,765 7,564
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,075 6,140 16,765
=========================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,720 3,235 4,065
Income taxes 1,971 1,479 1,568
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Amounts In Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND ORGANIZATION. Buttrey Food and Drug Stores
Company (the "Company"), through its wholly-owned subsidiary Buttrey Food
and Drug Company, commenced operations October 31, 1990 after the purchase
of substantially all of the assets of the Buttrey division ("Predecessor
Division") of Skaggs Alpha Beta, Inc. ("SAB"), an indirect wholly-owned
subsidiary of American Stores Company ("ASC").
As of February 1, 1997, the Company operated 42 retail food and drug stores
in three states in the northwest United States. Thirty-one of these stores
are located in 21 communities throughout the state of Montana.
FISCAL YEAR END. The Company's fiscal year ends on the Saturday nearest to
January 31 in each year. Unless otherwise noted, reference to a fiscal year
refers to the calendar year in which such fiscal year commences. Fiscal
year 1995 includes 53 weeks whereas fiscal 1996 and 1994 include 52 weeks
each.
CASH EQUIVALENTS. For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is determined using the last-in, first-out method for substantially all
inventories.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Property and equipment under capital leases are recorded at the present
value of minimum lease payments at the inception of the lease.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Property and
equipment held under capital leases and leasehold improvements are
amortized straight-line over the shorter of the lease term or estimated
useful life of the asset. The depreciable lives are primarily 25 to 40
years for buildings, 4 to 10 years for machinery, equipment and fixtures
and generally 5 to 30 years for leasehold improvements and property under
capital leases, depending on the term of the lease. Amortization of assets
under capital leases is included with depreciation expense.
REVENUE. The Company's revenue is received primarily from merchandise sold
through its Company-owned retail stores. The costs of distribution center
operations are included in cost of sales and related occupancy expenses.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the
estimated future consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. the current and noncurrent portions of these deferred
tax assets and liabilities are classified in the balance sheet based on the
respective classification of the assets and liabilities which give rise to
such deferred taxes. the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
STORE OPENING AND CLOSING COSTS. Noncapital expenditures incurred in
opening new stores or remodeling existing stores are expensed in the year
in which the stores are opened. When a store is closed, the remaining
investment in fixtures and leasehold improvements, net of expected salvage,
is expensed. The company also expenses the present value of any remaining
liability for a closed store lease, net of expected sublease recoveries.
AMORTIZATION. The excess of acquisition cost over net assets acquired
("Goodwill") is being amortized on a straight-line basis over forty years.
The costs of all other intangible assets are amortized on a straight-line
basis over their respective estimated economic lives ranging from three to
five years.
DEBT ISSUANCE COSTS. Debt issuance costs are being amortized using the
interest method over the estimated life of the related debt as a component
of interest expense. Upon prepayment of principal amounts, the related
unamortized debt issuance costs are written off as an additional component
of interest expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments
consist primarily of cash equivalents and short-term trade receivables and
payables which carrying amounts approximate fair value. See Note 6 for fair
value disclosures of long-term debt.
F-6
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
- --------------------------------------------------------------------------------
(Amounts In Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
SELF-INSURANCE ACCRUALS. The Company is self-insured with respect to non-
union employee medical and disability claims up to specified limits per
claim. The expenses associated with self-insured claims are provided based
on estimated amounts required to cover incurred claims. An accrual
aggregating $593 is included in "accrued payroll and benefits" to provide
for unsettled and estimated incurred but unreported claims.
The Company also maintains insurance coverage with respect to workers
compensation risks under contractual arrangements which retroactively
adjust insurance premiums for claims paid subject to specified limitations.
PER SHARE DATA. Net income per share is computed by dividing net income by
the weighted average number of common shares outstanding excluding common
stock subscribed and including the dilutive common stock equivalents of
stock subscriptions, options and warrants outstanding determined using the
treasury stock method.
USE OF ESTIMATES. Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long Lived
Assets and for Long-Lived Assets to be Disposed Of, on February 4, 1996.
This statement requires that long-lived assets and certain intangible
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment of these assets is determined by a comparison of
the carrying amount of an asset to its undiscounted future net cash flows.
If such assets are determined to be impaired, an impairment loss is
recognized to the extent the carrying amount of the assets exceeds the fair
value of the assets. Long-lived assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. Adoption
of this statement did not have a material impact on the Company's
consolidated financial position or results of operations.
STOCK BASED COMPENSATION. Prior to February 4, 1996, the Company accounted
for its stock option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense would
be recorded over the related service period if the current market price of
the underlying stock exceeded the option exercise price at the date of
grant. On February 3, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards to
employees determined on the date of Grant. Alternatively, SFAS No. 123
allows the Company to continue to apply the accounting provisions of APB
Opinion No. 25 and provide pro forma net income and income per share
disclosures for employee stock option grants commencing in fiscal 1995 and
for future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the
accounting provisions of APB Opinion No. 25 and provide the pro forma
disclosures (see Note 9).
(2) INVENTORIES
Substantially all of the Company's inventories are valued using the last-
in, first-out method ("LIFO"). If the first-in, first-out method had been
used, inventories would have been $1,349 lower at February 1, 1997. This
difference results from the higher costs of inventory in place at the
acquisition date (versus the lower costs of inventory acquired direct from
suppliers) less the effects of increasing prices thereafter. The Company
recorded a net LIFO provision of $362, $320 and $540 for fiscal 1996, 1995
and 1994, respectively. During the last three fiscal years, the Company
liquidated certain LIFO inventories that were carried at the higher
acquisition cost. The effect of these liquidations was to decrease
operating income by $47, or $.01 per share in fiscal 1996, $112, or $.01
per share in fiscal 1995 and $550, or $.06 per share in fiscal 1994. Gain
on sale of assets in fiscal 1995 and 1994 includes a reduction of $565 and
$612, respectively for the effects of such liquidations related to
inventories included in asset sales.
F-7
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year end, 1997 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 13,244 12,400 13,001
Buildings and improvements 48,353 39,337 40,215
Assets under capital leases 11,133 11,133 11,133
Furniture and equipment 68,115 59,424 56,542
Leasehold improvements 5,876 5,499 4,798
Construction in progress 6,179 2,381 114
--------------------------------------------------------------------------------------------
Property and equipment, at cost $152,900 130,174 125,803
============================================================================================
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year end, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt issuance costs $ 178 228 176
Goodwill 2,968 2,950 3,148
Organization costs - - 108
Non-compete agreements 936 - -
Other 63 81 111
- ------------------------------------------------------------------------------------------
Intangible assets, net $4,145 3,259 3,543
==========================================================================================
</TABLE>
Accumulated amortization on intangible assets not fully amortized was $806, $505
and $1,598 at fiscal year end 1996, 1995 and 1994, respectively.
As a result of early retirements of debt, the Company recorded extraordinary
charges of $85 and $212 during fiscal 1995 and 1994, respectively, for the
write-off of unamortized debt issuance costs and redemption premiums incurred.
(5) LEASES
The Company is obligated under capital leases for certain retail stores that
expire at various dates during 1998 to 2017. The gross amount of property and
related accumulated amortization recorded under capital leases are as follows:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year end, 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buildings and improvements $11,133 11,133 11,133
Less accumulated amortization 3,597 2,931 2,265
--------------------------------------------------------------------------------------
Assets under capital leases, net $ 7,536 8,202 8,868
======================================================================================
</TABLE>
The Company also has several noncancelable operating leases, primarily for
retail stores, that expire over the next ten years. These leases generally
contain multiple renewal periods ranging from five to twenty years and require
the Company to pay all executory costs such as maintenance and insurance. Rent
expense for operating leases consists of the following:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year ended, 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $1,863 1,734 1,627
Contingent rentals 267 271 302
Sublease rentals (877) (741) (750)
-------------------------------------------------------------------------------------
Rent expense for operating leases, net $1,253 1,264 1,179
=====================================================================================
</TABLE>
F-8
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and the present
value of future minimum capital lease payments as of February 1, 1997 are
as follows:
<TABLE>
<CAPTION>
Operating Capital
leases leases
------------------------------------------------------------------------------------------------
<S> <C> <C>
Fiscal year:
1997 $ 1,965 1,372
1998 1,830 1,421
1999 1,392 1,266
2000 1,023 1,266
2001 871 1,266
Later years, through 2017 2,961 13,984
-------------------------------------------------------------------------------------------------
Total minimum lease payments $10,042 20,575
-------------------------------------------------------------------------------------------------
Less amount representing interest (at rates from 9.5% to 14.5%) 11,190
-------------------------------------------------------------------------------------------------
Present value of net minimum capital lease payments 9,385
Less current installments of obligations under capital leases 428
-------------------------------------------------------------------------------------------------
Obligations under capital leases, excluding current installments $ 8,957
=================================================================================================
</TABLE>
(6) LONG-TERM DEBT
LONG-TERM DEBT CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year end, 1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings under Financing Agreement:
Equipment note; monthly payments of $96 plus
interest at either Chemical Bank prime plus
1.0% or the London interbank offered rate
("LIBOR") plus 2.25% $6,460 7,618 -
Equipment note; monthly payments of $56 plus
interest at either Chemical Bank prime plus
1.5% or LIBOR plus 2.65% 3,749 4,420 -
Equipment note; monthly payments of $83 plus
interest at either Chemical Bank prime plus
1.5% or LIBOR plus 2.65% 4,500 - -
Revolving credit facility; monthly interest
payments at either Chemical Bank prime plus .5%
or LIBOR plus 2% 1,600 - -
10.05% seller financing, semi-annual payments of $164,
including interest, maturing October 2001 2,510 2,580 2,643
Equipment note, monthly payments of $26 plus interest
at LIBOR plus 2.65%, maturing August 1999 791 1,097 -
8.03% equipment note, monthly payments of $84,
including interest, maturing June 2000 3,086 - -
Equipment note, variable monthly payments plus interest
at LIBOR plus 2.35%, maturing June 2000 446 - -
</TABLE>
F-9
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year end, 1997 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment note, monthly payments of $34 plus interest
at LIBOR plus 2.35%, maturing October 2000 $ 1,555 - -
7.45% equipment note, repaid during 1995 - - 1,434
Borrowings under Restated Credit Agreement, repaid
during 1995 - - 17,394
Variable rate equipment notes, repaid during 1995 - - 12,254
-------------------------------------------------------------------------------------------------
24,697 15,715 33,725
Obligations retired - - 10,889
-------------------------------------------------------------------------------------------------
24,697 15,715 22,836
Less current installments 6,128 2,205 6,565
-------------------------------------------------------------------------------------------------
Long-term debt, excluding current installments $18,569 13,510 16,271
=================================================================================================
</TABLE>
In April 1992, the Company entered into an amended and restated credit
agreement ("Restated Credit Agreement") with various banks. The $57,200
credit agreement included a senior term loan and a revolving credit
commitment. Advances under the commitments accrued interest through
maturity at the prime rate plus 0.5%, or at the adjusted Eurodollar rate
plus 1.5%. The Restated Credit Agreement provided for a $15,000 revolving
working capital loan commitment which included a $6,000 letter of credit
facility
In September 1995, the Company entered into a five-year credit facility
which, as amended, currently provides credit of up to $47.8 million (the
"Financing Agreement"). The Financing Agreement includes a $30.0 million
revolving credit facility and variable rate term loans totaling $17.8
million which were used to refinance existing equipment notes. The
revolving credit facility includes a $10,000 letter of credit sub-facility.
The maximum borrowing base under the revolving credit facility is equal to
65% of eligible inventory (essentially non-perishable inventory). The
borrowing base as of February 1, 1997 is approximately $23,800.
The revolving credit facility requires an annual commitment fee of .0375%
on the undrawn amount. The letter of credit sub-facility requires a 1.25%
fee on the notional amount of letters of credit issued. For all borrowings
under the Financing Agreement, the Company may elect at various dates to
accrue interest at either floating Chemical Bank prime or a LIBOR based
fixed rate for periods up to six months. At February 1, 1997, Chemical
Bank prime and 30-day libor are 8.25% and 5.47%, respectively.
Unless the Financing Agreement is extended, all related borrowings mature
September 2000. The variable rate term loans are subject to mandatory
prepayment provisions which are based on surplus cash balances as defined.
In addition, the maturity date of all Financing Agreement borrowings is
accelerated upon a specified change in control or ownership. Borrowings
under the Financing Agreement are secured by the Company's principal
distribution center, a retail store location in Butte, Montana and all of
the personal property of the Company.
The Financing Agreement also allows the financing of a specified amount of
store premises and equipment under separate borrowing facilities. At
February 1, 1997, the Company has additional borrowings of $5,878 from a
specific lender that was used to finance store equipment.
There were borrowings of $1,600, $0 and $0 on the revolving credit facility
as of February 1, 1997, February 3, 1996 and January 28, 1995,
respectively. The weighted-average revolving credit amount outstanding for
fiscal 1996, 1995 and 1994 was $858, $343 and $221, respectively. Letters
of credit outstanding under the sub-facility were $2,600, $3,150 and $1,850
at February 1, 1997, February 3, 1996 and January 28, 1995, respectively.
In October 1991, the Company borrowed $2,800 from ASC under an acquisition
related arrangement. The borrowing is secured by the Company's lease of a
property owned by SAB which is currently pending remediation of certain
environmental issues (see Note 13).
F-10
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FIINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
The various credit agreements contain certain restrictive financial
covenants regarding the maintenance of specified levels of cash flow and
net worth which levels increase over time, and among other restrictions,
limit additional borrowings and capital expenditures, and provide for the
consent of lenders prior to payment of dividends to stockholders.
In August 1994, the Company completed the sale of its six Washington stores
for approximately $17.6 million (approximately $12.8 million for property,
equipment and other assets and $4.8 million for inventory). The Company
used approximately $9.1 million and $0.3 million of the proceeds to retire
obligations under its then existing term loan and capital financing
facilities, respectively. The amounts to be retired were excluded from
long-term debt at january 28, 1995 and classified as obligations retired.
In connection with the early retirement of debt, the Company recorded in
fiscal 1994 an extraordinary charge of $212 ($127, or $.01 per share, on an
after-tax basis) reflecting a non-cash write-off of unamortized debt
issuance costs.
In November 1994, the Company entered into an agreement to sell its Payson,
Utah distribution center to Associated Food Stores, Inc. ("Associated").
On April 17, 1995, the Company completed the sale and received proceeds
totaling $8.8 million ($3.5 million for property and equipment and $5.3
million for inventory). The Company used approximately $7.3 million of
these proceeds to retire debt obligations. In connection with the early
retirement of debt, the Company recorded in fiscal 1995 an extraordinary
charge of $85 ($51, or $.01 per share, on an after-tax basis) reflecting a
non-cash write-off of unamortized debt issuance costs.
The aggregate contractual maturities of long-term debt for periods
subsequent to February 1, 1997 are as follows:
<TABLE>
<CAPTION>
Fiscal year:
------------------------------------------
<S> <C>
1997 $ 6,128
1998 4,611
1999 4,575
2000 3,837
2001 4,479
Thereafter 1,067
------------------------------------------
$24,697
==========================================
</TABLE>
Based on borrowing rates currently available to the Company for borrowings
with similar terms and average maturities, the carrying value of long-term
debt at fiscal year end 1996, 1995 and 1994 approximates fair value.
(7) STOCKHOLDERS' EQUITY
The Company approved the issuance of shares of common stock valued at
$1,100 for its fiscal 1993 contribution under the defined contribution
profit-sharing plan (see Note 11). The 212,048 shares issued in July 1994
was based on the average of the high and low prices of the stock as
reported on the NASDAQ National Market on June 21, 1994.
(8) STOCK WARRANTS
The Company has warrants outstanding which allow holders to acquire 53,151
shares of common stock for $6.60 per share and expire in October 31, 2000.
(9) STOCK OPTIONS
Effective November 1, 1990, the Company adopted its 1990 Nonqualified
Performance Stock Option Plan ("1990 Option Plan") which, as amended,
provides for options to acquire up to 451,500 shares of common stock. As
amended, all options granted under the 1990 Option Plan vest and become
exercisable, either in full or in specified percentage increments (as set
forth in the 1990 Option Plan), upon the determination by the Compensation
Committee that the aggregate operating cash flow and the total net cash
flow from operations of the Company reach specified levels. However, even
if the minimum specified levels are not met, the options will automatically
vest and become exercisable as of October 5, 2000. At February 1, 1997,
there are options outstanding to acquire 190,578 shares of common stock at
a weighted-average exercise price of $6.80 under this plan The Compensation
Committee may, in its sole discretion, elect to accelerate the vesting of
all or any portion of any option.
F-11
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FIINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
(Amounts In Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
During 1993, the Company adopted the 1993 Special Stock Option Plan
("Special Plan"), and granted options which allow holders to acquire up to
22,456 shares of common stock. During 1994, the Company granted additional
options under the Special Plan for holders to acquire up to 15,000 shares
of Common Stock. All special plan options are granted with an exercise
price equal to the fair market value of the Company's common stock at the
date of grant and vest and became exercisable in equal installments through
February 1996.
Effective April 25, 1995, the Company adopted its 1995 Stock Option Plan
("1995 option plan") which provides for the issuance of either non-
qualified or incentive stock options allowing holders to acquire up to
500,000 shares of common stock. All options granted under the 1995 Option
Plan vest and become exercisable as determined by the Compensation
Committee. The options are granted with an exercise price equal to the
fair market value of the Company's common stock at the grant date.
Substantially all options granted under the 1995 Option Plan in fiscal 1995
are non-qualified and vest 25% on the date of grant and the remaining 75%
in three equal annual installments. Substantially all options granted under
the 1995 Option Plan in fiscal 1996 are non-qualified and vest in four
equal annual installments beginning one year after grant date.
During 1996, the Company adopted the 1996 Non-Employee Directors Stock
Option Plan ("Directors Plan") which provides for the issuance of
nonqualified stock options to purchase up to 75,000 shares of common stock
to Outside Directors (as defined) of the Company. All options granted
under the Directors Plan vest and become exercisable on the Annual Meeting
of Stockholders following the grant date if the optionee has continued to
serve as a director. The number of shares subject to each option granted
pursuant to the Directors Plan will in each case be equal to the amount of
the Outside Director's Retainer Fee (as defined) divided by 20% of the fair
market value of a share of common stock at the close of business on the
grant date. The options are granted with an exercise price equal to 80% of
the fair market value of the Company's common stock at the grant date.
Information with respect to the Company's stock options are as follows:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year ended, 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 342,535 $7.02 283,017 $ 6.71 324,434 $6.70
Granted 254,050 7.25 118,000 7.75 15,000 6.73
Exercised - - - - - -
Canceled (22,601) 6.98 (58,482) 6.97 (56,417) 6.67
---------------------------------------------------------------------------------------------------------
Outstanding, end of period 573,984 $7.12 342,535 $7.02 283,017 $6.71
=========================================================================================================
Exercisable, end of period 86,456 $7.41 47,970 $7.28 7,485 $6.99
=========================================================================================================
Unissued, end of period 489,972 646,421 205,939
=========================================================================================================
<CAPTION>
Option data at February 1, 1997: Outstanding Exercisable
----------------------------------------------------------------------------------------------
Weighted- Weighted-
Range of Fiscal Average Average
Exercise Year Exercise Exercise
Prices Expires Shares Price Shares Price
-------- ------- ------ --------- ------ --------
<S> <C> <C> <C> <C> <C>
6.67 2000 134,438 $6.67 - $ -
7.13 2000 56,140 7.13 - -
7.13 2003 22,456 7.13 22,456 7.13
6.73 2004 15,000 6.73 15,000 6.73
7.50-7.75 2005 98,000 7.74 49,000 7.74
7.13-8.13 2006 241,700 7.28 - -
6.40 2006 6,250 6.40 - -
----------------------------------------------------------------------------------------------
573,984 $7.12 86,456 $7.41
==============================================================================================
</TABLE>
F-12
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements - (continued)
- --------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
The per share weighted-average fair value of stock options granted during
fiscal 1996 and 1995 was $5.67 and $5.99, respectively. These estimates of
fair value were determined using a Black-Scholes option-pricing model with
the following weighted-average assumptions; fiscal 1996 - expected dividend
yield of 0%, risk-free interest rate of 6.30%, volatility of 42%, and an
expected life of 10 years; fiscal 1995 - expected dividend yield of 0%, risk-
free interest rate of 5.65%, volatility of 45%, and an expected life of 10
years.
The Company applies APB Opinion No. 25 in accounting for its stock options
issued to employees and accordingly, recognized compensation expense related
to outstanding options of $12, $29 and $25 for fiscal 1996, 1995 and 1994,
respectively. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123,
the Company's net income and income per share would be as follows:
<TABLE>
<CAPTION>
February 1, February 3,
Fiscal year ended: 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income:
As reported $3,593 2,299
Pro forma 3,404 2,160
Net income per share
As reported .42 .27
Pro forma .39 .25
</TABLE>
================================================================================
Pro forma net income reflects only options granted in fiscal 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the respective
optionOs vesting period and compensation cost for options granted prior to
January 29, 1995 is not considered.
(10) EMPLOYEE STOCK SUBSCRIPTION PLAN
The Company has a stock subscription plan (the "Subscription Plan"), pursuant
to which 880,000 shares of common stock were designated for members of
management and certain other key employees of the Company to purchase shares
of the Company's common stock. Pursuant to the terms of the Subscription
Plan, participants who chose not to pay the entire purchase price in cash
could elect to pay a portion of the purchase price through the delivery of
five-year, full recourse promissory notes bearing interest, at the
participant's election, at either a fixed rate or a designated variable rate,
as adjusted from time to time. Accrued interest on the promissory notes is
payable quarterly, and the principal balance, including all accrued and
unpaid interest, is payable in full at maturity and is secured by any shares
acquired. As of February 1, 1997, there was one promissory note outstanding
under the Subscription Plan related to the purchase of 112,280 shares.
(11) EMPLOYEE BENEFIT PLANS
The Company contributes to a number of union administered multi-employer
defined benefit pension plan for employees covered by collective bargaining
agreements. The pension contribution under these plans was $1,145, $994 and
$1,007 for fiscal 1996, 1995 and 1994, respectively.
The Company also has a defined contribution profit-sharing plan for all
employees who meet certain minimum service requirements (Retirement Plan).
Employees become eligible to participate in the retirement plan upon the
later of the attainment of age 21 or the completion of one year of service.
The Retirement plan provides for contributions by participants up to the
maximum amount permitted under Section 401(k) of the Internal Revenue Code.
The Company also makes annual contributions to the Retirement Plan in cash or
Company common stock, the amount and form of which is determined by the Board
of Directors in its discretion at the end of each year. Seventy-five percent
of the Company's contribution ("Profit Sharing Contribution") is allocated to
participants as a percentage of their compensation, and the remaining 25% is
allocated in proportion to the amount of contributions made by each
participant. The individual Profit Sharing Contributions are reduced by any
amounts paid under union defined benefit plans. The total Profit Sharing
Contribution was $1,000, $1,000 and $975 for fiscal 1996, 1995 and 1994,
respectively.
F-13
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
(Amounts In Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
The Company has entered into severance compensation agreements with certain
of its executives. Such agreements provide for the payment of six to 24
months of annual compensation under certain circumstances.
(12) INCOME TAXES
Income tax expense on income before extraordinary items consists of the
following:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year ended, 1997 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal - regular tax $1,065 1,260 1,715
Federal - alternative minimum tax (benefit) (92) (102) (21)
State 269 293 208
-----------------------------------------------------------------------------------------------
1,242 1,451 1,902
Deferred:
Federal (156) (144) 174
State 53 112 85
-----------------------------------------------------------------------------------------------
(103) (32) 259
-----------------------------------------------------------------------------------------------
$1,139 1,419 2,161
===============================================================================================
</TABLE>
The Tax Reform Act of 1986 expanded the corporate alternative minimum tax
("AMT"). Under the Act, the Company's tax liability is the greater of its
regular tax or the AMT. The Company is subject to the AMT primarily due to
depreciation limitations for AMT purposes. The AMT actually paid is
allowed as a credit against regular tax in the future to the extent future
regular tax expense exceeds AMT.
The provision for income taxes differs from the amount which would be
provided by applying the Federal statutory rate of 34% to earnings before
income taxes and extraordinary charge as follows:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year ended, 1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected tax expense $1,609 1,281 1,935
State income taxes, net of Federal income tax benefit 213 272 193
Amortization of non-deductible Goodwill 30 30 30
Change in valuation allowance for deferred tax assets (626) (138) 20
General business credits (21) (7) (20)
Other (66) (19) 3
---------------------------------------------------------------------------------------------------------
$1,139 1,419 2,161
=========================================================================================================
</TABLE>
The significant components of deferred income tax expense attributable to
income before extraordinary items are as follows:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year ended, 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense; exclusive of items listed below $ 229 7 (776)
Increase (decrease) in valuation allowance for deferred tax assets (626) (138) 20
AMT and general business credits 263 95 1
Net operating loss carryforwards 31 4 1,014
-----------------------------------------------------------------------------------------------------------------
$(103) (32) 259
=================================================================================================================
</TABLE>
F-14
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- -------------------------------------------------------------------------------
(Amounts In Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities consist of the following:
<TABLE>
<CAPTION>
February 1, February 3, January 28,
Fiscal year end, 1997 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued vacation $ 733 758 725
Self-insurance accruals 922 681 291
Deferred revenues 94 225 226
Severance obligations - - 95
Other - - 153
General business credit carryforwards - 171 270
AMT credit carryforwards 2,858 2,950 2,924
Net operating loss carryforwards 313 344 370
-------------------------------------------------------------------------------------------
Gross deferred tax assets 4,920 5,129 5,054
Less valuation allowance - (626) (764)
--------------------------------------------------------------------------------------------
Net deferred tax assets 4,920 4,503 4,290
Deferred tax liabilities:
Fixed assets, principally depreciation (3,965) (3,506) (3,359)
Other (41) (168) -
Inventory (1,275) (1,293) (1,427)
--------------------------------------------------------------------------------------------
Net deferred tax liabilities (5,281) (4,967) (4,786)
-------------------------------------------------------------------------------------------
Net deferred income tax liability $ (361) (464) (496)
===========================================================================================
</TABLE>
The extraordinary charge is net of an income tax benefit of $34 and $85 for
fiscal year 1995 and 1994, respectively.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will be realized. At fiscal year end 1995 and 1994, management
had not recorded the full benefit of these deferred tax assets due to the
uncertainty related to these deductible differences. The ultimate
realization of deferred tax assets is dependent upon the existence of, or
generation of, taxable income in the periods in which those temporary
differences are deductible. Management considers the scheduled reversal of
deferred tax liabilities, taxes paid in carryback years, projected future
taxable income, and tax planning strategies in making this assessment. In
the fourth quarter of fiscal 1996, based on its historical and expected
levels of taxable income and the now reversing impact of AMT depreciation
associated with the acquisition of property and equipment from the
Predecessor Division, management concluded that it was more likely than not
that the deferred tax assets would be realized and reversed the valuation
allowance.
The net operating loss carryforwards for income tax purposes expire
beginning in 2006 and through 2008. AMT credits may be carried forward
indefinitely.
The allocation of the purchase price of the Predecessor Division included
certain accrued expenses and reserves which will result in deductions for
income tax purposes when paid, but will never be deducted for financial
reporting purposes. Any future reduction in income taxes payable as a
result of utilization of these deductions will be recorded as a reduction
of the excess purchase price paid. During fiscal 1995, the Company reduced
Goodwill by $110 for reductions in state income taxes payable. At February
1, 1997, the Company has $1,036 of additional AMT credits for income tax
purposes which will reduce Goodwill and federal income taxes payable when
realized.
F-15
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
Notes to COnsolidated Financial Statements (continued)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
The Company's tax return for fiscal 1991 is currently under examination by
the Internal Revenue Service ("IRS"). The focus of the examination,
however, relates to the fiscal 1990 income tax return which includes the
Company's allocation of purchase price to the net assets acquired from the
Predecessor Division. On December 1, 1995, the Company received notice from
the IRS of proposed adjustments for the fiscal periods 1991 to 1994 which
would eliminate the Company's net operating loss and alternative minimum
tax credit carryovers and would result in additional federal taxes of up to
$5.6 million plus interest from the date when such additional taxes would
have been due. The adjustments generally relate to the Company's allocation
of purchase price among the assets initially acquired by the Company and
treatment of certain of these assets for tax depreciation and amortization
purposes.
The Company, after consultation with tax counsel, continues to believe in
the propriety of its positions set forth in its tax returns and will
vigorously contest the adjustment being proposed by the IRS. If the IRS
were ultimately to prevail, in whole or in part, with respect to its
proposed adjustments, the Company would account for such change in its tax
liability by adjusting deferred tax assets and liabilities to reflect the
revised tax basis of its assets, by adjusting the current tax liability to
reflect the prior year Federal and state income taxes due and by applying
the effect of those adjustments which relate to the initial purchase price
allocation as an increase to Goodwill. Any interest related to prior year
taxes due would be expensed when accruable.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in various routine litigation incidental to
operations. Management, after consultation with legal counsel, believes
resolution of these matters will not have a material impact on the
Company's consolidated financial condition, or results of operations or
liquidity.
In connection with the acquisition of the Predecessor Division, SAB and ASC
entered into an environmental indemnity agreement for the benefit of the
Company against any liability relating to the remediation of hazardous
materials at a shopping center where the Company leases one of its store
sites (the "Shopping Center Property"). The Department of Health and
Environmental Sciences of the State of Montana has issued an interim order
to SAB, the owner of the site, requiring certain investigative and clean-up
actions at the Shopping Center Property in connection with the discovery of
soil and groundwater contamination at the site. The Company has not been
required to participate in the clean-up effort. Management believes that
the Company has not contributed to the contamination at the Shopping Center
Property and because of the environmental indemnity agreement and other
arrangements, the environmental remediation will not have a material effect
on the Company's consolidated results of operations or financial position
with respect to the Shopping Center Property.
In conjunction with the sale of the Payson, Utah distribution center, the
Company entered into a supply agreement with the purchaser whereby the
Company purchases products previously distributed out of the distribution
center. The agreement requires the Company to purchase a specified volume
of inventory at agreed upon pricing. The Company may terminate the
agreement, among other reasons, upon the payment of a specified termination
fee. Payments under the agreement are secured by a $0.8 million letter of
credit.
The Company entered into a pharmaceutical inventory supply agreement in
1996. The terms of the agreement provide for an annual purchase commitment
of $20 million per year through 2001.
(14) RELATED PARTY TRANSACTIONS
During fiscal 1996, 1995 and 1994, the Company had a renewable one-year
consulting agreement with a member of the Board of Directors. The
agreement, which as amended, most recently provided for an annual
consulting fee of $75 per year, expired and was not renewed in December
1996.
(15) ACQUISITIONS AND EXPANSION
In May 1996, the Company acquired a grocery store from Dan's Supermarket,
Inc. in Cheyenne, Wyoming. The total purchase price of $5.5 million
included $4.8 million for property and equipment, $300 for inventory and a
non-compete agreement valued at $400.
F-16
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements - (concluded)
- --------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
In September 1996, the Company acquired a grocery store and pharmacy business
in Laramie, Wyoming from Ideal Foods. The $1.4 million purchase price
included $125 for store fixtures and equipment, $600 for inventory and a non-
compete agreement valued at $675.
Both transactions were accounted for as purchases and, accordingly, the
consolidated statement of income for the year ended February 1, 1997 includes
results of operations for the respective acquisitions since the date of the
purchase.
(16) SUBSEQUENT EVENT
On February 28, 1997, the Company signed an agreement to purchase the assets
of an existing grocery store in Cody, Wyoming for $2,700. The purchase is
expected to close in April 1997 and will be funded from existing working
capital.
(17) RECENTLY ISSUED ACCOUNTING STANDARD
SFAS No. 128, Earnings per Share, was issued in February 1997 and will
replace the presentation of primary earnings per share ("EPS") with a
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures. SFAS No. 128 also requires a
reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the equity.
This statement will be effective for the Company commencing February 1, 1998
and earlier application is not permitted. Once effective, this statement
requires restatement of all prior-period EPS data. Pro forma basic and
diluted net income per share as determined under this statement does not
differ from the amounts as currently reported herein.
F-17
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ------------ -----
<S> <C> <C>
3.1++ Certificate of Incorporation of the Company, as amended and currently in effect.
3.2+ Bylaws of the Company, as amended to date.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
- ---------------------------------------------
10.1+ 1990 Employee Stock Subscription Plan of the Company, dated as of October 17, 1990
("Subscription Plan").
10.2+ Form of Stock Subscription Agreement by and among the Company, FSEP and three
management investors who purchased Common Stock under the Subscription Plan, dated
as of October 17, 1990 (with forms of Secured Promissory Note and Stock Pledge
Agreement attached as exhibits thereto).
10.3+ Form of Stock Subscription Agreement by and among the Company, FSEP and management
investors who purchased Common Stock under the Subscription Plan with cash and
promissory note, dated as of October 17, 1990 (with forms of Secured Promissory Note
and Stock Pledge Agreement attached as exhibits thereto).
10.4+ Form of Stock Subscription Agreement by and among the Company, FSEP and management
investors who purchased Common Stock under the Subscription Plan with cash only,
dated as of October 17, 1990 (with form of Stock Pledge Agreement attached as an
exhibit thereto).
10.5+ 1990 Nonqualified Performance Stock Option Plan of the Company, dated as of October
17, 1990 ("Option Plan").
10.6+ Form of Nonqualified Performance Stock Option Agreement by and between the Company
and certain Participants under the Option Plan, dated as of November 8, 1990.
10.7+ Form of Indemnity Agreement dated as of October 31, 1990 made by and between the
Company and Buttrey Food and Drug Company ("BFDC"), on the one hand, and each of the
members of the Board of Directors of the Company and of BFDC, on the other hand.
10.8+ Stock Subscription Agreement made and entered into as of October 17, 1990 by and
among the Company, FSEP and Peter J. Sodini.
10.9+ Employment Agreement dated as of October 31, 1990 entered into among the Company,
BFDC and Edward C. Agnew.
10.10+ Letter Agreement dated as of October 17, 1990 by and between the Company and
Edward C. Agnew.
10.11+ Form of Severance Agreement dated as of October 31, 1990 entered into among
the Company, BFDC and certain executives of the Company.
10.12+ Consulting Agreement made and entered into as of July 1, 1991 by and between
BFDC and Peter J. Sodini ("Sodini Consulting Agreement").
10.13+++ 1990 Nonqualified Performance Stock Option Plan of the Company, as amended
and restated as of July 21, 1992 ("Option Plan").
10.14+++ Form of Amendment to Nonqualified Performance Stock Option Agreement by and
between the Company and certain participants under the Option Plan.
10.15***** Extension and Modification to Consulting Agreement dated April 29, 1993 by and
between the Company and Peter J. Sodini.
10.16* Employment Agreement dated as of March 1, 1993 entered into among the
Company, BFDC and Joseph H. Fernandez ("Fernandez Employment Agreement").
10.17* Nonqualified Stock Option Agreement entered into as of March 1, 1993 by and
between the Company and Joseph H. Fernandez.
10.18* Letter Agreement dated March 1, 1993 by and between BFDC and Joseph H. Fernandez.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ------------ -----
<S> <C> <C>
10.19*** Forms of Letter Amendment to Stock Subscription Agreements in connection with
refinancing of Secured Promissory Notes by and between the Company and certain
participants under the Subscription Plan.
10.20*** Form of Letter Agreement regarding Execution of New Promissory Notes in
connection with refinancing of Secured Promissory Notes by and between the
Company and certain participants under the Subscription Plan.
10.21***** Extension to Sodini Consulting Agreement dated October 28, 1993.
10.22***** Continuing Employment and Severance Agreement dated January 28, 1994 by and
between the Company and Edward C. Agnew.
10.23***** Nonqualified Stock Option Agreement entered into as of February 23, 1994 by
and between the Company and Joseph H. Fernandez.
10.24++++++++ 1995 Option Plan of the Company, dated as of April 24, 1995 ("1995 Option
Plan").
10.25++++++++ Form of Nonqualified Stock Option Agreement entered into by and between the
Company and certain Participants under the 1995 Option Plan, dated as of
April 25, 1995.
10.26++++++++ Form of Incentive Stock Option Agreement for certain Participants under the
1995 Option Plan.
10.27++++++++ Amendment dated March 10, 1995 to Fernandez Employment Agreement.
10.28__ Extension to Sodini Consulting Agreement dated November 20, 1995.
10.29__ Consulting Agreement and Release dated May 23, 1995 by and between the
Company and H.N. Dusenberry.
10.30 Amendment dated April 24, 1995 to Fernandez Employment Agreement.
10.31 Amendment dated August 29, 1996 to Fernandez Employment Agreement.
10.32 Letter Agreement dated April 7, 1997 by and among the Company, FSEP and
Joseph H. Fernandez.
10.33 Secured Promissory Note made by Joseph H. Fernandez in favor of the Company
dated April 7, 1997.
10.34 Promissory Note made by Joseph H. Fernandez in favor of the Company dated
April 7, 1997.
10.35 Extension and Modification to Sodini Consulting Agreement dated November
25, 1996.
10.36 1996 Non-Employee Directors Stock Option Plan of the Company, dated as of
April 26, 1996 (the "1996 Directors Plan").
10.37 Form of Nonqualified Stock Option Agreement entered into by and between the
Company and certain directors under the 1996 Directors Plan.
OTHER MATERIAL CONTRACTS
- ------------------------
10.38+ Asset Purchase Agreement made as of the 15th day of August 1990 by and
between Skaggs Alpha Beta, Inc.
10.39+ Noncompetition Agreement made as of October 31, 1990 by and between BFDC,
American Stores Company ("ASC") and Skaggs.
10.40+ Supply Agreement made as of the 31st day of October, 1990 by and between
ASC and BFDC.
10.41++++ Amended and Restated Credit Agreement dated as of April 28, 1992 by and
among the Company, BFDC, Bankers Trust Company as Agent, and the various
Lenders listed therein.
10.42+ Company Security Agreement dated as of October 31, 1990 made by BFDC to
Bankers Trust Company.
10.43+ Environmental Indemnity entered into as of October 31, 1990 by ASC and
Skaggs to and for the benefit of the Company and BFDC.
10.44+ Loan Commitment made as of the 31st day of October, 1990 by Skaggs in favor
of BFDC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ------------ -----
<S> <C> <C>
10.45+ Promissory Note executed by BFDC in favor of Skaggs, in the amount of
$2,800,000, dated as of October 31, 1991.
10.46+ Securities Purchase Agreement dated as of October 31, 1990 among the
Company, BFDC and each of the Purchasers listed therein.
10.47+ Form of Common Stock Purchase Warrant, dated as of October 31, 1990, issued
to each of the Purchasers pursuant to the Securities Purchase Agreement.
10.48+ Equity Rights Agreement dated as of October 31, 1990 among the Company,
FSEP and the Purchasers.
10.49+ Environmental Indemnity entered into as of October 31, 1990 by BFDC to and
for the benefit of the Purchasers.
10.50+ Stock Subscription Agreement made and entered into as of October 31, 1990
by and among the Company, FSEP and Bankers Trust New York Corporation.
10.51+ Stock Subscription Agreement made and entered into as of October 31, 1990
by and among the Company, FSEP and Morgan Capital Corporation.
10.52+ Stock Subscription Agreement made and entered into as of October 31, 1990
by and among the Company, FSEP and Buttrey Investors L.P.
10.53+ Loan and Security Agreement dated as of August 23, 1991 entered into by and
between BFDC and The CIT Group/Equipment Financing, Inc.
10.54+++ First Amendment to Loan and Security Agreement entered into by and between
the Company and the CIT Group/Equipment Financing, Inc. dated as of August 6, 1992.
10.55** Second Amendment dated as of May 10, 1993 to Loan and Security Agreement
dated as of August 23, 1991 by and between the Company and the CIT
Group/Equipment Financing, Inc.
10.56**** First Amendment dated as of August 27, 1993 to Amended and Restated Credit
Agreement dated as of April 28, 1992 by and among the Company, Bankers
Trust Company as Agent and the various Lenders listed therein.
10.57***** Letter dated as of December 3, 1993 relating to Loan and Security Agreement
dated as of August 23, 1991 and amended as of May 10, 1993 by and between
the Company and The CIT Group/Equipment Financing, Inc.
10.58***** Second Amendment dated as of April 22, 1994 to Amended and Restated Credit
Agreement dated as of April 28, 1992 by and among the Company, Bankers
Trust Company as Agent and the various Lenders listed therein.
10.59++ Loan Agreement made the 5th day of July, 1994 by and between BFDC and
TriCon Capital.
10.60++ Security Agreement made the 5th day of July, 1994 by and between BFDC and
TriCon Capital.
10.61++ Guaranty dated July 5, 1994 made by BFDC, as Guarantor, in favor of TriCon Capital.
10.62++++ Asset Purchase Agreement dated August 15, 1995 by and among the Company,
BFDC, Thrifty Foods of Eastern Washington, Inc. ("Thrifty") and Associated
Grocers, Incorporated ("AGI").
10.63++++ Asset Purchase Agreement dated August 15, 1994 by and among the Company,
BFDC and AGI.
10.64++++ Real Estate Purchase and Sale Agreement dated August 15, 1994 by and among
BFDC, Supermarket Development Corporation ("SDC") and AGI, concerning real
property located in Richland, Washington.
10.65++++ Real Estate Purchase and Sale Agreement dated August 15, 1994 by and among
BFDC, SDC and AGI, concerning real property located in Kennewick, Washington.
10.66++++++ Wholesale Supply Agreement made and entered into as of November 15, 1994 by
and between Associated Food Stores, Inc. and BFDC.
10.67++++++ Agreement of Purchase and Sale made and entered into as of November 15,
1994 by and between BFDC and Associated Food Stores, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ------------ -----
<S> <C> <C>
10.68++++++++ Third Amendment dated as of December 12, 1994 to Loan and Security Agreement
dated as of August 23, 1991 and amended as of May 10, 1993 by and between the
Company and The CIT Group/ Equipment Financing, Inc.
10.69_ Note and Security Agreement made the 8th day of August, 1995 by and between
BFDC and NationsBanc Leasing Corporation.
10.70_ Guaranty dated August 14, 1995 made by BFDC, as Guarantor, in favor of
NationsBanc Leasing Corporation.
10.71_ Financing Agreement made the 7th day of September, 1995 by and between BFDC
and The CIT Group/Business Credit, Inc. and The CIT Group/Equipment Financing, Inc.
10.72_ Guaranty dated September 7, 1995 made by the Company, as Guarantor, in favor of The
CIT Group/Business Credit, Inc. as Agent.
10.73___ Letter Amendment dated August 5, 1996 to Financing Agreement dated September 7,
1995 by and among the Company, CITBC and CEF.
22.1+ Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
</TABLE>
________________
+ Filed as an exhibit to the Company's Registration Statement on Form S-
1 (Registration No. 33-44646) on December 20, 1991.
++ Filed as an exhibit to the Company's Registration Statement on Form 8-
A (File No. 0-19802) on January 16, 1992.
+++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 1, 1992 (File No. 0-19802) on
September 15, 1992.
++++ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended February 1, 1992 (File No. 0-19802) on May 18,
1992.
* Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993 (File No. 0-19802) on April 30,
1993.
** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1993 (File No. 0-19802) on June 15,
1993.
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 1993 (File No. 0-19802) on September
14, 1993.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 30, 1993 (File No. 0-19802) on
December 14, 1993.
***** Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 29, 1994 (File No. 0-19802) on April 29,
1994.
++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 30, 1994 (File No. 0-19802) on September
12, 1994.
++++ Filed as an exhibit to the Company's Current Report on Form 8-K (File
No. 0-19802) on August 30, 1994.
++++++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 29, 1994 (File No. 0-19802) on
December 12, 1994. Certain portions of Exhibit 10.58 have been omitted
from the copies filed as part of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended October 29, 1994 and are the
subject of an order granting confidential treatment with respect
thereto.
++++++++ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended January 28, 1995 (File No. 0-19802) on April 28,
1995.
_ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 29, 1995 (File No. 0-19802) on September
12, 1995.
__ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended February 3, 1996 (File No. 0-19802) on May 3,
1997.
___ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 3, 1996 (File No. 0-19802) on
September 17, 1996.
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY
601 6th Street S.W.
Great Falls, Montana 59404
April 24, 1995
Joseph H. Fernandez
President and Chief Executive Officer
Buttrey Food and Drug Stores Company
601 6th Street S.W.
Great Falls, Montana 59404
Re: Amendment to Employment Agreement dated as of March 1, 1993
entered into among Buttrey Food and Drug Stores Company, Buttrey
Food and Drug Company and Joseph H. Fernandez,
as amended on March 10, 1995
----------------------------
Dear Joe:
Reference is made to that certain Employment Agreement dated as of
March 1, 1993 entered into among Buttrey Food and Drug Stores Company, a
Delaware corporation ("Holding"), Buttrey Food and Drug Company, a Delaware
corporation (the "Company"), and yourself, as amended on March 10, 1995 (the
"Employment Agreement"). The purpose of this letter is to further amend the
Employment Agreement in certain ways in order to memorialize prior oral
agreements and understandings among you, Holding and the Company. Upon your
execution of this letter where indicated at page 3, the Employment Agreement
will be amended as follows:
1. The parties acknowledge and the Employment Agreement is hereby
amended to extend its term until March 1, 1998. In addition, subject to the
other terms and conditions set forth herein and in the Employment Agreement,
Holding and the Company hereby agree to continue to employ you, and you agree to
be employed by Holding and the Company, as President and Chief Executive Officer
of Holding and the Company, for a term commencing as of September 1, 1993 and
continuing until the earlier of March 1, 1998 or the date such employment shall
have been terminated as provided in the Employment Agreement.
2. Subparagraph (h) of Section 4 of the Employment Agreement shall
be revised in its entirety to read as follows:
"(h) If the Executive's employment is terminated by the Company
pursuant to subsection (a), (c) or (d) of this Section 4, or if the Executive
terminates his employment pursuant to subsection (e) of this Section 4, (i) the
Company shall continue to pay to the Executive (or, if applicable, to his
executor, administrator or heirs) (x) the Executive's salary in equal monthly
installments at the level of annualized salary provided for in Section 3 hereof
(including any increases contemplated thereby and effected prior to such
termination) being paid to the Executive at the time of such termination, less
required withholdings, for a period of twenty-four (24) consecutive months, and
(y) the payments contemplated by subsection (c) of Section 3 hereof, and (ii)
the Executive (or, if applicable, his executor,
<PAGE>
Joseph H. Fernandez
April 24, 1995
Page 2
administrator or heirs) shall be entitled to all benefits (including, without
limitation, group medical, life, disability and accidental death and
dismemberment insurance, but excluding participation in the Buttrey Company
Retirement Estates) to which Executive had at the time of his termination then
been entitled, for a period of twenty-four (24) consecutive months. Executive
shall not have any obligation to mitigate his damages arising from any
termination of employment."
Except as set forth above, all other provisions of the Employment
Agreement shall remain in full force and effect, including without limitation,
Section 3 and Section 4 of the Employment Agreement relating to your
compensation and to your rights and obligations upon the termination of your
employment with Holding and the Company.
Please indicate your agreement with and acceptance of the terms of
this letter by executing in the space provided below and returning this letter
to us.
This letter may be executed in counterparts, each of which when taken
together with the others shall constitute one and the same instrument.
BUTTREY FOOD AND DRUG
STORES COMPANY
By: /s/ Wayne S. Peterson
----------------------
Wayne S. Peterson
Vice President, Chief Financial
Officer and Secretary
BUTTREY FOOD AND DRUG COMPANY
By: /s/ Wayne S. Peterson
-----------------------
Wayne S. Peterson
Vice President, Chief Financial Officer and
Secretary
THE FOREGOING TERMS AND CONDITIONS
OF THIS LETTER ARE HEREBY AGREED TO
AND ACCEPTED.
/s/ Joseph H. Fernandez Dated: April 24, 1995
- ------------------------ --------------
Joseph H. Fernandez
<PAGE>
EXHIBIT 10.31
BUTTREY FOOD AND DRUG STORES COMPANY
601 6th Street S.W.
Great Falls, Montana 59404
August 29, 1996
Joseph H. Fernandez
President and Chief Executive Officer
Buttrey Food and Drug Stores Company
601 6th Street S.W.
Great Falls, Montana 59404
Re: Third Amendment to Employment Agreement dated as of March 1, 1993
entered into among Buttrey Food and Drug Stores Company, Buttrey
Food and Drug Company and Joseph H. Fernandez,
as amended on March 10, 1995 and April 24, 1995
-----------------------------------------------
Dear Joe:
Reference is made to that certain Employment Agreement dated as of
March 1, 1993 entered into among Buttrey Food and Drug Stores Company, a
Delaware corporation ("Holding"), Buttrey Food and Drug Company, a Delaware
corporation (the "Company"), and yourself, as amended on March 10, 1995 and
April 24, 1995 (the "Employment Agreement"). The purpose of this letter is to
further amend the Employment Agreement in certain ways in order to memorialize
certain actions recently taken by the Boards of Directors of Holding and the
Company (the "Board") with respect to your employment. Upon your execution of
this letter where indicated, the Employment Agreement will be amended further as
follows:
1. The parties acknowledge and the Employment Agreement is hereby
amended to extend its term until March 1, 2001. In addition, subject to the
other terms and conditions set forth herein and in the Employment Agreement, the
Employment Agreement is hereby amended at Section 1 to reflect that your
position is, effective upon action by the Board taken this date, Chairman of the
Board, President and Chief Executive Officer of Holding and the Company.
Holding and the Company hereby agree to continue to employ you, and you agree to
be employed by Holding and the Company, as Chairman of the Board, President and
Chief Executive Officer of Holding and the Company, for a term commencing as of
September 1, 1993 and continuing until the earlier of March 1, 2001 or the date
such employment shall have been terminated as provided in the Employment
Agreement.
2. Beginning on September 1, 1996, the salary to be paid to you by
the Company will be at the annual rate of $350,000 for each 12 month period of
the term of the
<PAGE>
Joseph H. Fernandez
August 29, 1996
Page 2
Employment Agreement remaining, prorated for any portion thereof, and payable in
substantially equal monthly installments on or before the last day of each
monthly period with respect to each such period, less required withholdings, and
that this salary level shall still be subject to annual review as provided in
Section 3 of the Employment Agreement.
3. Your "Target Bonus" under the Company's key management Incentive
Plan (or any successor plan) shall be set at 80% of your annual salary from time
to time (as fixed in accordance with the terms of such Plan).
4. Subsection (e) of Section 4 of the Employment Agreement is hereby
amended by adding at the end thereof the following additional language:
"or; (v) a "Change of Control" (as defined herein) shall have a
occurred; provided that the Executive shall exercise his right to
terminate this Agreement under this clause (v) not later than 30 days
after the Change of Control has occurred. For purposes of this
subsection "Change of Control" shall mean any of the following: (i) a
successful tender offer for greater than 50% of the outstanding
capital stock of the Holding; (ii) a sale of all or substantially all
of the assets of Holding or the Company; or (iii) a merger or
consolidation of Holding or the Company with any other corporation in
which the stockholders of Holding or the Company, as the case may be,
immediately preceding such merger or consolidation will not hold a
majority of the outstanding capital stock of the surviving corporation
(whether or not Holding or the Company is the surviving corporation)
immediately after such merger."
5. The following proviso shall be added to the end of the first
sentence of subparagraph (h) of Section 4 of the Employment Agreement:
"; provided, however, that the aggregate amount payable to and
benefits received or to be received by Executive under this Agreement
and under all other existing or future agreements or arrangements that
would be considered "parachute payments" under Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), shall in no
event exceed one dollar less than the amount that would trigger the
application of the excise tax imposed by Section 4999 of the Code on
such payments or benefits."
<PAGE>
Joseph H. Fernandez
August 29, 1996
Page 3
6. Section 6 of the Employment Agreement is amended by modifying the
first two clauses of the first sentence thereof to read as follows:
"If the Executive is terminated by the Company for cause in
accordance with subsection 4(b) hereof, or if the Executive terminates
his employment other than for "good reason" in accordance with clauses
(i)-(iv) (but not clause (v)) of subsection 4(e) hereof,..."
7. Section 6 of the Employment Agreement is amended further by
adding as a new last sentence the following:
"Notwithstanding anything contained in this Agreement to the contrary,
in the event that Executive terminates his employment for "good
reason" in accordance with clause (v) of subsection 4(e) hereof, the
term "the Company" as used in this Section 6 shall refer only to
Holding and its wholly-owned subsidiary, Buttrey Food and Drug Company
("Buttrey") prior to such Change of Control (as defined in clause
(v)), and not to any successor into which Holding and Buttrey shall
merge or consolidate or to which all or substantially all of their
respective businesses or assets shall be transferred in any manner in
connection with such Change of Control."
8. Subsection (a) of Section 11 of the Employment Agreement is
hereby amended by adding the following introductory clause to the first sentence
thereof to read as follows:
"Subject to the last sentence of Section 6 of this
Agreement, . . ."
Except as set forth above, all other provisions of the Employment
Agreement, as previously amended, shall remain in full force and effect,
including without limitation, Section 3 and Section 4 of the Employment
Agreement relating to your compensation and to your rights and obligations upon
the termination of your employment with Holding and the Company.
<PAGE>
Joseph H. Fernandez
August 29, 1996
Page 4
Please indicate your agreement with and acceptance of the terms of
this letter by executing in the space provided below and returning this letter
to us.
This letter may be executed in counterparts, each of which when taken
together with the others shall constitute one and the same instrument.
BUTTREY FOOD AND DRUG
STORES COMPANY
By: /s/ Wayne S. Peterson
------------------------
Wayne S. Peterson
Vice President, Chief Financial Officer and
Secretary
BUTTREY FOOD AND DRUG COMPANY
By: /s/ Wayne S. Peterson
-------------------------
Wayne S. Peterson
Vice President, Chief Financial Officer and
Secretary
THE FOREGOING TERMS AND CONDITIONS
OF THIS LETTER ARE HEREBY AGREED TO
AND ACCEPTED.
/s/ Joseph H. Fernandez Dated: 8/29/96
- ------------------------ -------
Joseph H. Fernandez
<PAGE>
EXHIBIT 10.32
BUTTREY FOOD AND DRUG STORES COMPANY
601 6th Street S.W.
Great Falls, Montana 59404
April 7, 1997
Joseph H. Fernandez
President and Chief Executive Officer
Buttrey Food and Drug Stores Company
601 6th Street S.W.
Great Falls, Montana 59404
Re: Amendments to Stock Subscription Agreement made and entered into
as of March 1, 1993 by and among Buttrey Food and Drug Stores
Company ("Buttrey"), FS Equity Partners II, L.P. ("FSEP II") and
Joseph H. Fernandez (the "Subscription Agreement"), and to Stock
Pledge Agreement made as of March 9, 1993 by and between
Joseph H. Fernandez and Buttrey (the "Pledge Agreement")
----------------------------------------------------------------
Dear Joe:
Reference is made to the above-captioned Subscription Agreement and
Pledge Agreement. The purpose of this letter is to amend the Subscription
Agreement and Pledge Agreement in certain ways in order to further perfect
Buttrey's security interest in your 112,280 shares of Common Stock that serve as
collateral and security for the payment of all principal and interest owed to
Buttrey pursuant to the terms of that certain Secured Promissory Note in the
aggregate principal amount of $399,997.50 dated March 9, 1993 and that certain
Secured Promissory Note in the aggregate principal amount of $125,000.00 dated
April 7, 1997, each made by you in favor of Buttrey (collectively, the
"Promissory Notes"). In consideration of Buttrey's agreement to extend to you
the amounts evidenced by the Promissory Notes, upon your execution of this
letter where indicated, the Subscription Agreement and the Pledge Agreement will
be amended as follows:
1. The short titled definition of "Note" in subparagraph (b) of the
third sentence of Section 1 of the Subscription Agreement is hereby amended as
follows:
"(collectively with that certain Secured Promissory Note dated April
7, 1997 made by Purchaser in favor of Holding in the aggregate
principal amount of $125,000, the "Note")."
<PAGE>
Joseph H. Fernandez
April 7, 1997
Page 2
2. Recital B of the Pledge Agreement is hereby amended in its
entirety as follows:
"B. Pursuant to the terms of that certain Secured
Promissory Note dated March 9, 1993 delivered by Pledgor to Pledgee in
partial payment for the Shares, and pursuant to the terms of that
certain Secured Promissory Note dated as of April 7, 1997 in an
aggregate principal amount of $125,000 (collectively, the "Note"),
Pledgor has agreed to make payments of principal and interest to
Pledgee as provided in the Note."
Except as set forth above, all other provisions of the Subscription
Agreement and the Pledge Agreement shall remain in full force and effect.
<PAGE>
Joseph H. Fernandez
April 7, 1997
Page 3
Please indicate your agreement with and acceptance of the terms of
this letter by executing in the space provided below and returning this letter
to us.
This letter may be executed in counterparts, each of which when taken
together with the others shall constitute one and the same instrument.
BUTTREY FOOD AND DRUG
STORES COMPANY
By: /s/ Wayne S. Peterson
---------------------
Wayne S. Peterson
Vice President, Chief Financial
Officer and Secretary
FS EQUITY PARTNERS II, L.P.,
a California limited partnership
By: Freeman Spogli & Co.,
a California General Partnership
General Partner
By: /s/ J. Frederick Simmons
------------------------
General Partner
THE FOREGOING TERMS AND CONDITIONS
OF THIS LETTER ARE HEREBY AGREED TO
AND ACCEPTED.
/s/ Joseph H. Fernandez Dated: 4/14/97
- ------------------------ -------
Joseph H. Fernandez
<PAGE>
EXHIBIT 10.33
SECURED PROMISSORY NOTE
$125,000.00 April 7, 1997
FOR VALUE RECEIVED, the undersigned, Joseph H. Fernandez, ("Borrower")
hereby promises to pay to the order of Buttrey Food and Drug Stores Company, a
Delaware corporation ("Payee"), the principal sum of ONE HUNDRED TWENTY-FIVE
THOUSAND AND 00/100 dollars ($125,000.00) together with interest on the unpaid
balance of such principal amount from the date hereof at 9.25% per annum.
Accrued interest shall be payable quarterly in arrears commencing on June 30,
1997 and continuing on the last day of each succeeding September, December,
March and June thereafter until paid in full. The principal balance of, and all
accrued and unpaid interest on, this Secured Promissory Note (this "Promissory
Note") shall be payable in full by Borrower to Payee on March 1, 2001.
Payments of principal and interest on this Promissory Note shall be
made in legal tender of the United States of America and shall be made at the
executive offices of Payee at Great Falls, Montana or at such other place as
Payee shall have designated in writing to Borrower. If the date set for any
payment of principal or interest on this Promissory Note is a Saturday, Sunday
or legal holiday, then such payment shall be due on the next succeeding business
day.
As of the date hereof, Borrower has purchased 112,280 shares (the
"Shares") of the capital stock of Payee pursuant to the terms of that certain
Stock Subscription Agreement dated as of March 1, 1993 by and among Payee, FS
Equity Partners II, L.P. ("FSEP II") and Borrower (as amended by that certain
letter agreement of even date herewith by and among Payee, FSEP II and Borrower
(the "Letter Agreement"), the "Subscription Agreement"). Payment of this
Promissory Note shall be secured by the Shares as provided in that certain Stock
Pledge Agreement made as of March 9, 1993 by and between Payee and Borrower (as
amended by the Letter Agreement, the "Pledge Agreement").
The principal balance of, and accrued and unpaid interest on, this
Promissory Note may be prepaid at any time, in whole or in part, without premium
or penalty and must be prepaid in accordance with the provisions of Section 7 of
the Pledge Agreement.
In the event Borrower shall (i) fail to make complete payment of any
installment of accrued interest under this Promissory Note within five days
after payment of such installment of accrued interest is due; (ii) fail to make
complete payment of principal when due under this Promissory Note; (iii) fail to
make the prepayment of principal and accrued interest on this Promissory Note as
required by the fourth paragraph hereof; or (iv) commit a material breach of or
material default under the Subscription Agreement or the
<PAGE>
Pledge Agreement, Payee may accelerate this Promissory Note and may, by written
notice to Borrower, declare the entire unpaid principal amount of this
Promissory Note and all accrued and unpaid interest thereon to be immediately
due and payable and, thereupon, the unpaid principal amount and all such accrued
and unpaid interest shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower. The failure of Payee to accelerate this
Promissory Note shall not constitute a waiver of any of Payee's rights under
this Promissory Note as long as Borrower's default under this Promissory Note or
breach of or default under the Subscription Agreement or the Pledge Agreement
continues.
The provisions of this Promissory Note shall be governed by and
construed in accordance with the laws of the State of Montana without regard to
the conflicts of law rules thereof. In the event that Payee is required to take
any action to collect or otherwise enforce payment of this Promissory Note,
Borrower agrees to pay such reasonable attorneys' fees and court costs as Payee
may incur as a result thereof, whether or not suit is commenced.
All notices, requests, demands or other communications (collectively,
"Notices") under this Promissory Note shall be delivered in accordance with the
provisions of Section 9(c) of the Subscription Agreement to the address(es) set
forth therein; provided, that Notices to Borrower shall be sent to his attention
--------
at 801 Grizzly Drive, Great Falls, Montana 59404.
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER:
/s/ Joseph H. Fernandez
------------------------
Joseph H. Fernandez
2.
<PAGE>
PROMISSORY NOTE
$75,000.00 April 7, 1997
FOR VALUE RECEIVED, the undersigned, Joseph H. Fernandez, ("Borrower")
hereby promises to pay to the order of Buttrey Food and Drug Stores Company, a
Delaware corporation ("Payee"), the principal sum of SEVENTY-FIVE THOUSAND AND
00/100 dollars ($75,000.00) together with interest on the unpaid balance of such
principal amount from the date hereof at 9.25% per annum. Accrued interest
shall be payable quarterly in arrears commencing on June 30, 1997 and continuing
on the last day of each succeeding September, December, March and June
thereafter until paid in full. The principal balance of, and all accrued and
unpaid interest on, this Promissory Note (this "Promissory Note") shall be
payable in full by Borrower to Payee on March 1, 2001.
Payments of principal and interest on this Promissory Note shall be
made in legal tender of the United States of America and shall be made at the
executive offices of Payee at Great Falls, Montana or at such other place as
Payee shall have designated in writing to Borrower. If the date set for any
payment of principal or interest on this Promissory Note is a Saturday, Sunday
or legal holiday, then such payment shall be due on the next succeeding business
day.
The principal balance of, and accrued and unpaid interest on, this
Promissory Note may be prepaid at any time, in whole or in part, without premium
or penalty.
In the event Borrower shall (i) fail to make complete payment of any
installment of accrued interest under this Promissory Note within five days
after payment of such installment of accrued interest is due; (ii) fail to make
complete payment of principal when due under this Promissory Note; (iii) be
terminated by Payee for "cause" (as defined in Section 4(b) of that certain
Employment Agreement dated as of March 1, 1993 entered into among Payee, Buttrey
Food and Drug Company and Borrower (as amended, the "Employment Agreement"); or
(iv) terminate his employment with Payee at any time other than for "good
reason" in accordance with clauses (i)-(iv) (but not clause (v)) of Section 4(e)
of the Employment Agreement, Payee may accelerate this Promissory Note and may,
by written notice to Borrower, declare the entire unpaid principal amount of
this Promissory Note and all accrued and unpaid interest thereon to be
immediately due and payable and, thereupon, the unpaid principal amount and all
such accrued and unpaid interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by Borrower. The failure of Payee to accelerate
this Promissory Note shall not constitute a waiver of any of Payee's rights
under this Promissory Note as long as Borrower's default under this Promissory
Note continues.
The provisions of this Promissory Note shall be governed by and
construed in accordance with the laws of the State of Montana without regard to
the conflicts of law rules
<PAGE>
thereof. In the event that Payee is required to take any action to collect or
otherwise enforce payment of this Promissory Note, Borrower agrees to pay such
reasonable attorneys' fees and court costs as Payee may incur as a result
thereof, whether or not suit is commenced.
All notices, requests, demands or other communications under this
Promissory Note shall be in writing, and if given by telegram, telecopy or
telex, shall be deemed to have been validly served, given or delivered when
sent, if given by personal delivery, shall be deemed to have been validly
served, given or delivered upon actual delivery and, if mailed, shall be deemed
to have been validly served, given or delivered three business days after
deposit in the United States mails, as registered or certified mail, with proper
postage prepaid and addressed to the party or parties to be notified, at the
following addresses (or such other address(es) as a party may designate for
itself by like notice):
If to Payee: Buttrey Food and Drug Stores Company
c/o Freeman Spogli & Co.
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, California 90025
Attention: William M. Wardlaw
With a copy to: Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071-3155
Attention: Roger H. Lustberg, Esq.
If to Borrower: Joseph H. Fernandez
801 Grizzly Drive
Great Falls, Montana 59404
With a copy to: Buttrey Food and Drug Stores Company
601 6th Street, S.W.
Great Falls, Montana 59404
Attention: Wayne S. Peterson
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER:
/s/ Joseph H. Fernandez
------------------------
Joseph H. Fernandez
2.
<PAGE>
BUTTREY FOOD AND DRUG COMPANY
601 6th Street, S.W.
Great Falls, Montana 59404
November 25, 1996
Peter J. Sodini
c/o Freeman Spogli & Co.
11100 Santa Monica Boulevard
Suite 1900
Los Angeles, California 90025
Re: Extension and Modification to Consulting Agreement made and
entered into as of the 1st day of July, 1991 by and between
Buttrey Food and Drug Company and Peter J. Sodini, as extended
and modified by letters dated April 29, 1993, October 28, 1993,
November 21, 1994 and November 20, 1995
----------------------------------------------------------------
Dear Pete:
Reference is made to that certain Consulting Agreement made and
entered into as of the 1st day of July, 1991 by and between Buttrey Food and
Drug Company (the "Company") and yourself, as extended and modified by those
certain letters dated April 29, 1993, October 28, 1993, November 21, 1994 and
November 20, 1995 (collectively, the "Agreement"). This letter is intended to
confirm our oral agreement to extend the term of the Agreement for an additional
six month term, from July 1, 1996 through December 31, 1996. The terms of the
extended Agreement are to be identical to the terms of the prior Agreement,
including, in particular, the reduced consulting fee of $75,000 per annum;
provided, however, that the Company and you hereby agree to terminate (as of
November 30, 1996) each party's obligations (previously specified in Section
3(c) of the Agreement) regarding certain medical benefits to be provided to you.
Could you please confirm our agreement regarding the extended
Agreement by executing this letter where indicated below and returning the
executed copy to my attention at the address above.
Very truly yours,
BUTTREY FOOD AND DRUG COMPANY
/s/ Joseph H. Fernandez
------------------------------------------------
Joseph H. Fernandez
Chairman, President and Chief Executive Officer
ACKNOWLEDGED AND ACCEPTED:
/s/ Peter J. Sodini
- --------------------
Peter J. Sodini
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Section 1. Purpose of Plan.
The purpose of this 1996 Non-Employee Directors Stock Option Plan
(the "Plan") of Buttrey Food and Drug Stores Company, a Delaware corporation
(the "Company"), is to provide present and prospective directors of the Company
who are not employed by the Company or affiliated with Freeman Spogli & Co.
Incorporated ("FS&Co.") with the opportunity to obtain equity ownership
interests in the Company through the exercise of stock options.
Section 2. Persons Eligible Under Plan.
Participation in this Plan is limited to non-employee directors who
are not affiliated with FS&Co. A non-employee director (referred to herein as a
"Director") is a director of the Company who, at the time stock options are
granted to him or her under the Plan, is not an employee of the Company or of
any subsidiary of the Company and who is not affiliated with FS&Co.
Section 3. Administration.
This Plan shall be administered by the Board of Directors (the
"Board") of the Company. Upon election by a Director in accordance with Section
4, the grant of options (the "Options") to purchase shares of common stock, par
value $.01 per share, of the Company (the "Common Stock") under this Plan, and
the amount, price and nature of the awards, shall be automatic as described in
Section 4. However, subject to the provisions of this Plan, the Board, in its
sole and absolute discretion, is authorized to do all things necessary or
desirable in connection with the administration of this Plan, including, without
limitation, the following:
(i) subject to Section 8, adopt, amend and rescind rules and
regulations relating to this Plan;
(ii) determine whether, and the extent to which, adjustments are
required pursuant to Section 7 hereof; and
(iii) interpret and construe this Plan and the terms and
conditions of any Option granted hereunder.
Section 4. Terms and Conditions of Options.
(a) Amount, Exercise Price and Exercisability. Each Director shall
have the right, exercisable on the date of which such Director is appointed or
elected, and again on each date upon which such Director is re-elected (the
"Annual Meeting Date"), to make an irrevocable election to receive an Option in
lieu of 100%, but not less than 100%, of the Director's Retainer (as defined
hereafter) for the coming year. Such election must be in writing and signed by
the Director making the election. The number of shares of Common Stock for which
an Option granted pursuant to this Plan is exercisable shall be equal to the
amount of the Retainer divided by 20% of the Fair Market Value of the Common
Stock on the date of grant of such Option, which shall be the six-month
anniversary of the Annual Meeting Date. The exercise price for an Option granted
pursuant to this Plan shall be 80% of the Fair Market Value of the shares of
Common Stock at the close of business on the date of grant. A Director's
"Retainer" is the cash retainer that is not dependent upon attendance at
meetings or service as a chairperson and which is fixed by the Board from time
to time. The "Fair Market Value" of a share of Common Stock on any day shall be
equal to the average, rounded to the nearest eighth, of the Quoted Prices of a
share of Common Stock for the five consecutive business days prior to the day as
of which the fair market value of the Common Stock is being determined. The
"Quoted Price" of a share of Common Stock shall be the last reported sales price
of the Common Stock as reported by the NASDAQ National Market System or, if the
Common Stock is listed on a securities exchange, the last reported sales price
of the Common Stock on such exchange which shall be for consolidated trading if
applicable to such exchange or, if the Common Stock is not so reported or
listed, the average of the last reported bid and asked price of the Common
Stock.
<PAGE>
(b) Vesting. An Option granted pursuant to this Plan shall vest
and become exercisable on, and only if the recipient of the Option (the
"Optionee") continues to serve as a Director until, the date of the Annual
Meeting of Stockholders following the date of grant of such Option.
(c) Manner of Exercise. Any vested and exercisable Option shall be
exercised by the holder thereof by giving written notice, signed by such holder,
to the Company stating the number of shares of Common Stock with respect to
which the Option is being exercised, accompanied by payment in full of the
aggregate exercise price in cash or by check payable to the Company. No Option
may be exercised with respect to any fractional share; cash shall be paid in
lieu of fractional shares. As promptly as practicable following the receipt of a
notice hereunder and subject to Section 4(a), the Company shall issue a stock
certificate registered in the name of the Optionee exercising such Option,
representing the number of shares of Common Stock issued to such Optionee upon
exercise of the Option.
(d) Termination or Expiration. Each Option shall expire on the
earlier of the tenth anniversary of the date of grant or six months after the
date the Optionee ceases to be a director of the Company.
(e) Transferability. Neither the Option nor any interest therein
may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution. During the recipient's lifetime, an Option may only be exercised
by the Optionee or the Optionee's guardian or legal representative.
(f) Payment of Withholding Taxes. If the Company is obligated by
law to withhold an amount on account of any federal, state or local tax imposed
as a result of the exercise of the Option (such amount shall be referred to
herein as the "Withholding Liability"), the Optionee shall, on the first date
upon which the Company becomes obligated to pay the Withholding Liability to the
appropriate taxing authority, pay the Withholding Liability to the Company in
full in cash or by check.
(g) Stock Exchange Requirements; Applicable Laws. Notwithstanding
anything to the contrary in this Plan, no shares of Common Stock purchased upon
exercise of an Option, and no certificate representing all or any part of such
shares shall be issued or delivered if (a) such shares have not been admitted to
listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative of regulatory
body having jurisdiction over the Company. It is the Company's intent that this
Plan comply in all respects with Rule 16b-3 of the Securities Exchange Act of
1934, as amended (the "Act"), and any regulations promulgated thereunder. If
any provision of this Plan is later found not to be in compliance with Rule 16b-
3, such provision shall be deemed null and void. All grants and exercises of
Options under this Plan shall be executed in accordance with the requirements of
Section 16 of the Act, as amended, and any regulations promulgated thereunder.
(h) Stock Option Agreement. Each grant of an Option under this
Plan shall be evidenced by an agreement duly executed on behalf of the Company
and the Optionee, dated as of the applicable date of grant. Each such agreement
shall set forth the number of Common Shares subject to the Option, the exercise
price and the date upon which the Option becomes exercisable and shall
incorporate by reference the terms and conditions of this Plan.
Section 5. Stock Subject to Plan.
(a) The maximum number of shares of Common Stock that may be
issued pursuant to all Options granted under this Plan is 75,000, subject to
adjustment as provided in Section 7 hereof (such maximum number, as so adjusted,
shall be referred to herein as the "Share Limitation").
(b) Notwithstanding Section 4(a) of this Plan, no Option shall be
granted under this Plan unless, on the date of grant, the sum of (i) the maximum
number of shares of Common Stock issuable at any time pursuant to such Option,
plus (ii) the number of shares of Common Stock that have previously been issued
pursuant to the exercise of Options granted under this Plan, plus (iii) the
maximum number of shares of Common Stock that may
A-2
<PAGE>
be issued at any time thereafter pursuant to the exercise of Options granted
under this Plan that are outstanding on such date, does not exceed the Share
Limitation.
Section 6. Duration of Plan.
(a) No Options shall be granted under this Plan after April 26,
2006. Although shares of Common Stock may be issued after April 26, 2006
pursuant to Options granted prior to such date, no shares of Common Stock shall
be issued under this Plan after April 26, 2016.
Section 7. Adjustments for Changes in Capitalization.
If the outstanding securities of the class then subject to this Plan
are increased, decreased, changed into or exchanged for a different number or
kind of shares of the Company thorough reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, upon
proper authorization of the Board of Directors, an appropriate and proportionate
adjustment shall be made in (a) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Options
theretofore granted under this Plan and (b) the maximum number and type of
shares or other securities that may be issued pursuant to Options thereafter
granted under this Plan.
Section 8. Amendment and Termination of Plan.
The Board may amend or terminate this Plan at any time and in any
manner. However, (a) no such amendment or termination shall deprive the
recipient of any Option theretofore granted under this Plan, without the consent
of such recipient, of any of his or her rights thereunder or with respect
thereto, (b) no such amendment shall be effective without the approval of the
stockholders of the Company, if stockholder approval of the amendment is then
required pursuant to Rule 16b-3 under the Act, or the applicable rules of any
securities exchange, and (c) to the extent prohibited by Rule 16b-3(c)(2)(ii)(B)
under the Act, this Plan may not be amended more than once every six months.
Section 9. Effective Date of Plan.
This Plan shall be effective as of April 26, 1996, the date upon
which it was approved by the Board; provided, however, that no shares of Common
Stock shall be issued under this Plan until it has been approved, directly or
indirectly, by the affirmative votes of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with the laws of the State of Delaware.
Section 10. No Rights as Stockholder and Rights of Directors.
Neither the recipient of an Option under this Plan nor an Optionee's
successor or successors in interest shall have rights as a stockholder of the
Company with respect to any shares of Common Stock subject to an Option granted
to such person until the date of issuance of a stock certificate for such shares
of Common Stock. Neither this Plan, nor the granting of an Option hereunder,
nor any other action taken pursuant to this Plan shall constitute or be evidence
of any agreement or understanding, express or implied, that a director has a
right to continue as a director for any period of time or at any particular rate
of compensation.
Section 11. Governing Law.
This Plan and all rights and obligations under this Plan shall be
construed in accordance with and covered by the laws of the State of Delaware.
A-3
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY
NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is entered
into as of the _____ day of ___________ 1996 (the "Grant Date") by and between
BUTTREY FOOD AND DRUG STORES COMPANY, a Delaware corporation (the "Company"),
and ________________ ("Optionee") pursuant to the Company's 1996 Non-Employee
Directors Stock Option Plan (the "Plan").
R E C I T A L S
- - - - - - - -
A. The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to give certain non-employee directors of the Company an opportunity to purchase
shares of the Company's Common Stock, $.01 par value per share (the "Common
Stock");
B. The Board has adopted and approved the Plan for the purpose of
granting nonqualified stock options to certain non-employee directors; and
C. The Company has determined to grant Optionee an option to
purchase shares of Common Stock of the Company in connection with Optionee's
election to receive such option pursuant to the terms and conditions of the
Plan.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Option; Number of Shares; Price. The Company hereby grants to
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Optionee the right to purchase (the "Option"), on the terms and conditions
hereinafter set forth, up to a maximum of ________ shares (the "Shares") of the
Common Stock of the Company, at a purchase price of $_____ per share (the
"Option Price") to be paid in accordance with Section 6 hereof. The Option and
the right to purchase all or any portion of the Shares is subject to the terms
and conditions stated in this Agreement and in the Plan, including but not
limited to the provisions of Sections 3, 4(d), 7 and 8 of the Plan and Sections
3 and 8 hereof pursuant to which the Option is subject to modification and
termination. The Option is not intended to qualify for treatment as an
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incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended.
<PAGE>
2. Vesting. The Option shall vest and become exercisable in full
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on, and only if Optionee continues to serve as a Director until, the Annual
Meeting of Stockholders following the Grant Date. Notwithstanding anything
contained in this Section 2 to the contrary, (a) if the Optionee is subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), this Option shall not be exercisable during the first six (6) months
after the date hereof, and (b) the Option shall be subject to termination as set
forth in Sections 3 and 8 hereof and in Section 3, 4(d), 7 and 8 of the Plan.
3. Termination or Expiration. This Agreement and the Option shall
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terminate upon the first to occur of the following:
(i) ten years from the date of this Agreement;
(ii) the termination of the Option as provided in Section 8 of
this Agreement; or
(iii) six months after Optionee ceases to be a non-employee
director of Company for any reason (including death or disability).
In the event of termination pursuant to clause (iii) of this Section 3, the
Option may be exercised during such six month period only to the extent the
Option was vested on the date Optionee ceased to be a non-employee director of
Company.
4. Non-Transferability of the Option. The Option and the rights and
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privileges conferred hereunder are exercisable only by Optionee (or Optionee's
guardian or legal representative) during Optionee's lifetime and may not be
sold, transferred, assigned, pledged, hypothecated or otherwise disposed of in
any way (whether by operation of law or otherwise) other than by will or by the
laws of descent and distribution, and shall not be subject to execution,
attachment or similar process. Any attempt to sell, transfer, assign, pledge,
hypothecate or otherwise dispose of the Option or of any right or privilege
conferred hereunder contrary to the provisions hereof shall be null and void.
5. Adjustments. Pursuant to Section 7 of the Plan, the number or
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kind of shares issuable upon exercise of the Option and/or the Option Price is
subject to adjustment in the event of certain stock splits, stock dividends,
reclassifications, recapitalizations and similar events affecting the
outstanding shares of Common Stock.
6. Exercise of Option. Subject to Sections 4(c), 5, 6 and 8 of the
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Plan, on or after the vesting of the Option in accordance with Section 2 hereof
and until termination of the Option in accordance with Sections 3 and 7 hereof,
the Option may be exercised by Optionee (or, such other person specified in
Section 4 hereof) to the extent exercisable as determined under Section 2
hereof, upon delivery of the following to the Company at its principal executive
offices:
2.
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(a) a written notice of exercise which identifies this Agreement and
states the number of full Shares (which may not be less than one hundred (100),
or all of the Shares if less than one hundred (100) Shares then remain covered
by the Option) of Shares then being purchased;
(b) a check, cash or any combination thereof in the amount of the
Option Price (or payment of the Option Price in such other form of lawful
consideration as the Board may approve from time to time under the provisions of
Section 3 of the Plan, including without limitation and in the sole discretion
of the Board, the assignment and transfer by Optionee to the Company of
outstanding shares of Common Stock theretofore held by Optionee in a manner
intended to comply with the provisions of Rule 16b-3 under the Exchange Act, if
applicable). Such shares of Common Stock delivered in payment of the Option
Price shall be valued at fair market value as determined by the Board on the
basis of the average, rounded to the nearest eighth, of the Quoted Prices of a
share of Common Stock for the five consecutive business days prior to the day as
of which the fair market value of the Common Stock is being determined. The
"Quoted Price" of a share of Common Stock shall be the last reported sales price
of the Common Stock as reported by the NASDAQ National Market System ("NASDAQ"),
or if the Common Stock is listed on a securities exchange, the last reported
sales price of the Common Stock on such exchange which shall be for consolidated
trading if applicable to such exchange, or if the Common Stock is not so
reported or listed, the average of the last reported bid and asked price of the
Common Stock;
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's withholding obligations under federal, state or other
applicable tax laws with respect to the taxable income, if any, recognized by
Optionee in connection with the exercise, in whole or in part, of the Option
(unless the Board has determined to allow the Optionee to, and the Optionee
elects, to pay such tax by reducing the number of shares of Common Stock issued
upon exercise of the Option (for which purpose such shares shall be valued at
fair market value as determined by the board according to subparagraph (b)
above) or unless the Company and Optionee shall have made other arrangements for
deductions or withholding from Optionee's wages, bonus or other income paid to
Optionee by the Company or the Subsidiary, provided such arrangements satisfy
the requirements of applicable tax laws); and
(d) a written representation and undertaking, if requested by the
Company pursuant to Section 7(b) hereof, in such form and substance as the
Company may require, setting forth the investment intent of Optionee, or a
successor, as the case may be, and such other agreements, representations and
undertakings as described in the Plan.
7. Representations and Warranties of Optionee.
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(a) Optionee represents and warrants that the Option and the Shares
issuable upon exercise of the Option are being acquired by Optionee for
Optionee's personal
3.
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account, for investment purposes only, and not with a view to the distribution,
resale or other disposition of the Option or the Shares issuable upon exercise
of the Option.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Common Stock under the
Securities Act of 1933, as amended (the "Act"), on the basis of certain
exemptions from such registration requirement. Accordingly, Optionee agrees
that Optionee's exercise of the Option may be expressly conditioned upon
Optionee's delivery to the Company of such representations and undertakings as
the Company may reasonably require in order to secure the availability of such
exemptions, including a representation that Optionee is acquiring the Shares for
investment and not with a present intention of selling or otherwise disposing of
such Shares. Optionee acknowledges that, because Shares received upon exercise
of an Option may be unregistered, Optionee may be required to hold the Shares
indefinitely unless they are subsequently registered for resale under the Act or
an exemption from such registration is available.
(c) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan.
8. Termination Upon Certain Events. Upon the dissolution, liquidation
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or sale of all or substantially all of the business, properties and assets of
the Company, or upon any reorganization, merger or consolidation in which the
Company does not survive, or upon any reorganization, merger or consolidation in
which the Company does survive and the Company's stockholders have the
opportunity to receive cash, securities of another corporation or other property
in exchange for their capital stock of the Company, or upon sale of
substantially all the property of the Company to, or the acquisition of stock
representing more than eighty percent (80%) of the voting power of the stock of
the Company then outstanding by, another corporation or person, this Agreement
and each outstanding Option granted hereunder shall terminate; provided, that in
such event (i) if Optionee is not tendered an option by the surviving
corporation in accordance with all of the terms of clause (ii) immediately below
or does not accept any such substituted option which is so tendered, Optionee
shall have the right until three (3) days before the effective date of such
dissolution, liquidation, reorganization, merger or consolidation to exercise,
in whole or in part, any unexpired Option or Options issued to Optionee to the
extent the Option was vested as of such effective date; or (ii) in its sole and
absolute discretion, the surviving corporation in any reorganization, merger or
consolidation may, but shall not be so obligated to, tender to Optionee an
option or options to purchase shares of the surviving corporation, and such new
option or options shall contain such terms and provisions as shall be required
to substantially preserve the rights and benefits of the Option or any portion
thereof then outstanding under this Agreement and, if accepted by Optionee, such
new option shall replace the Option under this Agreement.
4.
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9. Limitation of Company's Liability for Nonissuance. Inability of
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the Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares of its Common Stock hereunder and under the Plan
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
10. This Agreement Subject to Plan. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is available
to Optionee at the Company's principal executive offices upon request and
without charge. The interpretation of the Board of any provision of the Plan,
the Option or this Agreement, and any determination with respect thereto or
hereto by the Board, shall be final, conclusive and binding on all parties.
11. Restrictive Legends. Optionee hereby acknowledges that federal
-------------------
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
shall be removed when no longer applicable.
12. Cancellation of Option. Notwithstanding anything herein to the
----------------------
contrary, the Company may cancel the Option, or any portion thereof, at any time
if the Company determines that Optionee has (i) committed fraud, embezzlement or
other act of dishonesty involving the Company or any of its subsidiaries; (ii)
engaged in gross misconduct or deliberate disregard of the law; (iii) made any
unauthorized disclosure of any secret or confidential information of the Company
or any of its subsidiaries; (iv) engaged in any conduct which constitutes unfair
competition with the Company or any of its subsidiaries; (v) induced or
attempted to induce an employee of the Company or any of its subsidiaries to
terminate such employee's employment with the Company or any of its
subsidiaries; or (vi) induced or attempted to induce any customer of, or other
person having business relations with the Company or any of its subsidiaries to
terminate or curtail such relationship with the Company or any of its
subsidiaries.
13. No Rights as Stockholder, Employee or Director. Optionee shall
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have no rights as a stockholder of any shares of Common Stock covered by the
Option until the date (the "Exercise Date") of the issuance of a stock
certificate to the Optionee for such shares. Except as may be provided under
Section 7 of the Plan, the Company will make no adjustment for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the Exercise
Date. Nothing contained in this Agreement shall confer, intend to confer or
imply any rights to an employment relationship with the Company or the
Subsidiary in favor of Optionee, or
5.
<PAGE>
any rights to continue as a director for any period of time or at any particular
rate of compensation.
14. Notices. All notices, requests and other communications
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hereunder shall be in writing and, if given by telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
If to the Company:
Buttrey Food and Drug Stores Company
601 6th Street S.W.
Great Falls, Montana 59404
Attention: Chief Financial Officer
If to Optionee:
c/o Buttrey Food and Drug Stores Company
601 6th Street S.W.
Great Falls, Montana 59404
Attention: ________________
15. Governing Law. This Agreement shall be construed under and
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governed by the laws of the State of Delaware without regard to the conflict of
law provisions thereof.
6.
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16. Counterparts. This Agreement may be executed in counterparts,
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each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
BUTTREY FOOD AND DRUG STORES
COMPANY, a Delaware corporation
By:
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Its:
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OPTIONEE:
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7.
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Independent Auditors' Consent
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Board of Directors
Buttrey Food and Drug Stores Company:
We consent to incorporation by reference in the Registration Statements on Form
S-8 (Nos. 33-59236, 33-70750, and 33-94590) and Form S-3 (No. 33-80688) of
Buttrey Food and Drug Stores Company of our report dated April 11, 1997 relating
to the consolidated balance sheets of Buttrey Food and Drug Stores Company and
subsidiary as of February 1, 1997, February 3, 1996 and January 28, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the fiscal years in the three-year period ended February
1, 1997, which report appears in the Annual Report on Form 10-K of Buttrey Food
and Drug Stores Company for the fiscal year ended February 1, 1997.
/s/ KPMG Peat Marwick LLP
Billings, Montana
April 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> FEB-01-1997 FEB-01-1997
<PERIOD-START> NOV-03-1996 FEB-04-1996
<PERIOD-END> FEB-01-1997 FEB-01-1997
<CASH> 5,075 5,075
<SECURITIES> 0 0
<RECEIVABLES> 4,905 4,905
<ALLOWANCES> 0 0
<INVENTORY> 42,741 42,741
<CURRENT-ASSETS> 54,779 54,779
<PP&E> 152,900 152,900
<DEPRECIATION> 54,417 54,417
<TOTAL-ASSETS> 157,998 157,998
<CURRENT-LIABILITIES> 37,669 37,669
<BONDS> 27,526 27,526
0 0
0 0
<COMMON> 78,819 78,819
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 157,998 157,998
<SALES> 96,243 371,302
<TOTAL-REVENUES> 96,243 371,302
<CGS> 74,039 284,134
<TOTAL-COSTS> 74,039 284,134
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 800 2,777
<INCOME-PRETAX> 573 4,732
<INCOME-TAX> (518) 1,139
<INCOME-CONTINUING> 1,091 3,593
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,091 3,593
<EPS-PRIMARY> 0.13 0.42
<EPS-DILUTED> 0.13 0.42
</TABLE>
