<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1997
REGISTRATION NO. 333-22701
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AMERICAN STORES COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0207226
(I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
709 EAST SOUTH TEMPLE, SALT LAKE CITY, UTAH 84102
801-539-0112
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KATHLEEN E. MCDERMOTT, ESQ.
CHIEF LEGAL OFFICER
AND ASSISTANT SECRETARY
AMERICAN STORES COMPANY
709 EAST SOUTH TEMPLE
SALT LAKE CITY, UTAH 84102
TELEPHONE: 801-539-0112
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------
COPIES TO:
ERIC S. ROBINSON PAUL H. WILSON, JR. WINTHROP B. CONRAD, JR.
WACHTELL, LIPTON, ROSEN DEBEVOISE & PLIMPTON DAVIS POLK & WARDWELL
& KATZ 875 THIRD AVENUE 450 LEXINGTON AVENUE
51 WEST 52ND STREET NEW YORK, NEW YORK NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10022 TELEPHONE: 212-450-4000
10019 TELEPHONE: 212-909-6000
TELEPHONE: 212-403-1000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering in the United States (the "U.S.
Prospectus") and (ii) the other to be used in connection with a concurrent
offering outside of the United States (the "International Prospectus"). The
U.S. Prospectus and the International Prospectus are identical in all respects
except for the following pages of the International Prospectus which are
included herein after the final page of the U.S. Prospectus and are each
labeled "Alternate Page for International Prospectus": (i) the outside front
cover page, (ii) the inside front cover page, (iii) the outside back cover
page, (iv) pages 31 through 34 (replacing page 31 in the U.S. Prospectus) and
(v) pages U-1 through U-3. Final forms of each of the Prospectuses will be
filed with the Securities and Exchange Commission under Rule 424(b).
1
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 1, 1997
15,407,910 SHARES
[LOGO] AMERICAN STORES COMPANY
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
----------
Of the 15,407,910 shares of Common Stock offered, 12,326,330 shares are being
offered hereby in the United States and 3,081,580 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting".
All of the shares of Common Stock offered are being sold by the Selling
Stockholders named herein, other than shares, if any, sold in connection with
the exercise by the Underwriters of the over-allotment options, which will be
sold by the Company. The Selling Stockholders consist of members of the family
of L.S. Skaggs, the former chairman and a current director of the Company,
certain charitable trusts and foundations and certain trusts created for the
benefit of members of the Skaggs family. The Offerings are conditioned upon the
Company's repurchase of 12,222,222 shares of Common Stock from the Selling
Stockholders at $45 per share, and all such transactions are expected to be
consummated simultaneously. After the Offerings and the Repurchase, the Selling
Stockholders will beneficially own an aggregate of less than one percent of the
outstanding shares of Common Stock. See "Selling Stockholders". The Company
will not receive any of the proceeds from the sale of the shares offered
hereby, other than proceeds from the sale of shares, if any, sold in connection
with the exercise by the Underwriters of the over-allotment options.
The last reported sale price of the Common Stock, which is listed under the
symbol "ASC" on the New York Stock Exchange, the Chicago Stock Exchange, the
Pacific Stock Exchange and the Philadelphia Stock Exchange, was $44 1/2 per
share on the New York Stock Exchange on March 31, 1997. See "Price Range of
Common Stock and Dividend Policy".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) STOCKHOLDERS (2)
-------------- ------------ -------------------
<S> <C> <C> <C>
Per Share...................... $ $ $
Total (3)...................... $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Estimated expenses of $675,000 are payable by the Company. In addition, the
Company has agreed to pay part or all of the underwriting discount to the
extent the net proceeds to the Selling Stockholders would otherwise be less
than $45 per share. See "Selling Stockholders--Selling Stockholders'
Agreements".
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 1,848,949 shares of Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, the Company has granted the
International Underwriters a similar option with respect to an additional
462,237 shares as part of the concurrent international offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount, proceeds to Selling Stockholders and proceeds to
Company will be $ , $ , $ and $ , respectively. See
"Underwriting".
----------
Goldman, Sachs & Co. is acting as book running lead manager for the
Offerings. Goldman, Sachs & Co. and J.P. Morgan & Co. are acting as joint lead
managers. The shares offered hereby are offered severally by the U.S.
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York, on or about , 1997 against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO. J.P. MORGAN & CO.
Joint Lead Managers
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
----------
The date of this Prospectus is , 1997.
<PAGE>
[MAP DEPICTING STORE LOCATIONS, LOGOS OF STORE
OPERATING NAMES]
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661, Suite 1400; and 7 World Trade
Center, New York, New York 10048; or from the Commission's worldwide web site
at http://www.sec.gov. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy statements
and other information are also available for inspection and copying at the
offices of each of the following exchanges on which the Company's Common Stock
is listed: The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005; the Chicago Stock Exchange, Inc., 440 South LaSalle Street,
Chicago, Illinois 60605; the Pacific Stock Exchange, Inc., 301 Pine Street,
San Francisco, California 94104; and the Philadelphia Stock Exchange, Inc.,
1900 Market Street, Philadelphia, Pennsylvania 19103.
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is hereby made to such
Registration Statement, including the exhibits filed as part thereof. The
Registration Statement and the exhibits thereto may be inspected without
charge at the office of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 and copies thereof may be obtained from the Commission at
prescribed rates.
CAUTIONARY NOTE: This Prospectus and certain of the documents incorporated
herein by reference contain certain forward-looking statements about the
future performance of the Company which are based on management's assumptions
and beliefs in light of the information currently available to it. These
forward-looking statements are subject to uncertainties and other factors that
could cause actual results to differ materially from such statements
including, but not limited to: competitive practices and pricing in the food
and drug industries generally and particularly in the Company's principal
markets; the ability of the Company to implement the Company's Delta
initiatives in accordance with the currently contemplated schedule and budget;
changes in the financial markets which may affect the Company's cost of
capital and the ability of the Company to access the public debt and equity
markets to refinance indebtedness and fund the Company's capital expenditure
program on satisfactory terms; supply or quality control problems with the
Company's vendors; and changes in economic conditions which affect the buying
patterns of the Company's customers.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company (File No. 1-5392)
with the Commission pursuant to the Exchange Act are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996, which incorporates by reference certain portions of (a)
the Company's 1995 Annual Report to Stockholders and (b) the Company's
proxy statement for the 1996 Annual Meeting of Stockholders;
2. The Company's Quarterly Reports on Form 10-Q for each of the thirteen
week periods ended May 4, 1996, August 3, 1996 and November 2, 1996;
3. The Company's Current Reports on Form 8-K dated July 2, 1996,
September 23, 1996 and February 21, 1997; and
4. Amendment No. 5 to the Company's Registration Statement on Form 8-A,
Commission File No. 1-5392, filed with the Commission on February 25, 1997,
in which there is described the terms, rights and provisions applicable to
the Company's Preferred Share Purchase Rights, and any similar report or
amendment filed subsequently for the purpose of updating such description.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the shares shall be
deemed to be incorporated by reference herein and to be part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement as modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or
oral request of such person, a copy of any or all of the documents which have
been or may be incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to American
Stores Company, 709 East South Temple, Salt Lake City, Utah 84102, P.O. Box
27447, Salt Lake City, Utah 84127-0447, Attention: Investor Relations
(telephone: 801-539-0112).
4
<PAGE>
THE COMPANY
American Stores Company is one of the nation's leading food and drug
retailers with annual sales in its fiscal year ended February 1, 1997 of $18.7
billion. The Company is principally engaged in a single industry segment, the
retail sale of food and drug merchandise. The Company's principal food
operations are Acme Markets, Jewel Food Stores, Lucky Stores Northern
California Division, Lucky Stores Southern California Division and Jewel Osco
Southwest. The Company's drug stores operate under the Osco Drug and Sav-on
names. As of February 1, 1997, the Company operated 1,695 stores in 27 states,
including 166 combination stores which are jointly operated by the Company's
food and drug store operations and are each counted as two separate stores.
The Company's principal executive offices are located at 709 East South
Temple, Salt Lake City, Utah 84102 (telephone: 801-539-0112). References to
the "Company" in this Prospectus include American Stores Company and its
subsidiaries unless the context otherwise requires.
In 1993, the Company made a strategic decision to move from a holding
company orientation to an operating company approach to take advantage of the
size and strength of its operations. Key aspects of the Company's strategy and
business strengths are:
STRONG MARKET POSITIONS
The Company's food and drug store operations hold leading market positions,
generally number one or two, in each of their core market areas. The Company
works to maintain and expand its strong market positions by significantly
investing in core market areas.
MAINTAIN A MODERN STORE BASE
Over the last several years, the Company has significantly increased its
capital spending to improve and expand its store base. Capital spending grew
from $565 million in 1994 to $801 million in 1995, and to $1 billion in 1996.
New and replacement stores are an increasingly important focus of the capital
spending program, accounting for 34% of capital spending in 1994, 45% in 1995,
and 57% in 1996, and are expected to account for over 50% of capital spending
in 1997. The Company expects to continue to make significant investments in
its store base. In 1997, the Company plans to spend approximately $1 billion
for capital expenditures. The Company plans to open over 100 new and
replacement stores (including 20 jointly operated combination stores which are
each counted as two separate stores) and to remodel approximately 100 stores
in 1997.
EMPHASIZE COMPETITIVE FORMATS
The type and mix of store formats must keep pace with the constant changes
in customers' needs and tastes. The Company believes that the success of
individual food and drug stores is enhanced when they are paired together in a
combination store that maintains the identity and full selection of each. The
Company also believes that having both combination food and drug stores and
stand-alone drug stores in the same market better enables it to meet customer
needs. New stores currently being developed are combination food and drug
stores of approximately 65,000 square feet and stand-alone drug stores of
approximately 16,500 square feet. Currently, the Company operates 233
combination stores (including 166 combination stores jointly operated by the
Company's food and drug operations) and plans to open an additional 32
combination stores in 1997 (including 20 jointly operated combination stores).
DELTA INITIATIVES
Delta is a series of initiatives that is transforming the Company from seven
regional, autonomous business units to a single centrally focused operating
company. Delta seeks to build on the size of the Company and develop common
business processes and systems to best manage growth for the future. Following
completion of all of the Delta initiatives, the Company expects to be able to
buy products and move them through the supply chain more quickly, efficiently
and cost-effectively. The information gathered from the common systems and
processes will also assist the Company's marketing and merchandising programs
which are designed to enhance sales and margin growth.
5
<PAGE>
RECENT DEVELOPMENTS
1996 FOURTH QUARTER AND FISCAL YEAR RESULTS
On March 4, 1997, the Company announced 1996 fourth quarter earnings of $.85
per share before special charges compared to $.83 per share in the fourth
quarter of 1995. The 1996 fourth quarter was 13 weeks compared to 14 weeks in
the 1995 fourth quarter. On February 3, 1997, the Company announced special
charges aggregating approximately $100 million pre-tax, or $.41 per share
after-tax, taken in the fourth quarter of 1996. These charges related largely
to a write off of the book value of existing assets related to the
implementation of the Delta initiatives, including the consolidation of four
general merchandise warehouses as well as the Company's administrative
offices, which are currently in progress and are expected to be completed
within the 1997 fiscal year. Reported fourth quarter 1996 earnings after the
special charges were $.44 per share.
Before the special charges, earnings were $2.38 per share in 1996 compared
to $2.16 per share in 1995. Reported earnings after the special charges for
the 1996 fiscal year were $1.97 per share. Fiscal year 1996 had 52 weeks while
fiscal year 1995 had 53 weeks.
Total sales in the fourth quarter were $4.9 billion, compared with $5.1
billion in the prior year. Sales for the quarter without the impact of the
extra week in 1995 increased 3.6%. For the year, total sales were $18.7
billion, compared with $18.3 billion in the prior year. Comparable store sales
were up 2.3% for the quarter and up 3.3% for the entire fiscal year.
Operating profit in the fourth quarter of 1996 before special charges
increased 5.1% to $265.2 million (5.4% of sales) compared with $252.3 million
(5.0% of sales) in the prior year. Of the $100 million in special charges,
special charges affecting operating profit were $25.5 million and were not
reported as components of either food store operations or drug store
operations. An additional $74.5 million of special charges were classified as
other non-operating expense. For the year, operating profit before special
charges increased 11.4% to $787.2 million (4.2% of sales) in 1996 compared
with $706.8 million (3.9% of sales) in 1995. The LIFO charge for 1996 was
$11.4 million compared to $12.8 million in 1995.
Operating profit in the fourth quarter for the food store operations was
5.1% of sales compared with 4.6% of sales in the comparable period of the
prior year. The higher operating profit percentage was attributable primarily
to better product mix, lower product costs, benefits from centralized
procurement and lower advertising expenses.
Operating profit in the fourth quarter at the Company's drug store
operations increased to 6.4% of sales from 6.1% of sales in the comparable
period of the prior year. Lower operating expenses were achieved despite the
added expense associated with more store openings when compared to 1995. A
total of 45 drug stores were opened in the fourth quarter compared with 30 in
the prior year fourth quarter.
Interest expense increased to $46.1 million for the quarter from $42.1
million in the comparable period of the prior year due to increased debt
levels. Outstanding debt totaled $2.7 billion, and the ratio of total debt to
total capitalization was 51.4%, at the end of fiscal 1996, up from 48.8% at
the end of fiscal 1995. The increase in debt is primarily attributable to the
Company's capital expenditure program as well as stock repurchases made
earlier in the year.
Earnings before interest, income taxes, depreciation and amortization, LIFO
charges, and special charges ("FIFO EBITDA") as a percent of sales was 7.4% in
the fourth quarter compared with 6.7% in the comparable period of the prior
year. For the year, total FIFO EBITDA was $1.2 billion before special charges
or 6.6% of sales compared with $1.1 billion or 6.2% of sales in 1995.
6
<PAGE>
Capital expenditures totaled $324.6 million in the fourth quarter and $1.0
billion for the year. The Company anticipates total 1997 capital expenditures
will also be approximately $1.0 billion.
During the fourth quarter of 1996, the Company opened 58 new stores,
completed 14 remodels and closed 24 stores. For the year, the Company opened
or acquired 122 new stores, completed 94 remodels and closed 77 stores. Of the
122 total new stores for the year, 23 jointly operated food and drug
combination stores are each counted as two stores. Total retail square footage
increased by 3.8 percent for the year.
In connection with the foregoing summary, reference is made to the Company's
audited financial statements for the year ended February 1, 1997 included
herein beginning on page F-1.
In anticipation of the expiration of the 1992 Key Executive Stock Purchase
Incentive Plan, the Board of Directors recently approved a new stock-based
management incentive program. The new program will continue to link executive
incentive compensation to stockholder return. The program involves the grant
of market-priced stock options that would ordinarily begin to vest on the
fifth anniversary of the grant date but which will vest on an accelerated
basis in part if stock ownership requirements are satisfied and in part if the
Company achieves annual performance goals. A total of approximately 1.8
million options were granted to 16 senior officers under the program on
February 24, 1997, and a total of approximately 1.3 million options were
granted to an additional 30 senior officers on March 27, 1997, in each case
with an exercise price of $45 per share. The Compensation and Stock Option
Committee intends to grant approximately 1.2 million additional options to the
same 46 officers, and to grant approximately 2.2 million options to 113 other
officers of the Company, if a new stock incentive plan is approved by the
Company's stockholders at the 1997 annual stockholders' meeting.
----------------
The selected consolidated financial data set forth in the table below should
be read in conjunction with the Company's consolidated financial statements
and notes thereto included or incorporated by reference in this Prospectus.
The selected consolidated financial data for the 14 and 13 weeks ended
February 3, 1996 and February 1, 1997, respectively, have been derived from
the Company's unaudited financial statements and contain all adjustments that
are of a normal and recurring nature necessary to present fairly the financial
position and results of operations for such periods. The selected consolidated
financial data for the 53 weeks ended February 3, 1996 and the 52 weeks ended
February 1, 1997 (other than the information under "Income Statement" which is
derived from the Company's consolidated financial statements which have been
audited by Ernst & Young LLP, independent auditors) have been derived from the
Company's unaudited financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
14 WEEKS 13 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 1, FEBRUARY 3, FEBRUARY 1,
1996 1997(1) 1996 1997(1)
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT:
Sales.................. $5,090,584 $4,909,673 $18,308,894 $18,678,129
Cost of merchandise
sold, including
warehousing and
transportation
expenses(2)........... (3,757,281) (3,583,165) (13,558,690) (13,713,151)
---------- ---------- ----------- -----------
Gross profit........... 1,333,303 1,326,508 4,750,204 4,964,978
Operating and
administrative
expenses(2)........... (1,080,965) (1,086,862) (4,043,381) (4,203,302)
---------- ---------- ----------- -----------
Operating profit....... 252,338 239,646 706,823 761,676
Other income
(expense):
Interest expense....... (42,065) (46,067) (159,545) (171,558)
Other income
(expense), net........ (133) (77,106) 3,638 (85,566)
---------- ---------- ----------- -----------
Total other income
(expense)............. (42,198) (123,173) (155,907) (257,124)
Earnings before income
taxes................. 210,140 116,473 550,916 504,552
Federal and state
income taxes.......... (88,596) (52,378) (234,107) (217,331)
---------- ---------- ----------- -----------
Net Earnings........... $ 121,544 $ 64,095 $ 316,809 $ 287,221
========== ========== =========== ===========
Earnings per share..... $ .83 $ .44 $ 2.16 $ 1.97
========== ========== =========== ===========
Average common
shares................ 146,390 145,829 146,943 145,888
========== ========== =========== ===========
COMPARABLE STORE SALES:
Eastern food
operations............ 3.9% (0.5)% 1.5% 2.2%
Western food
operations............ 0.1% 2.0% (0.8)% 2.4%(3)
Food store
operations............ 1.8% 0.9% 0.3% 2.3%(3)
Drug store
operations............ 4.2% 5.9% 4.8% 5.8%
---------- ---------- ----------- -----------
Total................ 2.5% 2.3% 1.4% 3.3%(3)
========== ========== =========== ===========
SALES:
Food store
operations............ $3,643,342 $3,442,868 $13,301,742 $13,420,395
Drug store
operations............ 1,443,570 1,457,902 4,995,389 5,227,308
Other.................. 3,672 8,903 11,763 30,426
---------- ---------- ----------- -----------
Total sales.......... $5,090,584 $4,909,673 $18,308,894 $18,678,129
========== ========== =========== ===========
OPERATING PROFIT:
Food store
operations............ $ 168,434 $ 177,250 $ 542,936 $ 608,286
Drug store
operations............ 87,666 93,201 245,440 259,924
LIFO................... 11,194 10,592 (12,806) (11,408)
Purchase accounting
amortization.......... (18,992) (19,758) (76,877) (78,654)
Other.................. 4,036 3,880 8,130 9,047
Special charges........ 0 (25,519) 0 (25,519)
---------- ---------- ----------- -----------
Total operating
profit.............. $ 252,338 $ 239,646 $ 706,823 $ 761,676
========== ========== =========== ===========
OTHER STATISTICS DURING
THE PERIOD:
Stores opened.......... 42 58 92 122
Stored closed.......... 17 24 39 77
OTHER STATISTICS AT YEAR
END:
Total stores........... 1,650 1,695
Total retail square
footage (in
millions)............. 32.5 33.8
Square footage
increase.............. 4.3% 3.8%
</TABLE>
- --------
(1) Includes special charges of $100.0 million, pre-tax ($.41 per share, after
tax) included in cost of merchandise sold ($10.0 million), operating and
administrative expenses ($15.5 million) and other income (expense) ($74.5
million). Earnings per share before the special charges were $.85 and
$2.38 for the quarter and fiscal year, respectively.
(2) Beginning with the first quarter of 1996, advertising expense is
classified as cost of merchandise sold, rather than operating expense.
Prior periods have been reclassified to conform to the new presentation.
(3) Excluding the estimated impact of the Lucky Stores Northern California
Division nine-day labor dispute in the first quarter of 1995, the increase
in western food operations, food store operations and total comparable
store sales for the 52 weeks ended February 1, 1997 would have been 1.9%,
2.0% and 3.0%, respectively.
8
<PAGE>
SELLING STOCKHOLDERS' AGREEMENTS
On February 20, 1997, the Company entered into agreements with the family of
L.S. Skaggs, a director and former Chairman of the Board of the Company,
certain charitable trusts and foundations and certain trusts created for the
benefit of members of the Skaggs family (collectively, the "Selling
Stockholders") for the repurchase (the "Repurchase") by the Company from the
Selling Stockholders of 12,222,222 shares of Common Stock for $45 per share,
the closing price of the Common Stock on the New York Stock Exchange on such
date. The Offerings are conditioned upon the Repurchase and all such
transactions are expected to be consummated simultaneously. See "Selling
Stockholders--Selling Stockholders' Agreements".
FINANCING PLANS
On March 28, 1997, the Company increased the capacity of its existing
revolving credit facility (the "Credit Facility") from $1 billion to $2
billion, which includes a $1.5 billion five-year revolving credit facility and
a $500 million 364-day revolving credit facility (the "Amended Credit
Facilities").
The Company intends to finance the $550 million Repurchase initially through
the Amended Credit Facilities. Subject to market conditions, the Company
intends to refinance the indebtedness incurred in connection with the
Repurchase through public equity and/or debt issuances over the next six to
twelve months. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices
for the Common Stock. There can be no assurance that the Company will be able
to complete such refinancings successfully. If unable to do so, the Company
may be required to adopt one or more alternatives such as reducing or delaying
its capital expenditures or selling assets.
9
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange, the Chicago Stock
Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange under
the symbol "ASC". The following table sets forth the high and low reported
sales prices for the Common Stock for the fiscal periods indicated as reported
on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter........................................... $26 1/8 $23 1/4
Second Quarter.......................................... 29 3/4 24 3/4
Third Quarter........................................... 30 3/4 28 1/8
Fourth Quarter.......................................... 30 3/4 24 7/8
1996
First Quarter........................................... $34 1/4 $25 3/8
Second Quarter.......................................... 41 1/4 32
Third Quarter........................................... 42 3/4 37 1/2
Fourth Quarter.......................................... 45 3/8 38 3/8
1997
First Quarter (through March 31, 1997).................. $45 7/8 $41 5/8
</TABLE>
See the cover page of this Prospectus for a recent sales price for the
Common Stock on the New York Stock Exchange.
The Company currently pays regular quarterly cash dividends and, while
future dividends will be subject to the discretion of the Company's Board of
Directors, the Board of Directors currently intends to continue this policy.
Future dividends will depend upon the Company's results of operations,
financial condition, capital expenditure program and debt repayment
requirements and other factors, some of which are beyond the Company's
control. There can be no assurance as to whether or when the Company's Board
of Directors will change the current policy regarding dividends.
USE OF PROCEEDS
The Company will not receive any proceeds from the Offerings, other than
proceeds from the sale of shares, if any, sold in connection with the exercise
by the Underwriters of the over-allotment options. If the over-allotment
options are exercised, the Company intends to use the net proceeds from such
sale to repay short-term debt under the Company's bank credit lines or the
Amended Credit Facilities. The amount of outstanding debt borrowed directly
under the Credit Facility, at a weighted average interest rate of 5.6%, was
$957 million at February 1, 1997, of which $123 million was owed to Morgan
Guaranty Trust Company of New York, the agent bank under the Credit Facility
and the Amended Credit Facilities. The Company intends to incur additional
indebtedness under the Amended Credit Facilities in connection with the
Repurchase. In addition, the Company had $100 million outstanding at February
1, 1997 under a 364-day credit line with Morgan Guaranty Trust Company of New
York, at an interest rate of 5.7%. Morgan Guaranty Trust Company of New York,
a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated, is an affiliate
of each of J.P. Morgan Securities Inc., a manager of the U.S. Offering, and
J.P. Morgan Securities Ltd., a manager of the International Offering. See
"Underwriting".
10
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company as
of February 1, 1997, and pro forma to give effect to the Repurchase and the
borrowings under the Amended Credit Facilities to finance the Repurchase. The
Company will not receive any of the proceeds from the sale of the shares of
Common Stock in the Offerings (other than proceeds from the sale of shares, if
any, sold in connection with the exercise by the Underwriters of the over-
allotment options).
<TABLE>
<CAPTION>
FEBRUARY 1, 1997
--------------------
ACTUAL PRO FORMA(1)
------ ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Current maturities of long-term debt...................... $ 57 $ 57
Current obligations under capital leases.................. 9 9
Long-term debt, less current maturities:
Credit facilities and bank lines of credit(2)........... 1,140 1,690
Other unsecured senior debt............................. 1,346 1,346
Debt secured by real estate............................. 71 71
Capital leases.......................................... 56 56
------ ------
Total debt............................................ 2,679 3,229
Shareholders' equity:
Common Stock, par value $1.00; 325,000,000 shares
authorized; 149,889,236 shares issued.................. 150 150
Additional paid-in capital.............................. 362 362
Retained earnings....................................... 2,137 2,137
Less cost of treasury stock (3,974,595 shares as of
February 1, 1997; 16,196,817 shares as adjusted)....... (114) (664)
------ ------
Total shareholders' equity............................ 2,535 1,985
------ ------
Total capitalization................................ $5,214 $5,214
====== ======
Total debt to total capitalization(3)................. 51.4% 61.9%
====== ======
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment options. Does not
give effect to the possible payment by the Company of the underwriting
discounts and commissions in connection with the Offerings. See "Selling
Stockholders--Selling Stockholders' Agreements".
(2) At February 1, 1997, $957 million was drawn under the Company's $1 billion
Credit Facility, which is available for direct borrowings and as backup
support for commercial paper. At February 1, 1997, the Company also had
available an additional $250 million and $320 million under committed and
uncommitted bank lines, respectively, of which $183 million was outstanding
under the committed bank lines and none was outstanding under the
uncommitted bank lines. On March 28, 1997, the Company increased the
capacity of the Credit Facility from $1 billion to $2 billion through the
Amended Credit Facilities, which includes a $1.5 billion five-year
revolving credit facility and a $500 million 364-day revolving credit
facility.
(3) Total debt consists of debt plus obligations under capital leases. Total
capitalization consists of total debt plus shareholders' equity.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data in the following table (other than
the financial data for the 39-week periods ended October 28, 1995 and November
2, 1996 and the information under "Other Data," which are unaudited) for each
of the five years in the period ended February 3, 1996 have been derived from
the Company's consolidated financial statements which have been audited by
Ernst & Young LLP, independent auditors. The selected consolidated financial
data should be read in conjunction with the Company's consolidated financial
statements and notes thereto incorporated by reference in this Prospectus. The
selected consolidated financial data for the 39 weeks ended October 28, 1995
and November 2, 1996 have been derived from the Company's unaudited financial
statements and contain all adjustments that are of a normal and recurring
nature necessary to present fairly the financial position and results of
operations for such periods. The results of operations for the 39 weeks ended
November 2, 1996 are not necessarily indicative of the results expected for
the full fiscal year 1996. The Company's earnings are subject to seasonality,
which is common in the food and drug industry. The holiday season and
increased cold and flu occurrences in the fourth quarter benefit the food and
drug operations. In addition, the fourth quarter includes LIFO inventory
adjustments. See "Recent Developments".
12
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
----------------------------------------------------------------- ------------------------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1992 1993 1994 1995 1996(1) 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Sales.................. $20,822,956 $19,051,180 $18,763,439 $18,355,126 $18,308,894 $13,218,310 $13,768,456
Cost of merchandise
sold, including
warehousing and
transportation
expenses(2)........... 15,812,334 14,250,344 13,985,115 13,603,882 13,558,690 9,801,409 10,129,986
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........... 5,010,622 4,800,836 4,778,324 4,751,244 4,750,204 3,416,901 3,638,470
Operating and
administrative
expenses(2)........... 4,408,634 4,177,522 4,136,442 4,101,176 4,043,381 2,962,416 3,116,440
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating profit....... 601,988 623,314 641,882 650,068 706,823 454,485 522,030
Other income (expense):
Interest income........ 2,861 4,477 4,568 6,789 8,747 7,150 5,014
Interest expense....... (265,098) (214,394) (189,773) (170,703) (159,545) (117,480) (125,491)
Other.................. 98,717 (35,116) 24,128 120,109 (5,109) (3,379) (13,474)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other income
(expense)............. (163,520) (245,033) (161,077) (43,805) (155,907) (113,709) (133,951)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings before income
taxes, extraordinary
item and before
cumulative effect of
changes in accounting
principle............. 438,468 378,281 480,805 606,263 550,916 340,776 388,079
Federal and state
income taxes.......... (198,452) (170,815) (218,715) (261,079) (234,107) (145,511) (164,953)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings before
extraordinary item and
cumulative effect of
changes in accounting
principle............. 240,016 207,466 262,090 345,184 316,809 195,265 223,126
Extraordinary item--
early retirement of
debt, net of taxes.... (15,000)
Cumulative effect of
changes in accounting
principle--
Postretirement health
care benefits......... (40,734)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings........... $ 199,282 $ 207,466 $ 247,090 $ 345,184 $ 316,809 $ 195,265 $ 223,126
=========== =========== =========== =========== =========== =========== ===========
Average common shares
outstanding (in
thousands)(3)......... 138,364 140,314 142,202 142,767 146,943 147,142 145,907
Earnings per common
share before
extraordinary item and
cumulative effect of
changes in accounting
principle(3).......... $ 1.73 $ 1.48 $ 1.85 $ 2.42 $ 2.16 $ 1.33 $ 1.53
Extraordinary item(3).. (.11)
Cumulative effect of
changes in accounting
principles--
Postretirement health
care benefit(3)....... (.29)
=========== =========== =========== =========== =========== =========== ===========
Net earnings per common
share(3).............. $ 1.44 $ 1.48 $ 1.74 $ 2.42 $ 2.16 $ 1.33 $ 1.53
=========== =========== =========== =========== =========== =========== ===========
Fully diluted earnings
per share(3).......... $ 1.41 $ 1.44 $ 1.69 $ 2.33 $ 2.16 $ 1.33 $ 1.53
=========== =========== =========== =========== =========== =========== ===========
OTHER FINANCIAL DATA:
Gross profit margin.... 24.1% 25.2% 25.5% 25.9% 25.9% 25.8% 26.4%
Operating profit
margin................ 2.9% 3.3% 3.4% 3.5% 3.9% 3.4% 3.8%
Capital
expenditures(4)....... $ 378,593 $ 476,617 $ 652,928 $ 565,313 $ 801,371 $ 557,560 $ 675,410
Depreciation and
amortization.......... 386,916 370,439 384,307 407,286 404,562 302,305 330,417
Total assets........... 7,198,050 6,763,793 6,927,434 7,031,566 7,362,964 7,174,573 7,840,217
Working capital........ 162,889 101,215 (58,290) 200,664 96,264 108,374 361,236
Total debt............. 2,798,578 2,248,316 2,167,999 2,205,291 2,240,168 2,190,405 2,558,247
Shareholders' equity... 1,366,430 1,544,014 1,742,285 2,050,921 2,354,496 2,246,731 2,491,550
FIFO EBITDA(5)......... 1,125,382 979,663 1,062,089 1,192,437 1,127,829 784,561 865,987
Cash dividends per
common share(3)....... $ .32 $ .36 $ .40 $ .48 $ .56 $ .42 $ .48
OTHER DATA:
Comparable store sales
increase (decrease)... 0.1% (0.5)% (0.7)% 0.5% 1.4% 0.9% 3.6%
Total stores(6)........ 1,631 1,672 1,695 1,597 1,650 1,625 1,661
Total retail square
footage (in
thousands)............ 34,428 32,320 32,727 31,179 32,523 31,855 33,060
Number of stores
opened/acquired(6).... 38 151 98 49 92 50 64
</TABLE>
- -------
(1) Fifty-three week fiscal year.
(2) Beginning with the first quarter of 1996, advertising expense is
classified as cost of merchandise sold, rather than operating expense.
Prior periods have been reclassified to conform to the new presentation.
(3) Restated as necessary to reflect the April 1994 two-for-one common stock
split.
(4) Amount includes capitalized leases and the net present value of property,
plant and equipment leased under operating leases.
(5) Earnings before LIFO inventory charges, interest expense, taxes,
depreciation and amortization. EBITDA is not derived pursuant to generally
accepted accounting principles ("GAAP") and therefore should not be
construed as an alternative to operating profit, as an alternative to cash
flows from operating activities (as determined in accordance with GAAP) or
as a measure of liquidity.
(6) Includes jointly operated combination stores which are each counted as two
separate stores.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
39 WEEKS ENDED NOVEMBER 2, 1996 COMPARED TO 39 WEEKS ENDED OCTOBER 28, 1995
The percentage changes in comparable store sales and total sales for the
third quarter and first thirty-nine weeks of 1996 and 1995 are presented in
the tables below. The increases in sales during the third quarter and the
first thirty-nine weeks of 1996 are primarily a result of increased capital
spending and more effective marketing efforts, including preferred customer
cards, clipless coupons and targeted marketing promotions at the food store
operations. Drug store sales increased due primarily to increased targeted
marketing efforts, capital spending and increased pharmacy sales. Comparable
and total sales for the first thirty-nine weeks of 1996 also increased due to
the impact of a nine-day labor dispute in the first quarter of 1995 in the
western food operations.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
NOVEMBER 2, 1996 NOVEMBER 2, 1996
---------------- ----------------
<S> <C> <C>
Comparable Store Sales % Change (1):
Eastern food operations (2)................... 3.0% 3.1%
Western food operations (3)................... 2.5 2.6
Food store operations (4)..................... 2.7 2.8
Drug store operations (5)..................... 6.3 5.8
Total comparable store sales % change....... 3.7% 3.6%
</TABLE>
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
OCTOBER 28, NOVEMBER 2, OCTOBER 28, NOVEMBER 2,
1995 1996 % CHANGE 1995 1996 % CHANGE
----------- ----------- -------- ----------- ----------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Food store operations... $3,207,272 $3,301,013 2.9% $ 9,658,400 $ 9,977,527 3.3%
Drug store operations... 1,150,858 1,254,618 9.0 3,551,819 3,769,406 6.1
Other................... 3,053 7,731 8,091 21,523
---------- ---------- ----------- -----------
Total sales............. $4,361,183 $4,563,362 4.6% $13,218,310 $13,768,456 4.2%
========== ========== =========== ===========
</TABLE>
- --------
(1) Comparable store sales include stores open one year or more and
replacement stores.
(2) Eastern food operations include Acme Markets (including the drug store
operations of its combination stores) and Jewel Food Stores.
(3) Western food operations include Lucky Northern California Division, Lucky
Southern California Division and Jewel Osco Southwest (including the drug
store operations of 21 combination stores).
(4) Food store operations include eastern and western food operations.
(5) Drug store operations include Osco Drug and Sav-on.
Beginning in the first quarter of 1996, the Company is classifying
advertising expense as a cost of merchandise sold. Previously these expenses
were classified as operating expenses. Prior years have been reclassified to
conform to the current year presentation.
Gross profit as a percent of sales increased to 26.7% in the third quarter
and 26.4% for the first thirty-nine weeks of 1996, compared to 26.3% and 25.8%
in the same periods of 1995, respectively. These increases were primarily a
result of increased margins from higher private label penetration, better
product mix, improved shrink control and decreased advertising costs.
Additionally, margins as a percent of sales in the first thirty-nine weeks of
1995 were negatively impacted by the nine-day labor dispute in the western
food operations in the first quarter of 1995.
Operating expense as a percent of sales increased slightly to 22.8% in the
third quarter of 1996, compared to 22.7% in the third quarter of 1995 and
22.6% in the first thirty-nine weeks of 1996 compared to 22.4% in the first
thirty-nine weeks of 1995. These increases were primarily a result of
14
<PAGE>
increased expenses related to the capital investment program and new store
openings. Comparisons with the prior year period in the food store operations
were also impacted by the 1995 renegotiation of a labor contract with the
United Food and Commercial Workers International in southern California in
which certain health and welfare savings, which were being recognized over the
life of the contract, were immediately recognized in the third quarter of
1995. These items were slightly offset by a decrease in operating expenses as
a percent of sales primarily due to better cost control and by reductions in
self-insurance costs.
Total operating profit for the third quarter and the first thirty-nine weeks
of 1995 and 1996 is presented in the table below. Operating profit was 3.9% of
sales in the third quarter of 1996 compared to 3.5% of sales in the third
quarter of 1995. Operating profit for the first thirty-nine weeks of 1996 was
3.8% of sales compared to 3.4% of sales for the same period in 1995. The
improvement in third quarter operating profit was due mainly to increased
sales and higher margins. The improvement in the first thirty-nine weeks of
1996 reflected higher operating profits in the food store operations due
primarily to the negative impact of the nine-day labor dispute in northern
California in 1995.
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
OCTOBER 28, NOVEMBER 2, OCTOBER 28, NOVEMBER 2,
1995 1996 1995 1996
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating Profit:
Food store operations......... $135,219 $151,467 $374,502 $431,036
Drug store operations......... 43,595 50,020 157,774 166,723
LIFO.......................... (6,000) (6,000) (24,000) (22,000)
Purchase accounting amortiza-
tion......................... (19,400) (19,752) (57,885) (58,896)
Other......................... 1,218 1,827 4,094 5,167
-------- -------- -------- --------
Total operating profit...... $154,632 $177,562 $454,485 $522,030
======== ======== ======== ========
</TABLE>
Interest expense increased in the third quarter and the first thirty-nine
weeks of 1996 over the same periods in 1995 due to an increase in average
outstanding debt and the issuance of $350 million, thirty-year 8% debentures
during the second quarter of 1996, which partially replaced short-term
variable rate debt.
The Company's effective income tax rate was 42.5% in the first thirty-nine
weeks of 1996 compared to 42.7% in the same period in 1995. The effective tax
rate was down due to higher earnings in the first thirty-nine weeks of 1996
and lower state tax rates.
Net earnings per share amounted to $.52 per share in the third quarter of
1996 compared to $.46 per share in the same quarter of the prior year. Net
earnings per share amounted to $1.53 per share in the first thirty-nine weeks
of 1996 compared to $1.33 per share for the same period of 1995.
1995 COMPARED TO 1994 AND 1993
Total sales and the percentage change in comparable store sales for the 1995
53-week fiscal year and the 1994 and 1993 52-week fiscal years are set forth
in the tables below. The decrease in total sales is primarily attributable to
the disposition of the 33-store Star Market food division in the third quarter
of 1994 and the 45 Acme Markets stores in the fourth quarter of 1994
("disposed of operations"). Sales from continuing operations increased 4.5% in
1995, and decreased 0.3% in 1994 and 0.2% in 1993. The increase in sales from
continuing operations in 1995 is primarily a result of improved performance at
all three operating divisions and the extra week of operations. Comparable
store sales (sales from stores that have been open at least one year,
including replacement stores) increased 1.4% in 1995, 0.5% in 1994 and
decreased 0.7% in 1993. The improvement in comparable store sales is primarily
the result of successful marketing of the combination stores in the eastern
food operations, increased pharmacy and third-party sales in the drug store
operations and aggressive
15
<PAGE>
pricing programs offset slightly by the impact of a nine-day labor dispute in
the first quarter of 1995 in the western food operations. The Super Saver
warehouse-type stores were reorganized under the Lucky divisions in 1996 in
order to leverage the Company's support functions.
TOTAL SALES
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 28, FEBRUARY 3,
1994 1995 1996
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Eastern food operations................. $ 6,052 $ 5,957 $ 6,147
Western food operations................. 7,183 7,002 7,155
Drug store operations................... 4,322 4,544 4,995
Other................................... 12 12 12
------- ------- -------
Continuing operations................... 17,569 17,515 18,309
Disposed of operations.................. 1,194 840 --
------- ------- -------
Total sales........................... $18,763 $18,355 $18,309
======= ======= =======
</TABLE>
COMPARABLE STORE SALES
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 28, FEBRUARY 3,
1994 1995 1996
----------- ----------- -----------
(PERCENTAGE CHANGE)
<S> <C> <C> <C>
Eastern food operations................. (1.5)% 0.7 % 1.5 %
Western food operations................. (1.9) (1.8) (0.8)
Drug store operations................... 2.6 4.2 4.8
Total change.......................... (0.7)% 0.5 % 1.4 %
</TABLE>
Gross profit as a percent of sales increased to 26.9% in 1995, compared to
26.8% in 1994 and 26.4% in 1993. The increase in gross profit in 1995 over
1994 was primarily the result of the disposed of operations, which produced
lower margins than the continuing operations, and improvements in the eastern
food operations due to improved product mix and promotional strategies. These
increases were offset by decreases in competitive drug store pharmacy gross
margins and the impact of a nine-day labor dispute in the first quarter of
1995 in the western food operations. The 1994 gross profit percentage
increased from 1993 in the eastern food, western food and drug store
operations primarily due to improvements in the mix of products sold,
promotional strategies and shrink control. The annual pre-tax LIFO charge to
earnings amounted to $12.8 million in 1995, $8.2 million in 1994 and $7.2
million in 1993. Changes in the mix of inventory have influenced the LIFO
charge.
Operating expense as a percent of sales decreased to 23.0% in 1995, compared
to 23.3% in 1994 and 23.0% in 1993. Operating expense in the western food
operations benefited in 1995 from the renegotiation of a labor contract with
the United Food and Commercial Workers International. The new contract will
expire in 1999 and replaces a contract scheduled to expire in 1996. As a
result of the early termination of the contract, certain health and welfare
savings, which were being recognized over the life of the old contract, were
immediately recognized in the third quarter of 1995. Operating expense in the
western food operations also decreased due to lower self-insurance costs and
productivity improvements, which were partially offset by the impact of the
nine-day labor dispute. In addition, improved sales, lower insurance costs and
better overall cost control in the eastern food and drug store operations
helped lower operating expense as a percentage of sales. Operating expense in
1994 included charges of $23.9 million ($.10 per share) for centralization of
administrative functions, including information technology and accounting. As
of third quarter 1995, the entire reserve had been utilized without
significant adjustments to the original amount. Operating expense in 1994 also
included
16
<PAGE>
expenses for the consolidation of the computer data centers and a voluntary
severance program initiated at Acme Markets, totaling $11.2 million ($.05 per
share). Operating expense in 1993 included $7.6 million ($.04 per share) for
the settlement of meat products litigation in California and severance
programs stemming from the Company's expense reduction programs.
Total operating profit for the 1993, 1994 and 1995 fiscal years is set forth
in the following table. Operating profit from continuing operations increased
11.9% in 1995, 4.4% in 1994 and 0.8% in 1993. Total operating profit was 3.9%
of sales in 1995, 3.5% of sales in 1994 and 3.4% of sales in 1993. The
increase in operating profit and operating profit as a percentage of sales was
primarily due to strong performances from the Company's core operations and
the extra week of operations included in 1995. In addition, eastern food
operations improved due to successful joint marketing of the combination
stores, western food operations improved due to lower health and welfare costs
associated with the renegotiated labor contract and drug store operations
improved due to lower insurance costs and better cost control, slightly offset
by the start-up costs of 71 new stores, including 17 acquired Clark drug
stores.
OPERATING PROFIT
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 28, FEBRUARY 3,
1994 1995 1996
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Eastern food operations.................. $231.2 $258.2 $271.7
Western food operations.................. 248.7 245.9 271.2
Drug store operations.................... 197.0 228.5 245.4
LIFO charge.............................. (7.2) (8.2) (12.8)
Purchase accounting amortization......... (79.2) (78.6) (76.8)
Other.................................... 14.7 (14.1) 8.1
------ ------ ------
Continuing operations.................... 605.2 631.7 706.8
Disposed of operations................... 36.7 18.4 --
------ ------ ------
Total operating profit................. $641.9 $650.1 $706.8
====== ====== ======
</TABLE>
Interest expense decreased in 1995, 1994 and 1993 due to lower average
interest rates resulting from the refinancing of high coupon borrowings at
lower rates. In addition, the Company experienced lower average debt levels
for each of the last three years. Interest expense also benefited from the
conversion of a portion of the convertible notes from debt to equity in the
first quarter of 1995. The caption "Other" in 1994 of $120.1 million included
non-recurring gains of $121.0 million on the sale of the Star Market food
division, $41.2 million on the sale of 45 Acme Markets stores and a charge of
$31.3 million for closed store costs (totaling $.54 per share). "Other" in
1993 of $24.1 million included $45.7 million ($.20 per share) of income from
the resolution of the "Rule of 80" litigation, which concerned the Company's
termination of the early retirement feature of an employee retirement plan.
This was offset by approximately $17.2 million ($.07 per share) of various
charges, including costs associated with store closings, integrating acquired
stores into existing operations and costs associated with the earthquake in
southern California.
The Company's effective income tax rates were 42.5% in 1995, 43.1% in 1994
and 45.5% in 1993. The disposition of assets during 1995 and 1994 in states
with higher tax rates resulted in lower effective income tax rates.
Earnings for 1993 were affected by charges incurred in the early retirement
of debt totaling $.11 per share, which were accounted for as an extraordinary
item. Net earnings per share amounted to $2.16 in 1995, $2.42 in 1994 and
$1.74 in 1993.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased to $405.6 million from
$302.0 million in the first thirty-nine weeks of 1996 compared to the same
period of 1995. The increase in operating cash flows over the prior period was
due in part to increased net earnings before depreciation and amortization.
Other changes in operating assets and liabilities were due to changes in the
components of working capital and are not indicative of long-term trends.
On June 10, 1996, the Company issued $350 million principal amount of 8%
debentures due June 1, 2026 at 99.262% to yield 8.066%. The Company received
net proceeds of approximately $344 million which were used to refinance a
portion of the Company's long-term indebtedness and to refinance additional
short-term variable rate borrowings under the Credit Facility.
Cash capital expenditures for the first thirty-nine weeks of 1996 and 1995
amounted to $603.7 million and $519.3 million, respectively. Total capital
expenditures, including the net present value of leases, amounted to $675.4
million in 1996, compared to $557.6 million in 1995. During the first thirty-
nine weeks of 1996, 64 new stores were opened, 53 stores were closed and 80
stores were remodeled.
The Company's ratio of total debt (debt plus obligations under capital
leases) to total capitalization (total debt plus shareholders' equity) was
50.7% at November 2, 1996 and 48.8% at February 3, 1996.
In June 1996, the Company replaced its existing stock repurchase program
with a new repurchase program which authorizes the repurchase of up to two
million shares of Common Stock. During the first thirty-nine weeks of 1996,
the Company repurchased 1,090,000 shares of its Common Stock at an average
price of $34.67 per share in accordance with the Company's stock repurchase
programs. There were no shares repurchased during the third quarter. As of
November 2, 1996, an additional 1,945,000 shares remained authorized for
repurchase.
The Company believes that its cash flow from operations, supplemented by
credit available under the Company's existing credit facilities, as well as
its ability to refinance debt, will be adequate to meet its presently
identifiable cash requirements.
18
<PAGE>
BUSINESS
The Company is one of the nation's leading food and drug retailers with
annual sales in its fiscal year ended February 1, 1997 of $18.7 billion. The
Company is principally engaged in a single industry segment, the retail sale
of food and drug merchandise. The Company's principal food operations are Acme
Markets, Jewel Food Stores, Lucky Stores Northern California Division, Lucky
Stores Southern California Division and Jewel Osco Southwest. The Company's
drug stores operate under the Osco Drug and Sav-on names. As of February 1,
1997, the Company operated 1,695 stores in 27 states, including 166
combination stores which are jointly operated by the Company's food and drug
store operations and are each counted as two separate stores.
In 1993, the Company made a strategic decision to move from a holding
company orientation to an operating company approach to build on the size and
strength of its operations. Management developed a six-point plan that
outlined its critical success factors required for continued growth and
competitive positioning within the industry. The six factors are: (i) hold
leading market positions; (ii) maintain a modern store base; (iii) excel in
merchandising; (iv) attain state of the art technology; (v) maintain an
effective organizational structure; and (vi) be a low cost operator.
STRONG MARKET POSITIONS
The Company's food and drug store operations hold leading market positions,
generally number one or two, in each of their core market areas. The Company
works to maintain and expand its strong market positions by significantly
investing in core market areas.
MAINTAIN A MODERN STORE BASE
Over the last several years, the Company has significantly increased its
capital spending to improve and expand its store base. Capital spending grew
from $565 million in 1994 to $801 million in 1995, and to $1 billion in 1996.
New and replacement stores are an increasingly important focus of the capital
spending program, accounting for 34% of capital spending in 1994, 45% in 1995,
and 57% in 1996 and are expected to account for over 50% of capital spending
in 1997. The Company expects to continue to make significant investments in
its store base. In 1997, the Company plans to spend approximately $1 billion
for capital expenditures. The Company plans to open over 100 new and
replacement stores (including 20 jointly operated combination stores which are
each counted as two separate stores) and to remodel approximately 100 stores
in 1997.
EMPHASIZE COMPETITIVE FORMATS
The type and mix of store formats must keep pace with the constant changes
in customers' needs and tastes. The Company believes that the success of
individual food and drug stores is enhanced when they are paired together in a
combination store that maintains the identity and full selection of each. The
Company also believes that having both combination food and drug stores and
stand-alone drug stores in the same market better enables it to meet customer
needs. New stores currently being developed are combination food and drug
stores of approximately 65,000 square feet and stand-alone drug stores of
approximately 16,500 square feet. Currently, the Company operates 233
combination stores (including 166 combination stores jointly operated by the
Company's food and drug operations) and plans to open an additional 32
combination stores in 1997 (including 20 jointly operated combination stores).
DELTA INITIATIVES
Delta is a series of initiatives designed as a self-consolidation and re-
engineering program that is transforming the Company from a holding company to
an operating company. Prior to Delta, the Company operated as seven autonomous
companies with different systems and processes. The goal
19
<PAGE>
of Delta is to build on the size of the Company and to develop common business
processes and systems to best manage growth for the future. Delta is designed
to improve the Company's ability to purchase products and move them through
the supply chain more quickly, efficiently and cost-effectively, which also
results in more efficient store operations. It seeks to achieve these goals
through changes in the Company's purchasing, warehousing, inventory control
and distribution systems. The information gathered from the common systems and
processes assists the Company's marketing and merchandising programs. Each
Delta initiative has a different timeline, but the majority of the supply-
chain initiatives are targeted for completion by the end of 1997. Management
believes the benefits of Delta will begin to exceed costs for the second half
of 1997. To continue to meet customer needs the Company intends to maintain
store operations, marketing and merchandising on a local level. Some examples
of how Delta has been implemented into the business are: (i) centralization of
the procurement and logistics groups; (ii) execution of national contracts
with selected vendors for greeting cards, photo-finishing, spices, magazines
and, most recently, whole-bean coffee; (iii) installation of computerized
warehouse systems in over 90% of the Company's warehouses, reducing labor cost
and increasing the efficiency of replenishment; (iv) consolidation of four
general merchandise warehouses in southern California into a single facility;
and (v) consolidation of administrative, real estate, construction and
information technology functions.
STORE OPERATIONS
American Stores manages its 1,695 stores with two operating divisions--food
store operations and drug store operations. In 1996, the food store operations
accounted for 72% of sales and 70% of operating profit. The drug store
operations made up 28% of sales and 30% of operating profit.
Store formats for the Company's two operating divisions as of February 1,
1997 were as follows:
<TABLE>
<CAPTION>
COMBINATION
SUPERMARKETS STORES DRUG STORES TOTAL
------------ ----------- ----------- -----
<S> <C> <C> <C> <C>
Food Store Operations............ 577 233* 3** 813
Drug Store Operations............ -- 166* 716 882
-----
Total.......................... 1,695*
=====
</TABLE>
- --------
* Includes 166 jointly operated combination stores which are counted in both
food store operations and drug store operations. The remaining 67
combination stores are operated solely by the Company's food store
operations.
** Jewel Osco Southwest drug stores are operated by the food store operations.
FOOD STORE OPERATIONS
The food store operations consist of Acme Markets, Jewel Food Stores, Lucky
Stores Northern California Division, Lucky Stores Southern California Division
and Jewel Osco Southwest. As of February 1, 1997, the food store operations
operated a total of 813 stores with 20.9 million square feet of selling space.
ACME MARKETS. Acme has over one hundred years of retailing experience in
Philadelphia and the surrounding Delaware Valley. Acme operates 182 stores,
with 77 stores in Pennsylvania, 78 in New Jersey, 15 in Delaware and 12 in
Maryland. Acme commands the leading share of the Philadelphia metropolitan
market.
Acme's strategic plan involves an aggressive new store building program.
Over the past two years, Acme has added 17 combination stores including 10 new
stores and seven enlargements, and plans to increase the number of its
combination stores from 46 to 78 over the next three years.
20
<PAGE>
JEWEL FOOD STORES. At year-end 1996, Jewel Food Stores operated 185 stores,
with 176 stores in Illinois, two in Iowa, six in Indiana and one in Wisconsin.
Jewel holds the number one market share in the metropolitan Chicago market
area. Jewel operates combination food and drug stores under the Jewel Osco
banner. Of Jewel's 185 stores, 153 are in combination with an Osco Drug store,
located primarily in and around the Chicago area. This working partnership has
enabled both Jewel and Osco to strengthen their positions in the market. Jewel
is best known for superior perishables and innovative marketing. Jewel's store
base is particularly modern and well-maintained.
LUCKY STORES NORTHERN CALIFORNIA DIVISION. The Lucky Stores Northern
California Division operates 186 retail food stores in northern and central
California. Lucky North operates four combination stores with the Sav-on drug
division. Lucky North's six principal operating regions are the East Bay, San
Jose, the Peninsula, Marin/Sonoma, Sacramento and Central Valley. Lucky
operates an everyday low pricing format and is generally perceived by northern
California shoppers as the low price leader among full-service supermarkets in
its market areas, based upon independent surveys.
LUCKY STORES SOUTHERN CALIFORNIA DIVISION. The Lucky Stores Southern
California Division operates 247 retail food stores in southern California and
Las Vegas, Nevada. This number includes nine combination stores with the Lucky
Sav-on name. The Division's principal operating areas are greater Los Angeles
(including Orange County, Santa Barbara and the Central Coast), San Diego, the
Inland Empire (including Riverside, San Bernardino and Palm Springs) and Las
Vegas. Like its sister company in northern California, Lucky South operates an
everyday low pricing format and is generally perceived by southern California
and Las Vegas shoppers as the low price leader for full-service supermarkets in
its market areas, based upon independent surveys. Lucky South's strategy calls
for pursuing new urban locations to fill in its existing market locations, to
enlarge existing facilities where feasible and to identify relocation sites.
JEWEL OSCO SOUTHWEST. Jewel Osco Southwest operates nine combination food and
drug stores and three stand-alone drug stores in New Mexico. Over the past
three years, Jewel Osco Southwest has expanded or completed major remodels in
the majority of its stores.
DRUG STORE OPERATIONS
The Company operates its drug stores under the Osco Drug and Sav-on names.
The drug division operated a total of 882 stores as of February 1, 1997
(including the drug side of 166 jointly operated combination stores), with 12.9
million square feet of selling space.
OSCO DRUG. The Company operates a total of 576 Osco Drug stores in 20 states,
principally in the Midwest. The count includes 153 combination stores primarily
located in Chicago with the Jewel Osco name. Osco's largest markets include
Chicago, Boston, Phoenix, Indianapolis and Kansas City. In Chicago, Osco holds
the number two market position.
SAV-ON. The Company's 306 drug stores in southern California and Nevada
operate under the Sav-on and Sav-on Express store names. In addition, Sav-on
manages the pharmacy departments of 111 northern and southern California Lucky
stores. Sav-on has the leading market share among drug store retailers in its
market areas. It recently moved into northern California as part of the Lucky
Sav-on combination stores. Sav-on and Lucky jointly operate 13 combination
stores, nine in southern California and four in northern California.
PHARMACIES. Pharmacy sales represent approximately 39% of total drug store
sales. The drug store pharmacy strategy includes aggressive pursuit of third-
party business, which now represents over 78% of pharmacy sales. With the
consolidation of the drug store industry, third-party business is important to
maintaining and growing volume. However, a high proportion of third-party
business places pressure on margins due to the lower reimbursement rates from
third-party plans. To counter
21
<PAGE>
this situation, the Company has focused on several strategies including
building market share position, maximizing generic substitution, improving the
efficiency of pharmacy operations and utilizing technological advancements.
PHARMACY BENEFITS MANAGEMENT COMPANY. The Company, in equal partnership with
Geneva Pharmaceuticals, a subsidiary of Novartis, owns a pharmacy benefits
management (PBM) business called RxAmerica. Its purpose is to manage the
prescription drug benefits provided to individuals through health care plans
to fill prescriptions in the Company's 882 drug stores as well as through
approximately 41,000 drug store locations nationwide. RxAmerica also operates
mail-order services which offer customers prescriptions, vitamins and other
health care products at a significant discount.
STORE EXPANSION AND DEVELOPMENT PROGRAM
The Company believes an aggressive and well-managed capital expenditure
program is essential to maintaining and growing its store base. The Company's
strategic and financial guidelines are structured to focus on the Company's
core businesses and maintain the Company's investment grade credit rating. The
Company believes a capital expenditure rate of approximately five percent of
sales achieves this balance. The Company's capital guidelines call for
approximately 80% of total capital expenditures to be expended on new stores,
replacements, enlargements and remodels and approximately 20% on
infrastructure projects. The capital expenditure budget for 1997 is
approximately $1 billion.
The type and mix of store formats must keep pace with the constant changes
in customers' needs and tastes. The Company believes that having both
combination food and drug stores and stand-alone drug stores in the same
markets better enables it to meet customer needs. The combination store format
provides the opportunity for customers to fulfill their food shopping and drug
shopping needs in one trip. The stand-alone drug stores are built for customer
convenience, quick access and often include a drive-up window. New stores
currently being developed are combination food and drug stores of
approximately 65,000 square feet and stand-alone drug stores of approximately
16,500 square feet. Combination stores feature greater product selection in
every department. The food side of the store provides year-round fresh
produce, a wide array of meat and fresh seafood, a full-service floral
department, service bakeries and delis with attractively presented convenience
items. The drug side of the store offers customers a complete selection of
health and beauty aids, general merchandise and pharmaceuticals.
The Company has significantly reduced the number of its store prototypes.
The use of a consistent store prototype reduces development costs, increases
management and distribution efficiencies and improves customer familiarity
with the Company's stores.
22
<PAGE>
The following table illustrates changes in the Company's store base over the
last five years:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------
JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total New/Acquired
Stores (1):
Food Store
Operations........... 11 14 21 21 35
Drug Store
Operations........... 140 84 28 71 87
---- ---- ---- ---- ------
Total............... 151 98 49 92 122
==== ==== ==== ==== ======
Total Closed/Sold
Stores:
Food Store
Operations........... 96 37 113 19 40
Drug Store
Operations........... 25 38 34 20 37
---- ---- ---- ---- ------
Total............... 121 75 147 39 77
==== ==== ==== ==== ======
Total Remodeled Stores:
Food Store
Operations........... 81 96 80 69 41
Drug Store
Operations........... 32 137 86 154 53
---- ---- ---- ---- ------
Total............... 113 233 166 223 94
==== ==== ==== ==== ======
Total Retail Square
Footage At Year End (in
millions):
Food Store
Operations........... 21.4 21.3 19.8 20.3 20.9
Drug Store
Operations........... 10.9 11.4 11.4 12.2 12.9
---- ---- ---- ---- ------
Total............... 32.3 32.7 31.2 32.5 33.8
==== ==== ==== ==== ======
Capital Expenditures (in
millions):
New Stores............ $178 $203 $195 $362 $ 571
Remodels.............. 107 215 152 207 122
Technology............ 67 62 75 63 99
Other................. 125 173 143 169 208
---- ---- ---- ---- ------
Total............... $477 $653 $565 $801 $1,000
==== ==== ==== ==== ======
</TABLE>
- --------
(1) Includes jointly operated combination stores which are counted in both
food store and drug store totals as follows: two in fiscal 1992, five in
fiscal 1993, four in fiscal 1994, five in fiscal 1995 and 23 in fiscal
1996.
Where possible, the Company prefers to own its properties, thereby allowing
increased flexibility to remodel and expand the store operations as needed. Of
the 122 new and acquired stores in 1996, the Company owns approximately 60%.
The Company also owns, or controls through long-term leases, its distribution,
warehouse and maintenance support facilities. Overall, the Company owns
approximately 28% of its retail locations, with the remaining retail locations
leased pursuant to capitalized or operating leases.
In 1997, the Company's capital expenditure plan contemplates building over
100 new stores and replacement stores and completing approximately 100
remodels. The Company's real estate, design and construction are handled by a
wholly-owned subsidiary of the Company.
MARKETING AND MERCHANDISING
Customers in the food and drug industry are becoming more demanding,
selective and value-conscious. Competitive boundaries are not well defined in
the industry and the Company believes a broad and diverse offering of products
and services is essential to providing the customer with both
23
<PAGE>
convenience and value. In many stores, the Company provides in-store banking
and post-office services, quality- and value-oriented private label products,
and a consistent emphasis on perishable selection and quality through more
frequent warehouse deliveries.
One key marketing strategy that the Company has implemented in all major
food divisions is customer loyalty cards. These cards, which reward frequent
shoppers, have produced higher average sales per customer and provided
customer convenience through automatic coupon and discount offers. They have
also provided a means of targeted marketing by analyzing customer shopping
habits. As of the end of 1996, the Company had issued 8.5 million cards across
all of its operations. Other marketing efforts include the Lucky Stores "Big
Book of Savings" coupon book and neighborhood specific marketing.
Private label is an important part of the Company's merchandising strategy,
offering value conscious consumers quality products at prices below national
brands and providing higher margins to the Company. The Company's private
label programs include such brands as "Lady Lee" at Lucky stores, "Lancaster"
meats and "Acme" groceries at Acme, "Jewel" at Jewel stores and "Osco" and
"Sav-on" at Osco and Sav-on stores, respectively. "President's Choice" in food
operations and "American Premier" in drug operations are used as premium
brands while "Value Wise" is now the budget brand across all of the food and
drug operations.
COMPETITION AND SEASONALITY
In all areas in which the Company operates, the business is highly
competitive, with competition from local and national supermarket and drug
store chains, as well as independent stores. Competition also includes such
retailers as convenience stores, warehouse stores and membership or club
stores. Some of the Company's largest competitors in various regions are
Dominick's, Long's, Pathmark, Ralphs, Safeway, Thrifty PayLess, Vons and
Walgreens. Principal competitive factors in the industry include store
location, price and quality of products, variety of selection, quality of
service and store image, including cleanliness and promotions.
The Company's business is characterized by narrow profit margins and,
accordingly, its successful financial performance depends primarily upon its
ability to maintain relatively high sales volume and control operating costs.
The Company's geographic and business diversity allows it to reduce the
effects that competitive pressures in individual markets may have on its
overall operating results. The Company is subject to the effects of
seasonality. Food and drug store sales are higher in the Company's fourth
quarter than other quarters due to the holiday season. The Company's drug
store sales are also generally higher in the Company's fourth quarter in
connection with the increase in cold and flu occurrences.
EMPLOYEES AND LABOR RELATIONS
The Company has approximately 127,000 full- and part-time employees.
Approximately 75% of the Company's employees are covered by collective
bargaining agreements negotiated with local unions affiliated with one of
seven international unions. There are approximately 118 such agreements,
typically having three- to five-year terms. Accordingly, the Company
renegotiates a significant number of these agreements each year.
24
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 325,000,000 shares
of common stock, $1.00 par value per share (the "Common Stock"), and
10,000,000 shares of preferred stock, $1.00 par value per share (the
"Preferred Stock"). As of February 1, 1997, there were 145,914,641 shares of
Common Stock and no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of Common Stock of the Company are entitled to receive dividends
from funds legally available therefor, when, as and if declared by the Board
of Directors of the Company, subject to the prior rights of any holders of
Preferred Stock. The holders of Common Stock are entitled upon liquidation,
dissolution or winding up of the Company to share ratably in the net assets of
the Company after satisfaction in full of the prior rights of creditors of the
Company and any holders of Preferred Stock.
The holders of Common Stock are entitled to one vote for each share held on
all matters as to which stockholders are entitled to vote. The holders of
Common Stock do not have cumulative voting rights, any preferential or
preemptive rights with respect to any securities of the Company, or any
conversion rights. The Common Stock is not subject to redemption and is not
entitled to the benefit of any sinking fund. The outstanding shares of Common
Stock are fully paid and nonassessable. First Chicago Trust Company of New
York is the Transfer Agent and Registrar and dividend paying agent for the
Common Stock.
Certain existing provisions of the Company's Restated Certificate of
Incorporation, as amended (the "Certificate"), and of the Company's By-Laws,
may have an anti-takeover effect. Under the Certificate, (a) any merger or
consolidation of the Company with any other person or entity, if such other
person or entity and its affiliates, individually or in the aggregate, are
directly or indirectly the beneficial owners of more than 10% of the
outstanding Common Stock (a "Related Person"), (b) any sale or exchange of all
or substantially all of the Company's assets or business to or with a Related
Person, or (c) any issuance or delivery of any of the Company's stock or other
securities in exchange or payment for any properties or assets of a Related
Person or any securities issued by a Related Person, or in any merger of any
affiliate of the Company with or into any Related Person or any of its
affiliates, requires, in addition to any approval otherwise required by law,
the approval of not less than two-thirds of the outstanding Common Stock not
owned by such Related Person, unless the Board of Directors approves the
transaction by a two-thirds vote of the then authorized number of directors or
by a vote taken prior to the acquisition of more than 10% of the Common Stock
by such Related Person, in which event the normal requirements with respect to
stockholder votes would apply.
Prior to June 27, 1995, the Certificate provided that the Board of Directors
of the Company be divided into three classes, as nearly equal in size as
possible, each of which was elected for a three-year term. On June 27, 1995,
the Company adopted an amendment to the Certificate that had the effect of
eliminating the classification of the Board of Directors. The Certificate
currently provides that each director who is elected after January 1, 1995
shall hold office until the next annual meeting of stockholders and until that
director's successor is elected and qualified or until that director's earlier
resignation or removal.
The Certificate provides that the number of directors will be not less than
five nor more than 20. The Board of Directors currently has 15 members. The
Company's By-Laws provide that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and that the directors so chosen will
hold office until the event of their death, resignation or removal.
25
<PAGE>
Stockholders can only take action at meetings of the stockholders. Special
meetings of the stockholders may only be called by the Board of Directors or
by any person authorized by the Board. The Company's By-Laws provide that only
such business may be conducted at a special meeting as is specified in the
notice of meeting. The Certificate provides that the Board of Directors, when
evaluating proposals regarding a tender offer, a merger, a consolidation or
the purchase or acquisition of substantially all of the properties and assets
of the Company, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Company and its stockholders,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of the transaction on employees, suppliers,
customers and other constituents of the Company and its subsidiaries and on
the communities in which they operate or are located.
The provisions referred to above and in this paragraph and all of the By-
Laws of the Company can be amended or repealed by the stockholders only if
stockholders holding not less than 80% of the outstanding Common Stock and
stockholders holding a majority of the total outstanding Common Stock,
excluding Common Stock owned by a Related Person, vote for such amendment or
repeal.
The Company's By-Laws establish an advance notice procedure for stockholders
to nominate candidates for election as directors or to bring other business
before meetings of stockholders of the Company (the "Stockholder Notice
Procedure"). Only those stockholder nominees who are nominated in accordance
with the Stockholder Notice Procedure will be eligible for election as
directors of the Company. Under the Stockholder Notice Procedure, notice of
stockholder nominations or proposals of other business to be made at an annual
meeting (or of any other business to be brought before such meeting) generally
must be received by the Company not less than 60 days nor more than 90 days
prior to the first anniversary of the previous year's annual meeting (or, if
the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, not earlier than the 90th day prior to such
meeting and not later than the later of (i) the 60th day prior to such meeting
or (ii) the 10th day after public announcement of the date of such meeting is
first made). The By-Laws specify information required to be provided to the
Company by stockholders to comply with the Stockholder Notice Procedure.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Company's Board an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Company's Board, to inform stockholders about
such qualifications. Although the Company's By-Laws do not give the Company's
Board any power to approve or disapprove stockholder nominations for the
election of directors or proposals for action, they may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
Section 203 of the Delaware General Corporation Law ("Section 203")
prohibits certain persons ("interested stockholders") from engaging in a
"business combination" with a Delaware corporation for three years following
the date such persons become interested stockholders. Interested stockholders
generally include (i) persons who are the beneficial owners of 15% or more of
the outstanding voting stock of the corporation and (ii) persons who are
affiliates or associates of the corporation and who hold 15% or more of the
corporation's outstanding voting stock at any time within three years before
the date on which such a person's status as an interested stockholder is
determined. Subject to certain exceptions, a "business combination" includes,
among other things (i) mergers or consolidations, (ii) the sale, lease,
exchange, mortgage, pledge, transfer or other disposition of assets having an
aggregate market value equal to 10% or more of either the aggregate market
value of all assets of the corporation determined on a consolidated basis or
the aggregate market value of all the outstanding
26
<PAGE>
stock of the corporation, (iii) transactions that result in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, except pursuant to a transaction that effects a pro rata
distribution to all stockholders of the corporation, (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the interested stockholder or (v) any receipt by the interested
stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
Section 203 does not apply to a business combination if (i) before a person
becomes an interested stockholder, the board of directors of the corporation
approves the transaction in which the interested stockholder became an
interested stockholder or approves the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (other than certain excluded shares) or (iii) following
a transaction in which the person became an interested stockholder, the
business combination is (a) approved by the board of directors of the
corporation and (b) authorized at a regular or special meeting of stockholders
(and not by written consent) by the affirmative vote of the holders of at
least two-thirds of the outstanding voting stock of the corporation not owned
by the interested stockholder.
Certain provisions of the Stock Purchase Agreement require the Company to
make additional payments to the Selling Stockholders in the event of a "change
of control" during a specified period following the consummation of the
Offerings which may make more difficult the acquisition of control of the
Company. See "Selling Stockholders--Selling Stockholders' Agreements".
For a discussion of the preferred share purchase rights associated with the
outstanding shares of Common Stock, which also have certain anti-takeover
effects, reference is made to the description of the Company's Rights
Agreement contained in Amendment No. 5 to the Company's Registration Statement
on Form 8-A, dated February 25, 1997, which is incorporated by reference
herein. See "Available Information".
PREFERRED STOCK
The Company currently has no shares of Preferred Stock outstanding. The
Company is authorized to issue 10,000,000 shares of Preferred Stock, which may
be issued from time to time in one or more series with such voting rights,
dividend rates, rights, preferences and limitations as may be determined by
the Company's Board of Directors. Satisfaction of any dividend preferences of
any outstanding shares of Preferred Stock would reduce the amount of funds
available for the payment of dividends to holders of the Common Stock. Holders
of any Preferred Stock may be entitled to vote with the holders of the Common
Stock on some or all matters submitted to stockholders. Holders of Preferred
Stock would normally be entitled to receive a preference payment before any
payment is made to holders of Common Stock in the event of any liquidation,
dissolution or winding up of the Company. The Company has authorized a series
of Preferred Stock in connection with its Preferred Share Purchase Rights
Plan, a description of which is contained in Amendment No. 5 to the Company's
Registration Statement on Form 8-A, dated February 25, 1997, which is
incorporated by reference herein. See "Available Information".
27
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder and, for
each, the number of shares of Common Stock owned beneficially at the
commencement of the Offerings, the maximum number of shares which may be
offered for sale and the number of shares of Common Stock to be repurchased by
the Company. After giving effect to the Offerings and the Repurchase, the
number of shares beneficially owned by the Selling Stockholders in the
aggregate will be less than one percent of the outstanding shares of Common
Stock. See "--Selling Stockholders' Agreements".
<TABLE>
<CAPTION>
NUMBER OF SHARES TOTAL TOTAL
OF COMMON STOCK SHARES TO SHARES TO BE
BENEFICIALLY OWNED BE SOLD IN THE
NAME BEFORE THE OFFERINGS REPURCHASED OFFERINGS
- ---- -------------------- ----------- ------------
<S> <C> <C> <C>
ALSAM Trust(1), for the benefit
of:
L.S. Skaggs ................... 10,274,195 4,544,802 5,729,393
Aline W. Skaggs ............... 185,452 82,035 103,417
Six S Ranch, Inc.(2)............ 20,000 8,847 11,153
ALSAM Foundation(3)............. 2,046,930 905,462 1,141,468
Skaggs Family Foundation for
Roman Catholic and Community
Charities(4)................... 675,000 298,587 376,413
Skaggs Institute for
Research(5).................... 1,950,000 862,585 1,087,415
Lynda Sue Skaggs Balukoff....... 402,545 178,066 224,479
Claudia Skaggs Luttrell......... 437,472 193,516 243,956
The Northern Trust Company, as
trustee under the L.S. Skaggs &
Aline W. Skaggs Charitable
Remainder Unitrust #1 and the
L.S. Skaggs & Aline W. Skaggs
Charitable Remainder Unitrust
#2............................. 7,314,400 3,235,534 4,078,866
The Northern Trust Company, as
trustee under the Lynda Sue
Skaggs Balukoff Charitable
Remainder Unitrust #1 and the
Lynda Sue Skaggs Balukoff
Charitable Remainder Trust #2.. 355,000 157,035 197,965
The Northern Trust Company, as
trustee under the Claudia
Skaggs Luttrell Charitable
Remainder Unitrust #1, the
Claudia Skaggs Luttrell
Charitable Remainder Unitrust
#2 and certain trusts for the
benefit of Claudia Skaggs
Luttrell....................... 1,695,730 750,108 945,622
The Northern Trust Company, as
trustee under the Don L. Skaggs
Charitable Remainder Unitrust
#1, the Don L. Skaggs
Charitable Remainder Unitrust
#2 and certain trusts for the
benefit of Don L. Skaggs....... 1,452,665 642,588 810,077
The Northern Trust Company, as
trustee under a trust for the
benefit of Mark S. Skaggs(6)... 49,200 21,764 27,436
The Northern Trust Company, as
trustee under certain trusts
for the benefit of
grandchildren of L.S. Skaggs
and Aline W. Skaggs............ 70,980 31,398 39,582
U.S. Bank, as trustee under
certain trusts for the benefit
of Lynda Sue Skaggs Balukoff... 317,084 140,262 176,822
U.S. Bank, as trustee under
certain trusts for the benefit
of grandchildren of L.S. Skaggs
and Aline W. Skaggs............ 163,479 72,315 91,164
U.S. Bank, as trustee under the
Balukoff Charitable Remainder
Trust.......................... 220,000 97,318 122,682
</TABLE>
28
<PAGE>
- --------
(1) A Utah Trust, of which Claudia Skaggs Luttrell, Don L. Skaggs, Michael T.
Miller and George L. Moosman are trustees.
(2) A Utah corporation, wholly owned by the ALSAM Trust, principally engaged
in the activity of ranching.
(3) A charitable foundation, of which L.S. Skaggs, Aline W. Skaggs and Don L.
Skaggs are members of the managing committee.
(4) A charitable foundation, of which Aline W. Skaggs, Claudia Skaggs Luttrell
and Don L. Skaggs are members of the board of trustees.
(5) A charitable foundation, of which L.S. Skaggs and Aline W. Skaggs are
members of the board of directors.
(6) Mark Stanley Skaggs is also the beneficiary of The Mark Stanley Skaggs
Personal Trust, under which Wells Fargo Bank is trustee and which owns
3,459 shares of Common Stock not subject to the Stock Purchase Agreement or
the Registration Rights Agreement, and which are not included in the
Offerings or the Repurchase.
L.S. Skaggs has been a director of the Company since 1950, served as
Chairman of the Board of the Company from 1962 to July 1995, and has been a
consultant to the Company since July 1995. Aline W. Skaggs was a director of
the Company from 1981 to 1994. L.S. Skaggs and Aline W. Skaggs are married,
and are the parents of Don L. Skaggs, Lynda Sue Skaggs Balukoff, Claudia
Skaggs Luttrell and Mark S. Skaggs, all of whom are Selling Stockholders
and/or beneficiaries of certain trusts which are Selling Stockholders. Don L.
Skaggs, Executive Vice President of the Company since March 1993 and a
director of the Company since 1994, is a trustee or officer of certain of the
Selling Stockholders. The above table does not include Don L. Skaggs' shares
held under employee benefit plans. Michael T. Miller, a director of the
Company since 1992, is a trustee or officer of certain of the Selling
Stockholders. Pursuant to the Stock Purchase Agreement described below,
Messrs. L.S. Skaggs, Don L. Skaggs and Michael T. Miller have agreed to resign
as directors of the Company after the Selling Stockholders shall in the
aggregate beneficially own less than 5% of the outstanding shares of Common
Stock of the Company.
SELLING STOCKHOLDERS' AGREEMENTS
The following is a description of certain terms of the Stock Purchase
Agreement and the Registration Rights Agreement, copies of which have been
filed as exhibits to the Registration Statement. The following description
does not purport to be complete and is qualified in its entirety by reference
to such exhibits.
Pursuant to the Stock Purchase Agreement, the Company has agreed to
repurchase 12,222,222 shares of Common Stock from the Selling Stockholders for
$45 per share. The Offerings are conditioned upon the Repurchase and all such
transactions are expected to be consummated simultaneously. Selling
Stockholders holding a majority of the shares held by the Selling Stockholders
but not subject to the Repurchase (such shares, the "Retained Shares") have
the right to terminate the Offerings prior to pricing hereof if the Selling
Stockholders are advised by Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. that the initial public offering price for the shares offered hereby
would be below $45 per share. The obligation of the Selling Stockholders to
consummate the Repurchase is subject to, among other things, the consummation
of the Offerings, unless such condition is waived by Selling Stockholders
holding two-thirds of the shares subject to the Repurchase. The obligation of
the parties to consummate the Repurchase is also subject to, among other
things, there not having elapsed more than 60 days following the date of
filing of the registration statement relating to the Offerings (the
"Registration Statement"), subject to certain exceptions.
Pursuant to the Stock Purchase Agreement, the Selling Stockholders have
agreed to certain "standstill" provisions with respect to the Company,
including, among other things, and subject to
29
<PAGE>
certain exceptions, that such persons will not take certain actions, or assist
or encourage others to take certain actions, with respect to an acquisition of
any shares of the Company, a solicitation of proxies or the making of a
stockholder proposal or a transfer, sale or pledge of such persons' shares of
Common Stock (and providing for, in the case of certain permitted transfers or
sales, a right of first refusal, subject to certain exceptions, in favor of
the Company to acquire such shares). Such "standstill" provisions will remain
in effect until February 20, 2007, provided that if neither the Repurchase nor
the Offerings are consummated, such "standstill" provisions shall remain in
effect until August 20, 1999. If neither the Repurchase nor the Offerings are
consummated as a result of a breach by or a failure of representations of the
Company under the Stock Purchase Agreement, the Registration Rights Agreement
or the Underwriting Agreement, the "standstill" provisions will terminate upon
termination of the Stock Purchase Agreement.
Pursuant to the Stock Purchase Agreement, if, during the six-month period
following consummation of the Repurchase, (i) a "change of control" (as
defined in the Stock Purchase Agreement) of the Company occurs or the Company
enters into an agreement with a third party resulting in a "change of control"
at a price above $45 per share or (ii) the Company enters into an agreement
for an asset sale that is not a "change of control" in which the Company
receives consideration of over $1 billion or (iii) the Company effects, by
spin-off or other distribution, the transfer of ownership of one or more
businesses or operating units having alone or in the aggregate an equity
market capitalization (plus indebtedness for borrowed money) in excess of $1
billion, then the Company will pay certain additional consideration to the
Selling Stockholders following the consummation of such transactions. The
Company has also agreed to pay certain financial advisory fees and expenses of
Goldman, Sachs & Co., in its capacity as financial advisor to certain of the
Selling Stockholders, and the reasonable fees and expenses of counsel to the
Selling Stockholders.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), the Company has agreed to file the Registration Statement and to
use all reasonable efforts to cause the Registration Statement to be declared
effective as soon as possible and in any event not more than 60 days after
filing. Under the Registration Rights Agreement, the Selling Stockholders will
be required to sell the Retained Shares in the Offerings promptly following
the Registration Statement being declared effective, provided that the
Offerings may be terminated (at the option of Selling Stockholders holding a
majority of the Retained Shares) if the Selling Stockholders are advised by
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. that the price for the
shares in the Offerings would be below $45 per share. In the event the
Offerings are so terminated, the Selling Stockholders have the right to two
demand registrations if the "standstill" period is 30 months, or three demand
registrations if the "standstill" period is ten years, and unlimited piggyback
registrations during the standstill period or until there are fewer than 2
million Retained Shares. In connection with an exercise of such registration
rights, subject to certain conditions and exceptions, the Company and each
Selling Stockholder has agreed not to effect any public sale or distribution
of securities of the Company similar to those proposed to be registered during
the 10-day period prior to the effective date of the applicable registration
statement or during the period beginning on such effective date and ending on
the later of the completion of the distribution of such securities pursuant to
such offering and 90 days after such effective date. In the Registration
Rights Agreement, the Company has agreed to pay the expenses, other than
underwriting discounts or commissions, incident to an offering thereunder,
provided that if the proceeds to the Selling Stockholders in the Offerings,
net of underwriting discounts and commissions, would be less than $45 per
share, then the Company shall bear such proportion of such underwriting
discounts and commissions such that the net proceeds to the Selling
Stockholders shall equal the lesser of $45 per share and the initial public
offering price.
30
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Offerings will be passed upon
for the Company by Wachtell, Lipton, Rosen & Katz, New York, New York, and for
the U.S. Underwriters and the International Underwriters by Davis Polk &
Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of February 1, 1997,
February 3, 1996 and January 28, 1995 and for each of the three fiscal years
in the period ended February 1, 1997 (which are included herein) and the
consolidated financial statements of the Company as of February 3, 1996,
January 28, 1995 and January 29, 1994 and for each of the three fiscal years
in the period ended February 3, 1996 (which are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
February 3, 1996) have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon. Such financial statements are
included or incorporated by reference herein in reliance upon the reports of
Ernst & Young LLP pertaining to such financial statements (to the extent
covered by consents filed with the Commission) given upon the authority of
such firm as experts in accounting and auditing.
31
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have severally agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom
Goldman, Sachs & Co., J.P. Morgan Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated and Smith
Barney Inc. are acting as representatives, has severally agreed to purchase
from the Selling Stockholders, the respective number of shares of Common Stock
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ----------
<S> <C>
Goldman, Sachs & Co.............................................
J.P. Morgan Securities Inc......................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
Morgan Stanley & Co. Incorporated...............................
Smith Barney Inc................................................
----------
Total................................................... 12,326,330
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the U.S. Underwriters.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters
of the International Offering (the "International Underwriters") providing for
the concurrent offer and sale of 3,081,580 shares of Common Stock in an
international offering outside of the United States. The initial public
offering price and aggregate underwriting discount per share for the Offerings
are identical. The closing of the International Offering is a condition to the
closing of the U.S. Offering, and vice versa. The representatives of the
International Underwriters are Goldman Sachs International, J.P. Morgan
Securities Ltd., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan
Stanley & Co. International Limited and Smith Barney Inc.
Pursuant to an agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of
the U.S. Underwriters named herein has agreed or will agree pursuant to the
Agreement Between that, as a part of the distribution of the shares offered
hereby and subject to certain exceptions, it will offer, sell or deliver
shares of Common Stock, directly or indirectly, only in the United States of
America (including the 50 States and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction (the
"United States") and to U.S. persons, which term shall mean, for purposes of
this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the
laws of the United States or any political subdivision thereof and whose
office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed or will agree
pursuant to the Agreement Between that, as a part of the distribution of the
shares offered as part of the International Offering, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Common Stock (a) in the United States or to any U.S. persons or (b)
to any person who it believes intends to reoffer, resell or deliver the shares
in the United States
U-1
<PAGE>
or to any U.S. persons and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
1,848,949 additional shares of Common Stock, solely to cover over-allotments,
if any. If the U.S. Underwriters exercise such over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
12,326,330 shares offered hereby. The Company has granted the International
Underwriters a similar option to purchase up to an aggregate of 462,237
additional shares of Common Stock.
The Selling Stockholders have agreed not to offer, sell or otherwise dispose
of any shares of Common Stock, securities substantially similar to the Common
Stock, or securities exchangeable for or convertible into shares of Common
Stock, or any substantially similar security for a period of 90 days after the
date of this Prospectus without the prior written consent of the
representatives, except for the shares of Common Stock offered in connection
with the concurrent U.S. and international offerings. The Company has agreed,
with certain limited exceptions, not to offer, sell or otherwise dispose of
any shares of Common Stock, securities substantially similar to the Common
Stock, or securities exchangeable for or convertible into shares of Common
Stock or any substantially similar security (other than pursuant to employee
stock option or purchase plans or director incentive plans, or upon the
conversion or exchange of convertible or exchangeable securities outstanding
on the date of this Prospectus) for a period of 90 days after the date of this
Prospectus without the prior written consent of the representatives, except
for the shares of Common Stock offered in connection with the concurrent U.S.
and international offerings.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
During and after the Offerings, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offerings for their
account may be reclaimed by the syndicate if such securities are repurchased
by the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the New York Stock Exchange, the
Chicago Stock Exchange, the Pacific Stock Exchange or the Philadelphia Stock
Exchange, in the over-the-counter market or otherwise, and these activities,
if commenced, may be discontinued at any time.
Certain of the U.S. Underwriters and International Underwriters have
provided from time to time, and expect to provide in the future, investment
banking services to the Company and its affiliates (including certain of the
Selling Stockholders) for which such U.S. Underwriters and International
Underwriters have received and will receive customary fees and commissions.
The amount of outstanding debt borrowed directly under the Credit Facility, at
a weighted average interest rate of 5.6%, was $957 million at February 1,
1997, of which $123 million was owed to Morgan Guaranty Trust Company of New
York, the agent bank under the Credit Facility and the Amended Credit
Facilities.
U-2
<PAGE>
The Company will incur additional indebtedness under the Amended Credit
Facilities in connection with the Repurchase. The Amended Credit Facilities
include a $1.5 billion five-year revolving credit facility and a $500 million
364-day revolving credit facility. In addition, the Company had $100 million
outstanding at February 1, 1997 under a 364-day credit line with Morgan
Guaranty Trust Company of New York, at an interest rate of 5.7%. Morgan
Guaranty Trust Company of New York, a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated, is an affiliate of each of J.P. Morgan Securities Inc., a
manager of the U.S. Offering, and J.P. Morgan Securities Ltd., a manager of
the International Offering.
U-3
<PAGE>
AMERICAN STORES COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Statements of Earnings for the fiscal years 1996, 1995 and
1994.................................................................... F-3
Consolidated Balance Sheets as of the end of the fiscal years 1996, 1995
and 1994................................................................ F-4
Consolidated Statements of Cash Flows for the fiscal years 1996, 1995 and
1994.................................................................... F-5
Consolidated Statements of Shareholders' Equity for the fiscal years
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
AMERICAN STORES COMPANY
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
American Stores Company
We have audited the accompanying consolidated balance sheets of American
Stores Company and subsidiaries as of February 1, 1997, February 3, 1996 and
January 28, 1995, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended February 1, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Stores Company and subsidiaries at February 1, 1997, February 3, 1996 and
January 28, 1995, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended February 1,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 14, 1997, except for
the Subsequent Events Note,
as to which the date is
March 28, 1997
Salt Lake City, Utah
F-2
<PAGE>
AMERICAN STORES COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales.................................. $18,678,129 $18,308,894 $18,355,126
Cost of merchandise sold, including
warehousing and transportation
expenses.............................. 13,713,151 13,558,690 13,603,882
----------- ----------- -----------
Gross profit........................... 4,964,978 4,750,204 4,751,244
Operating and administrative expenses.. 4,203,302 4,043,381 4,101,176
----------- ----------- -----------
Operating profit....................... 761,676 706,823 650,068
Other income (expense):
Interest expense..................... (171,558) (159,545) (170,703)
Other................................ (85,566) 3,638 126,898
----------- ----------- -----------
Total other income (expense)........... (257,124) (155,907) (43,805)
----------- ----------- -----------
Earnings before income taxes........... 504,552 550,916 606,263
Federal and state income taxes......... (217,331) (234,107) (261,079)
----------- ----------- -----------
Net earnings........................... $ 287,221 $ 316,809 $ 345,184
=========== =========== ===========
Average shares outstanding............. 145,888 146,943 142,767
Net earnings per share................. $ 1.97 $ 2.16 $ 2.42
=========== =========== ===========
Fully diluted earnings per share....... $ 1.97 $ 2.16 $ 2.33
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
AMERICAN STORES COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR-END
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................. $ 37,467 $ 102,422 $ 195,689
Receivables............................... 318,878 319,688 291,760
Inventories............................... 1,725,542 1,572,242 1,526,770
Prepaid expenses.......................... 66,510 69,098 48,711
Deferred income tax benefits.............. 18,099 20,517 69,165
---------- ---------- ----------
Total Current Assets...................... 2,166,496 2,083,967 2,132,095
Property, Plant and Equipment, at cost
Land....................................... 636,068 597,804 522,014
Buildings.................................. 1,803,752 1,399,561 1,221,871
Fixtures and equipment..................... 2,616,633 2,415,326 2,168,826
Leasehold improvements..................... 781,454 736,682 654,441
---------- ---------- ----------
5,837,907 5,149,373 4,567,152
Less accumulated depreciation and
amortization.............................. 2,250,876 2,019,557 1,800,714
---------- ---------- ----------
Net Property, Plant and Equipment.......... 3,587,031 3,129,816 2,766,438
Property Under Capital Leases, less
accumulated amortization of $110,379 in
1996, $106,993 in 1995 and $103,760 in
1994...................................... 66,682 76,084 84,690
Goodwill, less accumulated amortization of
$471,150 in 1996, $418,006 in 1995 and
$365,271 in 1994.......................... 1,665,242 1,722,892 1,771,121
Other Assets............................... 395,954 350,205 277,222
---------- ---------- ----------
Total Assets.............................. $7,881,405 $7,362,964 $7,031,566
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt...... $ 56,703 $ 125,413 $ 132,019
Current obligations under capital leases.. 9,300 9,739 9,195
Accounts payable.......................... 851,285 996,354 883,329
Accrued payroll and benefits.............. 325,806 331,843 350,637
Current portion of self-insurance
reserves................................. 121,144 153,464 179,595
Income taxes payable...................... 21,290 17,292 46,170
Other current liabilities................. 416,153 353,598 330,486
---------- ---------- ----------
Total Current Liabilities................. 1,801,681 1,987,703 1,931,431
Long-term Debt, less current maturities.... 2,556,734 2,038,636 1,988,710
Obligations Under Capital Leases, less
current obligations....................... 56,410 66,380 75,367
Self-insurance Reserves, less current
portion................................... 403,981 434,028 464,119
Deferred Income Taxes...................... 348,846 365,978 320,814
Other Liabilities.......................... 178,326 115,743 200,204
Shareholders' Equity
Common stock of $1.00 par value,
authorized 325,000,000 shares; issued
149,889,236 shares in 1996 and 1995 and
144,542,156 shares in 1994............... 149,889 149,889 144,542
Additional paid-in capital................ 362,561 345,118 216,418
Retained earnings......................... 2,136,744 1,942,874 1,708,672
Less cost of treasury stock; 3,974,595
shares in 1996, 3,441,451 shares in 1995
and 1,571,094 shares in 1994............. (113,767) (83,385) (18,711)
---------- ---------- ----------
Total Shareholders' Equity................ 2,535,427 2,354,496 2,050,921
---------- ---------- ----------
Total Liabilities and Shareholders'
Equity................................. $7,881,405 $7,362,964 $7,031,566
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
AMERICAN STORES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................ $ 287,221 $ 316,809 $ 345,184
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization............. 440,445 404,562 407,286
Net loss (gain) on asset sales............ 265 (3,219) (158,448)
Self-insurance reserves................... (62,367) (56,222) (22,229)
Other..................................... 59,654 (92,688) (88,160)
(Increase) decrease in current assets:
Receivables............................... 810 (32,694) (26,037)
Inventories............................... (152,920) (54,645) (46,149)
Prepaid expenses.......................... 5,006 28,164 (10,347)
(Decrease) increase in current liabilities:
Accounts payable.......................... (145,069) 124,750 (44,369)
Other current liabilities................. 66,759 23,305 (49,866)
Accrued payroll and benefits.............. (6,037) (18,794) 41,108
Income taxes payable...................... 3,998 (30,249) (66,611)
--------- --------- ---------
Total adjustments....................... 210,544 292,270 (63,822)
--------- --------- ---------
Net cash provided by operating activities..... 497,765 609,079 281,362
--------- --------- ---------
Cash flows from investing activities:
Expended for property, plant and equipment.. (877,630) (750,914) (538,033)
Proceeds from disposition of operations..... 377,618
Proceeds from sale of assets................ 47,670 50,511 21,680
Land investments............................ (65,450) (21,697) (7,262)
--------- --------- ---------
Net cash used in investing activities......... (895,410) (722,100) (145,997)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowing........... 350,000 278,500 530,000
Net addition to (reduction of) existing
long-term debt............................. 99,388 (114,869) (479,967)
Principal payments for obligations under
capital leases............................. (10,409) (10,332) (12,741)
Proceeds from exercise of stock options,
other...................................... 24,860 22,049 31,996
Repurchase of common stock.................. (37,798) (72,987)
Cash dividends.............................. (93,351) (82,607) (68,544)
--------- --------- ---------
Net cash provided by financing activities..... 332,690 19,754 744
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents.................................. (64,955) (93,267) 136,109
Cash and cash equivalents:
Beginning of year........................... 102,422 195,689 59,580
--------- --------- ---------
End of year................................. $ 37,467 $ 102,422 $ 195,689
========= ========= =========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
AMERICAN STORES COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ---------- ---------- --------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balances at beginning of
1994................... $144,542 $190,173 $1,432,032 $ (24,462) $1,742,285
Net earnings--1994 (52
weeks)................. 345,184 345,184
Issuance of 427,512
shares of stock for
stock options and
awards................. 2,629 5,259 7,888
Dividends ($.48 per
share)................. (68,544) (68,544)
Stock Purchase Incentive
Plans including
issuance of 40,000
shares................. 21,245 496 21,741
Purchase of 152 shares
for treasury........... (4) (4)
Other................... 2,371 2,371
-------- -------- ---------- --------- ----------
Balances at year-end
1994................... $144,542 $216,418 $1,708,672 $ (18,711) $2,050,921
======== ======== ========== ========= ==========
Net earnings--1995 (53
weeks)................. 316,809 316,809
Issuance of 592,143
shares of stock for
stock options and
awards................. 914 7,583 8,497
Dividends ($.56 per
share)................. (82,607) (82,607)
Stock Purchase Incentive
Plans including
issuance of 60,000
shares................. 3,869 733 4,602
Conversion of
convertible notes...... 5,347 119,215 124,562
Purchase of 124 shares
for treasury........... (3) (3)
Stock Repurchase Program
2,522,500 shares....... (72,987) (72,987)
Other................... 4,702 4,702
-------- -------- ---------- --------- ----------
Balances at year-end
1995................... $149,889 $345,118 $1,942,874 $ (83,385) $2,354,496
======== ======== ========== ========= ==========
Net earnings--1996 (52
weeks)................. 287,221 287,221
Issuance of 563,664
shares of stock for
stock options, awards
and Employee Stock
Purchase Plan (ESPP)... 7,891 7,497 15,388
Dividends ($.64 per
share)................. (93,351) (93,351)
Stock Purchase Incentive
Plans.................. 8,856 8,856
Purchase of 6,562 shares
for treasury, including
ESPP buybacks.......... (103) (78) (181)
Stock Repurchase Program
1,090,000 shares....... (37,798) (37,798)
Other................... 799 (3) 796
-------- -------- ---------- --------- ----------
Balances at year-end
1996................... $149,889 $362,561 $2,136,744 $(113,767) $2,535,427
======== ======== ========== ========= ==========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS
American Stores Company is one of the nation's leading food and drug
retailers, operating 1,695 stores in 27 states, including 166 combination
stores which are jointly operated by a food store division and a drug store
division and are counted as two separate stores. The Company operates in a
single industry segment and its principal lines of business are food, drug and
combination food/drug stores. Food stores account for more than two-thirds of
the Company's sales and operating profit. Principal markets include
California, Illinois, New Jersey, Pennsylvania, Indiana and Arizona, where
products are sold primarily to retail customers.
SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The fiscal year of the Company ends on the Saturday nearest to
January 31. All references herein to "1996", "1995" and "1994" represent the
52-week fiscal year ended February 1, 1997, the 53-week fiscal year ended
February 3, 1996, and the 52-week fiscal year ended January 28, 1995,
respectively.
Basis of Consolidation. The consolidated financial statements include the
accounts of American Stores Company and all subsidiaries. Accordingly, all
references herein to "American Stores Company" include the consolidated
results of its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amounts reported in the balance sheet for cash and
cash equivalents approximate those assets' fair value. The balance of cash was
higher at year-end 1994 due to proceeds held from the sale of the Star Market
food division and 45 Acme Markets stores.
Depreciation and Amortization. Depreciation and amortization are provided on
a straight-line basis over the estimated useful lives of owned assets.
Leasehold improvements and leased properties under capital leases are
amortized over the estimated useful life of the property or over the term of
the lease, whichever is shorter. The depreciable lives are primarily 20 to 40
years for buildings, 3 to 10 years for fixtures and equipment and 10 to 30
years for leasehold improvements and property under capital lease, depending
on the life of the lease. Depreciation expense related to property, plant and
equipment amounted to $359.9 million, $324.5 million and $316.2 million in
fiscal 1996, 1995 and 1994, respectively.
Goodwill. Goodwill, principally from the acquisition of Lucky Stores, Inc.
in 1988, represents the excess of cost over fair value of net assets acquired
and is being amortized over 40 years using the straight-line method.
Costs of Opening and Closing Stores. The costs of opening new stores are
charged against earnings as incurred. When operations are discontinued and a
store is closed, the remaining investment, net of salvage value, is charged
against earnings and, for leased stores, a provision is made for the remaining
lease liability, net of expected sublease income.
F-7
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes. The Company provides for deferred income taxes or credits as
temporary differences arise in recording income and expenses between financial
reporting and tax reporting. Amortization of goodwill is not deductible for
purposes of calculating income tax provisions.
Net Earnings Per Share. Net earnings per share are determined by dividing
the weighted average number of shares outstanding during the year into net
earnings. Common share equivalents in the form of stock options are excluded
from the calculation of net earnings per share since they do not have a
material dilutive effect on per share figures. Fully diluted earnings per
share in 1994 include the assumed conversion of subordinated convertible debt.
Environmental Remediation Costs. Costs incurred to investigate and remediate
contaminated sites, caused primarily by defective underground petroleum
storage tanks and ground water contamination, are accrued when identified and
estimable. The related costs are expensed unless the remediation extends the
economic useful life of the assets employed at the site.
Self-insurance. The Company is self-insured for property loss, workers'
compensation, general liability and automotive liability, subject to specific
retention levels. The Company is required in certain cases to obtain letters
of credit to support its self-insured status. At year-end 1996, the Company's
self-insured liabilities were supported by approximately $221.1 million of
undrawn letters of credit. The Company is also self-insured for health care
claims for eligible active and retired associates. Consulting actuaries assist
the Company in determining its liability for self-insured claims. Self-insured
liabilities, with the exception of postretirement health care benefits, are
not discounted.
Impairment. Impairment is recognized on long-lived assets when indicators of
impairment are present and the undiscounted cash flows are less than the
related assets' carrying value.
Stock-based Compensation. The Company continues to account for stock-based
compensation using the intrinsic value method and provides pro forma footnote
disclosure of the impact of the fair value method.
INVENTORIES
Approximately 94% of inventories are accounted for using the LIFO (last-in,
first-out) method for inventory valuation. If the FIFO and average cost
methods had been used, inventories would have been $324.5 million, $313.1
million and $300.3 million higher at year-end 1996, 1995 and 1994,
respectively. The LIFO charge to earnings was $11.4 million in 1996, $12.8
million in 1995 and $8.2 million in 1994. Under this method, the cost of
merchandise sold that is reported in the financial statements approximates
current costs and thus reduces the distortion in reported earnings due to
increasing cost.
ADVERTISING EXPENSE
Beginning in the first quarter of 1996, the Company, in connection with its
consolidation efforts, classified advertising expense as a cost of merchandise
sold. Previously these expenses were classified as operating and
administrative expenses. Prior years have been reclassified to conform to the
current year presentation.
The Company expenses advertising costs when the advertisement occurs. Total
advertising expense amounted to $133.2 million, $168.3 million and $167.2
million in 1996, 1995 and 1994, respectively. Capitalized advertising costs
are immaterial for the periods presented.
F-8
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DISPOSITION OF OPERATIONS
On September 8, 1994, the Company sold its 33-store Star Market food
division with a basis of $167.0 million for $288.0 million and the assumption
of substantially all of its outstanding liabilities. On January 19, 1995, the
Company sold 45 of its Acme Markets stores with a basis of $48.4 million for
$89.6 million. The assets sold consisted primarily of property, plant,
equipment and inventories.
DEBT
In June of 1996, the Company issued $350 million, 8.0% debentures due June
1, 2026 at 99.3% to yield 8.1% under an $800 million shelf registration
statement filed on February 18, 1994. The Company received net proceeds of
approximately $344 million which were used to pay off financings totaling $100
million at an average interest rate of 8.25% and to refinance additional
short-term variable rate borrowings under the Company's principal bank credit
agreement.
The Company's principal bank credit agreement at year-end 1996 was a $1.0
billion revolving credit facility, which expires in 1999. Interest rates for
borrowings under the facility are established at the time of borrowing through
four different pricing options. Terms of the revolving credit facility provide
for borrowings from participating banks or borrowings through issuance of
commercial paper that is supported by the facility. The credit facility
provides for a covenant of cash flow to total debt. The Company also has $250
million of 364-day committed bank lines and $320 million of uncommitted bank
lines, which are used for overnight and short-term bank borrowings. At year-
end 1996, the Company had $957 million of debt supported by the credit
facility and $183 million outstanding under bank lines, leaving unused
committed borrowing capacity of $110 million. The Company has classified
short-term borrowings as long-term due to its intent and ability to refinance
these borrowings on a long-term basis.
The Company capitalized interest costs associated with construction projects
of $10.6 million, $8.5 million and $3.9 million in 1996, 1995 and 1994,
respectively. The Company made cash payments for interest (net of amounts
capitalized) of $160.8 million, $169.5 million and $172.0 million in 1996,
1995 and 1994, respectively.
The aggregate amounts of debt maturing in each of the next five fiscal years
are listed below:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
1997............................................. $ 56,703
1998............................................. 72,786
1999............................................. 1,323,382
2000............................................. 148,484
2001............................................. 23,383
Thereafter....................................... 988,699
----------
Total Debt..................................... $2,613,437
==========
</TABLE>
The Company's various loans secured by real estate are collateralized by
properties with a net book value of $186.8 million at year-end 1996.
F-9
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of debt is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Public Debt (unsecured):
8.0% Debentures due 2026.................... $ 350,000
7.4% Notes due 2005......................... 200,000 $ 200,000
Medium Term Notes--fixed interest rates due
1997 through 2003--average interest rate
7.9%....................................... 250,000 250,000 $ 250,000
9 1/8% Notes due 2002....................... 249,191 249,075 248,966
7 1/4% Convertible Subordinated Notes due
2001....................................... 174,997
Bank Borrowings (unsecured):
Revolving credit facility--variable interest
rates, effectively due 1999--average
interest rates 5.7% in 1996, 6.2% in 1995
and 4.8% in 1994........................... 957,000 865,000 645,000
Lines of credit and commercial paper--
variable interest rates, effectively due
1999--average interest rates 5.6% in 1996,
6.4% in 1995 and 4.7% in 1994.............. 183,000 69,000 210,000
Other borrowings--due 2000--average interest
rates 6.6% in 1996, 6.5% in 1995 and 8.8%
in 1994.................................... 75,000 125,000 175,000
Other Unsecured Debt:
9.8% due in 1999............................ 160,000 210,000 210,000
10.6% due in 2004........................... 108,893 108,893 108,893
Other--due through 2001..................... 2,988 3,625 4,211
Debt Secured by Real Estate:
Fixed interest rates--due through 2014--
average interest rate 13.3% in 1996, 13.3%
in 1995 and 13.4% in 1994.................. 77,365 83,456 93,662
---------- ---------- ----------
Outstanding debt............................ 2,613,437 2,164,049 2,120,729
Less current maturities....................... 56,703 125,413 132,019
---------- ---------- ----------
Long-term debt................................ $2,556,734 $2,038,636 $1,988,710
========== ========== ==========
</TABLE>
During 1996, the Company entered into an interest rate swap agreement with a
notional amount of $200 million, for the purpose of hedging the interest rate
on a portion of the debt the Company anticipates issuing in 1997 under the
shelf registration statement. The 10-year swap calls for the payment of a
fixed interest rate of 6.7% (comprised of a 10-year treasury rate of 6.3% plus
the swap rate) and the receipt of a variable interest rate. Net interest paid
or received related to such agreement at the time of the debt issuance will be
recorded using the accrual method and will be amortized in interest expense
over the life of the financing. As of year-end 1996, the estimated fair value
of the swap agreement based on market quotes was $2.8 million.
The Company also uses derivative financial instruments to manage interest
and currency risks on the 9.8% unsecured debt due in 1999, and accounts for it
as a hedge. The borrowing totaled 22 billion yen at a yen interest rate of
6.0%. At the time the loan originated, the Company entered into an interest
rate and currency exchange swap agreement (swap) that matches the interest and
principal payments of the yen loan. Under the swap agreement, the Company
makes fixed rate interest payments of 9.8% and principal payments totaling
$160 million and receives payments equal to the underlying yen loan
obligation. The proceeds, in yen, from this swap are used to satisfy the yen-
based interest and will be
F-10
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
used to satisfy the principal payment. As of year-end 1996, the estimated fair
value of the remaining swap agreement based on market quotes was approximately
$28 million and equaled the loss on the yen loans due to currency and interest
rate movements, resulting in an aggregate fair value of zero.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its swap agreements. Such counterparties are highly-
rated financial institutions and the Company anticipates they will be able to
satisfy their obligations under the contracts.
The carrying amounts of the Company's bank borrowings with variable interest
rates approximate fair value. The fair value of the Company's borrowings with
fixed interest rates is estimated using discounted cash flow analyses, based
on current market rates where available, or on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of outstanding debt as of year-end 1996 was $2.7 billion compared
to the carrying value of $2.6 billion.
LEASES
The Company leases retail stores, offices, warehouses and distribution
facilities. Initial lease terms average approximately 20 years, plus renewal
options, and may provide for contingent rent based on sales volume in excess
of specified levels.
The summary below shows the aggregate future minimum rent commitments at
year-end 1996 for both capital and operating leases. Operating leases are
shown net of an aggregate $76.5 million of minimum rent income receivable
under non-cancellable subleases. Operating leases also exclude the
amortization of acquisition-related fair value adjustments.
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
1997................................................ $ 172,144 $ 15,008
1998................................................ 154,317 13,655
1999................................................ 144,341 12,016
2000................................................ 131,477 9,775
2001................................................ 118,327 8,316
Thereafter.......................................... 944,774 51,030
------------- -----------
Total minimum rent commitments.................... $ 1,665,380 109,800
=============
Less executory costs (such as taxes, insurance and
maintenance) included in capital leases............ 1,008
-----------
Net minimum lease payments.......................... 108,792
Less amount representing interest................... 43,082
-----------
Obligations under capital leases, including $9.3
million due within one year........................ $ 65,710
===========
</TABLE>
Rent expense, excluding the amortization of acquisition-related fair value
adjustments of $14.2 million in 1996, $14.3 million in 1995 and $14.5 million
in 1994, was as follows:
<TABLE>
<CAPTION>
MINIMUM SUBLEASE CONTINGENT TOTAL
RENT RENT NET RENT RENT
-------- -------- -------- ---------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1996........................ $189,105 $15,663 $173,442 $24,305 $197,747
1995........................ $180,933 $14,782 $166,151 $26,003 $192,154
1994........................ $184,116 $ 9,064 $175,052 $26,508 $201,560
</TABLE>
F-11
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
Federal and state income taxes charged to earnings are summarized below:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal....................................... $206,313 $124,317 $229,052
State......................................... 25,731 15,979 34,906
Deferred:
Federal....................................... (12,948) 81,859 (2,469)
State......................................... (1,765) 11,952 (410)
-------- -------- --------
Federal and state income taxes.................. $217,331 $234,107 $261,079
======== ======== ========
</TABLE>
Cash payments of income taxes were $226.8 million, $169.2 million and $354.6
million in 1996, 1995 and 1994, respectively.
The Company's effective income tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(PERCENT OF EARNINGS
BEFORE INCOME TAXES)
<S> <C> <C> <C>
Statutory federal income tax rate............... 35.0% 35.0% 35.0%
State income tax rate, net of federal income tax
effect......................................... 4.8 5.1 5.7
Goodwill amortization........................... 4.2 3.8 3.6
Tax credits..................................... (0.1) (0.4) (0.6)
Other........................................... (0.8) (1.0) (0.6)
---- ---- ----
Effective income tax rate..................... 43.1% 42.5% 43.1%
==== ==== ====
</TABLE>
Deferred tax benefits and liabilities as of year-end 1996 related to the
following temporary differences:
<TABLE>
<CAPTION>
BENEFITS LIABILITIES TOTAL
-------- ----------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Basis in fixed assets....................... $ 33,678 $(259,105) $(225,427)
Self-insurance reserves..................... 191,391 191,391
Purchase accounting valuation............... 48,546 (327,530) (278,984)
Compensation and benefits................... 45,609 (62,121) (16,512)
Other, net.................................. 91,415 (92,630) (1,215)
-------- --------- ---------
Deferred tax benefits and liabilities..... $410,639 $(741,386) $(330,747)
======== ========= =========
</TABLE>
No valuation allowances have been considered necessary in the calculation of
deferred tax benefits.
F-12
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK COMPENSATION PLANS
The Company has two stock-based compensation plans, which are described
below.
Fixed Stock Option Plans
The Company's 1989 Stock Option and Stock Awards Plan (1989 Plan) provides
for the grant of options to purchase shares of common stock and the issuance
of restricted stock awards for an aggregate of up to 4.8 million shares of
common stock, subject to certain antidilution adjustments. At year-end 1996,
there were 1.8 million shares reserved for future grants under the 1989 Plan.
A summary of the Company's stock option activity and related information for
1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
(OPTIONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,920 $22.73 1,360 $11.24 2,183 $11.20
Granted................. 1,356 $35.81 1,548 $24.40
Exercised............... (135) $17.40 (826) $ 7.28 (610) $12.14
Forfeited/Expired....... (126) $25.99 (162) $21.01 (213) $ 8.26
----- ----- -----
Outstanding at end of
year................... 3,015 $28.71 1,920 $22.73 1,360 $11.24
===== ===== =====
Exercisable at end of
year................... 212 237 457
Reserved for future
grants................. 1,798 3,117 4,503
</TABLE>
At year-end 1996, there were stock options for 2.4 million shares
outstanding under the 1989 Plan, which expire in 2004 and 0.6 million options
outstanding under an expired plan, which expire through 2002. Exercise prices
for outstanding options as of year-end 1996 ranged from $13.69 to $35.81 and
the weighted-average remaining contractual life of those options is 5.9 years.
Compensation expense related to other options decreased pre-tax earnings by
$3.4 million in 1995 and $2.9 million in 1994.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (ESPP), which began January 1,
1996 enables eligible employees of the Company to subscribe for shares of
common stock on quarterly offering dates at a purchase price which is the
lesser of 85% of the fair market value of the shares on the first day or the
last day of the quarterly offering period. For financial reporting purposes,
the discount of 15% is treated as equivalent to the cost of issuing stock.
During 1996, employees contributed $13.6 million into the ESPP program and 0.5
million shares were issued. There were no shares issued in 1995. At year-end
1996, 6.5 million shares were available for future issuances.
Fair Value Disclosures
The Company's pro forma compensation expense under the fair value method,
utilizing the Black- Scholes option valuation model, for fixed stock options
granted in 1996 and 1995 and for the ESPP in 1996, after income taxes, was
$4.8 million for 1996 and $.8 million for 1995. Pro forma net income would
have been $282.4 million in 1996 and $316.0 million in 1995. Earnings per
share would have
F-13
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
been $1.94 per share for 1996 and $2.15 per share for 1995 for primary
earnings per share and $1.93 per share for 1996 and $2.15 per share for 1995
for fully diluted earnings per share.
The fair value for these options was estimated at the date of grant assuming
an expected volatility of 21% and a dividend yield of 1.9%. Other assumptions
for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1996 ESPP 1995
---- --------- ----
<S> <C> <C> <C>
Average risk-free interest rate........................ 6.1% 5.1% 6.8%
Average life of options (years)........................ 4.0 0.25 5.0
Average vesting date (years)........................... 3.0 2.0 5.0
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of fair value of its employee stock options.
Because the fair value method of accounting for stock-based compensation has
not been applied to options granted prior to January 1, 1995, the preceding
pro forma compensation cost may not be representative of that to be expected
in future years.
STOCK PURCHASE INCENTIVE PLANS
In 1992, the Company's shareholders approved both the American Stores
Company Key Executive Stock Purchase Incentive Plan and the American Stores
Company Board of Directors Stock Purchase Incentive Plan (Plans). The Plans
are intended to promote the long-term growth and financial success of the
Company, and to strengthen the link between management and shareholders. The
Board of Directors Plan was terminated on March 21, 1995, however the
termination does not affect the terms of any awards outstanding on the date of
termination.
Since the Plan's inception, the Company has awarded to certain directors and
key executive officers the right to purchase a specified number of shares of
the Company's stock and extended to such directors and officers full recourse
interest bearing purchase loans to acquire the stock. The stock purchased by
the directors and officers with the purchase loans was issued from treasury
shares. The purchase loans have an eight-year term and accrue interest at
rates ranging from 5.3% to 7.8%. The acquisition price of the stock was the
average of the high and low value on the day acquired, as reported on the New
York Stock Exchange. Shares held by the executives and directors pursuant to
the Plans were 1.8 million for 1996, 2.1 million for 1995 and 1994, with
corresponding loan balances of $40.7 million, $42.6 million and $40.3 million,
respectively. The aggregate principal of these notes outstanding is recorded
as a reduction of additional paid-in capital in the balance sheet.
Participants purchasing stock under the Plans are eligible for a deferred
cash incentive award, which is generally payable at the end of a five-year
performance cycle. One-half of the deferred award will be based on the
continuation of service with the Company (Service Component), and the other
half
F-14
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
will be based on the Company's relative stock price performance versus a
selected group of companies in the retail food and drug industry (Performance
Component). The maximum combined Performance Component and Service Component
payable to participants will not exceed the original principal amount of the
purchase loan plus accrued but unpaid interest. The estimated deferred cash
incentive award is recorded as compensation expense on the income statement
and amounts earned to date are recognized as a credit to the note balances in
additional paid-in capital in the balance sheet. See Subsequent Events note,
following.
PREFERRED SHARE PURCHASE RIGHTS
During March 1988, the Board of Directors of the Company declared a
distribution of one Preferred Share Purchase Right (Right) for each
outstanding share of the Company's common stock. The Rights were issued
pursuant to a Rights Agreement between the Company and First Chicago Trust
Company of New York as Rights Agent, which agreement has been amended from
time to time.
Each Right as amended entitles shareholders to purchase one four-hundredth
of a share of a new series of preferred stock at an exercise price of $62.50.
The Rights will be exercisable only if a person or group acquires 10% or more
of the Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 10% or more of the
Company's common stock. The Rights will generally not apply to a 10% or
greater position held by Mr. L. S. Skaggs, the Company's former Chairman, or
certain other related parties unless such entities increase their aggregate
beneficial ownership of the Company's common stock by more than 1% over the
amount of their percentage holdings on June 21, 1996, other than increases
resulting from an acquisition of common stock by the Company or the execution,
delivery and performance of the Stock Purchase Agreement and Registration
Rights Agreement dated February 20, 1997 entered into between the Company and
Mr. Skaggs and certain family members and trusts. The Company will be entitled
to redeem the Rights at one-quarter cent per Right any time before a 10% or
greater position has been acquired. The authorized capital of the Company
includes 10 million shares of preferred stock, par value $1.00, of which 0.4
million shares have been designated Series A Junior Participating Preferred
Stock.
If the Company is acquired in a merger or other business combination
transaction, each Right will "flip over" and entitle its holder to purchase,
at the Right's then current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the
Right's exercise price.
In addition, if a person or group acquired 10% or more of the outstanding
Company common stock, each Right will "flip in" and entitle all other holders
to purchase, at the Right's then current exercise price, a number of shares of
the Company's common stock having a market value of twice the Right's exercise
price. Further, at any time after a person or group acquires 10% or more of
the outstanding Company common stock but prior to the acquisition of 50% of
such stock, the Board of Directors may, at its option, exchange part or all of
the Rights (other than Rights held by the acquiring person or group) for
shares of the Company's common stock at an exchange rate of one share of
common stock for each Right.
On February 22, 1995, the Board of Directors expressed its intent, subject
to the exercise of its fiduciary duties, to allow the Rights Agreement
pertaining to the Company's preferred share purchase rights, dated March 18,
1988, as amended, to expire in accordance with its terms on March 18, 1998,
without renewal or extension.
F-15
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
REPURCHASE OF COMMON STOCK
In June 1996 the Company replaced its existing stock repurchase program with
a new repurchase program which authorizes the repurchase of up to two million
shares of common stock. During 1996 the Company repurchased 1.1 million shares
of its common stock at an average price of $34.67 per share in accordance with
the Company's stock repurchase programs. As of February 1, 1997, an additional
1.9 million shares remained authorized for repurchase. See Subsequent Events
note, following.
POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides certain health care benefits to eligible retirees of
certain defined employee groups under two unfunded plans, a defined dollar and
a full coverage plan.
The accumulated postretirement health care benefit obligation is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current retirees............................. $ 38,107 $ 37,396 $ 35,787
Current active employees..................... 14,776 14,275 13,521
Unrecognized gain............................ 12,969 14,390 16,819
-------- -------- --------
Accumulated postretirement benefit obligation
("APBO").................................... $ 65,852 $ 66,061 $ 66,127
======== ======== ========
Discount rate................................ 7.5% 8.5% 8.5%
</TABLE>
The components of postretirement health care benefit expense are as follows:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost--benefits earned during the year.... $ 671 $ 768 $1,013
Interest cost on APBO............................ 3,896 4,006 3,730
Adjustment of APBO............................... (789) (465) (598)
------ ------ ------
Net postretirement health care benefit expense... $3,778 $4,309 $4,145
====== ====== ======
</TABLE>
The Company assumed no increase in the cost of the defined dollar benefit
plan in any year presented. Changes in assumptions do not impact the defined
dollar plan. The assumed health care cost trend rates used to measure the
expected cost of benefits included a rate of increase of 9% for 1997
decreasing to 6% by the year 2000. Increasing the assumed health care cost
trend rates for the full coverage plan by one percentage point in each year
would have resulted in an increase of $2.4 million in the APBO and no material
increase in annual health care expense.
RETIREMENT PLANS
The Company sponsors and contributes to a defined contribution retirement
plan, American Stores Retirement Estates (ASRE). This plan was authorized by
the Board of Directors for the purpose of providing retirement benefits for
associates of American Stores Company and its subsidiaries. The plan covers
associates meeting age and service eligibility requirements, except those
represented by a labor union, unless the collective bargaining agreement
provides for participation. Contributions to ASRE are made at the discretion
of the Board of Directors.
F-16
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also contributes to multi-employer defined benefit retirement
plans in accordance with the provisions of the various labor contracts that
govern the plans. The multi-employer plan contributions are generally based on
the number of hours worked. Information about these plans as to vested and
non-vested accumulated benefits and net assets available for benefits is not
available.
Retirement plans expense was as follows:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Company sponsored plans.......................... $ 88,106 $ 81,704 $ 84,149
Multi-employer plans............................. 95,822 86,723 67,391
-------- -------- --------
Retirement plans expense......................... $183,928 $168,427 $151,540
======== ======== ========
</TABLE>
During 1994, the Company entered into Employment Agreements (Agreements)
with 17 of the Company's key executive officers. During 1995 the Company
entered into an Agreement with an additional employee. The Agreements are for
terms of either three or five years, may be renewed by the Company for
subsequent three-year or five-year terms, contain usual and customary terms of
employment agreements and provide the officers with a special long-range
retirement plan. Under the retirement plan, the executives are entitled to
receive an annual payment for a period of 20 years beginning at age 57 or upon
termination of employment, whichever occurs later. The retirement benefit is
calculated as a percentage of the executive's average target compensation
objective during the last two years of his or her employment under the
Agreement. The benefit ranges from 9% to 40% based on years of service with
the Company. The retirement benefit will be forfeited if the executive enters
into competition with the Company. At year-end 1996 17 of the Agreements
remained in effect.
SPECIAL CHARGES
The Company recorded special charges aggregating approximately $100.0
million, before taxes, or $.41 per share, during 1996 related primarily to its
Delta initiatives. The Delta initiatives are designed to transform the Company
from a holding company to a unified operating company.
The components of the charge include: warehouse consolidation costs,
administrative office consolidation costs, closed store costs, asset
impairment costs and other miscellaneous charges. The cost of consolidating
four general merchandise warehouses into one in southern California totaled
$26.4 million and is primarily related to lease termination costs, a reserve
for the anticipated loss on the sale of owned facilities (based on
management's estimated fair market value) and adjusting inventories to a
common inventory valuation method. The cost of consolidating administrative
offices in Salt Lake City and Chicago totaled $26.3 million and relates to
asset write-offs, lease termination costs and severance costs. Closed store
costs included mainly lease termination costs and fixed asset write-offs
totaling $12.9 million. Asset impairment charges totaling $26.4 million
consist of replacements of outdated computer systems and impairment of groups
of stores and other assets that do not fit the long-term strategic plan of the
Company. In addition, other reserves totaling $8.0 million were recorded. The
special charges are included in cost of merchandise sold ($10.0 million),
operating expenses ($15.5 million) and other non-operating expense ($74.5
million). As of year-end 1996, the Company charged $17.6 million against the
reserve, of which $12.3 million related to asset impairment. Disposal of
impaired assets is expected to be complete in fiscal 1998.
F-17
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Severance costs included above resulted from the Company's commitment to
restructure and consolidate operations. During the fourth quarter 1996,
consolidation of human resources, payroll, Drug Store administration and
general merchandise buying functions were announced and the related costs were
measurable and recognized. The Company recorded a charge to operating and
administrative expense of $15.5 million, related to termination benefits to be
paid to an estimated 445 employees. There were no payments made nor employees
terminated during the year. The consolidation is expected to be complete in
fiscal 1998.
CONTINGENCIES
The Company has identified environmental contamination sites related
primarily to underground petroleum storage tanks at various store, warehouse,
office and manufacturing facilities (related to current operations as well as
previously disposed of businesses). At most such locations, remediation is
either underway or completed. Undiscounted reserves have been established for
each environmental contamination site unless an unfavorable outcome is remote.
Although the ultimate outcome and expense of environmental remediation is
uncertain, the Company believes that required remediation and continuing
compliance with environmental laws in excess of current reserves will not have
a material adverse effect on the financial condition or results of operations
of the Company. Charges against earnings for environmental remediation were
not material in 1996, 1995 or 1994.
LEGAL PROCEEDINGS
The Company is involved in various claims, administrative proceedings and
other legal proceedings which arise from time to time in connection with the
conduct of the Company's business. In the opinion of management, such
proceedings will not have a material adverse effect on the Company's financial
condition or results of operations.
SUBSEQUENT EVENTS
On February 20, 1997, the Company and the family of L. S. Skaggs entered
into an agreement for the repurchase by the Company of 12.2 million shares of
its common stock from the Skaggs family and certain family and charitable
trusts for $45 per share, the closing price on the date of the agreement (the
Repurchase). Pursuant to the agreement, the Company filed, at its cost, a
registration statement on March 4, 1997 to enable such shareholders to sell
15.4 million additional shares in a secondary offering. In addition, the
Company has granted the Underwriters an option to purchase an additional 2.3
million shares to cover over-allotments (these are primary shares to be issued
by the Company).
The closing of the Repurchase is expected to occur simultaneously with the
closing of the secondary offering. If the price to the public in the secondary
offering is less than $45 per share, the selling shareholders have the right
to terminate the secondary offering and, if they also elect, the Repurchase.
Either the Company or the selling shareholders may terminate the transactions
if they are not consummated within 60 days following the date the Company
files a registration statement for the secondary offering.
The selling shareholders have agreed to enter into a 10-year standstill
agreement restricting purchases and sales of the Company's shares, proxy
fights and other actions. In the event that neither the Repurchase nor the
secondary offering is consummated, the standstill period would be reduced to
30 months. The Company has granted the selling shareholders certain
registration rights during the standstill period.
F-18
<PAGE>
AMERICAN STORES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On March 28, 1997, the Company increased the capacity of its existing
revolving credit facility from $1 billion to $2 billion, which includes a $1.5
billion five-year revolving credit facility and a $500 million 364-day
revolving credit facility (the Amended Credit Facilities). The Company intends
to finance the $550 million Repurchase initially through the Amended Credit
Facilities. Subject to market conditions, the Company intends to refinance the
indebtedness incurred in connection with the Repurchase through public equity
and/or debt issuances over the next six to 12 months.
In anticipation of the expiration of the 1992 Key Executive Stock Purchase
Incentive Plan, the Board of Directors recently approved a new stock-based
management incentive program. The new program will continue to link executive
incentive compensation to shareholder return. The program involves the grant
of market-priced stock options that would ordinarily begin to vest on the
fifth anniversary of the grant date but which will vest on an accelerated
basis, in part, if stock ownership requirements are satisfied and, in part, if
the Company achieves annual performance goals. A total of approximately 1.8
million options were granted to 16 senior officers under the 1989 Stock Option
and Stock Award Plan in connection with the new incentive program on February
24, 1997, and a total of approximately 1.3 million options were granted to an
additional 30 senior officers under a new plan on March 27, 1997, in each
case, with an exercise price of $45 per share.
F-19
<PAGE>
[pictures of exteriors and interiors of certain stores]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 4
The Company.............................................................. 5
Recent Developments...................................................... 6
Price Range of Common Stock and Dividend Policy.......................... 10
Use of Proceeds.......................................................... 10
Capitalization........................................................... 11
Selected Consolidated Financial Data..................................... 12
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Business................................................................. 19
Description of Capital Stock............................................. 25
Selling Stockholders..................................................... 28
Legal Matters............................................................ 31
Experts.................................................................. 31
Underwriting............................................................. U-1
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15,407,910 SHARES
AMERICAN STORES COMPANY
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
--------------
[LOGO]
--------------
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 1, 1997
15,407,910 SHARES
[LOGO]
AMERICAN STORES COMPANY
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
----------
Of the 15,407,910 shares of Common Stock offered, 3,081,580 shares are being
offered hereby in an international offering outside the United States and
12,326,330 shares are being offered in a concurrent offering in the United
States. The initial public offering price and the aggregate underwriting
discount per share will be identical for both Offerings. See "Underwriting".
All of the shares of Common Stock offered are being sold by the Selling
Stockholders named herein, other than shares, if any, sold in connection with
the exercise by the Underwriters of the over-allotment options, which will be
sold by the Company. The Selling Stockholders consist of members of the family
of L.S. Skaggs, the former chairman and a current director of the Company,
certain charitable trusts and foundations and certain trusts created for the
benefit of members of the Skaggs family. The Offerings are conditioned upon the
Company's repurchase of 12,222,222 shares of Common Stock from the Selling
Stockholders at $45 per share, and all such transactions are expected to be
consummated simultaneously. After the Offerings and the Repurchase, the Selling
Stockholders will beneficially own an aggregate of less than one percent of the
outstanding shares of Common Stock. See "Selling Stockholders". The Company
will not receive any of the proceeds from the sale of the shares offered
hereby, other than proceeds from the sale of shares, if any, sold in connection
with the exercise by the Underwriters of the over-allotment options.
The last reported sale price of the Common Stock, which is listed under the
symbol "ASC" on the New York Stock Exchange, the Chicago Stock Exchange, the
Pacific Stock Exchange and the Philadelphia Stock Exchange, was $44 1/2 per
share on the New York Stock Exchange on March 31, 1997. See "Price Range of
Common Stock and Dividend Policy".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) STOCKHOLDERS (2)
-------------- ------------ -------------------
<S> <C> <C> <C>
Per Share...................... $ $ $
Total (3)...................... $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Estimated expenses of $675,000 are payable by the Company. In addition, the
Company has agreed to pay part or all of the underwriting discount to the
extent the net proceeds to the Selling Stockholders would otherwise be less
than $45 per share. See "Selling Stockholders--Selling Stockholders'
Agreements".
(3) The Company has granted the International Underwriters an option for 30
days to purchase up to an additional 462,237 shares of Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, the Company has granted the
U.S. Underwriters a similar option with respect to an additional 1,848,949
shares as part of the concurrent U.S. offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount, proceeds to Selling Stockholders and proceeds to Company will be
$ , $ , $ and $ , respectively. See "Underwriting".
----------
Goldman, Sachs & Co. is acting as book running lead manager for the
Offerings. Goldman Sachs International and J.P. Morgan Securities Ltd. are
acting as joint lead managers. The shares offered hereby are offered severally
by the International Underwriters, as specified herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or
in part. It is expected that certificates for the shares will be ready for
delivery in New York, New York, on or about , 1997 against payment
therefor in immediately available funds.
GOLDMAN SACHS INTERNATIONAL J.P. MORGAN SECURITIES LTD.
Joint Lead Managers
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INTERNATIONAL
SMITH BARNEY INC.
----------
The date of this Prospectus is , 1997.
<PAGE>
[MAP DEPICTING STORE LOCATIONS AND LOGOS OF STORE OPERATING NAMES]
IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE UNITED STATES
DOLLARS.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person (a "Non-U.S. Holder"). For
this purpose, the term Non-U.S. Holder is defined as any person who is, for
U.S. federal income tax purposes, a foreign corporation, a non-resident alien
individual, a foreign estate or trust, or a foreign partnership. This
discussion does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state and local consequences that
may be relevant to such Non-U.S. Holders in light of their personal
circumstances. Furthermore, this discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing and, in
some cases, proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change including
changes with retroactive effect. EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS
ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK AS WELL
AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY UNITED STATES
STATE, LOCAL OR OTHER TAXING JURISDICTION.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States on at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to United States federal tax as if they were United States citizens and
residents.
DIVIDENDS
The Company intends to continue its current policy of paying quarterly cash
dividends on shares of Common Stock. See "Price Range of Common Stock and
Dividend Policy". In the event that dividends are paid on shares of Common
Stock, except as described below, such dividends paid to a Non-U.S. Holder of
Common Stock will be subject to withholding of United States federal income
tax at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty, unless the dividends are effectively connected with the
conduct of a trade or business of the Non-U.S. Holder within the United
States. If the dividend is effectively connected with the conduct of a trade
or business of the Non-U.S. Holder within the United States, the dividend
would be subject to United States federal income tax on a net income basis at
applicable graduated individual or corporate rates, provided that form 4224 is
filed with the paying agent, and would be exempt from the 30% withholding tax
described above. Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country (unless the payor has knowledge to the contrary) for purposes of
the withholding discussed above, and, under the current interpretation of
United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under proposed United States Treasury
regulations, not currently in effect, however, a Non-U.S. Holder of Common
Stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. Also,
under such proposed regulations, tax would not be withheld on dividends paid
to a foreign partnership to the extent allocable to persons who certify that
they are not Non-U.S. Holders; under current regulations, tax would be
withheld in such
31
<PAGE>
cases but such persons could claim a refund or credit of such withheld tax on
their tax returns. Certain certification and disclosure requirements must also
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for
refund with the United States Internal Revenue Service (the "Service").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) subject to the exception discussed below, the Company is or has
been a "United States real property holding corporation" (a "USRPHC") within
the meaning of Section 897(c)(2) of the Code at any time within the shorter of
the five-year period preceding such disposition or such Non-U.S. Holder's
holding period (the "Required Holding Period"), (ii) the gain is effectively
connected with the conduct of a trade or business within the United States of
the Non-U.S. Holder and, if a tax treaty applies, attributable to a permanent
establishment maintained by the Non-U.S. Holder, (iii) the Non-U.S. Holder is
an individual who holds the share of Common Stock as a capital asset and is
present in the United States for 183 days or more in the taxable year of the
disposition and either (a) such individual has a "tax home" (as defined for
United States federal income tax purposes) in the United States or (b) the
gain is attributable to an office or other fixed place of business maintained
in the United States by such individual, or (iv) the Non-U.S. Holder is
subject to tax pursuant to the Code provisions applicable to certain United
States expatriates. If an individual Non-U.S. Holder falls under clauses (ii)
or (iv) above, he or she will be taxed on his or her net gain derived from the
sale under regular United States federal income tax rates. If the individual
Non-U.S. Holder falls under clause (iii) above, he or she will be subject to a
flat 30% tax on the gain derived from the sale which may be offset by United
States capital losses (notwithstanding the fact that he or she is not
considered a resident of the United States). If a Non-U.S. Holder that is a
foreign corporation falls under clause (ii) above, it will be taxed on its
gain under regular graduated United States federal income tax rates and, in
addition, will under certain circumstances be subject to the branch profits
tax equal to 30% of its "effectively connected earnings and profits" within
the meaning of the Code for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. While not free from doubt, the
Company believes that it is not currently, and does not currently anticipate
becoming, a USRPHC. Even if the Company were a USRPHC, however, a Non-U.S.
Holder would generally not be subject to tax or withholding in respect of such
tax on gain from a sale or other disposition of Common Stock by reason of the
Company's USRPHC status so long as the Common Stock is regularly traded on an
established securities market during the calendar year in which such sale or
disposition occurs, provided that such holder does not own, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Common Stock outstanding at any time during the
Required Holding Period.
If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-U.S. Holder owns in excess of 5% of the fair market value of
Common Stock (as described in the preceding paragraph), such Non-U.S. Holder
of Common Stock will be subject to United States federal income tax at regular
graduated rates under certain rules ("FIRPTA tax") on gain recognized on a
sale or other disposition of such Common Stock, but will not be subject to
withholding in respect of such tax provided that the Common Stock is regularly
traded during the year of sale or disposition. Non-U.S. Holders are urged to
consult their tax advisors concerning the potential applicability of these
provisions.
32
<PAGE>
FEDERAL ESTATE TAXES
Common Stock owned, or treated as owned, by a non-resident alien individual
(as specifically determined for United States federal estate tax purposes) at
the time of death will be included in such holder's gross estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the tax withheld with respect
to such dividends. These information reporting requirements apply regardless
of whether withholding is required. Copies of the information returns
reporting such dividends and withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder resides under the
provisions of an applicable income tax treaty.
United States backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting
requirements) generally will not apply to (a) the payment of dividends paid on
Common Stock to a Non-U.S. Holder at an address outside the United States
(unless the payor has knowledge that the payee is a U.S. person) or (b) the
payment of the proceeds of the sale of Common Stock to or through the foreign
office of a foreign broker. In the case of the payment of proceeds from such a
sale of Common Stock through a foreign office of a broker that is a United
States person or a "U.S. related person," however, information reporting (but
not backup withholding) is required with respect to the payment unless the
broker has documentary evidence in its files that the owner is a Non-U.S.
Holder and certain other requirements are met or the holder otherwise
establishes an exemption. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation for United States federal income tax purposes,
or (ii) a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year preceding
the payment (or for such part of the period that the broker has been in
existence) is derived from activities that are effectively connected with the
conduct of a United States trade or business. The payment of the proceeds of a
sale of shares of Common Stock to or through a United States office of a
broker is subject to information reporting and possible backup withholding
unless the owner certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be allowed
as a refund or a credit against such Non-U.S. Holder's United States federal
income tax liability, provided that the required information is furnished to
the Service.
The United States Treasury has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. If finalized in their
current form, the proposed regulations would generally be effective for
payments made after December 31, 1997, subject to certain transition rules.
LEGAL MATTERS
Certain legal matters in connection with the Offerings will be passed upon
for the Company by Wachtell, Lipton, Rosen & Katz, New York, New York, and for
the U.S. Underwriters and the International Underwriters by Davis Polk &
Wardwell, New York, New York.
33
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of February 1, 1997,
February 3, 1996 and January 28, 1995 and for each of the three fiscal years
in the period ended February 1, 1997 (which are included herein) and the
consolidated financial statements of the Company as of February 3, 1996,
January 28, 1995 and January 29, 1994 and for each of the three fiscal years
in the period ended February 3, 1996 (which are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
February 3, 1996) have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon. Such financial statements are
included or incorporated by reference herein in reliance upon the reports of
Ernst & Young LLP pertaining to such financial statements (to the extent
covered by consents filed with the Commission) given upon the authority of
such firm as experts in accounting and auditing.
34
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have severally agreed to sell to each of the
International Underwriters named below, and each of such International
Underwriters, for whom Goldman Sachs International, J.P. Morgan Securities
Ltd., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley &
Co. International Limited and Smith Barney Inc. are acting as representatives,
has severally agreed to purchase from the Selling Stockholders, the respective
number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman Sachs International......................................
J.P. Morgan Securities Ltd. .....................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Morgan Stanley & Co. International Limited.......................
Smith Barney Inc.................................................
---------
Total.................................................... 3,081,580
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
International Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Common Stock
in part directly to the public at the initial public offering price set forth
on the cover page of this Prospectus, and in part to certain securities
dealers at such price less a concession of $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the International
Underwriters.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "U.S. Underwriting Agreement") with the underwriters of the
U.S. offering (the "U.S. Underwriters") providing for the concurrent offer and
sale of 12,326,330 shares of Common Stock in a U.S. offering. The initial
public offering price and aggregate underwriting discount per share for the
Offerings are identical. The closing of the U.S. Offering is a condition to
the closing of the International Offering, and vice versa. The representatives
of the U.S. Underwriters are Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley &
Co. Incorporated and Smith Barney Inc.
Pursuant to an agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of
the U.S. Underwriters has agreed or will agree pursuant to the Agreement
Between that, as a part of the distribution of the shares offered hereby and
subject to certain exceptions, it will offer, sell or deliver shares of Common
Stock, directly or indirectly, only in the United States of America (including
the 50 States and the District of Columbia), its territories, its possessions
and other areas subject to its jurisdiction (the "United States") and to U.S.
persons, which term shall mean, for purposes of this paragraph: (a) any
individual who is a
U-1
<PAGE>
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters named
herein has agreed or will agree pursuant to the Agreement Between that, as a
part of the distribution of the shares offered as part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the
International Underwriters and the U.S. Underwriters of such number of shares
of Common Stock as may be mutually agreed. The price of any shares so sold
shall be the initial public offering price, less an amount not greater than
the selling concession.
The Company has granted the International Underwriters an option exercisable
for 30 days after the date of this Prospectus to purchase up to an aggregate
of 462,237 additional shares of Common Stock, solely to cover over-allotments,
if any. If the International Underwriters exercise such over-allotment option,
the International Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 3,081,580 shares offered hereby. The Company has granted
the U.S. Underwriters a similar option to purchase up to an aggregate of
1,848,949 additional shares of Common Stock.
The Selling Stockholders have agreed not to offer, sell or otherwise dispose
of any shares of Common Stock, securities substantially similar to the Common
Stock, or securities exchangeable for or convertible into shares of Common
Stock, or any substantially similar security for a period of 90 days after the
date of this Prospectus without the prior written consent of the
representatives, except for the shares of Common Stock offered in connection
with the concurrent international and U.S. offerings. The Company has agreed,
with certain limited exceptions, not to offer, sell or otherwise dispose of
any shares of Common Stock, securities substantially similar to the Common
Stock, or securities exchangeable for or convertible into shares of Common
Stock or any substantially similar security (other than pursuant to employee
stock option or purchase plans or director incentive plans, or upon the
conversion or exchange of convertible or exchangeable securities outstanding
on the date of this Prospectus) for a period of 90 days after the date of this
Prospectus without the prior written consent of the representatives, except
for the shares of Common Stock offered in connection with the concurrent
international and U.S. offerings.
Each International Underwriter has also agreed or will agree that (a) it has
not offered or sold and prior to the date six months after the date of issue
of the shares of Common Stock will not offer or sell any shares of Common
Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, (b) it has complied, and will comply,
with all applicable provisions of the Financial Services Act of 1986 of Great
Britain with respect to anything done by it in relation to the shares of
Common Stock in, from or otherwise involving the United Kingdom, and (c) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of the
shares of Common Stock to a person who is of a kind described in Article 11(3)
of the Financial Services Act of 1986 (Investment Advertisements) (Exemptions)
Order 1996 of Great Britain or is a person to whom the document may otherwise
lawfully be issued or passed on.
U-2
<PAGE>
Buyers of shares of Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the initial public offering price.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
During and after the Offerings, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. The Underwriters also may impose a
penalty bid whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offerings for their
account may be reclaimed by the syndicate if such securities are repurchased
by the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the New York Stock Exchange, the
Chicago Stock Exchange, the Pacific Stock Exchange or the Philadelphia Stock
Exchange, in the over-the-counter market or otherwise, and these activities,
if commenced, may be discontinued at any time.
Certain of the International Underwriters and U.S. Underwriters have
provided from time to time, and expect to provide in the future, investment
banking services to the Company and its affiliates (including certain of the
Selling Stockholders) for which such International Underwriters and U.S.
Underwriters have received and will receive customary fees and commissions.
The amount of outstanding debt borrowed directly under the Credit Facility, at
a weighted average interest rate of 5.6%, was $957 million at February 1,
1997, of which $123 million was owed to Morgan Guaranty Trust Company of New
York, the agent bank under the Credit Facility and the Amended Credit
Facilities. The Company will incur additional indebtedness under the Amended
Credit Facilities in connection with the Repurchase. The Amended Credit
Facilities include a $1.5 billion five-year revolving credit facility and a
$500 million 364-day revolving credit facility. In addition, the Company had
$100 million outstanding at February 1, 1997 under a 364-day credit line with
Morgan Guaranty Trust Company of New York, at an interest rate of 5.7%. Morgan
Guaranty Trust Company of New York, a wholly-owned subsidiary of each of J.P.
Morgan & Co. Incorporated, is an affiliate of each of J.P. Morgan Securities
Inc., a manager of the U.S. Offering, and J.P. Morgan Securities Ltd., a
manager of the International Offering.
U-3
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 4
The Company.............................................................. 5
Recent Developments...................................................... 6
Price Range of Common Stock and Dividend Policy.......................... 10
Use of Proceeds.......................................................... 10
Capitalization........................................................... 11
Selected Consolidated Financial Data..................................... 12
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Business................................................................. 19
Description of Capital Stock............................................. 25
Selling Stockholders..................................................... 28
Certain United States Tax Consequences to Non-United States Holders...... 31
Legal Matters............................................................ 33
Experts.................................................................. 34
Underwriting............................................................. U-1
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15,407,910 SHARES
AMERICAN STORES COMPANY
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
--------------
[LOGO]
--------------
GOLDMAN SACHS INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INTERNATIONAL
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all fees and expenses payable in connection
with the issuance and distribution of the shares of Common Stock, other than
underwriting discounts and commissions. All such fees and expenses will be
paid by the Company. All the amounts shown are estimates, except for the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $241,289
"Blue Sky" fees and expenses..................................... 15,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 30,000
Printing expenses................................................ 125,000
Miscellaneous.................................................... 63,711
--------
Total.......................................................... $675,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 145 of the Delaware General Corporation Law
which provides for indemnification of directors and officers in certain
circumstances. Article Nine of the Restated Certificate of Incorporation of
the Company provides the following:
9.01 Elimination of Certain Liability of Directors. A Director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the Director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or
modification.
9.02 Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a Director or
officer of the Corporation or while serving as a Director or officer of the
Corporation is or was also serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and
II-1
<PAGE>
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a Director or officer, and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Section shall be a contract
right (which may not be reduced or limited by any repeal or modification of
this Section 9.02) and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a Director or officer in
his or her capacity as a Director or officer (and not in any other capacity in
which service was or is rendered by such person while a Director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such Director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such Director or officer is not entitled to be indemnified under this
Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of Directors
and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested Directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss whether or not the Corporation
would have the power to indemnify such person against such expense, liability
to or loss under the Delaware General Corporation Law.
In addition, the Company maintains a directors' and officers' liability
insurance policy.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
4.1 The Restated Certificate of Incorporation of American Stores Company,
as amended, is incorporated herein by reference to Exhibit 3.1 of the
Company's Form 10-K for the fiscal year ended February 3, 1996, as
filed with the Commission on April 19, 1996.
4.2 The By-Laws of American Stores Company, as amended, are incorporated
herein by reference to Form 8-K filed with the Commission on September
23, 1996.
4.3 Rights Agreement, dated as of March 8, 1988, between the Company and
First Chicago Trust Company of New York, formerly Morgan Stockholder
Services Trust Company, as Rights Agent, and the amendments thereto
(the "Rights Agreement"), are incorporated by reference to the
Company's Registration Statement on Form 8-A, as filed with the
Commission on March 16, 1988, and Amendments No. 1, 2, 3, 4 and 5 to
such Registration Statement, as filed with the Commission on March 28,
1990, July 17, 1991, May 17, 1994, July 3, 1996 and February 25, 1997,
respectively.
4.4 Stock Purchase Agreement, dated as of February 20, 1997, by and among
the Company, L.S. Skaggs, Aline W. Skaggs, and certain stockholders
named therein and related letter agreements executed by certain
stockholders identified on Schedule 2 of the Stock Purchase Agreement
incorporated by reference to Exhibit 1 to the Company's Report on Form
8-K, as filed with the Commission on February 21, 1997.
4.4.1 Letter executed by U.S. Bank of Idaho related to the Stock Purchase
Agreement.*
4.5 Registration Rights Agreement, dated as of February 20, 1997, by and
among the Company, L.S. Skaggs, Aline Skaggs and certain stockholders
named therein, incorporated by reference to Exhibit 3 to the Company's
Report on Form 8-K, filed with the Commission on February 21, 1997.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz as to legality.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in the opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-3
<PAGE>
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted against the registrant by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3, AND HAS DULY CAUSED THIS AMENDMENT NO. 2
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN SALT LAKE CITY, UTAH ON THE 1ST DAY OF APRIL,
1997.
American Stores Company
Teresa Beck
By: _________________________________
TERESA BECK
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------- Board, Chief April 1, 1997
VICTOR L. LUND Executive Officer
and Director
(Principal
Executive Officer)
Teresa Beck Chief Financial
- ------------------------------------- Officer (Principal April 1, 1997
TERESA BECK Financial and
Accounting Officer)
* Director
- ------------------------------------- April 1, 1997
HENRY I. BRYANT
* Director
- ------------------------------------- April 1, 1997
LOUIS H. CALLISTER
* Director
- ------------------------------------- April 1, 1997
ARDEN B. ENGEBRETSEN
* Director
- ------------------------------------- April 1, 1997
JAMES B. FISHER
* Director April 1, 1997
- -------------------------------------
FERNANDO R. GUMUCIO
II-5
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------------------- April 1, 1997
LEON G. HARMON
* Director
- ------------------------------------- April 1, 1997
DONALD B. HOLBROOK
* Director
- ------------------------------------- April 1, 1997
JOHN E. MASLINE
* Director
- ------------------------------------- April 1, 1997
MICHAEL T. MILLER
* Director
- ------------------------------------- April 1, 1997
BARBARA S. PREISKEL
* Director
- ------------------------------------- April 1, 1997
J. L. SCOTT
* Director
- ------------------------------------- April 1, 1997
L.S. SKAGGS
* Director
- ------------------------------------- April 1, 1997
DON L. SKAGGS
* Director
- ------------------------------------- April 1, 1997
ARTHUR K. SMITH
Teresa Beck
*By: ________________________________
TERESA BECK, AS ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
4.1 The Restated Certificate of Incorporation of American Stores Company,
as amended, is incorporated herein by reference to Exhibit 3.1 of the
Company's Form 10-K for the fiscal year ended February 3, 1996, as
filed with the Commission on April 19, 1996.
4.2 The By-Laws of American Stores Company, as amended, are incorporated
herein by reference to Form 8-K filed with the Commission on September
23, 1996.
4.3 Rights Agreement, dated as of March 8, 1988, between the Company and
First Chicago Trust Company of New York, formerly Morgan Stockholder
Services Trust Company, as Rights Agent, and the amendments thereto
(the "Rights Agreement"), are incorporated by reference to the
Company's Registration Statement on Form 8-A, as filed with the
Commission on March 16, 1988, and Amendments No. 1, 2, 3, 4 and 5 to
such Registration Statement, as filed with the Commission on March 28,
1990, July 17, 1991, May 17, 1994, July 3, 1996 and February 25, 1997,
respectively.
4.4 Stock Purchase Agreement, dated as of February 20, 1997, by and among
the Company, L.S. Skaggs, Aline W. Skaggs, and certain stockholders
named therein, and related letter agreement executed by certain
stockholders identified on Schedule 2 of the Stock Purchase Agreement
incorporated by reference to Exhibit 1 to the Company's Report on Form
8-K, as filed with the Commission on February 21, 1997.
4.4.1 Letter executed by U.S. Bank of Idaho related to the Stock Purchase
Agreement.*
4.5 Registration Rights Agreement, dated as of February 20, 1997, by and
among the Company, L.S. Skaggs, Aline Skaggs and certain stockholders
named therein, incorporated by reference to Exhibit 3 to the Company's
Report on Form 8-K, as filed with the Commission on February 21, 1997.
5.1 Opinion of Wachtell, Lipton, Rosen & Katz as to legality.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in the opinion
filed as Exhibit 5.1 to this Registration Statement).
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 1.1
AMERICAN STORES COMPANY
12,326,330 Shares
Common Stock (par value $1.00 per share)
Underwriting Agreement
(U.S. Version)
------------------------
April , 1997
Goldman, Sachs & Co.,
J.P. Morgan Securities Inc.,
Donaldson, Lufkin & Jenrette
Securities Corporation,
Morgan Stanley & Co. Incorporated,
Smith Barney Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of American Stores Company, a Delaware corporation (the
"Company"), propose, subject to the terms and conditions stated herein, to sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 12,326,330 shares (the "Firm Shares") and the Company proposes to issue and
sell to the Underwriters, at the election of the Underwriters, up to 1,848,949
additional shares (the "Optional Shares") of Common Stock (par value $1.00 per
share) ("Stock") of the Company (the Firm Shares and the Optional Shares that
the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares").
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International
<PAGE>
Underwriting Agreement") providing for the sale by the Company and the Selling
Stockholders of up to a total of 3,543,817 shares of Stock (the "International
Shares"), including the overallotment option thereunder, through arrangements
with certain underwriters outside the United States (the "International
Underwriters"), for whom Goldman Sachs International and J.P. Morgan Securities
Ltd. are acting as joint lead managers. Anything herein or therein to the
contrary notwithstanding, the respective closings under this Agreement and the
International Underwriting Agreement are hereby expressly made conditional on
one another. The Underwriters hereunder and the International Underwriters are
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages as included in the registration statement, as amended, as
mentioned below. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except
as the context may otherwise require, references hereinafter to the Shares shall
include all the shares of Stock which may be sold pursuant to either this
Agreement or the International Underwriting Agreement (and references herein to
the Firm Shares or the Optional Shares shall have a similar meaning), and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. (a) The Company represents and warrants to, and agrees with,
each of the Underwriters and the Selling Stockholders that:
(i) A registration statement on Form S-3 (File No. 333-22701)
(the "Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered to you for each of the
other Underwriters, and, excluding exhibits thereto but including all
documents incorporated by reference in the prospectus contained therein,
have been declared effective by the Commission in such form; other than
a registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement or document incorporated by reference therein has
heretofore been filed with the Commission; and no stop
2
<PAGE>
order suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for
that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto and including (i) the information contained in the
form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed
by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective and (ii)
the documents incorporated by reference in the prospectus contained in
the registration statement at the time such part of the registration
statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, each as
amended at the time such part of the registration statement became
effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant
to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
and any reference herein to any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Act, as of
the date of such Preliminary Prospectus or Prospectus, as the case may
be; any reference to any amendment or supplement to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include any
documents filed after the date of such Preliminary Prospectus or
Prospectus, as the case may be, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and incorporated by reference in
such Preliminary Prospectus or Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be deemed
to refer to and include any annual report of the Company filed pursuant
to Section 13(a) or 15(d) of the Exchange Act after the effective date
of the Registration Statement that is incorporated by reference in the
Registration Statement);
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the
3
<PAGE>
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for
use therein or by a Selling Stockholder expressly for use in the
preparation of the answers therein to Item 7 of Form S-3;
(iii) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus or any further amendment
or supplement thereto, when such documents become effective or are filed
with the Commission, as the case may be, will conform in all material
respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein or by a Selling Stockholder
4
<PAGE>
expressly for use in the preparation of the answers therein to Item 7 of
Form S-3;
(v) The financial statements, and the related notes thereto,
included or incorporated by reference in the Registration Statement and
the Prospectus present fairly, in all material respects, the financial
position of the Company and its consolidated subsidiaries as of the
dates indicated and the results of their operations and the changes in
their consolidated cash flows for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis, and the supporting
schedules included or incorporated by reference in the Registration
Statement present fairly, in all material respects, the information
required to be stated therein as of the dates indicated;
(vi) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
material adverse change in the business, business prospects, financial
position, shareholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a whole;
(viii) Each Significant Subsidiary (as defined in Regulation S-X
promulgated by the Commission) of the Company has been duly incorporated
and is validly existing as a corporation under the laws of its
jurisdiction of incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in
the Prospectus, and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, other than where the
failure to be so qualified or in good standing would not
5
<PAGE>
have a material adverse effect on the Company and its subsidiaries taken
as a whole; and all the outstanding shares of capital stock of each
Significant Subsidiary have been duly authorized and validly issued, are
fully-paid and non-assessable, and (except as contemplated by the
Prospectus) are owned by the Company, directly or indirectly, free and
clear of all liens, encumbrances, security interests and claims;
(ix) neither the Company nor any Significant Subsidiary is, or
with the giving of notice or lapse of time or both would be, in
violation of or in default under (A) its Certificate of Incorporation or
By-Laws or (B) any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument (including, without limitation, the Stock
Purchase Agreement dated as of February 20, 1997 by and among the
Company, Lennie Sam Skaggs, Aline W. Skaggs and certain stockholders
(the "Stock Purchase Agreement") and the Registration Rights Agreement
dated as of February 20, 1997 among the Company and the stockholders
named therein (the "Registration Rights Agreement")) to which the
Company or any Significant Subsidiary is a party or by which it or any
of them or any of their respective properties is bound, except for
violations and defaults of any agreement or instrument described in
clause (B) which individually and in the aggregate would not have a
material adverse effect on the Company and its subsidiaries taken as a
whole; the issue and sale of the Optional Shares to be sold by the
Company, and the sale of the Firm Shares to be sold by the Selling
Stockholders, hereunder and under the International Underwriting
Agreement and the performance by the Company of its obligations under
this Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument
(including, without limitation, the Stock Purchase Agreement or the
Registration Rights Agreement) to which the Company or any Significant
Subsidiary is a party or by which the Company or any Significant
Subsidiary is bound or to which any of the property or assets of the
Company or any Significant Subsidiary is subject, except for violations
and defaults which individually and in the aggregate would not have a
material adverse effect on the Company and its subsidiaries taken as a
whole, nor will any such action result in any violation of the
provisions of the Restated Certificate of Incorporation or the By-Laws
of the Company or any material violation of any applicable law or
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company, any Significant
Subsidiary or any of their respective properties; and no consent,
6
<PAGE>
approval, authorization, order, registration or qualification of or with
any such court or governmental agency or body is required for the issue
and sale of the Shares to be sold by the Company or the consummation by
the Company of the transactions contemplated by this Agreement and the
International Underwriting Agreement, except such consents, approvals,
authorizations, registrations or qualifications (x) as have been
obtained under the Act and as may be required under the applicable
securities or Blue Sky Laws of the various states and other
jurisdictions in connection with the issue, sale and distribution of the
Shares or (y) of which the failure to obtain would not individually and
in the aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole;
(x) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, and are fully
paid and non-assessable; and such shares conform in all material
respects to the description of the Stock contained in the Prospectus;
(xi) The unissued Shares that may be issued and sold by the
Company to the Underwriters hereunder and under the International
Underwriting Agreement have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable; and such
shares will conform in all material respects to the description of the
Stock contained in the Prospectus;
(xii) Each of this Agreement and the International Underwriting
Agreement has been duly authorized, executed and delivered by the
Company;
(xiii) The execution, delivery and performance of the Stock
Purchase Agreement, the Registration Rights Agreement, this Agreement
and the International Underwriting Agreement shall not, except in the
event that a person becomes the Beneficial Owner (as defined in the
Rights Agreement dated as of March 8, 1988, as amended March 20, 1990,
June 24, 1996 and February 20, 1997, between the Company and First
Chicago Trust Company of New York as Rights Agent (the "Rights
Agreement")) of 10% or more of the outstanding Stock as a result of the
Offerings, (i) cause the preferred share purchase rights issued pursuant
to the Rights Agreement to become exercisable, (ii) cause any Seller or
Seller Affiliate (each as defined in the Stock Purchase Agreement) to
become an "Acquiring Person" (as defined in
7
<PAGE>
the Rights Agreement) or (iii) cause a "Distribution Date" (as defined
in the Rights Agreement) to occur;
(xiv) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any
Significant Subsidiary is or may be a party or to which any property of
the Company or any Significant Subsidiary is or may be the subject that
are required to be described in the Prospectus that are not so
described; and there are no contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the Prospectus
which are not filed or described as required;
(xv) The statements set forth in the Prospectus under the caption
"Description of Capital Stock--Common Stock" are an accurate summary of
the terms of the Stock in all material respects;
(xvi) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act of 1940, as amended (the "Investment Company
Act"); and
(xvii) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(b) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder of
this Agreement, the International Underwriting Agreement, the Stock
Purchase Agreement, the Registration Rights Agreement and the Power of
Attorney and Custody Agreement hereinafter referred to, and for the sale
and delivery of the Firm Shares to be sold by such Selling Stockholder
hereunder and under the International Underwriting Agreement, have been
obtained, except for the registration of Shares under the Act and such
as may be required under foreign and state securities and Blue Sky laws;
and such Selling Stockholder has full right, power and authority to
enter into this Agreement, the
8
<PAGE>
International Underwriting Agreement, the Stock Purchase Agreement, the
Registration Rights Agreement and the Power of Attorney and Custody
Agreement and to sell, assign, transfer and deliver the Firm Shares to
be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement;
(ii) The sale of the Firm Shares to be sold by such Selling
Stockholder hereunder and under the International Underwriting Agreement
and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the International Underwriting Agreement,
the Stock Purchase Agreement, the Registration Rights Agreement and the
Power of Attorney and Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any statute, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is
bound, or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws of such
Selling Stockholder if such Selling Stockholder is a corporation, the
Declaration of Trust or other constituent documents if such Selling
Stockholder is a trust, foundation or institute, the Partnership
Agreement of such Selling Stockholder if such Selling Stockholder is a
partnership, or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder, except
that such Selling Stockholder makes no representation as to the
registration or filing requirements or disclosure provisions of the
securities laws of the United States or the securities or Blue Sky laws
of any other jurisdiction;
(iii) Such Selling Stockholder has, and immediately prior to Time
of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Firm Shares to be sold by such
Selling Stockholder hereunder and under the International Underwriting
Agreement, free and clear of all liens, encumbrances, equities or
claims; and, upon delivery of such Firm Shares and payment therefor
pursuant hereto and thereto, good and valid title to such Firm Shares,
free and clear of all liens, encumbrances, equities or claims, will pass
to the several Underwriters or the International Underwriters, as the
case may be (assuming that the several Underwriters and the several
International Underwriters are without notice of any adverse claim, as
defined in the Uniform Commercial Code as adopted in the State of New
9
<PAGE>
York (the "Code") and are otherwise bona fide purchasers for the
purposes of the Code, and that such Underwriters' and International
Underwriters' rights are not limited by subsection (4) of Section 8-302
of the Code);
(iv) During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder or under the International Underwriting
Agreement, any securities of the Company that are substantially similar
to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option or purchase plans or director
incentive plans, or upon the conversion or exchange of convertible or
exchangeable securities outstanding on the date of this Agreement),
without your prior written consent;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and
any further amendments or supplements to the Registration Statement and
the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act and the rules and regulations of the
Commission thereunder and did not and will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the First Time of Delivery (as hereinafter defined) a properly
completed and
10
<PAGE>
executed United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in lieu
thereof);
(viii) Certificates in negotiable form representing all of the
Firm Shares to be sold by such Selling Stockholder hereunder and under
the International Underwriting Agreement have been placed in custody
under an Irrevocable Power of Attorney and Custody Agreement, in the
form heretofore furnished to you (the "Power of Attorney and Custody
Agreement"), duly executed and delivered by such Selling Stockholder to
First Chicago Trust Company of New York, as custodian (the "Custodian"),
and appointing the persons indicated in Schedule II hereto, and each of
them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this
Agreement and the International Underwriting Agreement on behalf of such
Selling Stockholder, to determine the purchase price to be paid by the
Underwriters and the International Underwriters to the Selling
Stockholders as provided in Section 2 hereof, to authorize the delivery
of the Firm Shares to be sold by such Selling Stockholder hereunder and
otherwise to act on behalf of such Selling Stockholder in connection
with the transactions contemplated by this Agreement, the International
Underwriting Agreement and the Power of Attorney and Custody Agreement;
and
(ix) The Firm Shares represented by the certificates held in
custody for such Selling Stockholder under the Power of Attorney and
Custody Agreement are subject to the interests of the Underwriters
hereunder and the International Underwriters under the International
Underwriting Agreement; the arrangements made by such Selling
Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney and
Custody Agreement, are to that extent irrevocable; the obligations of
the Selling Stockholders hereunder shall not be terminated by operation
of law, whether by the death or incapacity of any individual Selling
Stockholder or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such estate
or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of
any other event; if any individual Selling Stockholder or any such
executor or trustee should die or become incapacitated, or if any such
estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should
occur, before the delivery of the Firm Shares hereunder, certificates
representing the Firm Shares shall be delivered by or on behalf of the
Selling
11
<PAGE>
Stockholders in accordance with the terms and conditions of this
Agreement, of the International Underwriting Agreement and of the Power
of Attorney and Custody Agreements; and actions taken by the
Attorneys-in-Fact pursuant to the Power of Attorney and Custody
Agreements shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or
not the Custodian, the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) each
of the Selling Stockholders agrees, severally and not jointly, to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from each of the Selling Stockholders, at a purchase price
per share of $...................., the number of Firm Shares (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying the
aggregate number of Firm Shares to be sold by each of the Selling Stockholders
as set forth opposite their respective names in Schedule II hereto by a
fraction, the numerator of which is the aggregate number of Firm Shares to be
purchased by such Underwriter as set forth opposite the name of such Underwriter
in Schedule I hereto and the denominator of which is the aggregate number of
Firm Shares to be purchased by all of the Underwriters from all of the Selling
Stockholders hereunder and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 1,848,949 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery
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(as defined in Section 4 hereof) or, unless you and the Company otherwise agree
in writing, earlier than two or later than ten business days after the date of
such notice.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company or the Selling Stockholders, as applicable, to Goldman,
Sachs & Co., through the facilities of The Depository Trust Company ("DTC"), for
the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor in Federal or other funds immediately
available in New York City, made to the Company and the Custodian for each of
the Selling Stockholders, as their interests may appear. The Selling
Stockholders will cause the certificates representing the Firm Shares, and the
Company will cause the certificates representing the Optional Shares, to be made
available for checking and packaging at least twenty-four hours prior to the
Time of Delivery (as defined below) with respect thereto at the office of DTC or
its designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New
York City time, on April ...., 1997 or such other time and date as Goldman,
Sachs & Co. and the Selling Stockholders may agree upon in writing, and, with
respect to the Optional Shares, 9:30 a.m., New York City time, on the date
specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs
& Co. of the Underwriters' election to purchase such Optional Shares (consistent
with the terms hereof), or such other time and date as Goldman, Sachs & Co. and
the Company may agree upon in writing. Such time and date for delivery of the
Firm Shares is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipts for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7 hereof, will be delivered at the offices of
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017 or such
other location as may be mutually agreed (the "Closing Location"), and the
Shares will be delivered at the Designated Office, all at each Time of Delivery.
A meeting will be held at the Closing
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Location at 3:00 p.m., New York City time, on the New York Business Day next
preceding each Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus prior to the last Time of
Delivery which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish you copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or sale of
the Shares; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to
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file a general consent to service of process in any jurisdiction or obligated to
subject itself to any material additional tax or other liabilities;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the Act or the Exchange Act,
to notify you and upon your request to file such document and to prepare and
furnish without charge to each Underwriter and to any dealer in securities as
many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder and
under the International Underwriting Agreement, any securities of the Company
that are substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option
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or purchase plans or director incentive plans, or upon the conversion or
exchange of convertible or exchangeable securities outstanding on the date of
this Agreement; provided that (x) no such convertible or exchangeable securities
issued pursuant to such plans on or after the date hereof shall be convertible
into or exchangeable for Stock or any such substantially similar securities
prior to the expiration of such 90-day period and (y) any Stock or substantially
similar securities issued under such plans (other than securities issued upon
the conversion or exchange of outstanding securities) shall be subject to
restrictions on transfer during such 90-day period), without your prior written
consent;
(f) To furnish to its shareholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and statements
of income, shareholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants);
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished by the Company to shareholders,
and to deliver to you as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed;
(h) To use the net proceeds, if any, received by it from the sale of the
Optional Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption "Use of
Proceeds";
(i) To use its best efforts to list, subject to notice of issuance, the
Optional Shares on the New York Stock Exchange (the "Exchange"); and
(j) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
6. (a) The Company agrees with the Selling Stockholders and the
several Underwriters that the Company will pay or cause to be paid the
following: (i) the fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act and
all other expenses of the
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Company in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreements, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky surveys; (iv) all fees and expenses in connection with listing the
Optional Shares on the Exchange to the extent required; (v) the cost and charges
of any transfer agent or registrar; (vi) the filing fees incident to, and the
fees and disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Shares; and (vii) the reasonable fees and
expenses of one counsel for the Selling Stockholders; and (b) each of the
Selling Stockholders jointly and severally agrees with the Company and the
several Underwriters that the Selling Stockholders will pay or cause to be paid
all costs and expenses incident to the performance of such Selling Stockholders'
obligations hereunder which are not otherwise specifically provided for in this
Section, including (i) any fees and expenses of any other counsel for such
Selling Stockholders, (ii) the fees and expenses of the Attorneys-in-Fact and
the Custodian and (iii) all expenses and taxes incident to the sale and delivery
of the Firm Shares to be sold by such Selling Stockholder to the Underwriters
hereunder. In connection with clause (b)(iii) of the preceding sentence,
Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and the
Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated
carrying costs if such tax payment is not rebated on the day of payment and for
any portion of such tax payment not rebated. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have
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performed in all material respects all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Davis Polk & Wardwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (v), (vi), clause (B) of
paragraph (vii), and the last three paragraphs of subsection (c) below as well
as their opinion that the statements set forth in the Prospectus under the
caption "Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and fair and
as to such other related matters as you may reasonably request, and such counsel
shall have received such papers and information as they may reasonably request
to enable them to pass upon such matters;
(c) Wachtell, Lipton, Rosen & Katz, counsel for the Company, shall have
furnished to you and the Selling Stockholders their written opinion, dated such
Time of Delivery, in form and substance reasonably satisfactory to you, to the
effect that:
(i) Each of this Agreement and the International Underwriting
Agreement has been duly authorized, executed and delivered by the
Company;
(ii) The Firm Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(iii) The issue and sale of the Optional Shares being sold by the
Company and the performance by the Company of its obligations under this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will
not (a) conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust or loan agreement set forth on a schedule previously
furnished to the Underwriters
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(such counsel may assume compliance with the financial covenants
contained therein) or the Stock Purchase Agreement or the Registration
Rights Agreement, (b) result in any violation of the provisions of the
Restated Certificate of Incorporation or the By-Laws of the Company or
(c) violate the federal securities laws or regulations, the Delaware
General Corporation Law or any law, statute, order, rule or regulation
known to such counsel (without independent investigation) of any court
or governmental agency or body of the State of New York having
jurisdiction over the Company, any Significant Subsidiary or any of
their respective properties, except, in the case of clauses (a) and (c),
for conflicts, breaches, defaults or violations which would not have a
material adverse effect on the financial condition, results of
operations, assets or business of the Company and its subsidiaries taken
as a whole;
(iv) No consent, approval, authorization, order, registration or
qualification of or with any State of New York or Delaware or U.S.
Federal court or governmental agency or body is required for the issue
and sale of the Optional Shares to be sold by the Company or the
consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except such as
have been obtained and except for the registration under the Act of the
Shares, and such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters;
(v) The unissued Optional Shares that may be issued and sold by
the Company to the Underwriters hereunder and under the International
Underwriting Agreement have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable and will
conform as to legal matters in all material respects to the description
of the Stock contained in the Prospectus;
(vi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock--Common Stock", insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Certain United States Tax Consequences to Non-United States Holders",
insofar as they purport to summarize the laws and documents referred to
therein, are accurate in all material respects; and
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(vii) (A) each document incorporated by reference in the
Registration Statement and the Prospectus (except for the financial
statements and related schedules and notes or other financial data
included or incorporated by reference therein as to which such counsel
need express no opinion) complied as to form, in all material respects,
as amended as of the time the Registration Statement became effective,
with the Exchange Act; and (B) the Registration Statement and the
Prospectus as amended or supplemented (except for the financial
statements and related schedules and notes or other financial data
included or incorporated by reference therein as to which such counsel
need express no opinion) comply as to form in all material respects with
the requirements of the Act.
In rendering such opinions, such counsel may rely (A) upon the opinion
furnished to the Underwriters pursuant to Section 7(d); (B) upon oral advice of
the staff of the Commission; and (C) as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company.
With respect to the matters to be covered in paragraph (vii) above
counsel may state their opinion is based upon their participation in the
preparation of the Registration Statement and the Prospectus and any amendment
or supplement thereto (excluding any documents incorporated by reference
therein, in which case such opinion is based upon their review of such
documents) and discussions with representatives of the Company and its auditors
(including discussions in which the Underwriters and their counsel participated)
in connection with such preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto (excluding any documents incorporated
by reference therein) but is without independent check or verification except as
specified. Such counsel shall state that in the course of such participation,
review and discussions no facts have come to such counsel's attention which lead
such counsel to believe that (except for the financial statements and related
schedules and notes or other financial data included or incorporated by
reference therein as to which such counsel need express no belief) the
Registration Statement and the prospectus included therein at the time the
Registration Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and that the
Prospectus as amended or supplemented, if applicable, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Such counsel may further state that such
counsel have not verified, and are not passing upon and do not
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assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (including
any documents incorporated by reference therein) (other than those statements
referred to in paragraph (vi) above).
In rendering such opinion, such counsel may state that they express no
opinion other than as to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal laws of the United
States;
(d) Kathleen E. McDermott, Chief Legal Officer and Assistant Secretary
of the Company, shall have furnished to the Underwriters and the Selling
Stockholders her written opinion, dated the First Time of Delivery, in form and
substance reasonably satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, other than
where the failure to be so qualified or in good standing would not have
a material adverse effect on the Company and its subsidiaries taken as a
whole;
(iii) Each Significant Subsidiary has been duly incorporated and
is validly existing as a corporation under the laws of its jurisdiction
of incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus,
and has been duly qualified as a foreign corporation for the transaction
of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a whole; and
all of the outstanding shares of capital stock of each Significant
Subsidiary have been duly authorized and validly issued, are fully paid
and non-assessable, and (except as set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of all
material liens, encumbrances, equities or claims;
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(iv) Other than as set forth or contemplated in the Prospectus,
such counsel does not know of any legal or governmental proceedings
pending to which the Company or any Significant Subsidiary is a party or
to which any property of the Company or any Significant Subsidiary is
the subject which are required to be described in the Prospectus as
amended or supplemented which are not described as required; and such
counsel does not know of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the Prospectus
which are not filed or described as required; and
(v) The statements in the Prospectus incorporated by reference
from Item 3 of Part I of the Company's Annual Report on Form 10-K for
the year ended February 3, 1996, as modified or amended by any
subsequent documents incorporated by reference in the Registration
Statement or the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such
legal matters, documents or proceedings; and
(vi) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, and are fully
paid and non-assessable.
(e) Debevoise & Plimpton, counsel for the Selling Stockholders, as
indicated in Schedule II hereto, shall have furnished to you their written
opinion with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated the First Time of Delivery, in form and substance
reasonably satisfactory to you, to the effect that:
(i) The Stock Purchase Agreement, the Registration Rights
Agreement, and a Power of Attorney and Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute valid
and binding agreements of such Selling Stockholder;
(ii) This Agreement and the International Underwriting Agreement
have been duly executed and delivered by or on behalf of such Selling
Stockholder; and the sale of the Firm Shares to be sold by such Selling
Stockholder hereunder and thereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, the
International Underwriting Agreement, the Stock Purchase Agreement, the
Registration
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Rights Agreement and the Power of Attorney and Custody Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any terms or
provisions of, or constitute a default under, any statute, indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
known to such counsel to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound, or to which any of the property
or assets of such Selling Stockholder is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Declaration of Trust or other
constituent documents if such Selling Stockholder is a trust, foundation
or institute, the Partnership Agreement of such Selling Stockholder if
such Selling Stockholder is a partnership, or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or the property
of such Selling Stockholder, where the consequences of such conflict,
breach, violation or default would impair the ability of the Selling
Stockholder to sell such Selling Stockholder's Firm Shares to the
Underwriters and the International Underwriters pursuant to this
Agreement and the International Underwriting Agreement or materially
impair the ability of the Selling Stockholder to perform such Selling
Stockholder's other obligations under this Agreement and the
International Underwriting Agreement, except that such counsel shall not
express any opinion as to the compliance with the registration or filing
requirements or disclosure provisions of the securities laws of the
United States or the securities or Blue Sky laws of any other
jurisdiction, such counsel shall not express any opinion as to the
enforceability of the indemnification or contribution provisions of
Section 8 of this Agreement and the International Underwriting Agreement
and such counsel shall not express any opinion as to the accuracy or
completeness of the Registration Statement or Prospectus;
(iii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the consummation by the Selling Stockholders of the
transactions contemplated by this Agreement and the International
Underwriting Agreement in connection with the Firm Shares to be sold by
such Selling Stockholder hereunder or thereunder, except such as have
been duly obtained and are in full force and effect, the registration of
the Shares under the Act and such as may be required under state or
foreign securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the several Underwriters and
International Underwriters;
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(iv) Such Selling Stockholder has full right, power and authority
to sell, assign, transfer and deliver the Firm Shares to be sold by such
Selling Stockholder under this Agreement and the International
Underwriting Agreement; and
(v) Upon delivery to the Underwriters by such Selling Stockholder
of a certificate or certificates for the Firm Shares to be sold by such
Selling Stockholder against receipt of the purchase price therefor as
provided in this Agreement and the International Underwriting Agreement,
such Selling Stockholder will transfer to the Underwriters who have
purchased such Firm Shares pursuant to this Agreement and the
International Underwriting Agreement valid title to such Firm Shares,
free and clear of any securities interests, claims, liens, equities or
other encumbrances whatsoever (assuming that the Underwriters are
without notice of any adverse claim, as defined in the Code, and are
purchasers for value in good faith for purposes of the Code, and that
such Underwriters' and International Underwriters' rights are not
limited by subsection (4) of Section 8-302 of the Code).
In rendering such opinion, such counsel may state that they
express no
opinion as to the laws of any jurisdiction other than the laws of the
State of New York and the Federal laws of the United States and in
rendering its opinion such counsel may rely upon a certificate of such
Selling Stockholder,
in respect of matters of fact as to ownership of, and liens,
encumbrances, equities or claims on the Firm Shares sold by such Selling
Stockholder; provided that such counsel shall state that they believe
that both you and they are justified in relying upon such certificate.
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Ernst & Young LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance reasonably satisfactory to you, to the
effect set forth in Annex I hereto;
(g) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or
other negative review in the rating accorded any securities of the Company by
any of Standard & Poor's Rating Service, Moody's Investors Service, Inc., Duff &
Phelps Inc. or Fitch Investors Service, Inc.;
24
<PAGE>
(h) Since the respective dates as of which information is given in the
Prospectus there shall not have been any material adverse change in the
business, business prospects, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus, the effect of
which in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares on
the terms and in the manner contemplated in the Prospectus;
(i) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the Exchange; (ii) a suspension or material limitation in trading
in the Company's securities on the Exchange; (iii) a general moratorium on
commercial banking activities declared by either Federal or New York State
authorities; or (iv) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national emergency or
war, if the effect of any such event specified in this clause (iv) in the
judgment of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(j) As of the First Time of Delivery, the Firm Shares to be sold by the
Selling Stockholders shall have been duly listed on the Exchange; and as of the
Second Time of Delivery, the Optional Shares to be sold by the Company shall
have been duly listed, subject to notice of issuance, on the Exchange;
(k) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of the
Company (signed by an executive officer) and of the Selling Stockholders,
respectively, reasonably satisfactory to you as to the accuracy of the
representations and warranties of the Company and the Selling Stockholders,
respectively, herein at and as of such Time of Delivery, as to the performance
in all material respects by the Company and the Selling Stockholders of all of
their respective obligations hereunder to be performed at or prior to such Time
of Delivery, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a), (g) and (h) of this
Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based
25
<PAGE>
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable (i) in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein and (ii) with respect to any Preliminary
Prospectus to the extent that any such loss, claim, damage or liability of such
Underwriter results solely from the fact that such Underwriter sold Shares to a
person as to whom the Company shall establish that there was not sent by
commercially reasonable means, at or prior to the written confirmation of such
sale, a copy of the Prospectus in any case where such delivery is required by
the Act, if the Company has previously furnished copies thereof in sufficient
quantity to such Underwriter and the loss, claim, damage or liability of such
Underwriter results from an untrue statement or omission of a material fact
contained in the Preliminary Prospectus that was corrected in the Prospectus.
(b) Each of the Selling Stockholders will indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein; and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that such Selling
Stockholder shall not be
26
<PAGE>
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or any such amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Goldman, Sachs & Co. expressly for use
therein; provided further that the liability of a Selling Stockholder shall not
exceed the product of the number of Firm Shares sold by such Selling Stockholder
and the initial public offering price of the Shares as set forth in the
Prospectus.
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party (which shall not be
unreasonably withheld),
27
<PAGE>
be counsel to the indemnifying party), and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient (other than as a result of the application of the provisos
contained therein) to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this Agreement,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
28
<PAGE>
by the Company or the Selling Stockholders on the one hand or the Underwriters
on the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
each of the Selling Stockholders and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this subsection (e) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you
29
<PAGE>
have so arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Stockholders shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company or the
Selling Stockholders as provided in subsection (a) above, the aggregate number
of such Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except for the expenses
to be borne by the Company and the Selling Stockholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
30
<PAGE>
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company or the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through you for all out-of-pocket expenses approved
in writing by you, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Chief Legal Officer;
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be
31
<PAGE>
supplied to the Company or the Selling Stockholders by you upon request. Any
such statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us counterparts hereof, one for the Company and one for each of
the Representatives plus one for each counsel and the Custodian, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and each of the Selling Stockholders.
32
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney and Custody Agreement which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
AMERICAN STORES COMPANY
By: ..................................
Name:
Title:
SELLING STOCKHOLDERS
By: ..................................
Name:
Title:
By: ..................................
Name:
Title:
By: ..................................
Name:
Title:
As Attorneys-in-Fact acting on behalf of
each of the Selling Stockholders named in
Schedule II to this Agreement.
33
<PAGE>
Accepted as of the date hereof [at ....., ..............,.............:]
Goldman, Sachs & Co.
J.P. Morgan Securities Inc.
On behalf of each of the Underwriters
By:..............................................
(Goldman, Sachs & Co.)
By: J.P. Morgan Securities Inc.
By:.............................................
Name:
Title:
34
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ---------
<S> <C> <C>
Goldman, Sachs & Co. ...............................
J.P. Morgan Securities Inc. ........................
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated...................
Smith Barney Inc. ..................................
---------- ---------
Total............................................ 12,326,330 1,848,949
========== =========
</TABLE>
I-1
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL SHARES
TOTAL NUMBER TO BE SOLD IF
OF FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
---------- ---------
<S> <C> <C>
The Company ..................................................... 0 1,848,949
THE SELLING STOCKHOLDERS:(a)
ALSAM Trust (L.S. Skaggs portion) ............................... 4,583,515 0
ALSAM Trust (Aline W. Skaggs portion) ........................... 82,735 0
Six S. Ranch, Inc. .............................................. 8,923 0
ALSAM Foundation ................................................ 913,175 0
Skaggs Family Foundation for Roman Catholic and Community
Charities ............................................... 301,131 0
Skaggs Institute for Research ................................... 869,933 0
Lynda Sue Skaggs Balukoff ....................................... 179,584 0
Claudia Skaggs Luttrell ......................................... 195,165 0
The Northern Trust Company, As Trustee, UA dtd 8/30/96 with L.S .
Skaggs, The L.S. Skaggs & Aline W. Skaggs Charitable
Remainder Unitrust #1 ................................... 41,222 0
The Northern Trust Company, As Trustee, UA dtd 1/17/97
with L.S. Skaggs, The L.S. Skaggs & Aline
W. Skaggs Charitable Remainder Unitrust #2 .............. 3,221,871 0
The Northern Trust Company, As Trustee, UA dtd 8/26/96 with L.S .
Skaggs, The L.S. Skaggs, The Lynda Sue Balukoff
Charitable Remainder Unitrust #1 ........................ 113,760 0
The Northern Trust Company, Successor Trustee, UA dtd 7/6/71
with Claudia Skaggs (Luttrell), The Claudia Skaggs
(Luttrell) Personal Trust ............................... 233,556 0
The Northern Trust Company, As Trustee, UA dtd 8/30/96 with L.S .
Skaggs, The Claudia Skaggs Luttrell Charitable Remainder
Unitrust #1 ............................................. 283,287 0
The Northern Trust Company, As Trustee, UA dtd 1/17/97 with L.S .
Skaggs, The Claudia Skaggs Luttrell Charitable Remainder
Unitrust #2 ............................................. 217,707 0
The Northern Trust Company, Successor Trustee, UA dtd 2/2/66
with Vivian Skaggs Armstrong, for the benefit of Claudia
Skaggs (Luttrell) ....................................... 21,947 0
The Northern Trust Company, Successor Trustee, UA dtd 5/21/75
with Donald Lennie Skaggs, The Donald Lennie Skaggs
Personal Trust .......................................... 125,122 0
The Northern Trust Company, Successor Trustee, UA dtd 8/26/96
with L.S. Skaggs, The Don L. Skaggs Charitable Remainder
Unitrust #1 ............................................. 283,287 0
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
The Northern Trust Company, As Trustee, UA dtd 1/17/97 with L.S.
Skaggs, The Don L. Skaggs Charitable Remainder Unitrust
#2 ....................................................... 217,707 0
The Northern Trust Company, Successor Trustee, UA dtd 2/2/66
with Vivian Skaggs Armstrong, For the benefit of Don L.
Skaggs ................................................... 21,946 0
The Northern Trust Company, Successor Trustee, UA dtd 2/2/66
with Vivian Skaggs Armstrong, For the benefit of Mar
Stanley Skaggs ........................................... 21,949 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Richelle
Skaggs, Age 30 Trust ..................................... 4,523 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Dustin L
Skaggs, Age 30 Trust ..................................... 4,523 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of
Jennifer Luttrell, Age 30 Trust .......................... 4,523 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Justin
Dallas Lutrell, Age 30 Trust ............................. 4,524 0
The Northern Trust Company, Successor Trustee, UA dtd
11/23/83 with Vivian Skaggs Armstrong, For the benefit
of Mindy Stana Skaggs, Age 30 Trust ...................... 4,524 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of
Stephen A. Skaggs, Age 30 Trust .......................... 4,524 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Loy
Leana Skaggs, Age 30 Trust ............................... 4,524 0
The Northern Trust Company, Trustee, UA dtd 1/29/97 with Lynda
Sue Balukoff, The Lynda Sue Skaggs Balukoff Charitable
Remainder Trust #2 ....................................... 44,612 0
U.S. Bank, Successor Trustee, UA dtd 9/13/68 With Lynda Sue
Skaggs (Balukoff) The Lynda Sue Skaggs (Balukoff)
Personal Trust ........................................... 119,510 0
U.S. Bank, Successor Trustee, UA dtd 2/2/66 With Vivian Skaggs
Armstrong for the benefit of Lynda Sue Skaggs (Balukoff).. 21,948 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 with Vivian Skaggs
Armstrong for the benefit of David P. Langton Lifetime
Trust .................................................... 4,618 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of David Paul Langton,
Age 30 Trust ............................................. 4,524 0
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Melissa Rae Langton,
Lifetime Trust .......................................... 4,618 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Melissa Rae
Langton, Age 30 Trust ................................... 4,524 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Sherri Lyn Balukoff
Lifetime Trust .......................................... 4,618 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Sherri Lyn
Balukoff, Age 30 Trust .................................. 4,524 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Jenifer Balukoff Lifetime
Trust ................................................... 4,618 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Jenifer Balukoff,
Age 30 Trust ............................................ 4,318 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Joseph Balukoff, Jr.
Lifetime Trust .......................................... 4,619 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Anthony Joseph
Balukoff, Jr., Age 30 Trust ............................. 4,524 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Stephen R. Balukoff
Lifetime Trust .......................................... 4,618 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Stephen Robert
Balukoff, Age 30 Trust .................................. 4,523 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Karen Marie Balukoff
Lifetime Trust .......................................... 4,617 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Karen Marie
Balukoff, Age 30 Trust .................................. 4,523 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Sam Balukoff Lifetime
Trust ................................................... 4,618 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Sam Balukoff, Age 30
Trust ................................................... 4,524 0
U.S. Bank, As Trustee, UA dtd 2/13/97 with Linda Sue Skaggs
Balukoff, the Balukoff Charitable Remainder Trust ....... 98,145 0
---------- ---------
TOTAL.................................................. 12,326,330 1,848,949
========== =========
</TABLE>
II-3
<PAGE>
(a) Each Selling Stockholder is represented by Debevoise & Plimpton and has
appointed L.S. Skaggs, George L. Moosman and Arthur W. Gergets, and each of
them, as the attorneys-in-fact for such Selling Stockholder.
II-4
<PAGE>
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters substantially to the
effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and
the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules examined by them and
included or incorporated by reference in the Registration Statement or
the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act or the Exchange Act, as
applicable, and the related published rules and regulations thereunder;
(iii) On the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i)
below comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Exchange
Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five fiscal years in the period ending February 3, 1996
included in the Prospectus and included or incorporated by reference in
Item 6 of the Company's Annual Report on Form 10-K for the most recent
fiscal year agrees with the corresponding amounts (after restatement
where applicable) in the audited consolidated financial statements for
such five fiscal years which were included or incorporated by reference
in the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
<PAGE>
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included or incorporated by
reference in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus and/or included or
incorporated by reference in the Company's Quarterly Reports on
Form 10-Q incorporated by reference in the Prospectus do not comply
as to form in all material respects with the applicable accounting
requirements of the Exchange Act and the related published rules
and regulations, or (ii) any material modifications should be made
to the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus or included in the Company's
Quarterly Reports on Form 10-Q incorporated by reference in the
Prospectus, for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
or incorporated by reference in the Company's Annual Report on Form
10-K for the most recent fiscal year;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived the unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on
a basis substantially consistent with the basis for the audited
financial statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent fiscal
year;
(D) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of convertible
securities, in each case which were outstanding on the date of the
latest balance sheet included
<PAGE>
or incorporated by reference in the Prospectus) or any increase in
the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated shareholders' equity
other than decreases resulting from repurchases by the Company of
shares of Stock in a total amount not exceeding $5,000,000 or
dividends declared or other items specified by the Representatives,
or any increases in any items specified by the Representatives, in
each case as compared with amounts shown in the latest balance
sheet included or incorporated by reference in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(E) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus
to a specified date there were any decreases in consolidated sales,
comparable store sales, or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in
each case for increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus
(excluding documents incorporated by reference) or in Part II of, or in
exhibits and schedules to, the Registration Statement specified by the
Representatives or in documents incorporated by reference in the
Prospectus specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries or other
Company-prepared records or recalculated from other data in the
Prospectus, and have found them to be in agreement.
<PAGE>
EXHIBIT 1.2
AMERICAN STORES COMPANY
3,081,580 Shares
Common Stock (par value $1.00 per share)
- --------------------------------------------------------------------------------
Underwriting Agreement
(International Version)
---------------------------
April __, 1997
Goldman Sachs International,
J.P. Morgan Securities Ltd.,
Donaldson, Lufkin & Jenrette
Securities Corporation,
Morgan Stanley & Co. International Limited,
Smith Barney Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
Ladies and Gentlemen:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of American Stores Company, a Delaware corporation (the
"Company"), propose, subject to the terms and conditions stated herein, to sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 3,081,580 shares (the "Firm Shares") and the Company proposes to issue and
sell to the Underwriters, at the election of the Underwriters, up to 462,237
additional shares (the "Optional Shares") of Common Stock (par value $1.00 per
share) ("Stock") of the Company (the Firm Shares and the Optional Shares that
the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares").
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement, a copy of
which is attached hereto (the "U.S. Underwriting Agreement"), providing for the
sale by the Company and the Selling Stockholders of up to a total of 14,175,279
shares of Stock (the "U.S. Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters in the United States
(the "U.S. Underwriters"), for whom Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Donaldson,
<PAGE>
Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated and
Smith Barney Inc. are acting as representatives. Anything herein or therein to
the contrary notwithstanding, the respective closings under this Agreement and
the U.S. Underwriting Agreement are hereby expressly made conditional on one
another. The Underwriters hereunder and the U.S. Underwriters are
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates and for consultation by the Lead Managers hereunder with Goldman,
Sachs & Co. prior to exercising the rights of the Underwriters under Section 7
hereof. Two forms of prospectus are to be used in connection with the offering
and sale of shares of Stock contemplated by the foregoing, one relating to the
Shares hereunder and the other relating to the U.S. Shares. The latter form of
prospectus will be identical to the former except for certain substitute pages
as included in the registration statement, as amended, as mentioned below.
Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the context
may otherwise require, references hereinafter to the Shares shall include all of
the shares of Stock which may be sold pursuant to either this Agreement or the
U.S. Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the U.S. and the international versions thereof.
In addition, this Agreement incorporates by reference certain
provisions from the U.S. Underwriting Agreement (including the related
definitions of terms, which are also used elsewhere herein) and, for purposes of
applying the same, references (whether in these precise words or their
equivalent) in the incorporated provisions to the "Underwriters" shall be to the
Underwriters hereunder, to the "Shares" shall be to the Shares hereunder as just
defined, to "this Agreement" (meaning therein the U.S. Underwriting Agreement)
shall be to this Agreement (except where this Agreement is already referred to
or as the context may otherwise require) and to the representatives of the
Underwriters or to Goldman, Sachs & Co. shall be to the addressees of this
Agreement and to Goldman Sachs International ("GSI"), and, in general, all such
provisions and defined terms shall be applied mutatis mutandis as if the
incorporated provisions were set forth in full herein having regard to their
context in this Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company and each of the several Selling Stockholders hereby
make to each other and the Underwriters the same respective representations,
warranties and agreements as are set forth in Section 1 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) each of
the Selling Stockholders agrees, severally and not jointly, to sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from each of the Selling Stockholders, at a purchase price
per share of $............, the number of Firm Shares (to be adjusted by you so
as to eliminate fractional shares) determined by multiplying the aggregate
number of Firm Shares to be sold by each of the Selling Stockholders as set
forth opposite their respective names in Schedule II hereto by a fraction, the
numerator of which is the aggregate number of Firm Shares to be purchased by
such Underwriter as set forth opposite the name of such Underwriter in Schedule
I hereto and the
2
<PAGE>
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from all of the Selling Stockholders hereunder and (b)
in the event and to the extent that the Underwriters shall exercise the election
to purchase Optional Shares as provided below, the Company agrees to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 462,237 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus and in the forms of Agreement
among Underwriters (International Version) and Selling Agreements, which have
been previously submitted to the Company by you. Each Underwriter hereby makes
to and with the Company and the Selling Stockholders the representations and
agreements of such Underwriter as a member of the selling group contained in
Sections 3(d) and 3(e) of the form of Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company or the Selling Stockholders, as applicable, to Goldman,
Sachs & Co., through the facilities of The Depository Trust Company ("DTC"), for
the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor in Federal or other funds immediately
available in New York City, made to the Company and the Custodian for each of
the Selling Stockholders, as their interests may appear. The Selling
Stockholders will cause the certificates representing the Firm Shares, and the
Company will cause the certificates representing the Optional Shares, to be made
available for checking and packaging at least twenty-four hours prior to the
Time of Delivery (as defined below) with respect thereto at the office of DTC or
its designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New
York City time, on April __,
3
<PAGE>
1997 or such other time and date as Goldman, Sachs & Co. and the Selling
Stockholders may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York City time, on the date specified by Goldman, Sachs &
Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares (consistent with the terms hereof), or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing. Such time and date for delivery of the Firm Shares is herein called
the "First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross-
receipts for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7 hereof, will be delivered at the offices of
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017 or such
other location as may be mutually agreed (the "Closing Location"), and the
Shares will be delivered at the Designated Office, all at each Time of Delivery.
A meeting will be held at the Closing Location at 3:00 p.m., New York City time,
on the New York Business Day next preceding each Time of Delivery, at which
meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company hereby makes with the Underwriters the same agreements
as are set forth in Section 5 of the U.S. Underwriting Agreement, which Section
is incorporated herein by this reference.
6. The Company, each of the Selling Stockholders, and the
Underwriters hereby agree with respect to certain expenses on the same terms as
are set forth in Section 6 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates
governing the coordination of actions between the two syndicates, the
obligations of the Underwriters hereunder, as to the Shares to be delivered at
each Time of Delivery, shall be subject, in their discretion, to the condition
that all representations and warranties and other statements of the Company and
of the Selling Stockholders herein are, at and as of such Time of Delivery, true
and correct, the condition that the Company and the Selling Stockholders shall
have performed in all material respects all of its and their respective
obligations hereunder theretofore to be performed, and additional conditions
identical to those set forth in Section 7 of the U.S. Underwriting Agreement,
which Section is incorporated herein by this reference.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under
4
<PAGE>
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall
not be liable (i) in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through GSI expressly for use
therein and (ii) with respect to any Preliminary Prospectus to the extent that
any such loss, claim, damage or liability of such Underwriter results solely
from the fact that such Underwriter sold Shares to a person as to whom the
Company shall establish that there was not sent by commercially reasonable
means, at or prior to the written confirmation of such sale, a copy of the
Prospectus in any case where such delivery is required by the Act, if the
Company has previously furnished copies thereof in sufficient quantity to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus that was corrected in the Prospectus.
(b) Each of the Selling Stockholders will indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein; and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that such Selling
Stockholder shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through GSI expressly
for use therein; provided further that the liability of a Selling Stockholder
shall not exceed the product of the number of Firm Shares
5
<PAGE>
sold by such Selling Stockholder and the initial public offering price of the
Shares as set forth in the Prospectus.
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through GSI expressly for use
therein; and will reimburse the Company and each Selling Stockholder for any
legal or other expenses reasonably incurred by the Company or such Selling
Stockholder in connection with investigating or defending any such action or
claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (which
shall not, except with the consent of the indemnified party (which shall not be
unreasonably withheld), be counsel to the indemnifying party), and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
6
<PAGE>
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient (other than as a result of the application of the
provisos contained therein) to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection (e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
7
<PAGE>
(f) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders shall
be entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such Shares on
such terms. In the event that, within the respective prescribed periods, you
notify the Company and the Selling Stockholders that you have so arranged for
the purchase of such Shares, or the Company and the Selling Stockholders notify
you that they have so arranged for the purchase of such Shares, you or the
Company and the Selling Stockholders shall have the right to postpone such Time
of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company or
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all of the Shares to be purchased at such Time of
Delivery, then the Company and the Selling Stockholders shall have the right to
require each non-defaulting Underwriter to purchase the number of Shares which
such Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
8
<PAGE>
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except for the expenses
to be borne by the Company and the Selling Stockholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company, or any of the Selling Stockholders, or any
officer or director or controlling person of the Company, or any controlling
person of any Selling Stockholder, and shall survive delivery of and payment for
the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company or the Selling Stockholders as provided herein, the Company will
reimburse the Underwriters through GSI for all out-of-pocket expenses approved
in writing by GSI, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives; and in
all dealings with any Selling Stockholder hereunder, you and the Company shall
be entitled to act and rely upon any statement, request, notice or agreement on
behalf of such Selling Stockholder made or given by any or all of the Attorneys-
in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (071) 774-1550; if to any Selling
Stockholder shall be delivered or sent by mail, telex or facsimile transmission
to counsel for such Selling Stockholder at its address set forth in Schedule II
hereto; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth
9
<PAGE>
in the Registration Statement, Attention: Chief Legal Officer; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company or the Selling Stockholders by GSI upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us counterparts hereof, one for the Company and one for each of
the Lead Managers or Lead Managing Underwriters plus one for each counsel and
the Custodian, and upon the acceptance hereof by you, on behalf of each of the
Underwriters, this letter and such acceptance hereof shall constitute a binding
agreement among each of the Underwriters, the Company and each of the Selling
Stockholders.
10
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for a
Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney and Custody Agreement which authorizes such Attorney-
in-Fact to take such action.
Very truly yours,
AMERICAN STORES COMPANY
By:
..........................................
Name:
Title:
SELLING STOCKHOLDERS
By:
..........................................
Name:
Title:
By:
..........................................
Name:
Title:
By:
..........................................
Name:
Title:
As Attorneys-in-Fact acting on behalf of each of the Selling Stockholders named
in Schedule II to this Agreement.
11
<PAGE>
Accepted as of the date hereof [at......,
..........................]:
Goldman Sachs International
J.P. Morgan Securities Ltd.
Donaldson, Lufkin & Jenrette
Securities Corporation
Morgan Stanley & Co. International
Limited
Smith Barney Inc.
By: Goldman Sachs International
By: .....................................................
(Attorney-in-fact)
On behalf of each of the Underwriters
12
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ---------
<S> <C> <C>
Goldman, Sachs International.......................................
J.P. Morgan Securities Ltd. .......................................
Donaldson, Lufkin & Jenrette
Securities Corporation...........................................
Morgan Stanley & Co. International Limited.........................
Smith Barney Inc. .................................................
--------- -------
Total.............................................................. 3,081,580 462,237
--------- -------
--------- -------
</TABLE>
I-1
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL SHARES
TOTAL NUMBER TO BE SOLD IF
OF FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- ------------------
<S> <C> <C>
The Company.......................................................... 0 462,237
THE SELLING STOCKHOLDERS:(a)
ALSAM Trust (L.S. Skaggs portion).................................... 1,145,878 0
ALSAM Trust (Aline W. Skaggs portion)................................ 20,682 0
Six S. Ranch, Inc.................................................... 2,230 0
ALSAM Foundation..................................................... 228,293 0
Skaggs Family Foundation for Roman Catholic and Community
Charities........................................................... 75,282 0
Skaggs Institute for Research........................................ 217,482 0
Lynda Sue Skaggs Balukoff............................................ 44,895 0
Claudia Skaggs Luttrell.............................................. 48,791 0
The Northern Trust Company, As Trustee, UA dtd 8/30/96 with L.S.
Skaggs, The L.S. Skaggs & Aline W. Skaggs Charitable
Remainder Unitrust #1............................................... 10,305 0
The Northern Trust Company, As Trustee, UA dtd 1/17/97 with L.S.
Skaggs, The L.S. Skaggs & Aline W. Skaggs Charitable
Remainder Unitrust #2............................................... 805,468 0
The Northern Trust Company, As Trustee, UA dtd 8/26/96 with L.S.
Skaggs, The L.S. Skaggs, The Lynda Sue Balukoff
Charitable Remainder Unitrust #1.................................... 28,440 0
The Northern Trust Company, Successor Trustee, UA dtd 7/6/71
with Claudia Skaggs (Luttrell), The Claudia Skaggs
(Luttrell) Personal Trust........................................... 58,390 0
The Northern Trust Company, As Trustee, UA dtd 8/30/96 with L.S.
Skaggs, The Claudia Skaggs Luttrell Charitable Remainder
Unitrust #1......................................................... 70,821 0
The Northern Trust Company, As Trustee, UA dtd 1/17/97 with L.S.
Skaggs, The Claudia Skaggs Luttrell Charitable Remainder
Unitrust #2......................................................... 54,427 0
The Northern Trust Company, Successor Trustee, UA dtd 2/2/66
with Vivian Skaggs Armstrong, for the benefit of Claudia
Skaggs (Luttrell)................................................... 5,487 0
The Northern Trust Company, Successor Trustee, UA dtd 5/21/75
with Donald Lennie Skaggs, The Donald Lennie Skaggs
Personal Trust...................................................... 31,280 0
The Northern Trust Company, Successor Trustee, UA dtd 8/26/96
with L.S. Skaggs, The Don L. Skaggs Charitable Remainder
Unitrust #1......................................................... 70,821 0
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
The Northern Trust Company, As Trustee, UA dtd 1/17/97 with L.S.
Skaggs, The Don L. Skaggs Charitable Remainder Unitrust #2.......... 54,427 0
The Northern Trust Company, Successor Trustee, UA dtd 2/2/66
with Vivian Skaggs Armstrong, For the benefit of Don L. Skaggs...... 5,487 0
The Northern Trust Company, Successor Trustee, UA dtd 2/2/66
with Vivian Skaggs Armstrong, For the benefit of Mar
Stanley Skaggs...................................................... 5,487 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Richelle
Skaggs, Age 30 Trust................................................ 1,131 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Dustin L.
Skaggs, Age 30 Trust................................................ 1,131 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83.......
with Vivian Skaggs Armstrong, For the benefit of Jennifer
Luttrell, Age 30 Trust.............................................. 1,131 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83.......
with Vivian Skaggs Armstrong, For the benefit of Justin
Dallas Lutrell, Age 30 Trust........................................ 1,131 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Mindy
Stana Skaggs, Age 30 Trust.......................................... 1,131 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Stephen A.
Skaggs, Age 30 Trust................................................ 1,131 0
The Northern Trust Company, Successor Trustee, UA dtd 11/23/83
with Vivian Skaggs Armstrong, For the benefit of Loy Leana
Skaggs, Age 30 Trust................................................ 1,131 0
The Northern Trust Company, Trustee, UA dtd 1/29/97 with Lynda
Sue Balukoff, The Lynda Sue Skaggs Balukoff Charitable
Remainder Trust #2.................................................. 11,153 0
U.S. Bank, Successor Trustee, UA dtd 9/13/68 With Lynda Sue
Skaggs (Balukoff) The Lynda Sue Skaggs (Balukoff)
Personal Trust...................................................... 29,877 0
U.S. Bank, Successor Trustee, UA dtd 2/2/66 With Vivian Skaggs
Armstrong for the benefit of Lynda Sue Skaggs (Balukoff)............ 5,487 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 with Vivian Skaggs
Armstrong for the benefit of David P. Langton Lifetime Trust........ 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian.........
Skaggs Armstrong for the benefit of David Paul Langton,
Age 30 Trust........................................................ 1,131 0
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Melissa Rae Langton, Lifetime Trust........ 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Melissa Rae Langton,
Age 30 Trust............................................................ 1,131 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Sherri Lyn Balukoff Lifetime
Trust................................................................... 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Sherri Lyn Balukoff,
Age 30 Trust............................................................ 1,131 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Jenifer Balukoff Lifetime Trust............ 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Jenifer Balukoff, Age 30
Trust................................................................... 1,080 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Joseph Balukoff, Jr. Lifetime
Trust................................................................... 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Anthony Joseph
Balukoff, Jr., Age 30 Trust............................................. 1,131 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Stephen R. Balukoff Lifetime
Trust................................................................... 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Stephen Robert
Balukoff, Age 30 Trust.................................................. 1,131 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Karen Marie Balukoff Lifetime
Trust................................................................... 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Karen Marie Balukoff,
Age 30 Trust............................................................ 1,131 0
U.S. Bank, Successor Trustee, UA dtd 11/23/83 With Vivian Skaggs
Armstrong for the benefit of Sam Balukoff Lifetime Trust................ 1,155 0
U.S. Bank, As Successor Trustee, UA dtd 11/23/83 With Vivian
Skaggs Armstrong for the benefit of Sam Balukoff, Age 30
Trust................................................................... 1,130 0
U.S. Bank, As Trustee, UA dtd 2/13/97 with Linda Sue Skaggs
Balukoff, the Balukoff Charitable Remainder Trust....................... 24,537 0
--------- -------
TOTAL.................................................................... 3,081,580 462,237
========= =======
</TABLE>
(a) Each Selling Stockholder is represented by Debevoise & Plimpton and has
appointed L.S. Skaggs, George L. Moosman and Arthur W. Gergets, and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
II-3
<PAGE>
EXHIBIT 5.1
April 1, 1997
American Stores Company
709 East South Temple
Salt Lake City, UT 84102
Ladies and Gentlemen:
In connection with the registration of 17,719,096 shares of common stock,
par value $1.00 per share (the "Shares"), of American Stores Company, a Delaware
------
corporation (the "Company"), under the Securities Act of 1933, as amended, on
-------
Form S-3 filed with the Securities and Exchange Commission (the "Commission") on
----------
March 4, 1997 (File No. 333-22701), as amended by Amendment No. 1 filed on March
10, 1997 and Amendment No. 2 filed on April 1, 1997 (as so amended, the
"Registration Statement"), you have requested our opinion with respect to the
----------------------
following matters.
Of the Shares being registered, (i) 15,407,910 Shares are presently issued
and outstanding (the "Outstanding Shares") and are being sold by certain
------------------
stockholders named in the Registration Statement (the "Selling Stockholders")
--------------------
and (ii) 2,311,186 Shares will be subject to an option to be granted by the
Company to the underwriters named in the Registration Statement to cover
over-allotments (the "Option Shares") pursuant to underwriting agreements in the
-------------
form attached as exhibits to the Registration Statement (the "Underwriting
------------
Agreements").
- ----------
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization, issuance and sale of the Shares,
and, for purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such
legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, records and papers as we have deemed necessary or appropriate
for purposes of this opinion. We have, with your consent, relied as to
factual matters on certificates or other documents furnished by the Company
or its officers, the Selling Stockholders and governmental authorities and upon
such other documents and data that we have deemed appropriate and, for purposes
of this opinion, have assumed that the certificates and other documents to be
furnished in connection with the closing of the sale of the Shares will be
delivered in the manner presently proposed. We have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
copies.
<PAGE>
American Stores Company
April 1, 1997
Page 2
We are not members of the Bar of any jurisdiction other than the State of
New York, and, with your consent, we are opining herein as to the effect on the
subject transaction only of the General Corporation Law of the State of
Delaware, and we express no opinion with respect to the applicability thereto,
or the effect thereon, of any other laws or the laws of any other jurisdiction.
Based on such examination and review, and subject to the foregoing, we are
of opinion that:
1. The Outstanding Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
2. The Option Shares have been duly authorized, and, upon issuance,
delivery and payment therefor in the manner contemplated by the
Underwriting Agreements, will be validly issued, fully paid and non-
assessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectuses that are a part of the Registration Statement. In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Experts"
and "Selected Financial Data" in Amendment No. 2 to the Registration
Statement (Form S-3, No. 333-22701) and related Prospectuses of
American Stores Company ("Registration Statement") for the registration
of 17,719,096 shares of its common stock and to the incorporation by
reference therein of our report dated March 15, 1996, with respect to
the consolidated financial statements of American Stores Company
included in its Annual Report (Form 10-K) for the three years ended
February 3, 1996, filed with the Securities and Exchange Commission.
We also consent to the use of our report dated March 14, 1997 (except
for the Subsequent Events Note, as to which the date is March 28, 1997)
with respect to the consolidated financial statements of American
Stores Company for the year ended February 1, 1997 included in the
Registration Statement.
Ernst & Young LLP
Salt Lake City, Utah
April 1, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
STORES COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 37,467
<SECURITIES> 0
<RECEIVABLES> 318,878
<ALLOWANCES> 0
<INVENTORY> 1,725,542
<CURRENT-ASSETS> 2,166,496
<PP&E> 5,837,907
<DEPRECIATION> 2,250,876
<TOTAL-ASSETS> 7,881,405
<CURRENT-LIABILITIES> 1,801,681
<BONDS> 2,613,144
0
0
<COMMON> 149,889
<OTHER-SE> 2,385,538
<TOTAL-LIABILITY-AND-EQUITY> 7,881,405
<SALES> 18,678,129
<TOTAL-REVENUES> 18,678,129
<CGS> 13,713,151
<TOTAL-COSTS> 13,713,151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,558
<INCOME-PRETAX> 504,552
<INCOME-TAX> 217,331
<INCOME-CONTINUING> 287,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287,221
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
</TABLE>
