SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended January 31, 1998.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission file number 1-5392
AMERICAN STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 87-0207226
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
299 South Main Street
Salt Lake City, Utah 84111-2203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 539-0112
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock ($1 par value) Chicago Stock Exchange, Inc.
Registered on: New York Stock Exchange, Inc.
Pacific Exchange, Inc.
Philadelphia Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
AMERICAN STORES COMPANY
FORM 10-K
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 28, 1998:
Common Stock, $1 Par Value -- $6,868,151,323.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 28, 1998:
Common Stock, $1 Par Value -- 273,675,007.
Documents Incorporated by Reference:
Portions of the registrant's 1997 Annual Report to its shareholders for the
fiscal year ended January 31, 1998 (Annual Report), to the extent specifically
incorporated herein, are incorporated by reference into Parts I, II and IV.
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission relating to the registrant's Annual Meeting of Shareholders to be
held on June 17, 1998 (Proxy Statement), to the extent specifically incorporated
herein, are incorporated by reference into Part III.
AMERICAN STORES COMPANY
FORM 10-K
TABLE OF CONTENTS
PART I
Page Number
Cautionary Note...............................................4
Item 1 Business......................................................4
Item 2 Properties....................................................7
Item 3 Legal Proceedings.............................................9
Item 4 Submission of Matters to a Vote of Security Holders...........9
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters................................9
Item 6 Selected Financial Data.......................................9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operation.........................9
Item 7A Quantitative and Qualitative Disclosures About
Market Risk................................................9
Item 8 Financial Statements and Supplementary Data...................9
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................10
PART III
Item 10 Directors and Executive Officers of the Registrant...........10
Item 11 Executive Compensation.......................................12
Item 12 Security Ownership of Certain Beneficial Owners
and Management............................................12
Item 13 Certain Relationships and Related Transactions...............12
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................12
Signatures....................................................17
AMERICAN STORES COMPANY
FORM 10-K
PART I
Cautionary Note
This report contains 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. The Company
assumes no obligation to update the information contained herein. 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
implementation of the Company's re-engineering initiatives in accordance with
the currently contemplated schedule and budget; the Company's relationship with
its employees and the terms of future collective bargaining agreements; the
costs and other effects of legal and administrative cases and proceedings; the
nature and extent of continued consolidation in the food and drug industry;
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; changes in economic conditions which affect the buying patterns of the
Company's customers; and the ability of the Company and its vendors, financial
institutions and others to resolve Year 2000 processing issues in a timely
manner.
Item 1 Business
HISTORY
American Stores Company (the Company), traces its roots to 1939 with the
purchase of four drug stores in Utah, Idaho and Montana and was
incorporated in Delaware in 1965 under the name of Skaggs Drug Centers,
Inc. The Company grew initially through the acquisition of additional
drug stores and, from 1969 through 1977, through a partnership with
Albertson's that developed food and drug combination stores. In 1979 in
order to enhance its food retailing capabilities, the Company acquired
American Stores Company, including Acme Markets, and adopted the
American Stores Company name. In 1984 Jewel Companies, Inc. was acquired
by the Company, adding Jewel Food Stores and the Osco and Sav-on drug
stores. In 1988 the Company acquired Lucky Stores, Inc. which currently
operates stores in California, Nevada, New Mexico and Utah.
After each acquisition mentioned above, the Company has reviewed the
consolidated group and disposed of selected stores and divisions to
reduce debt as well as to focus on growth opportunities available in the
remaining markets. Past major dispositions have included: Buttrey Food
and Drug (1990), Alpha Beta Company (1991), 74 Jewel Osco combination
stores in Texas, Florida, Oklahoma and Arkansas (1992), 51 Osco drug
stores in the intermountain region (1991), the 33-store Star Market food
division and 45 Acme Markets stores (1994).
PART I - (Continued)
Item 1 Business - (Continued)
OPERATIONS
The Company is principally engaged in a single industry segment, the
retail sale of food and drug merchandise. The Company's stores operate
under the names of Acme Markets, Jewel Food Stores, Lucky Stores, Osco
Drug and Sav-on.
The Company is one of the nation's leading food and drug retailers,
operating supermarkets, stand-alone drug stores and combination
food/drug store units. At year-end 1997, the Company operated 1,557
stores in 26 states.
The following is a summary of stores by store type and state as of
January 31, 1998:
<TABLE>
<S> <C> <C> <C> <C>
Stand-alone Combination
State Supermarkets Drug Food/Drug Total
Arizona 70 70
Arkansas 2 2
California 365 276 41 682
Delaware 8 7 15
Illinois 30 88 145 263
Indiana 53 6 59
Iowa 24 2 26
Kansas 27 27
Maine 1 1
Maryland 11 1 12
Massachusetts 56 56
Michigan 2 2
Minnesota 1 1
Missouri 31 31
Montana 10 10
Nebraska 14 14
Nevada 24 33 57
New Hampshire 20 20
New Jersey 55 22 77
New Mexico 4 11 15
North Dakota 6 6
Pennsylvania 49 26 75
South Dakota 3 3
Vermont 1 1
Utah 1 1
Wisconsin 30 1 31
Total 543 752 262 1,557
</TABLE>
See "Item 2 Properties" for additional information concerning properties
of the registrant.
The Company tailors the merchandising and advertising of its stores to
the demographics in each area it serves. The merchandise sold by the
Company's stores includes food and drug items, such as prescription
drugs, health and beauty aids and sundry merchandise.
PART I - (Continued)
Item 1 Business - (Continued)
The combination stores and many of the supermarkets include departments
such as delicatessens, bakeries, seafood departments and pharmacies.
The Company's private label programs include such brands as "Lucky" at
Lucky stores, "Lancaster" meats and "Acme" groceries at Acme stores,
"Jewel" and "President's Choice" at Jewel stores and "Osco" and "Sav-on"
at Osco and Sav-on stores, respectively. "American Premier" is used as
the Company's premium brand while "Value Wise" is the budget brand in
all stores.
COMPETITION
The Company's 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
Dominicks, Long's, Pathmark, Vons, Ralphs, Safeway, Rite Aid and
Walgreens. Principal competitive factors in the industry are 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 on
its ability to maintain relatively high sales volume and control
operating costs. The Company's geographic diversity allows it to reduce
the risk that competitive pressures in individual markets may have on
its overall operating results. The Company's stores collectively
operate in 9 of the 25 largest U.S. metropolitan areas and hold a
leading market position (generally first or second in overall market
share) in each. These market areas include: Los Angeles-Long Beach
(where the Company is third in overall market share), Chicago,
Philadelphia, Boston, Riverside-San Bernardino, San Diego, Orange
County, Phoenix and Oakland.
SEASONALITY
The Company is subject to effects of seasonality. Sales are higher in
the Company's fourth quarter than other quarters due to the holiday
season and the increase in cold and flu occurrences.
EMPLOYEES
At year-end 1997, the Company had approximately 121,000 full and part-
time employees. Approximately 74% of the Company's employees are
covered by collective bargaining agreements negotiated with local unions
affiliated with one of seven different 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 every year. The Company considers its relationships
with its employees to be good.
PART I - (Continued)
Item 1 Business - (Continued)
INCORPORATION BY REFERENCE
The section entitled "Fiscal Year" in the Notes to Consolidated
Financial Statements on page 20, the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" on pages 10 through 14 and the section entitled
"Environmental" on page 30 of the Annual Report are incorporated herein
by reference.
Item 2 Properties
The Company categorizes its retail stores into the following types:
supermarkets, stand-alone drug stores and combination food/drug stores.
At year-end 1997, the Company operated 543 supermarkets, 752 stand-alone
drug stores and 262 combination stores.
Combination stores are stores with 40,000 or more square feet; they
include a pharmacy department and have an expanded selection of food,
drug and general merchandise. The supermarket category includes stores
with service departments that do not meet the definition of a
combination store.
At year-end 1997, square footage by type of store and store count was as
follows:
Super- Stand-alone Combination
(Square footage in thousands)markets Drug Food/Drug Total
Total square footage 18,097 13,948 15,618 47,663
Average square footage 33 19 60 31
Store count 543 752 262 1,557
The Company owns approximately 30% of its retail locations; the
remaining retail locations are leased under capitalized or operating
leases. At year-end 1997, owned property with a net book value of
approximately $232.3 million was collateralized by loans secured by real
estate of approximately $69.6 million. The Company currently finances
new construction of owned stores through internally generated funds and
borrowings under existing credit facilities.
Throughout the country, the Company leases and owns distribution
centers, fleet maintenance shops and warehouses for merchandise such as
dry grocery, produce, frozen foods and general merchandise. These
facilities support the Company's retail outlets.
PART I - (Continued)
Item 2 Properties - (Continued)
The Company also owns or leases office space, owns land for future
development and operates dairies, bakeries and other manufacturing or
processing facilities that supply many of its retail outlets with a
variety of private label merchandise. Manufacturing facilities operate
at levels of production required to meet the demands of customers at the
Company's retail locations.
At year-end 1997, the location and type of the Company's warehouse,
distribution and maintenance facilities and their respective sizes were
as follows:
<TABLE>
<S> <C> <C> <C>
Total
Square Feet
Location Type in Thousands
California Vacaville Grocery 871
San Leandro Meat, Produce, Frozen Food, Bulk 627
Buena Park Grocery, Non-Food, Meat, Frozen Food 1,360
Irvine Grocery, Produce 994
Anaheim General Merchandise, Liquor 474
La Habra General Merchandise, Liquor, Bulk 980
Fullerton General Merchandise 216
Illinois Melrose Park Grocery, Fresh Food, Storage 1,638
Elk Grove General Merchandise, Health & Beauty 478
Alsip Paper, Promotional 256
Franklin Park General Merchandise 36
Indiana Indianapolis Liquor, Wine & Tobacco 22
Nevada Las Vegas Liquor, Wine & Tobacco 30
Pennsylvania Philadelphia Grocery, Produce 1,274
Lancaster General Merchandise 457
Utah Payson Fixture Mill 80
Total Warehouse, Distribution and Maintenance Facilities 9,793
</TABLE>
The Company operated 9 manufacturing or processing facilities at year-
end 1997 as follows:
Type of Facility Number of Plants and Locations
Bakery 3-Melrose Park, Illinois; San Leandro, California;
Buena Park, California
Dairy 4-Sacramento, California; San Leandro, California;
Buena Park, California; Escondido, California
Ice Cream 1-Buena Park, California
Fixture Shop 1-Payson, Utah
See also Item 1, Business, for Additional Information on Properties of
the Registrant.
PART I - (Continued)
Item 2 Properties - (Continued)
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 10 through 14 of the
Annual Report is incorporated herein by reference.
Item 3 Legal Proceedings
The section entitled "Legal Proceedings" on page 30 of the Annual Report
is incorporated herein by reference.
Item 4 Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company
for a vote during the fourth quarter ended January 31, 1998.
PART II
Item 5 Market for the Registrant's Common Equity and Related Shareholder
Matters
The section entitled "Common Stock Market Prices and Dividends" on the
bottom of page 1 of the Annual Report is incorporated herein by
reference.
Item 6 Selected Financial Data
The section entitled "Selected Financial Data" on page 9 of the Annual
Report is incorporated herein by reference.
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operation" on pages 10 through 14 of the Annual
Report is incorporated herein by reference.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
The section entitled "Quantitative and Qualitative Disclosures About
Market Risk" on page 12 and 13 of the Annual Report is incorporated
herein by reference.
Item 8 Financial Statements and Supplementary Data
The Company's consolidated financial statements and related notes
thereto, together with the Report of Independent Auditors and the
selected quarterly financial data of the Company presented on pages 15
to 31 of the Annual Report, are incorporated herein by reference.
PART II - (Continued)
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10 Directors and Executive Officers of the Registrant
The information under the caption "Proposal 1-Election of Directors:
Information Regarding the Nominees Standing for Election in 1998" in the
Proxy Statement is incorporated herein by reference.
Additional information regarding Executive Officers of the registrant as
of March 17, 1998 is set forth below:
Officer Offices Held Age
Kent T. Anderson Chief Operating Officer - Strategy and 44
Development of the registrant since August
1995; Chief Strategy Officer from March 1995
to August 1995; Executive Vice President and
General Manager - American Stores Properties,
Inc. from March 1993 to March 1995.
Teresa Beck President of the registrant since March 1998; 43
Chief Financial Officer from March 1995 to
March 1998; Executive Vice President and Chief
Financial Officer from June 1994 to March 1995;
Executive Vice President Finance from March 1994 to
June 1994; Executive Vice President Administration
from March 1992 to March 1994. Assistant Secretary
from June 1989 until March 1995.
James R. Clark Chief Planning Officer of the registrant since 54
March 1995; Senior Vice President Strategy and
Change Management from December 1993 to March
1995; Senior Vice President Marketing and
Planning, Lucky Stores, Inc. from prior to
February 1993 to December 1993.
Stephen L. Mannschreck Chief Human Resources Officer of the registrant 52
since March 1995; Executive Vice President
Human Resources from June 1994 to March 1995;
Executive Vice President and General Manager
- Osco Drug from March 1993 to June 1994.
PART III - (Continued)
Item 10 Directors and Executive Officers of the Registrant - (Continued)
Officer Offices Held Age
Kathleen E. McDermott Chief Legal Officer of the registrant since 48
May 1995 and Assistant Secretary since June
1993; Executive Vice President and General
Counsel from June 1993 to May 1995; Partner
of the law firm of Collier, Shannon, Rill &
Scott from prior to February 1993 to June 1993.
Edward J. McManus Chief Operating Officer - Procurement & 52
Logistics of the registrant since March 1997;
Senior Vice President and General Manager -
Jewel Food Stores from April 1995 to March 1997;
Senior Vice President Operations of Jewel Food
Stores, Inc. from July 1994 to April 1995;
Vice President - Distribution of Jewel Food
Stores, Inc. from April 1992 to July 1994.
Francis J. Raucci Chief Labor Officer of the registrant since 61
May 1995; Executive Vice President and Chief
Labor Counsel from June 1994 to May 1995;
Senior Vice President and Chief Labor Counsel
from December 1993 to June 1994; Senior Vice
President and Assistant General Counsel from
prior to February 1993 to December 1993.
Neal J. Rider Chief Financial Officer of the registrant 36
since March 1998; Senior Vice President
Supply Chain Planning and Administration -
American Procurement and Logistics Company
from July 1997 to March 1998; Senior Vice
President - Health Care Operations of the
registrant from June 1995 to July 1997;
Senior Vice President and Treasurer from
March 1994 to June 1995; Vice President and
Controller from prior to February 1993 to
March 1994.
Martin A. Scholtens Chief Operating Officer - Retail of the 55
registrant since March 1995; Executive Vice
President and General Manager - Lucky Southern
California Division from March 1994 to March
1995; Executive Vice President and General
Manager - Acme Markets from March 1993 to
March 1994.
PART III - (Continued)
Item 10 Directors and Executive Officers of the Registrant - (Continued)
Officer Offices Held Age
J. Greg Spencer Senior Vice President, Treasurer and Assistant 41
Secretary of the registrant since June 1995;
Vice President, Corporate Transactions and
Senior Counsel from March 1992 to June 1995.
Bradley M. Vierig Senior Vice President of the registrant since 40
June 1995 and Controller since March 1994;
Vice President and Assistant Treasurer from
August 1992 to March 1994.
Item 11 Executive Compensation
The information under the captions "Directors' Compensation," "Executive
Compensation," "Options/SAR Grants in Last Fiscal Year," "Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR
Value," "Long-Term Incentive Plans-Awards in Last Fiscal Year," "Pension
Plans," "Employment Agreements" and "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by
reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information under the caption "Beneficial Ownership of Securities"
in the Proxy Statement is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
The information under the captions "Proposal 1-Election of Directors:
Information Regarding the Nominees Standing for Election in 1998,"
"Footnotes to the Foregoing Information Regarding Nominees for Director
of the Company," "Directors' Compensation" and "Certain Relationships
and Related Transactions" in the Proxy Statement is incorporated herein
by reference.
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 14(a)(1) - Financial Statements
The following consolidated financial statements of the registrant and
its subsidiaries, included in the Annual Report, have been incorporated
by reference in Item 8 of this report:
Consolidated Statements of Earnings for the fiscal years 1997, 1996 and
1995;
PART IV - (Continued)
Item 14(a)(1) - Financial Statements - (Continued)
Consolidated Balance Sheets as of the end of fiscal years 1997, 1996 and
1995;
Consolidated Statements of Cash Flows for the fiscal years 1997, 1996
and 1995;
Consolidated Statements of Shareholders' Equity for the fiscal years
1997, 1996 and 1995;
Notes to Consolidated Financial Statements.
Item 14(a)(2) - Supplementary Data and Financial Statement Schedules
The supplementary data entitled "Quarterly Results (unaudited)" on page
31 of the Annual Report is incorporated by reference in Item 8.
In response to Item 14(d), all schedules for which provision is made in
the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
Item 14(a)(3) - Exhibits
The following exhibits are filed with this report:
3.1 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 14, 1996, and to Exhibit 1 of the Company's
Form 8-K as filed with the Commission on July 10, 1997.
3.2 The By-Laws of American Stores Company as amended on September 17, 1997.
4.1 Senior Indenture dated May 1, 1995 between the Company and the First
National Bank of Chicago, as Trustee, is incorporated herein by
reference to Exhibit 4.1 of Form 10-Q filed with the Commission on
June 12, 1995.
4.2 Form of 7.9% Debenture due 2017.
4.3 Form of 7.5% Debenture due 2037.
10.1 Credit Agreement ($1.5 billion five-year revolving credit facility) dated
as of March 28, 1997 among the Company, the banks listed therein and Morgan
Guaranty Trust Company of New York as Agent is incorporated herein by
reference to Form 10-K filed with the Commission on April 14, 1997.
PART IV - (Continued)
Item 14(a)(3) - Exhibits (Continued)
10.2 Non-Employee Directors' Deferred Fee Plan is incorporated herein by
reference to Exhibit 10.3 of Form 8 as filed with the Commission on July
12, 1991. *
10.3 Supplemental Executive Retirement Plan as amended and restated on June 24,
1994 is incorporated herein by reference to Exhibit 10.4 of Form 10-K as
filed with the Commission on April 26, 1995. *
10.4 Third Amendment to the American Stores Company Supplemental Executive
Retirement Plan dated August 16, 1996 is incorporated herein by reference
to Exhibit 10.3 of Form 10-Q as filed with the Commission on September 17,
1996. *
10.5 1997 Key Management Annual Incentive Plan is incorporated herein by
reference to Exhibit A of the Company's 1997 Proxy Statement filed with the
Commission on May 2, 1997.
10.6 1997 Stock Option and Stock Award Plan is incorporated herein by reference
to Exhibit B of the Company's 1997 Proxy Statement filed with the
Commission on May 2, 1997.
10.7 1997 Stock Plan for Non-Employee Directors is incorporated herein by
reference to Exhibit C of the Company's 1997 Proxy Statement filed with the
Commission on May 2, 1997.
10.8 1989 Stock Option and Stock Award Plan is incorporated herein by reference
to the Registrant's S-8 Registration Statement (Registration No. 33-32150)
filed with the Commission on November 16, 1989. *
10.9 Amendment to the 1989 Stock Option and Stock Award Plan, dated as of
September 17, 1996 is incorporated herein by reference to Exhibit 10.3 of
Form 10-Q is filed with the Commission on December 17, 1996. *
10.10 Amendment to the 1989 Stock Option and Stock Award Plan, dated April 7,
1997 is incorporated herein by reference to Form 10-K filed with the
Commission on April 14, 1997. *
10.11 The 1985 Stock Option and Stock Award Plan is incorporated herein by
reference to the Registrant's S-8 Registration Statement (Registration No.
33-08801) filed with the Commission on September 22, 1986. *
* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report pursuant to Item 14(a)(3)
of Form 10-K.
PART IV - (Continued)
Item 14(a)(3) - Exhibits (Continued)
10.12 Amendment to the 1985 Stock Option and Stock Award Plan, dated as of
September 17, 1996 is incorporated herein by reference to Exhibit 10.2 of
Form 10-Q as filed with the Commission on December 17, 1996. *
10.13 American Stores Company Key Executive Stock Purchase Incentive Plan is
incorporated herein by reference to Exhibit A of the Registrant's 1992
Proxy Statement filed with the Commission on May 7, 1992. *
10.14 American Stores Company Board of Directors Stock Purchase Incentive Plan
as Amended and Restated is incorporated herein by reference to Exhibit
10.11 of Form 10-K as filed with the Commission on April 26, 1995. *
10.15 Description of Key Management Performance Incentive Plan (1998-2000). *
10.16 Form of Employment Agreement dated as of November 1, 1994 together with
Schedule of eighteen officers who entered into such Employment Agreement
with the Company are incorporated herein by reference to Exhibit 10.14 of
Form 10-K filed with the Commission on April 26, 1995. *
10.17 Form of Amendment to Employment Agreement dated as of July 25, 1996
together with Schedule of fifteen officers who entered into such Amendment
to Employment Agreement with the Company are incorporated herein by
reference to Exhibit 10.4 of Form 10-Q filed with the Commission on
September 17, 1996. *
10.18 Consulting Agreement between the Company and L.S. Skaggs dated as of
August 1, 1995 is incorporated herein by reference to Exhibit 10.1 of Form
10-Q as filed with the Commission on December 11, 1995. *
10.19 Form of Employment Agreement (Change of Control) dated as of July 25, 1996
together with Schedule of eleven officers who entered into such Employment
Agreement with the Company are incorporated herein by reference to Exhibit
10.5 of Form 10-Q filed with the Commission on September 17, 1996. *
10.20 Form of Employment Agreement dated as of July 25, 1996 together with
Schedule of two executive officers who entered into Employment Agreements
with the Company are incorporated herein by reference to Exhibit 10.7 of
Form 10-Q filed with the Commission on September 17, 1996. *
* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report pursuant to Item 14(a)(3)
of Form 10-K.
PART IV - (Continued)
Item 14(a)(3) - Exhibits (Continued)
10.21 Amended and Restated Employment Agreement of Victor L. Lund dated as of
December 9, 1997. *
10.22 Amendment to the Employment Agreement (Change of Control)with Victor L.
Lund dated as of December 9, 1997. *
10.23 Second Amendment to Employment Agreement dated as of December 9, 1997,
together with schedule of 12 senior officers who entered into such
Amendment. *
10.24 Amendment to Employment Agreement (Change of Control) dated as of December
9, 1997 together with schedule of 12 senior officers who entered into such
Amendment. *
10.25 Employment Agreement with (Change of Control) Edward J. McManus dated
as of December 9, 1997. *
12. Computation of ratio of earnings to fixed charges.
13. Exhibit 13 consists of pages 9 to 31 and page 1 of the Company's 1997
Annual Report to Shareholders which are numbered as pages 1 to 31 of
Exhibit 13. Such report, except to the extent incorporated hereby by
reference, has been sent to and furnished for the information of the
Securities and Exchange Commission only and is not to be deemed filed as
part of this Annual Report on Form 10-K. The references to the pages
incorporated by reference are to the printed Annual Report. The references
to the pages of Exhibit 13 are as follows: Item 1--pages 16, 3 through 10
and 30; Item 2--pages 3 through 10; Item 3--page 30; Item 5--page 1; Item
6--page 2; Item 7--pages 3 through 10; Item 7A--pages 7 and 8; Item 8--
pages 11 through 31; and Item 14--pages 12 through 31.
21. Subsidiaries of the Registrant.
23. Consent of Ernst & Young LLP.
27. Financial Data Schedule.
All other exhibits for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instruction or are inapplicable, and therefore have been
omitted.
Item 14(b) - No reports on Form 8-K were filed during the last quarter of the
1997 fiscal year.
* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report pursuant to Item
14(a)(3) of Form 10-K.
AMERICAN STORES COMPANY
FORM 10-K
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant): American Stores Company
By (Signature and Title): /s/Kathleen E. McDermott April 20, 1998
Kathleen E. McDermott,
Chief Legal Officer and
Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/Victor L. Lund Chairman of the Board and April 20, 1998
Victor L. Lund Chief Executive Officer
(Principal Executive Officer)
/s/Neal J. Rider Chief Financial Officer April 20, 1998
Neal J. Rider (Principal Financial Officer)
/s/Bradley M. Vierig Senior Vice President and April 20, 1998
Bradley M. Vierig Controller
(Principal Accounting Officer)
AMERICAN STORES COMPANY
FORM 10-K
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Victor L. Lund Director, Chairman of April 20, 1998
Victor L. Lund the Board and Chief
Executive Officer
/s/ Pamela G. Bailey Director April 20, 1998
Pamela G. Bailey
/s/ Henry I. Bryant Director April 20, 1998
Henry I. Bryant
/s/ Arden B. Engebretsen Director April 20, 1998
Arden B. Engebretsen
/s/ James B. Fisher Director April 20, 1998
James B. Fisher
/s/ Fernando R. Gumucio Director April 20, 1998
Fernando R. Gumucio
/s/ Leon G. Harmon Director April 20, 1998
Leon G. Harmon
/s/ John E. Masline Director April 20, 1998
John E. Masline
/s/ Barbara S. Preiskel Director April 20, 1998
Barbara S. Preiskel
/s/ J. L. Scott Director April 20, 1998
J. L. Scott
AMERICAN STORES COMPANY
FORM 10-K
Signatures (Continued)
/s/ Arthur K. Smith Director April 20, 1998
Arthur K. Smith
/s/ David L. Maher Director, Vice April 20, 1998
David L. Maher Chairman of the Board
and Chief Operating
Officer
EXHIBIT 3.2
RESTATED BY-LAWS OF
AMERICAN STORES COMPANY
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of the Company
shall be at 100 West Tenth Street, Wilmington, County of New Castle, Delaware,
until otherwise established by a vote of a majority of the Board of Directors in
office, and a statement of such change is filed in the manner provided by
statute.
Section 1.02. Other Offices. The Company may also have offices at such
other places within or without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Company requires.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. Place of Meeting. All meetings of the stockholders of the
Company shall be held in Wilmington, Delaware, or at such other place within or
without the State of Delaware as shall be designated by the Board of Directors
in the notice of such meeting.
Section 2.02. Annual Meeting. The Board of Directors may fix the date and
time of the annual meeting of the stockholders, but if no such date and time is
fixed by the Board, the meeting for any calendar year shall be held at such time
and date as the Board of Directors may determine and at said meeting the
stockholders then entitled to vote shall elect by written ballot directors and
shall transact such other business as may properly be brought before the
meeting.
Section 2.03. Special Meetings. Special meetings of the stockholders of
the Company for any purpose or purposes for which meetings may lawfully be
called, may be called at any time for any purpose or purposes by the Board of
Directors or by any person or Committee expressly so authorized by the Board of
Directors and by no other person or persons. At any time, upon written request
of any person or persons who have duly called a special meeting, which written
request shall state the purpose or purposes of the meeting, it shall be the duty
of the Secretary to fix the date of the meeting to be held at such date and time
as the Secretary may fix, not less than ten nor more than sixty days after the
receipt of the request, and to give due notice thereof. If the Secretary shall
neglect or refuse to fix the time and date of such meeting and give notice
thereof, the person or persons calling the meeting may do so.
Amended Effective September 17, 1996
Section 2.04. Notice of Meetings. Written notice of the place, date and
hour of every meeting of the stockholders, whether annual or special, shall be
given to each stockholder of record entitled to vote at the meeting not less
than ten nor more than sixty days before the date of the meeting. Every notice
of a special meeting shall state the purpose or purposes thereof.
Section 2.04.1 Notice of Nominations and Stockholder Business
(1) Annual Meetings of Stockholders.
(a) Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Company's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the
Company who was a stockholder of record at the time of giving the
notice provided for in this by-law who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this
by-law.
(b) For nominations or other business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Company and such
other business must otherwise be a proper matter for stockholder
action. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Company not later
than the close of business on the 60th day nor earlier than the close
of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the close of business
on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made by the Company. In no event
shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that
is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as
to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made;
and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the
Company's books, and of such beneficial owner and (ii) the class and
number of shares of the Company which are owned beneficially and of
record by such stockholder and such beneficial owner.
(c) Notwithstanding any provision in this by-law to the contrary, in the
event that the number of directors to be elected to the Board of
Directors of the Company is increased and the Company does not make a
public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 70
days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this by-law shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Company not later
than the close of business on the 10th day following the day on which
such public announcement is first made by the Company.
(2) Special Meetings of Stockholders. Only such business shall be conducted at
a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Company's notice of meeting.
(3) General.
(a) Only such persons who are nominated in accordance with the procedures
set forth in this by-law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the
procedures set forth in this by-law. Except as otherwise provided by
law, the Certificate of Incorporation or these by-laws, the Chairman of
the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the
procedures set forth in this by-law and, if any proposed nomination or
business is not in compliance with this by-law, to declare that such
defective proposal or nomination shall be disregarded.
(b) For purposes of this by-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of this by-law, a stockholder
shall also comply with all applicable requirements of the Exchange Act
and the rules and regulations thereunder with respect to the matters
set forth in this by-law. Nothing in this by-law shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals
in the Company's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) of the holders of any series of Preferred Stock to
elect directors under specified circumstances.
Section 2.05. Quorum, Manner of Acting and Adjournment. The holders of a
majority of the stock issued and outstanding (not including treasury stock) and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the Certificate of
Incorporation or by these by-laws. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
any such adjourned meeting, at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at any meeting, the
vote of the holders of the majority of the stock having voting power present in
person or represented by proxy shall decide any questions brought before such
meeting, unless the question is one upon which, by express provision of the
applicable statute, the Company's Certificate of Incorporation or these by-laws,
a different vote is required in which case such express provision shall govern
and control the decision of such question. Except upon those questions governed
by the aforesaid express provisions, the stockholders present in person or by
proxy at a duly organized meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough stockholders to leave less than a quorum.
Section 2.06. Organization. At every meeting of the stockholders the
Chairman of the Board, if there be one, or in the case of vacancy in office or
absence of the Chairman of the Board, such person as may be designated by the
Board of Directors, or, in the absence of any such person, one of the following
persons present in the order stated: the Vice Chairmen of the Board, if there
be one in their order of rank and seniority; the President; the Executive Vice
Presidents and the Vice Presidents, in their order of rank and seniority; or a
Chairman chosen by the stockholders entitled to cast a majority of the votes
which all stockholders present in person or by proxy are entitled to cast, shall
act as Chairman, and the Secretary, or, in his absence, an Assistant Secretary,
or in the absence of both the Secretary and Assistant Secretaries, a person
appointed by the Chairman shall act as Secretary.
Section 2.07. Voting: Proxies. Each stockholder shall at every meeting of
the stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power registered in his name on the books of the
Company on the record date for such meeting. All elections of directors shall
be by written ballot. The vote upon any other matter need not be by ballot. No
proxy shall be voted after three years from its date, unless the proxy provides
for a longer period. Every proxy shall be executed in writing by the
stockholder or by his duly authorized attorney-in-fact and filed with the
Secretary of the Company. A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provisions in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until notice thereof has been given to the Secretary of the Company. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Company generally. A proxy shall not be revoked by the death or
incapacity of the maker unless, before the vote is counted or the authority is
exercised, written notice of such death or incapacity is given to the Secretary
of the Company.
Section 2.08. Voting Lists. The officer who has charge of the stock ledger
of the Company shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting. The list shall be arranged in alphabetical order showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 2.09. Inspectors of Election. In advance of any meeting of
stockholders the Board of Directors may appoint inspectors of election, who need
not be stockholders, to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, the Chairman of any such meeting
may, and upon the demand of any stockholder or his proxy at the meeting and
before voting begins, shall appoint inspectors of election. The number of
inspectors shall be either one, two or three, as determined, in the case of
inspectors appointed upon demand of a stockholder, by stockholders present
entitled to cast a majority of the votes which all stockholders present are
entitled to cast thereon. No person who is a candidate for office shall act as
an inspector. In case any person appointed as inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Board of Directors in advance of the convening of the meeting, or at the meeting
by the Chairman of the meeting.
If inspectors of election are appointed as aforesaid, they shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
If there be three inspectors of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
On request of the Chairman of the meeting or of any stockholder or his
proxy, the inspectors shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Board Powers. The business and affairs of the Company shall
be managed by or under the direction of the Board of Directors; and all powers
of the Company, except those specifically reserved or granted to the
stockholders by statute, the Certificate of Incorporation or these by-laws, are
hereby granted to and vested in the Board of Directors. The primary functions
of the Board are to select the Chief Executive Officer and, in consultation with
such Chief Executive Officer, select the other principal senior executives;
evaluate their performance; fix their compensation; oversee the conduct of the
business to evaluate whether it is being managed properly; review the Company's
financial objectives, major plans and major accounting and auditing issues; and
to perform all other functions prescribed by law or the Certificate of
Incorporation.
Section 3.02. Number, Term of Office and Qualification. The Board of
Directors shall consist of such number of directors not less than five nor more
than twenty as may be determined from time to time by the Board of Directors.
Each director elected prior to 1995 shall hold office for the term of years for
which that director was elected and until that director's successor is elected
and qualified or until that director's earlier resignation or removal, and each
director elected after January 1, 1995 shall hold office until the next annual
meeting of shareholders and until that director's successor is elected and
qualified or until that director's earlier resignation or removal. All
directors of the Company shall be natural persons of full age.
Section 3.03. Vacancies. 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 the directors so chosen shall hold office until
the event of their death, resignation or removal. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board of Directors (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3.04. Resignations. Any director of the Company may resign at any
time by giving written notice to the Chairman of the Board or the Secretary of
the Company. Such resignation shall take effect at the date of the receipt of
such notice or at any later time specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3.05. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if there be one, or, in the case of a vacancy in the
office or absence of the Chairman of the Board, one of the following officers
present in the order stated: the Vice Chairmen of the Board, if there be one in
their order of rank and seniority; the President; the Executive Vice Presidents
or Vice Presidents in their order of rank and seniority; or a Chairman chosen by
a majority of the directors present, shall preside, and the Secretary, or in his
absence, an Assistant Secretary, or in the absence of the Secretary and the
Assistant Secretaries, any person appointed by the Chairman of the meeting,
shall act as Secretary.
Section 3.06. Place of Meeting. The Board of Directors may hold its
meetings, both regular and special, at such place or places within or without
the State of Delaware as the Chairman of the Board or the Board of Directors may
from time to time determine, or as may be designated in the notice calling the
meeting.
Section 3.07. Organization Meeting. Immediately after each annual election
of directors or other meeting at which the entire Board of Directors is elected,
the newly elected Board of Directors shall meet for the purpose of organization,
election of officers, and the transaction of other business, at the place where
said election of directors was held. Notice of such meeting need not be given.
Such organization meeting may be held at any other time or place which shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 3.08. Regular Meetings. Regular meetings of the Board of Directors
shall be held without notice at such time and at such place as shall be
determined from time to time by the Board of Directors. Notice of any regular
meeting shall be given in the manner prescribed for special meetings of the
Board of Directors.
Section 3.09. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board of Directors, the
President or on the written request of three or more of the directors. Notice
of each such meeting shall be given to each director in writing, or by
telephone personally, at least 24 hours before the time at which the meeting is
to be held. Each such notice shall state the time and place of the meeting to
be so held.
Section 3.10. Quorum, Manner of Acting and Adjournment. At all meetings of
the Board of Directors a majority of the total number of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the Directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Unless otherwise restricted by the Certificate of Incorporation or these by-
laws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or Committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee as the case may be.
Section 3.11. Committees of the Board of Directors. The Board of Directors
may, by a resolution adopted by the Board, designate an Executive Committee and
other committees. Each committee shall consist of two or more directors who
shall be approved by a majority of the whole Board, except that the Executive
Committee shall consist of three or more directors, one of whom shall be the
Chairman of the Board of the Company. The Board may designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee.
The committees of the Board shall have and exercise the authority of the
Board of Directors to the extent provided in the resolution designating the
committee.
No committee of the Board of Directors shall have the authority of the Board
with respect to any of the following actions:
(1) Declaring any dividend;
(2) Authorizing the issuance of any stock of the Company;
(3) Amending the Certificate of Incorporation, except to the extent
permitted by Section 141(c) of the Delaware General Corporation Law.
(4) Adopting an agreement of merger or consolidation;
(5) Recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Company's property and assets;
(6) Recommending to the stockholders a dissolution of the Company or a
revocation of a dissolution; or
(7) Amending the by-laws of the Company.
The provisions of Section 3.09 with respect to the provision of notice for
special meetings shall be applicable to all committees of the Board.
At all meetings of any committee of the Board of Directors, a majority of
the members of the committee shall constitute a quorum for the transaction of
business and the act of a majority of the members of the committee present at
any meeting thereof at which there is a quorum shall be the act of the
committee, except as may be otherwise specifically provided for in the
resolution establishing the committee, or by law or by the Certificate of
Incorporation. If a quorum is not present at any meeting of any committee of
the Board, the committee members present thereat may adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum shall be present.
Section 3.12. Interested Directors or Officers. No contract or transaction
between the Company and one or more of its directors or officers, or between the
Company and any other Company, partnership, association, or other organization
in which one or more of its directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board or committee thereof which authorized the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Company as of the time
it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
Section 3.13. Compensation. Each director who is not also a full-time
active employee of the Company or any subsidiary thereof shall be paid such
compensation for his or her services as a director and shall be reimbursed for
such expenses as may be fixed by the Board of Directors.
ARTICLE IV
NOTICE, WAIVERS, MEETINGS
Section 4.01. Notice, What Constitutes. Whenever, under the provisions of
the statutes or of the Certificate of Incorporation or of these by-laws, written
notice is required to be given to any directors or stockholder, such notice may
be given to such person, either personally or by sending a copy thereof through
the mail, or by telegraph, facsimile transmission, charges prepaid, to his
address appearing on the books of the Company. If the notice is sent by mail,
by telegraph or by private delivery service, it shall be deemed to have been
given to the person entitled thereto when deposited in the United States mail or
with a telegraph office or private delivery service for transmission to such
person.
Section 4.02. Waivers of Notice. Whenever any written notice is required
to be given under the provisions of the Certificate of Incorporation, these by-
laws, or by statute, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting, shall
constitute a waiver of notice of such meeting, except when a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
Section 4.03. Conference Telephone Meetings.
(a) Policy Statement by the Board of Directors. It is the position of the
Board of Directors that personal attendance at meetings is highly
preferable to attendance via telephone conference and, therefore, that
telephone conferences should be discouraged and used only in limited
circumstances, such as an emergency or when the Chairman of the Board
or the President and Chief Executive Officer feel that it is in the
best interest of the Company to call a meeting (as opposed to
postponing or rescheduling the meeting) when one or more Directors can
be present only by telephone conference, or where the matters to be
discussed are of a routine or perfunctory nature. Because of the
concern for confidentiality and electronic interference or signal
disruption, only "wired" telephones should be used.
(b) One or more directors may participate in a meeting of the Board, or of
a committee of the Board, by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting pursuant
to this section ("b") shall constitute presence in person at such
meeting.
ARTICLE V
OFFICERS
Section 5.01. Number, Qualifications and Designation. The officers of the
Company shall be chosen by the Board of Directors and shall be a Chairman of the
Board, a President and/or Chief Executive Officer, one or more Executive Vice
Presidents, Senior Vice Presidents and Vice Presidents, a Secretary, a
Treasurer, and such other officers as may be elected in accordance with the
provisions of Section 5.03 of this Article. One person may hold more than one
office.
Section 5.02. Election and Term of Office. The officers of the Company,
except those elected by delegated authority pursuant to Section 5.03 of this
Article, shall be elected annually by the Board of Directors, and each such
officer shall hold his office until his successor shall have been elected and
qualified, or until his earlier resignation or removal.
Section 5.03. Subordinate Officers, Committees and Agents. The Board of
Directors may, from time to time, elect such other officers, employees or other
agents as it deems necessary, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as are provided in these by-
laws, or as the Board of Directors may from time to time determine. The Board
of Directors may delegate to any officer or committee the power to elect
subordinate officers and to retain or appoint employees or other agents, or
committees thereof, and to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.
Section 5.04. Resignations. Any officer or agent may resign at any time by
giving written notice to the Board of Directors, or to the Chairman of the Board
or the Secretary of the Company. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5.05. Removal. Any officer, committee, employee or other agent of
the Company may be removed, either for or without cause, by the Board of
Directors or other authority which elected or appointed such officer, committee
or other agent whenever in the judgment of such authority the best interests of
the Company will be served thereby.
Section 5.06. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, shall be filled by
the Board of Directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.03 of this Article, as the
case may be, and if the office is one for which these by-laws prescribe a term,
shall be filled for the unexpired portion of the term.
Section 5.07. General Powers. Except as otherwise provided by law, the
Certificate of Incorporation or these by-laws, the day-to-day management of the
Company's business and affairs shall be conducted by or under the supervision of
the President and Chief Executive Officer and by those other officers and
employees to whom management functions are delegated by the Board of Directors
or the President and Chief Executive Officer.
Section 5.08. Corporate Authority. The Chairman of the Board shall,
subject to the control of the Board of Directors, have general and active
supervision of the affairs, business, officers and employees of the Company.
By virtue of his office, the Chairman of the Board shall be a member of all
committees of the Board of Directors or of the Company except as otherwise
specifically provided. He shall, from time to time, in his discretion or at the
order of the Board, submit to the Board reports of the operations and affairs of
the Company. He shall also perform such other duties and have such other powers
as may be assigned to him from time to time by the Board of Directors.
Section 5.09. The Chairman and Vice Chairmen of the Board. The Chairman of
the Board shall preside at all meetings of the stockholders and of the Board of
Directors, and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors. The Vice Chairmen of the Board, if
there be one, in their order of rank and seniority, shall perform such duties as
may from time to time be assigned to them by the Board of Directors, by the
Chairman of the Board or these by-laws.
SECTION 5.10. THE PRESIDENT. DELETED IN ITS ENTIRETY.
Section 5.11. The Vice Presidents. The Company may have one or more
Executive Vice Presidents, Senior Vice Presidents and Vice Presidents having
such duties as from time to time may be determined by the Board of Directors or
by the Chairman of the Board, or by the President and/or Chief Executive Officer
pursuant to Section 5.07.
Section 5.12. The Secretary. The Secretary shall keep full minutes of all
meetings of the stockholders and of the Board of Directors; shall be ex-officio
Secretary of the Board of Directors; shall attend all meetings of the
stockholders and of the Board of Directors; shall record all the votes of the
stockholders and of the directors and the minutes of the meetings of the
stockholders and of the Board of Directors and of committees of the Board in a
book or books to be kept for that purpose. The Secretary shall give, or cause
to be given, notices of all meetings of the stockholders of the Company and of
the Board of Directors; shall be the custodian of the seal of the Company and
see that it is affixed to all documents to be executed on behalf of the Company
under its seal; shall have responsibility for the custody and safekeeping of all
permanent records and other documents of the Company; and, in general, shall
perform all duties incident to the office of Secretary and such other duties as
may be prescribed by the Board of Directors or by the Chairman of the Board,
under whose supervision he shall be. The Board of Directors may elect one or
more Assistant Secretaries to perform such duties as shall from time to time be
assigned to them by the Board of Directors or the Chairman of the Board.
Section 5.13. The Treasurer. The Treasurer shall have or provide for the
custody of all funds, securities and other property of the Company; shall
collect and receive or provide for the collection or receipt of money earned by
or in any manner due to or received by the Company; shall deposit or cause to be
deposited all said moneys in such banks or other depositories as the Board of
Directors may from time to time designate; shall make disbursements of Company
funds upon appropriate vouchers; shall keep full and accurate accounts of
transactions of his office in books belonging to the Company; shall, whenever so
required by the Board of Directors, the Executive Committee or an Audit
Committee, render an accounting showing his transactions as Treasurer, and the
financial condition of the Company; and, in general, shall discharge any other
duties as may from time to time be assigned to him by the Board of Directors.
The Board of Directors may elect one or more Assistant Treasurers to perform the
duties of the Treasurer as shall from time to time be assigned to them by the
Board of Directors or the Treasurer.
Section 5.14. The Controller. The Board of Directors may appoint a
Controller who shall maintain full and accurate records of all assets and
liabilities and transactions of the Company, see that adequate audits thereof
are currently and regularly made and, in conjunction with other officers and
department heads, initiate and enforce measures and procedures whereby the
business of the Company shall be conducted with maximum safeguards, efficiency
and economy. He shall make all such records available for examination when so
required by the Board of Directors, the Executive Committee, or an Audit
Committee. He shall perform such other duties and have such other obligations
as may be prescribed by the Board of Directors or by the Chairman of the Board.
Section 5.15. Officer's Bonds. Any officer shall give a bond for the
faithful discharge of his duties in such sum, if any, and with such surety or
sureties as the Board of Directors shall require. The Company may obtain such
bonds at its expense as the Board of Directors shall require.
Section 5.16. Compensation. The compensation of the officers and agents of
the Company elected by the Board of Directors shall be fixed from time to time
by the Board of Directors or by such committee as may be designated by the Board
of Directors to fix salaries or other compensation of officers.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
Section 6.01. Issuance. The certificates for stock of the Company shall be
numbered and registered in the stock ledger and transfer books or equivalent
records of the Company as they are issued. They shall be signed by the Chairman
of the Board, the President, an Executive Vice President or a Vice President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and shall bear the corporate seal, which may be a facsimile, engraved
or printed. Any of or all the signatures upon such certificate may be a
facsimile, engraved or printed if such certificate of stock is signed or
countersigned by a transfer agent or by a registrar, which signature may also be
a facsimile. In case any officer, transfer agent or registrar who has signed,
or whose facsimile signature has been placed upon any share certificate shall
have ceased to be such officer, transfer agent or registrar before the
certificate is issued, it may be issued with the same effect as if he were such
officer, transfer agent or registrar at the date of its issue.
Section 6.02. Transfer. Transfers of shares of stock of the Company shall
be made on the books of the Company upon surrender of the certificates therefor,
endorsed by the person named in the certificate or by attorney lawfully
constituted in writing. No transfer shall be made inconsistent with the
provisions of the Uniform Commercial Code, Article 8 of Title 5A of the Delaware
Code, and its amendments and supplements.
Section 6.03. Stock Certificates. Stock certificates of the Company shall
be in such form as provided by statute and approved by the Board of Directors.
The stock record books and the blank stock certificate books shall be kept by
the Secretary or by any agency designated by the Board of Directors for that
purpose.
Section 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The Board
of Directors may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Company alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of the fact
by the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to give the Company a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Company with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 6.05. Record Holder of Shares. The Company shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
Section 6.06. Determination of Stockholders of Record. In order that the
Company may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action.
If no record date is fixed:
(1) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
(2) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Only such stockholders as shall be stockholders on the record date fixed or
determined as aforesaid shall be entitled to notice of or to vote at such
meeting or adjournment, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS, ETC.
DELETED IN ITS ENTIRETY.
ARTICLE VIII
INSURANCE
DELETED IN ITS ENTIRETY.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Corporate Seal. The corporate seal of the Company shall have
inscribed thereon the name of the Company, the year of its incorporation and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or otherwise reproduced.
Section 9.02. Checks. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the Board of
Directors, or officer or officers authorized by resolution of the Board of
Directors may, from time to time, designate.
Section 9.03. Contracts. Except as otherwise provided in these by-laws,
the Board of Directors may authorize any officer or officers including the
Chairman and Vice Chairmen of the Board of Directors, or any agent or agents, to
enter into any contract or to execute or deliver any instrument on behalf of the
Company and such authority may be general or confined to specific instances.
Section 9.04. Audit. The Board of Directors shall cause the accounts and
records of the Company and its subsidiaries to be examined and audited by a firm
of independent certified public accountants at least once each year. The Board
of Directors each year shall cause a report of the financial condition of the
Company and its subsidiaries as of the closing date of the preceding fiscal year
to be prepared. Such report shall be in such form as shall be approved by the
Board of Directors and shall be examined and audited by a firm of independent
certified public accountants.
Section 9.05. Inspection. The books, accounts and records of the Company
shall be open for inspection in person by any member of the Board of Directors
at all times.
Section 9.06. Amendment of by-laws. These by-laws shall not be made,
repealed, altered, amended or rescinded by the stockholders of the Company
except by the vote of not less than 80% of the total outstanding shares of
common stock as well as a majority of the total outstanding shares of common
stock not held by a Related Person (as defined in Article Thirteenth of the
Certificate of Incorporation) and/or its affiliates. Nothing contained herein
shall detract from the authority of the Board of Directors to make, alter or
repeal the by-laws of the Company (as set forth in Article 10.03(a) of the
Certificate of Incorporation).
EXHIBIT 4.2
REGISTERED
ONE HUNDRED
MILLION
DOLLARS
($100,000,000)
AMERICAN STORES COMPANY
7.90% DEBENTURE DUE MAY 1, 2017
CUSIP 030096AG6
SEE REVERSE OF DEBENTURE
FOR CERTAIN DEFINITIONS
American Stores Company, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), for value received,
hereby promises to pay to
, or registered assigns, the principal sum of ONE HUNDRED MILLION DOLLARS
($100,000,000) upon presentation and surrender of this Debenture, on the 1st day
of May, 2017, at the office or agency of the Company maintained for that purpose
in The City of New York or any other office or agency maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for public and private debts, and to pay interest on
said principal sum at the rate of 7.90% per annum, in like coin or currency, in
each case in immediately available funds, from the May 1 or November 1, as the
case may be, next preceding the date hereof to which interest has been paid on
the Debentures referred to on the reverse hereof (unless the date hereof is the
date to which interest has been paid on such Debentures, in which case from the
date hereof, or unless the date hereof is prior to November 1, 1997, in which
case from May 2, 1997), semiannually on May 1 and November 1, until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if this Debenture is dated after any April 15 and before the fol-
lowing May 1, or after any October 15 and before the following November 1, then
this Debenture shall bear interest from such following May 1 or November 1;
provided, however, that if the Company shall default in the payment of interest
due on such following May 1 or November 1, this Debenture shall bear interest
from the next preceding May 1 or November 1 to which interest has been paid on
such Debentures, or if no interest has been paid on such Debentures, then from
May 2, 1997. The interest so payable on any May 1 or November 1 will, subject
to certain exceptions provided in the Indenture referred to on the reverse
hereof, be paid to the person in whose name this Debenture is registered at the
close of business on the April 15 prior to such May 1 or the October 15 prior to
such November 1. If the Company shall default in the payment of the interest
due on such interest payment date, such defaulted interest shall then cease to
be payable to the Holder on such record date by virtue of having been such
Holder, and shall be paid to the person in whose name this Debenture is
registered at the close of business on a subsequent record date (which shall be
not less than five Business Days prior to the date of payment of such defaulted
interest) for the payment of such defaulted interest established by notice given
by mail by or on behalf of the Company to Holders not less than 15 days
preceding such subsequent record date.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse hereof, and such further provisions shall for all purposes
have the same effect as though fully set forth at this place.
This Debenture shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof or any indenture supplement thereto, or become
valid or obligatory for any purpose until the certificate of authentication
hereon shall have been signed by or on behalf of the Trustee under such In-
denture.
DATED:
AMERICAN STORES COMPANY [SEAL]
BY:
J. Greg Spencer Victor L. Lund
SENIOR VICE PRESIDENT, CHAIRMAN OF THE BOARD AND
TREASURER AND ASSISTANT CHIEF EXECUTIVE OFFICER
SECRETARY
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THIS IS ONE OF THE SECURITIES OF THE SERIES DESIGNATED
AND REFERRED TO IN THE WITHIN-MENTIONED SENIOR INDENTURE.
THE FIRST NATIONAL BANK OF CHICAGO, [SEAL]
TRUSTEE
BY:
AUTHORIZED OFFICER
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DE-
POSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC, A NEW YORK CORPORATION, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REP-
RESENTATIVE OF DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS DEBENTURE WILL NOT BE SUBJECT TO REDEMPTION PRIOR TO MATURITY AND
WILL NOT BE SUBJECT TO ANY MANDATORY SINKING FUND PROVISIONS.
AMERICAN STORES COMPANY
7.90% DEBENTURE
DUE MAY 1, 2017
This Debenture is one of a duly authorized issue of unsecured, debentures,
notes or other evidences of indebtedness of the Company (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under the indenture dated as of May 1, 1995, executed between the Company and
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee; to which indenture and all
indentures supplemental thereto (herein collectively called the "Indenture")
reference is hereby made for a specification of the rights and limitation of
rights thereunder of the Holders of the Securities, the rights and obligations
thereunder of the Company and the rights, duties and immunities thereunder of
the Trustee. The aggregate principal amount of Securities which may be
authenticated and delivered under the Indenture is unlimited. The Securities
may be issued in one or more series, which different series may be issued in
various aggregate principal amounts, may mature at different times, may bear
interest (if any) at different rates and may otherwise vary as provided in the
Indenture. This Debenture is one of a series designated as the "7.90%
Debentures due May 1, 2017" of the Company (hereinafter referred to as the
"Debentures"), limited in aggregate principal amount to $100,000,000. All
Debentures of this series are Registered Global Securities to be deposited with,
or on behalf of, The Depository Trust Company ("DTC"), as Depositary with
respect to this Debenture, and registered in the name of Cede & Co., the nominee
of DTC. All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The indebtedness evidenced by this Debenture is unsecured and will rank
pari passu with all other unsecured and unsubordinated debt of the Company.
This Debenture will not be subject to redemption prior to maturity and
will not be subject to any mandatory sinking fund provisions.
Principal and interest payments in respect of this Debenture will be made
in immediately available funds by the Company to DTC or its nominee, as the case
may be, as the registered holder of this Debenture. Neither the Company nor the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
this Debenture, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The provisions of Article Ten of the Indenture relating to defeasance
shall apply to this Debenture, which provisions shall have the same effect as if
set forth herein in their entirety.
In case an Event of Default, as defined in the Indenture, shall occur and
be continuing with respect to this Debenture, the principal amount of all
Debentures outstanding under the Indenture may be declared or may become due and
payable upon the conditions and in the manner and with the effect provided in
the Indenture. The Indenture provides that such declaration may in certain
events be annulled by the Holders of a majority in principal amount of the
Debentures outstanding.
To the extent permitted by, and as provided in, the Indenture, indentures
supplemental thereto may be entered into with the consent of the Company and
with the consent of the Holders of not less than a majority in principal amount
of the outstanding Securities of any series affected thereby. The Indenture
also provides that the Holders of a majority in principal amount of the
Securities of any series then outstanding may waive any past default under the
Indenture and its consequences, except a default in the payment of the principal
of or interest or premium, if any, on any of the Securities.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Debenture at the place, at the respective times, at the rate, and in the cur-
rency, herein prescribed.
Unless and until it is exchanged in whole or in part for Securities in
definitive registered form, this Security may not be transferred except as a
whole by the Depositary to the nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the De-
positary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Upon any such transfer or exchange, a Debenture or
Debentures of authorized denominations for a like aggregate principal amount and
bearing a number not contemporaneously outstanding will be issued in exchange
therefor. Such Debentures are issuable only in registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof. Except
as set forth below, this Debenture may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC
or by DTC or any such nominee to a successor of DTC or a nominee of such
successor. If DTC is at any time unwilling or unable to continue as Depositary
and a successor Depositary is not appointed by the Company within 90 days, the
Company will issue Debentures in certificated form in exchange for this Reg-
istered Global Security. In addition, the Company may at any time determine not
to have the Debentures represented by a Registered Global Security. In any such
instance, owners of beneficial interests in this Debenture will be entitled to
physical delivery of Debentures in certificated form equal in principal amount
to such beneficial interest and to have such Debentures registered in their
names. Debentures so issued in certificated form will be issued in
denominations of $1,000 or any integral multiple thereof and will be issued in
registered form only, without coupons.
The Company, the Trustee, and any agent of the Company or the Trustee may
deem and treat the registered Holder hereof as the absolute owner hereof
(whether or not this Debenture shall be overdue and notwithstanding any notation
of ownership or other writing thereon) for the purpose of receiving payment of
or on account of the principal hereof and interest hereon and for all other
purposes, and neither the Company nor the Trustee nor any agent of the Company
or of the Trustee shall be affected by any notice to the contrary. All such
payments shall be valid and effectual to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture or for any claim based hereon or otherwise in any
manner in respect hereof, or in respect of the Indenture, against any
incorporator, shareholder, employee, officer or director, past, present or
future, of the Company or of any predecessor or successor corporation, whether
by virtue of any constitutional provision or statute or rule of law, or by the
enforcement of any assessment or penalty or in any other manner, all such
liability being expressly waived and released by the acceptance hereof and as
part of the consideration for the issue hereof. In the event of any sale or
transfer of all or substantially all of the assets to a successor corporation,
the predecessor corporation may be dissolved and liquidated as more fully set
forth in the Indenture.
Unless this certificate is presented by an authorized representative of
DTC, a New York corporation, to the Company or its agent for registration of
transfer, exchange, or payment, and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an authorized rep-
resentative of DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
The following abbreviations, when used in the inscription on the face of the
instrument, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM -- as tenants in common
UNIF GIFT MIN ACT -- Custodian
(Cust) (Minor)
under Uniform Gifts
to Minors Act (State)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with rights of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
NOTICE OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(Name and Address of Assignee, including zip code, must be printed or
typewritten)
the within Debenture, and all rights thereunder, hereby irrevocably constituting
and appointing
Attorney
to transfer said Debenture on the books of the Company, with full power of
substitution in the premises.
Dated: Signature
NOTICE: The signature to this assignment must
correspond with the name as it appears upon the
face of the within Debenture in every particular
without alteration or enlargement or any change
whatever. Signature must be guaranteed by an
eligible guarantor institution participating in a
Securities Transfer Association recognized
signature guarantee program.
EXHIBIT 4.3
REGISTERED
TWO HUNDRED
MILLION
DOLLARS
($200,000,000)
AMERICAN STORES COMPANY
7.50% DEBENTURE DUE MAY 1, 2037
CUSIP 030096AH4
SEE REVERSE OF DEBENTURE
FOR CERTAIN DEFINITIONS
American Stores Company, a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), for value received,
hereby promises to pay to
, or registered assigns, the principal sum of TWO HUNDRED MILLION DOLLARS
($200,000,000) upon presentation and surrender of this Debenture, on the 1st day
of May, 2037, at the office or agency of the Company maintained for that purpose
in The City of New York or any other office or agency maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for public and private debts, and to pay interest on
said principal sum at the rate of 7.50% per annum, in like coin or currency, in
each case in immediately available funds, from the May 1 or November 1, as the
case may be, next preceding the date hereof to which interest has been paid on
the Debentures referred to on the reverse hereof (unless the date hereof is the
date to which interest has been paid on such Debentures, in which case from the
date hereof, or unless the date hereof is prior to November 1, 1997, in which
case from May 2, 1997), semiannually on May 1 and November 1, until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if this Debenture is dated after any April 15 and before the fol-
lowing May 1, or after any October 15 and before the following November 1, then
this Debenture shall bear interest from such following May 1 or November 1;
provided, however, that if the Company shall default in the payment of interest
due on such following May 1 or November 1, this Debenture shall bear interest
from the next preceding May 1 or November 1 to which interest has been paid on
such Debentures, or if no interest has been paid on such Debentures, then from
May 2, 1997. The interest so payable on any May 1 or November 1 will, subject
to certain exceptions provided in the Indenture referred to on the reverse
hereof, be paid to the person in whose name this Debenture is registered at the
close of business on the April 15 prior to such May 1 or the October 15 prior to
such November 1. If the Company shall default in the payment of the interest
due on such interest payment date, such defaulted interest shall then cease to
be payable to the Holder on such record date by virtue of having been such
Holder, and shall be paid to the person in whose name this Debenture is
registered at the close of business on a subsequent record date (which shall be
not less than five Business Days prior to the date of payment of such defaulted
interest) for the payment of such defaulted interest established by notice given
by mail by or on behalf of the Company to Holders not less than 15 days
preceding such subsequent record date.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse hereof, and such further provisions shall for all purposes
have the same effect as though fully set forth at this place.
This Debenture shall not be entitled to any benefit under the Indenture
referred to on the reverse hereof or any indenture supplement thereto, or become
valid or obligatory for any purpose until the certificate of authentication
hereon shall have been signed by or on behalf of the Trustee under such In-
denture.
DATED:
AMERICAN STORES COMPANY [SEAL]
BY:
J. Greg Spencer Victor L. Lund
SENIOR VICE PRESIDENT, CHAIRMAN OF THE BOARD AND
TREASURER AND ASSISTANT CHIEF EXECUTIVE OFFICER
SECRETARY
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THIS IS ONE OF THE SECURITIES OF THE SERIES DESIGNATED
AND REFERRED TO IN THE WITHIN-MENTIONED SENIOR INDENTURE.
THE FIRST NATIONAL BANK OF CHICAGO, [SEAL]
TRUSTEE
BY:
AUTHORIZED OFFICER
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DE-
POSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC, A NEW YORK CORPORATION, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REP-
RESENTATIVE OF DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS DEBENTURE WILL NOT BE SUBJECT TO REDEMPTION AT THE OPTION OF THE
COMPANY PRIOR TO MATURITY AND WILL NOT BE SUBJECT TO MANDATORY SINKING FUND
PROVISIONS. THIS DEBENTURE WILL BE REDEEMABLE AT THE OPTION OF THE REGISTERED
HOLDER HEREOF ON MAY 1, 2009, AT A REDEMPTION PRICE EQUAL TO THE PRINCIPAL
AMOUNT OF THIS DEBENTURE, IN ACCORDANCE WITH THE TERMS AS SET FORTH ON THE
REVERSE HEREOF.
AMERICAN STORES COMPANY
7.50% DEBENTURE
DUE MAY 1, 2037
This Debenture is one of a duly authorized issue of unsecured, debentures,
notes or other evidences of indebtedness of the Company (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under the indenture dated as of May 1, 1995, executed between the Company and
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee; to which indenture and all
indentures supplemental thereto (herein collectively called the "Indenture")
reference is hereby made for a specification of the rights and limitation of
rights thereunder of the Holders of the Securities, the rights and obligations
thereunder of the Company and the rights, duties and immunities thereunder of
the Trustee. The aggregate principal amount of Securities which may be
authenticated and delivered under the Indenture is unlimited. The Securities
may be issued in one or more series, which different series may be issued in
various aggregate principal amounts, may mature at different times, may bear
interest (if any) at different rates and may otherwise vary as provided in the
Indenture. This Debenture is one of a series designated as the "7.50%
Debentures due May 1, 2037" of the Company (hereinafter referred to as the
"Debentures"), limited in aggregate principal amount to $200,000,000. All
Debentures of this series are Registered Global Securities to be deposited with,
or on behalf of, The Depository Trust Company ("DTC"), as Depositary with
respect to this Debenture, and registered in the name of Cede & Co., the nominee
of DTC. All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The indebtedness evidenced by this Debenture is unsecured and will rank
pari passu with all other unsecured and unsubordinated debt of the Company.
This Debenture will not be subject to redemption at the option of the
Company prior to maturity and will not be subject to any mandatory sinking fund
provisions. This Debenture will be redeemable at the option of the registered
holder hereof on May 1, 2009, at a redemption price equal to the principal
amount of this Debenture. Interest due on May 1, 2009 will be payable on such
date to holders at the close of business on April 15, 2009. To exercise the
redemption option, the registered holder of this Debenture must deliver a notice
of exercise of such option to the Company at the Corporate Trust Office of the
Trustee (or such other location of which the Company shall notify holders) no
earlier than March 2, 2009 and no later than March 31, 2009. Any such notice of
exercise of the redemption option shall be irrevocable. The redemption option
may be exercised by a holder for less than the entire principal amount of this
Debenture held by such holder, so long as the principal amount that is to be
redeemed is equal to $1,000 or any integral multiple thereof. So long as the
Debentures are represented by a Registered Global Security held by or on behalf
of DTC, and registered in the name of DTC or DTC's nominee, the redemption
option may be exercised only by DTC or DTC's nominee, as registered holder on
behalf of the beneficial owners of interests herein. Owners of beneficial
interests herein who desire to have DTC or DTC's nominee exercise the redemption
option on their behalf will be required to give timely notice to DTC through the
participant in DTC through which such beneficial interest is held in accordance
with the policies and procedures of DTC in effect at that time.
Principal and interest payments in respect of this Debenture will be made
in immediately available funds by the Company to DTC or its nominee, as the case
may be, as the registered holder of this Debenture. Neither the Company nor the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
this Debenture, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. Neither the Company nor the
Trustee will have any responsibility or liability for DTC's exercise of or
failure to exercise the redemption option with respect to any of the Debentures
on behalf of any holder of a beneficial interest herein, other than the
Company's obligation to redeem this Debenture if such option is properly
exercised by DTC or its nominee, as registered holder, in accordance with the
procedures specified therefor.
The provisions of Article Ten of the Indenture relating to defeasance
shall apply to this Debenture, which provisions shall have the same effect as if
set forth herein in their entirety.
In case an Event of Default, as defined in the Indenture, shall occur and
be continuing with respect to this Debenture, the principal amount of all
Debentures outstanding under the Indenture may be declared or may become due and
payable upon the conditions and in the manner and with the effect provided in
the Indenture. The Indenture provides that such declaration may in certain
events be annulled by the Holders of a majority in principal amount of the
Debentures outstanding.
To the extent permitted by, and as provided in, the Indenture, indentures
supplemental thereto may be entered into with the consent of the Company and
with the consent of the Holders of not less than a majority in principal amount
of the outstanding Securities of any series affected thereby. The Indenture
also provides that the Holders of a majority in principal amount of the
Securities of any series then outstanding may waive any past default under the
Indenture and its consequences, except a default in the payment of the principal
of or interest or premium, if any, on any of the Securities.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Debenture at the place, at the respective times, at the rate, and in the cur-
rency, herein prescribed.
Unless and until it is exchanged in whole or in part for Securities in
definitive registered form, this Security may not be transferred except as a
whole by the Depositary to the nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the De-
positary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Upon any such transfer or exchange, a Debenture or
Debentures of authorized denominations for a like aggregate principal amount and
bearing a number not contemporaneously outstanding will be issued in exchange
therefor. Such Debentures are issuable only in registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof. Except
as set forth below, this Debenture may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC
or by DTC or any such nominee to a successor of DTC or a nominee of such
successor. If DTC is at any time unwilling or unable to continue as Depositary
and a successor Depositary is not appointed by the Company within 90 days, the
Company will issue Debentures in certificated form in exchange for this Reg-
istered Global Security. In addition, the Company may at any time determine not
to have the Debentures represented by a Registered Global Security. In any such
instance, owners of beneficial interests in this Debenture will be entitled to
physical delivery of Debentures in certificated form equal in principal amount
to such beneficial interest and to have such Debentures registered in their
names. Debentures so issued in certificated form will be issued in
denominations of $1,000 or any integral multiple thereof and will be issued in
registered form only, without coupons.
The Company, the Trustee, and any agent of the Company or the Trustee may
deem and treat the registered Holder hereof as the absolute owner hereof
(whether or not this Debenture shall be overdue and notwithstanding any notation
of ownership or other writing thereon) for the purpose of receiving payment of
or on account of the principal hereof and interest hereon and for all other
purposes, and neither the Company nor the Trustee nor any agent of the Company
or of the Trustee shall be affected by any notice to the contrary. All such
payments shall be valid and effectual to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture or for any claim based hereon or otherwise in any
manner in respect hereof, or in respect of the Indenture, against any
incorporator, shareholder, employee, officer or director, past, present or
future, of the Company or of any predecessor or successor corporation, whether
by virtue of any constitutional provision or statute or rule of law, or by the
enforcement of any assessment or penalty or in any other manner, all such
liability being expressly waived and released by the acceptance hereof and as
part of the consideration for the issue hereof. In the event of any sale or
transfer of all or substantially all of the assets to a successor corporation,
the predecessor corporation may be dissolved and liquidated as more fully set
forth in the Indenture.
Unless this certificate is presented by an authorized representative of
DTC, a New York corporation, to the Company or its agent for registration of
transfer, exchange, or payment, and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an authorized rep-
resentative of DTC, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
The following abbreviations, when used in the inscription on the face of the
instrument, shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM -- as tenants in common
UNIF GIFT MIN ACT -- Custodian
(Cust) (Minor)
under Uniform Gifts
to Minors Act (State)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with rights of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
NOTICE OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(Name and Address of Assignee, including zip code, must be printed or
typewritten)
the within Debenture, and all rights thereunder, hereby irrevocably constituting
and appointing
Attorney
to transfer said Debenture on the books of the Company, with full power of
substitution in the premises.
Dated: Signature
NOTICE: The signature to this assignment must
correspond with the name as it appears upon the
face of the within Debenture in every particular
without alteration or enlargement or any change
whatever. Signature must be guaranteed by an
eligible guarantor institution participating in a
Securities Transfer Association recognized
signature guarantee program.
EXHIBIT 10.15
AMERICAN STORES COMPANY
{PRIVATE }
1998
PERFORMANCE INCENTIVE PLAN
AMERICAN STORES COMPANY
1998 PERFORMANCE INCENTIVE PLAN
PLAN PURPOSE
The 1998 Performance Incentive Plan is designed to balance the effect of the
Company's short-term incentive awards, to provide meaningful long-term incentive
compensation and to result in competitive total compensation levels and assist
in retaining executives. The degree of attainment of the Corporation's
performance goal determines the actual size of the participant's awards.
KEY FEATURES
- At the end of the one-year performance period, two-year restricted
stock will be awarded.
- Restricted stock is forfeited if participant voluntarily terminates or
is terminated for cause.
- Your participation level in the 1998 Plan will be 20% of your 1998 base
salary at target. The maximum award is 70% of base salary.
- The plan will pay out based on the attached earnings per share schedule.
Maximum payout is achieved at a % increase in E.P.S. over 1997 E.P.S.
(See Exhibit -A)
- Because payments made in restricted stock are not considered part of
a participant's compensation for ASRE/SERP or any other Company sponsored
benefit plans, the restricted stock awards will be "sweetened" to offset
the lack of the Company's 401(k) contribution.
ELIGIBILITY
Participation in the American Stores Company 1998 Performance Incentive Plan is
limited to key executives who have a significant impact on the long-term results
of the Company. Participation will be on a selected basis, reflecting position
responsibilities and impact on long-term results.
PERFORMANCE PERIOD
The performance period will be FY 98.
PERFORMANCE MEASURE
The performance measure for this plan is basic Earnings Per Share for FY98 as
adjusted for certain non-recurring events.
TARGETED AWARDS
Target awards are 20% of the participant's base salary paid during the FY 98.
The award is increased for each one-cent increase in E.P.S. above the target
E.P.S. (see Exhibit-A). The maximum award attainable is 70% of the
participant's base salary paid during the FY 98.
CALCULATION OF INDIVIDUAL RESTRICTED STOCK AWARD VALUE
Using the award schedule shown in Exhibit-A and assuming FY 98 E.P.S. is $
and also assuming that your base salary for 1998 was $100,000. The amount of
your restricted stock award in this example would be calculated as follows:
TARGET = $100,000 x 20% = $20,000
AWARD FACTOR FROM EXHIBIT-A TIMES YOUR TARGET = 125% x $20,000 = $25,000
SWEETENER = $25,000 x 25% = $6,250
VALUE OF RESTRICTED STOCK AWARD = $25,000+$6,250 = $31,250
CALCULATING THE NUMBER OF RESTRICTED SHARES
The "average stock price", which is described below, is divided into the value
of the restricted stock award to obtain the number of restricted shares that
will be issued to you.
AVERAGE STOCK PRICE
The daily high and low stock prices will be averaged for each of the 5 trading
days beginning 2 trading days after the 4th quarter earnings release. The
average price of these 5 trading days will be averaged to yield the Average
Stock Price that will be divided into the value of the restricted stock award to
arrive at the number of shares that will be issued in your name.
Assuming an Average Stock Price of $25.00 the number of restricted shares in our
example would be 1,250 restricted shares. ($31,250 divided by $25 = 1,250
shares)
DISTRIBUTION OF THE STOCK CERTIFICATES
We will notify you of the number of shares that have been credited to your
account in April of 1999. Periodically you will receive a statement from First
Chicago that will show the amount of restricted stock in your account.
WHAT IS RESTRICTED STOCK?
Restricted stock is stock that is issued to you but you are "restricted" from
selling or transferring the shares for a certain period of time. Once the period
of time is completed, the restriction lapses and you can sell or transfer the
stock. Restricted stock is subject to forfeiture as described below. When the
restriction lapses you are vested in the stock. "Vested" means you have full
rights to the stock and it is no longer subject to forfeiture. The restrictions
on the stock that is issued in April 1999 under this Plan will vest on April 1,
2001.
FORFEITURES
- - - If you voluntarily terminate employment and are under age 57 or you are
terminated for cause, you will forfeit any restricted stock that has not vested
by your termination date and you will not receive any additional awards for a
partially completed year.
- - - If you are terminated without cause, restricted stock that has been awarded
but has not yet vested will vest upon your termination. Taxes will be due on
the value of the stock at his time. See "Taxes" below.
RETIREMENT AT OR AFTER AGE 57
If you retire at or after age 57:
- Restricted stock that has been awarded but has not yet vested will vest
upon your retirement. Taxes will be due on the value of the stock at this
time. See "Taxes" below.
- You will not receive a restricted stock award for the 1998 Plan if your
retirement occurs prior to the end of the 1998 fiscal year. You will
receive a prorata cash award in April, 1998. This cash award will be
calculated in the same manner as the stock award but will not be
"sweetened".
TAXES
When the restrictions on the stock lapse, you will be vested in the stock and
the value of the stock on that date will be added to your W-2 as ordinary income
and appropriate taxes will be collected or withheld at that time. When you sell
the stock, you will have a capital gain or a capital loss. Your gain or loss
will be the difference between the sale price and your basis in the stock which
is equal to the value of the stock on the date the restriction lapses. The
length of time that the stock has been held before sale once the restrictions
lapse will determine whether your gain or loss will be classified as long-term
or short-term.
This tax information is based on federal tax law and regulations as in effect
when the Plan was adopted. The law and regulations are subject to change in the
future. You should contact your own tax advisor with respect to state taxes and
any specific tax questions and advice concerning your individual situation.
DIVIDENDS
Once the restricted stock has been issued, you will receive the dividends on the
restricted stock. All restricted stock dividends will be included in your W-2 as
ordinary income and appropriate tax withholding from your monthly payroll check
will be made as the dividends are paid.
ASRE & BENEFIT PLANS
The value of the restricted stock (after the restrictions lapse) and dividends
on the restricted stock will not be eligible for purposes of calculating any
payment under any employee benefit plan, will not be eligible for ASRE/SERP
deferrals and will not be used in calculating the Company's ASRE/SERP
contributions to your account.
In the event a cash award is made due to death, disability or retirement, this
cash payment will be eligible for ASRE/SERP. If the timing of the cash award
makes it ineligible for ASRE/SERP then an additional payment will be made. The
calculation for this additional payment is as follows: Cash award multiplied by
the latest available ASRE company contribution on pay factor; plus, the cash
award multiplied by 6% and this result multiplied by latest company match on
personal deposits factor.
ADMINISTRATION OF PLAN
The following are administrative guidelines for the American Stores Company
Performance Incentive Plan:
- The Compensation and Stock Option Committee of the Board of Directors
has final approval of the Plan. Determination of attainment of the
performance measure will be made by the Compensation and Stock Option
Committee.
- In the case of death or disability as determined under the American
Stores Long-Term Disability Plan, restricted stock that has been awarded
but has not yet vested will vest. In the case of death or disability,
during the fiscal year, a pro rata cash award will be made based upon the
participant's salary paid during the fiscal year. Cash awards will be
calculated in the same manner as the stock award but will not be
"sweetened".
- Individuals who are selected to participate in the Plan after the
commencement date will receive a prorated award based on the salary
received during the period they were participants in the Plan.
- Being included as a participant in this Plan for 1998 should not be
construed as entitling an associate to continued employment with the
Company, nor to participate in plans for future years. The Company
reserves the right to promote, demote, discipline, terminate, make
compensation decisions, and otherwise manage its employees as it deems
fit.
- The Compensation and Stock Option Committee has authority to interpret
the Plan and make all determinations required to administer the Plan.
- The Compensation and Stock Option Committee reserves the right to amend
or terminate the Plan at anytime with respect to benefits not yet accrued
under the Plan.
EXHIBIT 10.21
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of the
9th day of December, 1997, by AMERICAN STORES COMPANY, a Delaware corporation
(Company), and VICTOR L. LUND (Executive). The Company and Executive are
collectively referred to as the Parties, and individually as a Party.
WHEREAS, the Parties entered into an Employment Agreement on November 1,
1994, which Employment Agreement was amended on September 17, 1996, July 29,
1997 and December 9, 1997; and
WHEREAS, the Parties desire to integrate such amendments and restate the
Employment Agreement.
NOW THEREFORE, the text of the Employment Agreement, as amended, shall read
in its entirety as set forth below.
The Parties represent that:
A. Executive is presently employed as an "employee at-will" with the
Company; and
B. The Parties desire to enter into this Employment Agreement to specify
more fully each Party's rights and obligations under the employment
relationship.
In consideration of their mutual promises and covenants in this Agreement,
the sufficiency of which they acknowledge, the Parties agree as follows:
I.
RELEASE
I-A. To the extent permitted by law, Executive, after the required
statutory time and opportunity to review this Agreement, releases and discharges
the Company and its subsidiaries and their respective officers, directors and
employees, from all claims and demands arising from or relating to Executive's
employment at-will relationship that existed with the Company prior to the
execution of this Agreement including, but not limited to demands based on
federal, state or local laws, common law, and claims based on express or implied
contract, covenants of good faith and of fair dealing, intentional or negligent
infliction of emotional distress, the Age Discrimination In Employment Act and
Title VII of the Civil Rights Act of 1964. Executive does not waive any claims
accrued or which may accrue under workers' compensation laws, existing stock
options, employee stock benefit plans, ASRE and other employee benefit plans.
II.
TERM
II-A. The term of this Agreement shall expire on October 31, 2002,
provided, that the term shall be automatically extended for subsequent two-year
terms until terminated by written notice given by the Company at least three
years prior to the end of the term, or until terminated as described below.
II-B. If this Agreement is terminated following notice of termination
of the Agreement given pursuant to Section II-A, but the Company continues to
employ Executive, the Parties' employment relationship shall become one of
employment at-will, in which either Party may terminate the employment
relationship, with or without cause and without notice, and all benefits
specified in this Agreement shall thereupon terminate, except that Executive
shall be entitled to such benefits as shall then have accrued to Executive
(e.g., existing stock options, ASRE benefits and SLRRP) and shall otherwise be
entitled only to such benefits as are then available to similarly situated at-
will executives of the Company. The Company, at its sole discretion, may
continue to provide some or all of the benefits and compensation enumerated in
this Agreement as determined in writing by the Company from time to time,
executed by the signer of this Agreement or his successor.
III.
EXECUTIVE'S DUTIES
III-A. Executive shall perform services of an executive nature that are
the same as, or generally consistent with, the services that he or she has been
performing and equal to those services in status, dignity and responsibility.
III-B. Executive shall act in the Company's best interests and shall
make every reasonable effort to discharge assigned duties efficiently and to
comply with the Company's policies and procedures. Executive shall devote his
or her full and exclusive time to the Company's business and refrain from
engaging in any other activity for others as an employee or independent
contractor, officer, director or agent for monetary gain, except that where
approved in writing by the Board of Directors of the Company. The Executive may
serve, or continue to serve on the Board of Directors or hold any other offices
or positions in, companies or organizations which, in the Board's judgment, will
not present any conflict of interest with the Company or any of its subsidiaries
or materially affect the performance of Executive's duties pursuant to this
Agreement. Any services Executive renders as an officer or director of the
Company shall be without additional compensation unless the Company's or its
subsidiaries' Board of Directors direct otherwise.
III-C. The Company may change Executive's duties from time to time, but
Executive shall remain an officer of the Company or one of its subsidiaries, and
the Company shall have Executive perform duties of an executive nature that are
equal to Executive's previous title and duties in status, dignity and
responsibility, and failure of the Company to do so shall constitute a material
breach of this Agreement.
IV.
EXECUTIVE'S COMPENSATION
IV-A. Company shall pay Executive a base salary of $750,000.00 plus
target bonuses (as achieved) at the target rate of 50% (30% Annual Bonus and 20%
Long Term Incentive Plan) (TCO), provided, that TCO is subject to change in the
event of increases or pursuant to Section IV-C below.
IV-B. Executive shall also be eligible to receive bonuses pursuant to
the Company's bonus programs. The Company, in its sole discretion, may alter
its bonus programs' terms and conditions including, but not limited to, altering
the criteria, extending or reducing the performance period, or eliminating the
bonus programs.
IV-C. Notwithstanding Section IV-B, during the term of this Agreement,
the Company shall not make a reduction in the sum of Executive's salary plus
target bonus (TCO) of more than twenty percent (20%), other than a reduction
which is part of a general cost reduction affecting at least ninety (90%) of the
officers of the Company.
IV-D. The Company shall reimburse Executive for reasonably incurred
expenses related to the Company's business in accordance with the Company's
policies on reimbursement, as they may be changed from time to time.
V.
RELOCATION
V-A. The Company, at its sole discretion, may require Executive to work in
another location that would reasonably require Executive to relocate his or her
primary residence. The Company shall give Executive at least 90 day notice
prior to requiring Executive to relocate.
V-B. If the Company requires Executive to relocate, the Company shall
reimburse Executive for any reasonable relocation expenses that are in
accordance with its relocation policy and, to the extent permitted by the
relocation policy, as it may be changed from time to time, the Company may
purchase Executive's primary residence. From time to time, the Company may
change its policy concerning reimbursement for relocation expenses but the
Company shall not abolish or amend its relocation policy so that its executives,
including Executive, do not receive in substance what they are eligible to
receive as of the date first mentioned above or of the date of any renewal of
this Agreement, whichever is the last to occur.
VI.
BENEFITS
VI-A. On the same basis as other Company executives who are actively
employed, Executive shall be entitled to participate in all of the Company's
benefit plans, including retirement and profit-sharing, long-term disability,
accidental death and dismemberment, health and insurance plans, including
officer fiduciary and liability insurance, and vacations. At its sole
discretion, the Company may change or terminate these benefit plans.
VI-B. The Company and Executive acknowledge that the Executive plays a
key managerial role with the Company and that it is in the Company's best
interest to provide Executive with a special long-range retirement plan (SLRRP)
reserved to key executives, and SLRRP is an additional substantial consideration
not present in the "employee at-will" status of the Executive prior to entering
into this Agreement. SLRRP is designed to encourage such key executives to
remain with the Company on an extended basis, have undivided loyalty to the
Company, and not develop conflicts of interest by affiliating with the Company's
competitors, which could undercut Executive's availability to serve as a
possible consultant, advisor, witness, or source of information to the Company.
Accordingly, Company shall pay to Executive (or his spouse, Linda Lund, as
provided below) an annual payment as provided below (except as provided in
Section VI-B6 below) with all rights, including vested rights, to participate in
any future benefits under SLRRP terminating at once when and if Executive enters
into or joins as an individual, partner, joint venturer, independent contractor,
officer or director of a business endeavor anywhere competing, as defined in
Section VIII-B4 hereof, with the Company or any of its subsidiaries, unless
waived in writing by the Board of Directors of the Company. The benefits
available under SLRRP are:
1. except as provided in Section VI-B6 below, annual payments shall be
made to Executive until his death and thereafter to Linda Lund, his
spouse, if she is married to Executive at the time of his death and
survives him, until her death, beginning at the later of October 31,
2002 or at the time Executive's employment with the Company
terminates;
2. entitlement to benefits will vest based on full years of service with
the Company under this Agreement or any extensions or renewals
thereof, as follows:
SERVICE TABLE
Completed Years Vesting
Under Contract Schedule
1 (10/31/95) 0%
2 (10/31/96) 0%
3 (10/31/97) 20%
4 (10/31/98) 36%
5 (10/31/99) 52%
6 (10/31/00) 68%
7 (10/31/01) 84%
8 (10/31/02) 100%
3. the fully vested annual benefit shall be equal to $700,000, as
increased on October 31 of each year, beginning October 31, 1998,
until the termination of Executive's employment, by the annual
percentage increase in the Consumer Price Index--All Urban Consumers
("CPI") for the twelve months ended the immediately preceding
September 30;
4. if (a) Executive's employment is terminated (i) by death, (ii) by
disability pursuant to Section VII-B and Section VII-C herein, (iii)
by Company without cause or (iv) by Executive because of Company's
breech of a material provision of this Agreement, or (b) at any time
following a Change of Control (as defined in the Company's 1997 Stock
Option and Stock Award Plan as in effect on July 29, 1997) of the
Company, (i) Executive is not Chief Executive Officer of Company (and
any parent entity directly or indirectly owning 50% or more of the
outstanding shares of Company) for any reason other than (x) a
voluntary termination of employment by Executive other than for "Good
Reason" (as defined in Executive's Employment Agreement dated July 25,
1996 (the "Change of Control Employment Agreement") that becomes
effective upon a Change of Control) or (y) a termination of the
Executive's employment for "cause" (as defined in the Change of
Control Agreement) or (ii) any event occurs that would permit
Executive to terminate his employment for "Good Reason," whether or
not Executive's employment is terminated, then in any such event
Executive shall be fully vested in the SLRRP benefits without regard
to Executive's years of service under this contract.
5. if Executive is terminated for cause or voluntarily terminates his
employment with the Company other than because of Company's breach of
a material provision of this Agreement, the amounts vested at that
time will be paid on an annual basis beginning on October 31, 2002 or
at the time of termination, whichever is the last to occur; provided,
Executive is not competing and has not competed with the Company or
its affiliates as defined in Section VIII-B on or prior to the time
any such annual payment is due;
6. in the event that either (i) (A) there is a Change of Control
following the termination of the Executive's employment with the
Company or (B) the Executive's employment is terminated for any reason
following a Change of Control or (ii) (A) the Executive is no longer
Chairman of the Board or Chief Executive Officer of the Company and
(B) the closing price on the New York Stock Exchange (or if the
Company's common stock is not then listed on the New York Stock
Exchange, on the national securities exchange or in the over-the-
counter market in which the common stock is then principally traded)
of a share of common stock of the Company falls below $10 (adjusted
appropriately (x) for any stock split, stock dividend, reverse stock
split, share combination, reclassification, or similar transaction
occurring after July 21, 1997 and (y) for any decline in Standard &
Poor's 500 Index after July 21, 1997 (but in no event shall such price
be adjusted below $5 per share as a result of such decline)) and
remains below such level for 20 consecutive trading days, the Company
shall promptly pay the Executive (or his spouse, Linda Lund, if
Executive is deceased), in lieu of any further obligation to make
payments under this Section VI-B, an amount equal to the present value
of the remaining unpaid vested after-tax benefits, together with an
additional amount sufficient to gross-up such payment on an after-tax
basis for U. S. Federal, State and local income taxes payable with
respect to such lump sum payment. For purposes of the foregoing, (i)
present value of the remaining unpaid vested after-tax benefits shall
be calculated using a discount rate equal to the product of (x) the
prime rate as it appears in the Wall Street Journal under the heading
Money Rates and (y) the difference between 1 and the Executive's tax
rate expressed as a percentage, (ii) it shall be assumed that all
payments would be taxed at the highest marginal federal and applicable
state and local income tax rates in effect for Executive or his
spouse, as the case may be, at the time of the payment hereunder based
upon his or her principal residence and taking into account the
deductibility of state and local income taxes for federal income tax
purposes and (iii) actuarial assumptions shall be made by a certified
actuary selected by the Company. The amount payable under this
Section VI-B6 shall be set forth as promptly as practicable after such
event in a certificate signed by the Company's chief financial officer
which certificate, together with reasonable supporting documentation,
shall be delivered to the Executive or his spouse, as the case may be.
In consideration of the receipt of such lump sum payment under this
section VI-B6, the Executive agrees, for a period of three years
following the receipt of such payment, not to enter into or join as an
individual, partner, joint venturer, independent contractor, officer
or director of a business endeavor anywhere competing, as defined in
Section VIII-B4 hereof, with the Company or any of its subsidiaries,
unless waived in writing by the Board of Directors of the Company.
VI-C. The Company shall, within 90 days after July 29, 1997, establish
an irrevocable grantor trust (the "SLRRP Rabbi Trust"), the assets of which,
subject to the claims of the Company's creditors in the event of insolvency,
will be used to provide benefits under SLRRP. The Executive will have no
security or other rights to, or interest in, the assets of the SLRRP Rabbi
Trust, other than the right to be paid benefits under SLRRP in accordance with
the terms of SLRRP, this Agreement and the SLRRP Rabbi Trust.
VI-D. Following termination of the Executive's employment (other than in
circumstances described in Section VI-B5), the Company shall provide the
Executive with an office, related occupancy expenses and reasonable secretarial
services until the earlier of Executive's death or October 31, 2012. Such
office (which shall include furnishings and equipment comparable to those
currently provided Executive) and service shall be provided in a city in which
the Company has its principal executive offices or at such other place as the
Executive designates (provided that the Company shall not be required to incur
rental and other occupancy expenses in excess of $24,000 per annum, adjusted for
changes in the CPI). The Company shall bear all operating expenses of such
office not to exceed $15,000 per annum (exclusive of rent and other occupancy
costs and secretarial service), adjusted for changes in the CPI.
Following termination of the Executive's employment (other than in
circumstances described in Section VI-B5), the Company will purchase medical
coverage for the Executive and his spouse, Linda Lund, at least comparable to
the coverage under the American Stores Company Retiree Medical Plan. The
premiums for this coverage shall be payable by the Company for their lifetimes.
To the extent any premiums paid by the Company are considered taxable income to
the Executive or his spouse, the Company shall make a gross-up payment to such
persons to make them whole on an after-tax basis.
The Executive will have the opportunity afforded to all terminating
employees to convert, to the extent permitted, any group life or accident
insurance coverage to an individual policy or program. Premiums for such
coverage will not be paid by the Company.
VII.
DISABILITY AND DEATH
VII-A. If Executive dies, Company's obligations, including retirement
rights, under this Agreement shall terminate immediately except with respect to
Executive's accrued base salary and bonus, which shall be prorated to
Executive's death, and except with respect to the Company's obligations, if any,
to Executive or Executive's heirs or beneficiaries under the Company's benefit
plans and other benefits which have accrued to Executive, including the benefits
set forth in Section VI above.
VII-B. If Executive becomes "totally disabled," as defined in the
Company's Long Term Disability Pay Plan (Plan), as that Plan may be amended or
replaced from time to time, unless the Board of Directors of the Company
otherwise determines, Executive shall be placed on "inactive status" pursuant to
the Company's then effective policy and Company's obligations under this
Agreement shall terminate as of the date Executive became "totally disabled,"
except with respect to Company's obligations, if any, under the Plan or other
benefit plans and other benefits which have accrued to Executive, including the
benefits set forth in Section VI above.
VII-C. If Executive is not "totally disabled" as described in Section
VII-B, but is not performing the duties of his or her job for at least ninety
days in a consecutive twelve-month period, due to physical or mental impairment,
illness or injury, the Company may terminate Executive's employment based on a
resolution to that effect adopted by a majority of Company's Board of Directors,
and upon 30 days prior written notice to Executive, and the Company's
obligations to Executive under this Agreement shall terminate except with
respect to the Company's obligations, if any, under the Company's Plan or other
benefit plans and other benefits which have accrued to Executive, including the
benefits set forth in Section VI above.
VIII
CONFIDENTIAL INFORMATION
AND
RESTRICTIVE COVENANT
VIII-A. Executive recognizes and acknowledges as follows: that the
Company has legitimate business interests to protect, including its relationship
with its customers, confidential information and trade secrets; that the Company
has files, records, reports and other information that it deems to be
proprietary and confidential including, but not limited to, information
concerning finance, real estate, business strategy and plans, employee
compensation, bonus and benefit plans, management information systems and
computer programs, private labels, and trade secrets; and that Executive has
gained and will continue to gain knowledge of this information during the course
of employment. During the course of employment and after employment has
terminated, Executive shall not and will use his or her best efforts to ensure
that agents or others under his control do not, disclose the Company's
proprietary and confidential information to any person or entity for any purpose
other than in the ordinary course of performance of his duties to the Company,
or use the information for Executive's own benefit, unless the information has
been made public or has been made generally available otherwise than by
Executive's breach of his or her duties under this Agreement or is otherwise no
longer confidential or proprietary.
VIII-B. The parties recognize and acknowledge that American Stores Company
is one of the nation's leading food and drug retailers and must protect its
legitimate business interests. The Company operates stand-alone food and drug
stores, price impact food stores, plus combination food/drug store units. As of
the date hereof, the Company's operations include Lucky Stores, Jewel Food
Stores, Acme Markets, Jewel Osco, Osco Drug and Sav-on and a price impact food
chain. At year-end 1993, the Company operated 1,695 stores in 27 states.
Executives of the Company are often transferred to other states and other
subsidiaries of the Company. Their responsibilities and duties are Companywide,
even though they may be assigned, at a point in time, to a particular subsidiary
of the Company. The Company has expended considerable money, effort, and time
to train, build or acquire certain key "assets" -- defined to include its
employees and its relationships with customers, suppliers or vendors, lending
institutions, lessors and land owners, and governmental entities, among others,
and that Executive has gained and will continue to gain knowledge of those
assets during the course of employment.
During the term of this Agreement and any renewal thereof, and for one year
thereafter, provided Executive's termination occurs during the term of the
Agreement, Executive shall not:
1. seek to hire or directly or indirectly solicit any employee to
terminate employee's employment with the Company or its subsidiaries
or assist any other person or entity in attempting to hire or hiring
any employee of the Company or its subsidiaries; or
2. interfere with or impede Company's relationships with customers,
suppliers or vendors, lending institutions, lessors and land owners
and governmental entities; or
3. enter into or join a competing business endeavor as an individual,
partner, joint venturer, independent contractor, officer or director
that would directly or indirectly compete with the Company, or its
subsidiaries, anywhere in the United States where covenants not to
compete are enforceable under the laws of that state. The competition
must be substantial in nature if it occurs following termination of
employment and be in an area where the Company or its subsidiaries
engage in business activity and where the customers are located.
However, if the Company discharges Executive without cause, as defined
in Section IX or breaches this Agreement as defined in Section III-C,
this Subsection VIII-B3 shall only be effective if Company so elects
in writing and agrees to continue paying Executive's established TCO
during the one year that Executive is precluded from competing.
4. For purposes of this paragraph and Section VI above, the term
"competing business" shall refer to an entity that directly or
indirectly operates or has an interest in any establishment (1) that
directly competes with operations of the Company or its subsidiaries,
as a supermarket, a drug store, a mail order pharmacy, a warehouse
store, a home medical equipment store, a club store, a pharmacy
benefit manager, a wholesale grocery distributor, or any variation
thereof, or (2) that primarily sells the products which constitute 10%
or more of the products sold by the Company or its subsidiaries in any
one or combination of such stores or businesses.
5. In connection with the foregoing provisions of Section VIII-B3,
Executive represents that his or her economic means and circumstances
are such that such provisions will not prevent him or her from
providing for himself or herself and his or her family on a basis
satisfactory to him or her. It is understood and agreed that the
covenants made by Executive in Section VIII hereof and Section VI
hereof are material to, and are being relied upon by the Company in
entering into this Agreement.
In the event of litigation of any breach of this agreement by Executive,
the one year time period shall be tolled, except that if following termination,
Executive does not engage in the activities set forth in Section VIII-B 1 to 5
inclusive, no such tolling shall occur.
VIII-C. Upon termination of employment, Executive shall deliver to Company
all records, data, memoranda, manuals, policies, and notes in his or her
possession that are of a proprietary and confidential nature.
IX.
TERMINATION
IX-A. Upon thirty days prior written notice, the Company may terminate
Executive's employment for cause as follows:
1. Executive is convicted of or enters a plea of guilty or nolo contendre
to a felony; or
2. If Company, in good faith, after reasonable investigation, believes
that Executive has committed a fraud, misappropriation or
embezzlement, or other gross and willful misconduct inimical to the
Company's business; or
3. Executive willfully breaches a material provision of this Agreement,
and does not cure or cannot cure the breach after notice; or
4. Executive habitually and grossly neglects his or her duties.
In addition to terminating Executive in the above instances, the Company may
also seek injunctive relief or sue for damages caused by Executive's actions.
During the thirty day period after Company gives Executive notice of
termination, an Executive in good standing may exercise any stock options that
vest prior to the date that termination is effective.
IX-B. While this Agreement is still in effect, if Executive terminates the
Parties' employment relationship for any reason other than Company's breach of a
material provision of this Agreement, Executive shall no longer be entitled to
receive any compensation or benefits under this Agreement, except with respect
to the Company's obligations, if any, under the Company's benefit plans and
other benefits which have accrued to Executive, including benefits
set forth under Section VI above. The Company shall have no cause of action
against Executive unless Executive has breached Section VIII or committed any of
the acts outlined in Section IX-A.
IX-C. If Company terminates Executive's employment without cause or
Executive terminates employment because of Company's breach of a material
provision of this Agreement, the Company shall pay to the Executive in a lump
sum in cash within 30 days after the effective date of termination the aggregate
of the following amounts:
1. the sum of (i) the Executive's annual base salary through the date of
termination to the extent not theretofore paid and (ii) the prorated
portion of Executive's bonus that has been earned (despite any
contrary provision in the then-existing bonus plan); and
2. the value of unpaid salary and target bonuses that would have been
paid under the remaining life of the contract had the breach and
termination not occurred.
If the Company had relocated Executive within twelve (12) months prior to
the date of termination under this Section IX-C, Company will relocate Executive
within the continental United States pursuant to the Company's relocation
policy; provided that Executive's relocation move is completed within twelve
(12) months from the date of termination. If the Executive's employment
terminates under Section IX-C, benefits under SLRRP shall be calculated as
though the Executive completed (10) years of service; all of the provisions of
Section VI-B of this Agreement shall continue to have full force and effect; and
the provisions of Section VIII-B3 (the covenant not to compete for one year
following termination of employment) shall thereupon have no force or effect.
Notwithstanding the foregoing, all of the other provisions of Sections VI and
VII hereof shall remain effective. The foregoing payments and benefits shall be
in lieu of payments to which Executive might otherwise be entitled to under the
American Stores Termination Allowance Plan.
IX-D. Regardless of the reason that Executive's employment with the
Company terminates, upon the expiration of Executive's right to continue
participation in the Company's benefits plans as an active or inactive employee,
the Company shall provide Executive the same opportunities as it generally
provides to employees who have terminated to elect COBRA coverage, as well as
any other conversion or extension rights or other benefits that are then
available.
IX-E. Executive expressly waives any other or additional remedy available
at law, by statute or equity arising from the termination of this Agreement or
the termination of Executive's employment.
X.
REMEDIES
X-A. The Company and Executive recognize that the services to be rendered
under this Agreement by Executive are special, unique and of extraordinary
character, and that in the event of the breach by Executive of the terms and
conditions of this Agreement to be performed by him or her in the event
Executive shall, without the written consent of the Company, leave its
employment in a manner not permitted by this Agreement and perform, in the
future, services for any person, firm or corporation in violation of the
provisions of Section VIII hereof, then the Company shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach of
this Agreement, or to enforce the specific performance thereof by Executive or
to enjoin Executive from performing services for any such other person, firm or
corporation, if such performance would be in violation of the provisions hereof,
but nothing herein contained shall be construed to prevent the election or
invocation by the Company of any other remedy for the breach of this Agreement
by Executive, as the Company may elect or invoke.
XI.
CLAIMS AND ARBITRATION
XI-A. Prior to any arbitration, Executive shall have the right to request
that the Compensation Committee of the Company's Board of Directors consider
Executive's claims. The Committee is not obligated to consider Executive's
claims and, if it does so, its recommendations and decisions do not bind either
Party.
XI-B. If Executive's claim is denied, the Committee may provide a written
notice within 90 days or may decline to take any action in which case the claim
is deemed denied. If Executive desires a review of the claim, he or she must
notify the Committee within 60 days of the date of the denial or deemed denial.
The decision on review of the denied claim shall be rendered by the Committee
within 60 days after receipt of the request for review.
XI-C. Except for the Company's right to seek injunctive relief and damages
as described above and Executive's right to request Committee review, all
disputes that arise under this Agreement shall be settled by arbitration, using
a single arbitrator, in accordance with the American Arbitration Association's
rules and procedures, and the Parties shall be bound by the
arbitrator's decision. Reinstatement of Executive's employment shall not be a
remedy available to the arbitrator.
XI-D. The Company shall pay the cost of arbitration and each Party shall
pay its own attorneys' fees. However, if the arbitrator decides that the
Company acted in bad faith, the Company shall pay Executive's attorneys' fees.
XII.
ASSIGNMENT
XII-A. Because this Agreement is for personal services, Executive shall
not assign this Agreement. Company may assign this Agreement to any successor,
successor in interest to all or part of the Company's assets, or any affiliated
company without Executive's consent, and Company may assign this Agreement to
any other entity with Executive's consent, which shall not be unreasonably
withheld. If the assignee to this Agreement succeeds to less than substantially
all of the Company's business or assets, the Company may only assign this
Agreement without Executive's prior consent if: (1) the Company's Board of
Directors determines in good faith that the assignee is organized for bona fide
purposes other than to avoid or reduce Company's obligations under this
Agreement and has adequate financial reserves to meet all of Company's payment
obligations under this Agreement, or (2) Company unconditionally guarantees all
payment obligations to Executive under this Agreement from and after the
assignment becomes effective.
XIII.
MISCELLANEOUS
XIII-A. This Agreement may not be modified or discharged unless by written
agreement, signed by both Parties.
XIII-B. No waiver or waivers by either Party of the other Party's breach
of, or failure to comply with, this Agreement shall be deemed a waiver of any
other breach or failure to comply.
XIII-C. If any part of this Agreement is declared by a court to be
invalid, this Agreement shall still remain valid and shall be construed as if
the invalid portion were not a part of the Agreement except that if the
provisions of Section VI (SLRRP), relating to non-competition with the Company
as a condition to payment of SLRRP retirement compensation, are declared
invalid or unenforceable as to Executive, and Executive competes with the
Company or any of its subsidiaries, then all of the provisions of such Section
VI, including the right to receive SLRRP retirement payments, shall terminate
and be unenforceable.
XIII-D. The Parties have made no implied or expressed representations or
covenants that are not expressly set forth in this Agreement, and this is the
entire Agreement between the Parties.
XIII-E. This Agreement is made in and is governed by the laws of the state
of Utah.
XIII-F. The provisions concerning confidentiality shall survive this
Agreement.
XIII-G. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and the Company's successors and assigns, whether by merger,
consolidation or otherwise.
XIII-H. The Board of Directors shall have the discretionary authority to
construe and interpret any disputed, doubtful or uncertain terms of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
COMPANY:
AMERICAN STORES COMPANY
By
Print Name: Kathleen E. McDermott
Its: Chief Legal Officer and Assistant Secretary
EXECUTIVE:
By:
Print Name: Victor L. Lund
Its: Chairman of the Board & Chief Executive Officer
EXHIBIT 10.22
AMENDMENT TO THE CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AMENDMENT, dated as of December 9, 1997 ("this Amendment"), to the
Employment Agreement, dated as of July 25, 1996 (the "Change of Control
Employment Agreement"), by and between American Stores Company, a Delaware
corporation (the "Company"), and Victor L. Lund (the "Executive").
WHEREAS, the parties hereto desire to amend the Change of Control
Employment Agreement;
NOW THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
1. Section 12 (f) of the Change of Control Employment Agreement is hereby
amended to read as follows:
"(f) Prior to the Effective Date, the Executive's employment shall be governed
by the agreement between the parties dated November 1, 1994, as amended(the
"Prior Agreement"). From and after the Effective Date this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof, including, without limitation, the Prior Agreement; provided,
however, that the provisions of Section VI-B and Section VI-D of the Prior
Agreement shall remain in full force and effect."
2. This Amendment shall be governed by and construed in accordance with
the laws of Delaware, without reference to principles of conflicts of law.
3. This Amendment may be executed in several counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment as of the date first above written.
AMERICAN STORES COMPANY EXECUTIVE
BY:
Name: Kathleen E. McDermott Victor L. Lund
Title: Chief Legal Officer
EXHIBIT 10.23
FORM OF SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
WITH SENIOR OFFICERS
Second Amendment dated as of December 9, 1997 ("Second Amendment") to
Employment Agreement dated as of November 1, 1994, as amended by Amendment dated
as of July 25, 1996 (the "Employment Agreement") between American Stores
Company, a Delaware Corporation (the "Company"), and ("Executive").
The Company and Executive are collectively referred to as the "Parties," and
individually as a "Party." All capitalized terms not defined herein shall have
the meanings ascribed in the Employment Agreement.
WHEREAS, the Parties desire to amend certain provisions of the Employment
Agreement;
NOW THEREFORE, in consideration of the premises and their mutual agreement
hereinafter set forth, the Parties hereto agree as follows:
1. Section VI-B5 is hereby amended to read as follows:
"if (a) Executive's employment is terminated (i) by Company without cause,
excluding disability and death pursuant to Section VII hereof, or (ii) by
Executive because of Company's breach of a material provision of this Agreement,
or (b) at any time following a Change of Control (as defined in the Company's
1997 Stock Option and Stock Award Plan as in effect on the date of this Second
Amendment) of the Company, any event occurs that would permit Executive to
terminate his employment for "Good Reason" (as defined in Executive's Employment
Agreement dated July 25, 1996 that becomes effective upon a Change of Control),
whether or not Executive's employment is terminated, then in any such event
Executive shall be fully vested in the SLRRP benefits without regard to
Executive's years of service under this contract."
2. The Employment Agreement, as amended by this Second Amendment,
constitutes the entire agreement of the subject matter hereof and may not be
amended unless by a written agreement signed by the Parties.
3. This Second Amendment is made in and is governed by the laws of the
State of Utah.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date
first above written.
AMERICAN STORES COMPANY EXECUTIVE
BY:
Name: Kathleen E. McDermott
Title: Chief Legal Officer
Schedule to Exhibit 10.23
The Company entered into a Second Amendment to Employment Agreement in the
preceding form with each of the following senior officers:
Kent T. Anderson
Teresa Beck
James R. Clark
D. B. Holt
James C. Horn
David L. Maher
Stephen L. Mannschreck
Kathleen E. McDermott
Francis J. Raucci
Martin A. Scholtens
Arlyn E. White
Roger D. Wilhelm
EXHIBIT 10.24
FORM OF AMENDMENT TO THE CHANGE OF CONTROL AGREEMENTS
WITH SENIOR OFFICERS
AMENDMENT, dated as of December 9, 1997 ("this Amendment"), to the
Employment Agreement, dated as of July 25, 1996 (the "Change of Control
Employment Agreement"), by and between American Stores Company, a Delaware
corporation (the "Company"), and (the "Executive").
WHEREAS, the parties hereto desire to amend the Change of Control
Employment Agreement;
NOW THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
1. Section 12 (f) of the Change of Control Employment Agreement is hereby
amended to read as follows:
"(f) Prior to the Effective Date, the Executive's employment shall be governed
by the agreement between the parties dated November 1, 1994, as amended (the
"Prior Agreement"). From and after the Effective Date this Agreement shall
upersede any other agreement between the parties with respect to the subject
matter hereof, including, without limitation, the Prior Agreement; provided,
however, that the provisions of Section VI-B of the Prior Agreement shall remain
in full force and effect."
2. This Amendment shall be governed by and construed in accordance with
the laws of Delaware, without reference to principles of conflicts of law.
3. This Amendment may be executed in several counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment as of the date first above written.
AMERICAN STORES COMPANY EXECUTIVE
BY:
Name: Victor L. Lund
Title: Chairman and Chief Executive Officer
Schedule to Exhibit 10.24
The Company entered into a Second Amendment to Employment Agreement in the
preceding form with each of the following senior officers:
Kent T. Anderson
Teresa Beck
James R. Clark
D. B. Holt
James C. Horn
David L. Maher
Stephen L. Mannschreck
Kathleen E. McDermott
Francis J. Raucci
Martin A. Scholtens
Arlyn E. White
Roger D. Wilhelm
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
AGREEMENT by and between American Stores Company, a Delaware
corporation (the "Company") and Edward J. McManus (the "Executive"), dated as
of the 9th day of December, 1997.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean
the first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on July 25, 2000; provided, however,
that commencing on July 25, 1998, and on each annual anniversary of such date
(such date and each annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), unless previously terminated, the Change of Control
Period shall be automatically extended so as to terminate three years from such
Renewal Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control Period shall not
be so extended.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company or
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2;
or
(b) (i) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board or (ii) a majority of the members of the Board ceases to be comprised of
Directors whose most recent election to the Board was approved by at least a
majority of the Incumbent Board prior to such election; or
(c) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or location
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve times
the highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months after
the last salary increase awarded to the Executive prior to the Effective Date
and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the Executive's target bonus in effect prior to the Effective Date for the
year in which the Effective Date occurs under the Company's incentive plans
(both annual and long-term) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless
the Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at
any time during the 120-day period immediately preceding the Effective Date or
if more favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in accordance
with the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
at any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its inten-
tion to terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of the Executive's duties. For purposes
of this Agreement, "Disability" shall mean the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B) hereof
or the Company's requiring the Executive to travel on Company business to
a substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Window Termination. Even if Good Reason does not exist,
the Executive's employment may be terminated by the Executive for any reason or
for no reason at all during the 30-day period (the "Window Period") immediately
following the first anniversary of the Effective Date. A termination of
employment by the Executive without Good Reason during the Window Period shall
hereinafter be referred to as a "Window Termination".
(e) Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason or as a Window Termination,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason or as a Window Termination, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of Ter-
mination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination. (a) Good
Reason; Window Termination; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason or there shall occur a Window Termination:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid and (2)
the product of (x) the higher of (I) the Recent Annual Bonus and (II)
the Annual Bonus paid or payable, including any bonus or portion
thereof which has been earned but deferred (and annualized for any
fiscal year consisting of less than twelve full months or during
which the Executive was employed for less than twelve full months),
for the most recently completed fiscal year which commenced during
the Employment Period, if any (such higher amount being referred to
as the "Highest Annual Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 (the sum of
the amounts described in clauses (1) and (2) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
(ii) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement
(excluding disability coverage) if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the
Company and its affiliated companies and their families, provided,
however, that if the Executive becomes reemployed with another employer
and is eligible to receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained employed
until three years after the Date of Termination and to have retired on the
last day of such period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of
which shall be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason or Window
Termination, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its af-
filiated companies at or subsequent to the Date of Termination shall be payable
in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not
exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to
the Executive such that the receipt of Payments would not give rise to any
Excise Tax, then no Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
11. Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive or Company:
709 East South Temple
Salt Lake City, Utah 84102
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement or as a Window Termination
pursuant to Section 5(d) of this Agreement, shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(f) Prior to the Effective Date, the Executive's employment shall
be governed by the Employment Agreement between the parties dated July 25, 1996
(the "Prior Agreement"). From and after the Effective Date this Agreement
shall supersede any other agreement between the parties with respect to the
subject matter hereof, including, without limitation, the Prior Agreement;
(g) The Executive acknowledges and agrees that this Agreement
supersedes and replaces the Change of Control Employment Agreement entered into
between the Company and Executive dated as of July 25, 1996.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf, all
as of the day and year first above written.
EXECUTIVE
By
Edward J. McManus
AMERICAN STORES COMPANY
By
Victor L. Lund
Chairman and Chief Executive Officer
Exhibit 12
AMERICAN STORES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
In the computation of the ratio of earnings to fixed charges for the Company,
earnings consist of pre-tax income from continuing operations, plus fixed
charges (adjusted for capitalized interest). Fixed charges consist of interest,
whether expensed or capitalized (including the amortization of debt expense),
plus the amount of rental expense which is representative of the interest factor
in the particular case.
<TABLE>
<S> <C> <C> <C>
(In thousands of dollars) 1997 1996 1995
Earnings before income taxes $523,665 $504,552 $550,916
Fixed charges (detail below) 343,500 282,355 259,648
Adjusted for:
Capitalized interest (16,248) (10,567) (8,542)
Previously capitalized interest
amortized during the period 2,028 1,612 1,231
Earnings $852,945 $777,952 $803,253
Interest expense $216,710 $171,558 $159,545
Capitalized interest 16,248 10,567 8,542
Interest factor for rental expense
of operating leases 110,542 100,230 91,561
Fixed charges $343,500 $282,355 $259,648
Ratio of earnings to fixed charges 2.5 to 1 2.8 to 1 3.1 to 1
</TABLE>
Exhibit 13
Common Stock Market Prices and Dividends (1)
The following table sets forth the high and low reported sales prices for the
Company's common stock for the fiscal periods indicated as reported on the New
York Stock Exchange Composite Tape and dividends paid on the common stock during
such periods. The common stock of the Company is listed on the New York,
Philadelphia, Chicago and Pacific stock exchanges under the trading symbol
"ASC." The number of shareholders of record of the Company's common stock at
March 27, 1998, was 33,715.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Cash Cash Cash
Market Price Dividends Market Price Dividends Market Price Dividends
High Low Paid High Low Paid High Low Paid
First Quarter $23 3/16 $20 13/16 $.08 $17 1/8 $12 11/16 $.08 $13 1/16 $11 5/8 $.07
Second Quarter $27 5/16 $22 .09 $20 5/8 $16 .08 $14 7/8 $12 3/8 .07
Third Quarter $26 $23 .09 $21 3/8 $18 3/4 .08 $15 3/8 $14 1/16 .07
Fourth Quarter $28 $19 3/8 .09 $22 11/16 $19 3/16 .08 $15 3/8 $12 7/16 .07
Annual Dividend $.35 $.32 $.28
</TABLE>
(1) Restated as necessary to reflect the July 1997 two-for-one stock split
Cautionary Note
This report contains 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. The Company
assumes no obligation to update the information contained herein. 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 industry
generally and particularly in the Company's principal markets; the
implementation of the Company's re-engineering initiatives in accordance with
the currently contemplated schedule and budget; the Company's relationships with
its employees and the terms of future collective bargaining agreements; the
costs and other effects of legal and administrative cases and proceedings; the
nature and extent of continued consolidation in the food and drug industry;
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; changes in economic conditions which affect the buying patterns of the
Company's customers; and the ability of the Company and its vendors, financial
institutions and others to resolve Year 2000 processing issues in a timely
manner.
1
Selected Financial Data
The following consolidated selected financial data of the Company for the last
five fiscal years should be read in conjunction with the consolidated financial
statements and related notes appearing on pages 12 to 30 of this report.
Comparisons of operating results between fiscal years 1993 to 1997 are difficult
due to the Company's disposition of stores. These include the disposition of 45
Acme Markets stores in the fourth quarter of 1994 and the 33-store Star Market
food division in the third quarter of 1994. These disposed of stores generated
sales in the amounts of $.8 billion and $1.2 billion in 1994 and 1993,
respectively. In addition, all years included 52 weeks except for 1995, which
included 53 weeks.
<TABLE>
<S> <C> <C> <C> <C> <C>
(In thousands of dollars, except per share data)(1) 1997 1996 1995 (2) 1994 1993
Sales $19,138,880 $18,678,129 $18,308,894 $18,355,126 $18,763,439
Earnings before extraordinary item $280,620 $287,221 $316,809 $345,184 $262,090
Extraordinary item - early retire-
ment of debt - net of taxes (15,000)
Net earnings $280,620 $287,221 $316,809 $345,184 $247,090
Basic earnings per share before extra-
ordinary item (3) $1.02 $.98 $1.08 $1.21 $.92
Extraordinary item - early retirement
of debt - net of taxes (3) (.05)
Basic earnings per share (3) $1.02(7) $.98(8) $1.08 $1.21(9) $.87
Diluted earnings per share (3) $1.01(7) $.98(8) $1.08 $1.17(9) $.85
Basic average shares (3) 276,409 291,776 293,887 285,534 284,403
Diluted average shares (3) 277,769 292,651 294,465 301,889 301,190
Cash dividends declared per share $.35 $.32 $.28 $.24 $.20
Total assets $8,536,015 $7,881,405 $7,362,964 $7,031,566 $6,927,434
Total debt and obligations under
capital leases $3,302,905 $2,679,147 $2,240,168 $2,205,291 $2,167,999
Total capital expenditures (4) $1,157,342 $1,065,436 $823,068 $572,575 $652,928
Store count (5) 1,557 1,529 1,497 1,448 1,547
Selling area square footage (000's) (6) 35,114 33,823 32,523 31,179 32,727
</TABLE>
(1) Restated as necessary to reflect the July 1997 two-for-one stock split
(2) 53-week fiscal year
(3) The earnings per share amounts comply with Statement of Financial
Accounting Standards No. 128, Earnings Per Share
(4) Amount includes capitalized leases and the net present value of
property, plant and equipment
leased under operating leases
(5) Includes jointly operated combination stores counted as one store
(6) Selling area square footage was 74% of total retail square footage in
1997
(7) Includes non-recurring items related to the repurchase of a major
shareholder's stock and
the sale of a division of the Company's communications subsidiary
totaling $.14 per share of expense
(8) Includes special charges totaling $.21 per share of expense
(9) Includes non-recurring items totaling $.19 per share of income
NOTE: The fiscal year of the Company ends on the Saturday nearest to
January 31. All references herein to "1997", "1996", "1995", "1994" and
"1993" represent the fiscal years ended January 31, 1998, February 1, 1997,
February 3, 1996, January 28, 1995 and January 29, 1994, respectively. All
years include 52 weeks except for 1995, which included 53 weeks.
2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Comparisons between years are rendered difficult due to the fact that not all
fiscal years being compared were the same length; the 1995 fiscal year included
53 weeks while the 1997 and 1996 fiscal years included 52 weeks.
Total sales increased to $19.1 billion in 1997 from $18.7 billion in 1996 and
$18.3 billion in 1995. The total sales increase was 2.5% in 1997 and 2.0% in
1996. Adjusting for the extra week in 1995, total sales would have increased
4.0% in 1996. Comparable store sales (sales from stores that have been open at
least one year, including replacement stores) increased in 1997, 1996 and 1995
by .9%, 3.3% and 1.4%, respectively. The improvement in total sales in 1997 is
primarily due to the increase in net square footage during the year. During
1997 the Company opened 96 stores and closed 68 stores resulting in a net
increase of 28 new stores and an increase in retail square footage of 4.2%.
Comparable store sales in 1997 were lower than previous years, despite a strong
increase in pharmacy department sales, due to food price deflation, increased
competitive new store openings and promotional activity. Comparable store sales
in 1997 in the pharmacy departments increased 11.5% for the year. The 1996
increase in total and comparable sales was primarily the result of increased
capital spending and effective marketing efforts, including customer loyalty
cards and targeted marketing promotions. Total and comparable sales in 1996 also
increased due to the impact of a nine-day labor dispute in the first quarter of
1995.
Gross profit as a percent of sales was 26.6% in both 1997 and 1996 and 25.9% in
1995. Gross profit in 1997 improved due to lower cost of goods resulting from
centralized buying and a more profitable product mix. However, increased
competition, additional expenses associated with warehouse consolidations in
southern California and increased sales of third-party prescriptions and name-
brand drugs, which yield lower margins, offset these improvements. The increase
in 1996 gross profit over 1995 is primarily due to benefits realized from
centralized procurement, better product mix and lower warehousing costs.
Advertising expense also decreased in 1996 due to the shift from newspaper and
print advertising to direct mail targeted marketing. These improvements were
partially offset by lower pharmacy margins due to a shift from cash to lower
margin third-party customers. The annual pre-tax LIFO charge to earnings
amounted to $2.4 million in 1997, $11.4 million in 1996 and $12.8 million in
1995.
Beginning in the fourth quarter of 1997, the Company reclassified certain
expenses as operating and administrative expense and restructuring and
impairment that were previously classified below operating profit. Prior
periods have been reclassified to conform to the current year presentation.
Operating and administrative expense as a percent of sales was 22.6% in 1997 and
1996 and 22.1% in 1995. Although the Company made improvements in expense
control due to lower insurance costs, lower health and welfare and pension costs
3
and benefits from renegotiating a new in-store banking service, higher fixed
costs due to the increased number of new stores offset these improvements. The
increase in 1996 over 1995 is primarily due to increased costs associated with
new stores, offset in part by lower self-insurance costs, better overall cost
control and improved sales. Fiscal 1995 operating and administrative expense
benefited from the early termination of a labor contract resulting in the
immediate recognition in 1995 of certain health and welfare savings which were
being recognized over the life of the old contract.
Restructuring and impairment in 1997 of $13.4 million related to charges from
the sale of a division of the Company's communications subsidiary.
In 1996 the Company recorded special charges aggregating approximately $100.0
million before taxes, or $.21 per diluted share, related primarily to its re-
engineering initiatives. The initiatives are designed to transform the Company
from a holding company to a unified operating company. The special charges are
included in cost of merchandise sold ($10.0 million), operating and
administrative expense ($12.9 million) and restructuring and impairment ($77.1
million). The components of the charge include: warehouse consolidation costs,
administrative office consolidation costs, asset impairment costs, closed store
costs and other miscellaneous charges. Cash expenditures are estimated to
approximate $40.0 million of which $25.3 million was paid through the fourth
quarter of 1997. The Company had recorded a charge of $15.5 million related to
termination benefits to be paid to an estimated 445 people. At year-end 1997,
the Company estimated that a total of 550 people would be terminated at a cost
of $16.8 million. Severance costs of $10.7 million were paid in connection with
the consolidation and 407 people were terminated. In 1997 the Company continued
its plan to close and consolidate its warehouses and offices and sublease
unutilized space where possible. The warehouse and office consolidation efforts
were originally projected to be completed during 1997. Due to delays, these
projects will be completed during 1998. The following table details the
components of the reserve:
<TABLE>
<S> <C> <C> <C> <C>
Original Reserve
Reserve Activity Reserve Balance
(In millions of dollars) Balance to Date Adjustments 1/31/98
Warehouse consolidation $ 26.4 $30.6 $ 8.0 $ 3.8
Office consolidation 26.3 5.6 (5.5) 15.2
Asset impairment 26.4 23.9 (2.5)
Closed store costs 12.9 12.9
Other 8.0 8.0
Total $100.0 $81.0 $19.0
</TABLE>
Operating profit increased 15.1% in 1997 and decreased 4.9% in 1996. Total
operating profit was 4.0% of sales in 1997, 3.6% of sales in 1996 and 3.8% of
sales in 1995. Operating profit excluding restructuring and impairment and
special charges was 4.1% of sales in 1997 and 1996 compared to 3.8% of sales in
1995.
4
Interest expense increased in 1997 due to higher debt levels primarily from the
Company's financing of the repurchase of shares from former chairman L.S. Skaggs
and related parties in April 1997 (the Repurchase), as well as increased capital
expenditures. Increases in 1996 interest expense were primarily due to
increased borrowings.
The caption "Shareholder related expense" in 1997 of $33.9 million includes
charges related to the secondary stock offering of shares held by former
chairman L.S. Skaggs and related parties (the Secondary Offering).
The Company's effective income tax rates were 46.4% in 1997, 43.1% in 1996 and
42.5% in 1995. The increase in the 1997 effective tax rate is primarily due to
the non-deductibility of expenses related to the Secondary Offering. The
increase in the 1996 effective tax rate is due to lower earnings caused by the
special charges, the impact of goodwill charges and lower tax credits.
The Company's basic earnings per share were $1.02, $.98 and $1.08 in 1997, 1996
and 1995, respectively. Diluted earnings per share amounted to $1.01, $.98 and
$1.08 in 1997, 1996 and 1995, respectively. The Company adopted Statement of
Financial Accounting Standards No. 128, Earnings per Share, as of year-end 1997.
Prior periods have been restated and there was no material affect on the
Company's earnings per share.
Liquidity and Capital Resources
Cash provided by operating activities was $855.0 million, $497.8 million and
$609.1 million for 1997, 1996 and 1995, respectively. The 1997 improvement of
$357.3 million was primarily the result of managing vendor payments.
Cash capital expenditures amounted to $996.3 million in 1997, $943.1 million in
1996 and $772.6 million in 1995. Additional capital expenditures represented by
the net present value of leases amounted to $161.1 million in 1997, $122.4
million in 1996 and $50.5 million in 1995.
The following table shows store counts for new, remodeled and closed stores:
<TABLE>
<S> <C> <C> <C> <C>
Projected
1998 1997 1996 1995
New 75 96 99 87
Remodels 90 65 84 198
Closed 50 68 67 38
</TABLE>
Capital expenditures for fiscal 1998, including the net present value of leases,
are expected to approximate $1.0 billion and will be funded through cash flows
from operations, credit facilities and other long-term borrowings. The Company
has no material commitments for capital other than those related to its capital
program.
5
On April 8, 1997, the Company (i) repurchased 24.4 million shares of its common
stock from former chairman L.S. Skaggs and certain Skaggs family members and
charitable trusts (the Selling Stockholders) for an aggregate price of $550
million and (ii) sold 4.6 million shares of common stock for net proceeds of
$95.9 million pursuant to the exercise of an over-allotment option by the
underwriters in connection with a public offering of 30.8 million shares by the
Selling Stockholders. On April 8, 1997 the Company also recorded non-recurring
charges totaling $33.9 million related to expenses incurred by the Selling
Stockholders which were reimbursed by the Company.
On March 28, 1997, the Company increased the capacity of its revolving credit
facility to a $1.5 billion five-year revolving credit facility which expires in
2002, in order to finance the $550 million repurchase of common stock from the
Selling Stockholders and for general corporate purposes. The Company has a $1.0
billion commercial paper program supported by the $1.5 billion revolving credit
facility and $330 million of uncommitted bank lines, which are used for
overnight and short-term bank borrowings, and $1.0 billion in availability under
a universal shelf registration statement, of which $500 million has been
designated for the Company's Series B Medium Term Note Program. Subsequent to
year-end and as of March 31, 1998, the Company had issued $145 million under the
Program. At year-end 1997, the Company had $512 million of debt outstanding
under the credit facility, $717 million outstanding under the commercial paper
program and $229 million outstanding under uncommitted bank lines, leaving
unused committed borrowing capacity of $42 million. The average annual interest
rates applicable to the debt issued under or supported by the revolving credit
facility were 5.9% in 1997, 5.7% in 1996 and 6.2% in 1995.
On May 2, 1997, the Company issued $300 million of debentures consisting of $100
million of 7.9% debentures due May 1, 2017 and $200 million of 7.5% debentures
due May 1, 2037. The $200 million, 40-year debentures are redeemable at the
option of each of the registered holders on May 1, 2009. Net proceeds were used
to refinance short-term variable rate borrowings and for general corporate
purposes.
On July 3, 1997, the Company entered into a $200 million term loan agreement.
The underlying notes bear interest at an average rate of 6.3% and mature July 1,
2004. Net proceeds were used to refinance short-term variable rate borrowings
and for general corporate purposes.
During 1997 the Company repaid a $160 million (22 billion yen) loan. The net
increase in debt, including capitalized leases, was $623.8 million and $439.0
million in 1997 and 1996, respectively. The increases are due to changes in
working capital, increased capital spending and repurchases of common stock,
including the repurchase of 24.4 million shares from the Selling Stockholders in
1997.
In June of 1996, the Company replaced its existing stock repurchase program with
a new repurchase program which authorizes the repurchase of up to four million
shares of common stock (not including the repurchase of shares from the Selling
Stockholders).
6
There were no repurchases of common stock under the repurchase program during
1997, and of January 31, 1998, an additional 3.9 million shares remained
authorized for repurchase.
Working capital amounted to $140.4 million at year-end 1997 compared to $364.8
million at year-end 1996 and $96.3 million at year-end 1995. Working capital
benefited from higher accounts payable at the end of 1997 primarily due to the
management of vendor payments at the end of the fiscal year.
The Company's ratio of total debt (debt plus obligations under capital leases)
to total capitalization (total debt plus common shareholders' equity) amounted
to 58.9%, 51.4% and 48.8% at year-end 1997, 1996 and 1995, respectively.
The Company believes that its cash flows from operations, supplemented by its
revolving credit facility, uncommitted credit facilities, other long-term
borrowings, availability under a universal shelf registration statement and its
ability to refinance debt, will be adequate to meet its presently identifiable
cash requirements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is changing interest rates. From time
to time, the Company hedges against changes in the yield of U.S. Treasury
securities used for determining the interest rate on anticipated public debt
financing of the Company using treasury lock, swap, or similar agreements,
usually in notional amounts less than the total amount of the anticipated debt
issue. These hedging transactions are generally in effect for a period estimated
to expire concurrent with the anticipated debt issue. The objective of these
derivative transactions is to reduce the Company's exposure to changes in
interest rates, and each transaction is evaluated periodically by the Company
for changes in market value and counterparty credit exposure.
During 1997 the Company entered into a $300 million five-year LIBOR basket swap
and a $100 million treasury rate lock. The LIBOR basket swap agreement
diversifies the indices used to determine the interest rate on a portion of the
Company's variable rate debt by providing for payments based on an average of
foreign LIBOR indices which are reset every three months and also provides for a
maximum interest rate of 8.0%. The Company recognized income of $.5 million in
1997 related to this swap. The treasury rate lock agreement was entered into
for the purpose of hedging the interest rate on a portion of the debt the
Company anticipates issuing in 1998 under the universal shelf registration
statement. The treasury lock fixed the rate on the 30-year treasury bond at
6.0% and expires March 31, 1998.
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 $300 million of debentures the Company issued on May 2, 1997
under the Company's previous shelf registration statement. The swap was
terminated in connection with the issuance of the debentures, and the Company
7
realized a net gain of $6.2 million, which is being amortized over the term of
the debt as a reduction to interest expense.
On October 14, 1997, the Company prepaid a foreign loan in the principal amount
of 22 billion yen ($160 million U.S.) bearing interest at a yen interest rate of
6.0% and terminated the related interest rate and currency exchange swap
agreement that fixed the interest rate and eliminated the risk of currency
fluctuations. The Company incurred a net loss of $.7 million in connection with
the prepayment of the loan and termination of the swap agreement.
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.
There have been no material changes in the primary risk exposures or management
of the risks since the prior year. The Company expects to continue to manage
risks in accordance with the current policy.
INTEREST RATE SENSITIVITY
The table below provides information about the Company's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate swaps, the
table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contracts.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
Value @
(In thousands of dollars) 1998 1999 2000 2001 2002 Thereafter Total 1/31/98
LIABILITIES
Long-term debt, including current portion
Fixed rate $81,407 $34,086 $154,946 $25,419 $271,554 $1,216,854 $1,784,266 $1,932,708
Average interest rate 8.6% 8.8% 7.8% 10.7% 9.4% 7.7% 8.0%
Variable rate $11,000 $1,446,899 $1,457,899 $1,457,899
Average interest rate 5.9% 5.9% 5.9%
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS RELATED TO ANTICIPATED LONG-TERM DEBT OFFERING
Interest rate swap
Pay fixed/Receive variable $100,000 $100,000 $(644)
Average pay rate 6.0%
Average receive rate 5.9%
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS RELATED TO LONG-TERM DEBT
Interest rate and currency swap
Pay variable (8% cap)/Receive variable $300,000 $300,000 $(6,704)
Average pay rate 6.5%
Average receive rate 5.8%
</TABLE>
8
Year 2000
The efficient operation of the Company's business is dependent in part on its
computer software programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key areas of the
Company's business including store operations, merchandise purchasing, inventory
management, pricing, sales, warehousing, transportation and financial reporting,
as well as in various administrative functions. The Company is in the process
of updating its Programs and Systems for Year 2000 compliance. The Company has
also been communicating with its vendors, financial institutions and others to
assess the status of Year 2000 conversion of their systems since the failure to
make their systems Year 2000 compliant could have an adverse affect on the
Company's operations.
Based on present information, the Company believes that it will be able to
achieve such Year 2000 compliance through a combination of modification or
replacement of some existing Programs and Systems. The Company expects that the
expenses associated with achieving Year 2000 compliance will be approximately
$25 million. The Company has spent approximately $16.5 million on Year 2000
compliance through March 31, 1998. No assurance can be given that the Company's
efforts nor those of its vendors, financial institutions and others who interact
with the Company will be successful.
Environmental
The Company has identified environmental contamination at certain of its store,
warehouse, office and manufacturing facilities (related to current operations as
well as previously disposed of businesses) which are primarily related to
underground petroleum storage tanks (USTs) and ground water contamination. The
Company conducts an on-going program for the inspection and evaluation of new
sites proposed to be acquired by the Company and the remediation/monitoring of
contamination at existing and previously owned sites. The Company anticipates
that all USTs will be in compliance with 1998 UST upgrade requirements
established by the Environmental Protection Agency. Although the ultimate
outcome and expense of environmental remediation is uncertain, the Company
believes that the required costs of remediation, UST upgrades and continuing
compliance with environmental laws will not have a material adverse effect on
the financial condition or operating results of the Company.
Inflation
In recent years, the impact of deflation or inflation on the Company's results
of operations has been moderate. As operating expenses and inventory costs
change, the Company adjusts its retail prices accordingly.
The Company uses the LIFO (last-in, first-out) method of accounting for the
majority of its inventories. Under this method, the cost of merchandise sold
reported in the financial statements approximates current costs and thus reduces
the distortion in reported earnings due to increasing costs.
The historical costs of property, plant and equipment recorded by the Company
were incurred over a period of several years. The cost of replacing property,
plant and equipment is generally greater than the cost on the books of the
9
Company as a result of inflation that has occurred over the years since the
property, plant and equipment were placed in service.
Stock Split
On June 17, 1997, the Board of Directors of the Company declared a two-for-one
stock split of the Company's common stock. The split was payable July 16, 1997,
to shareholders of record on July 1, 1997. All share and per share information
has been restated to reflect the stock split.
New Accounting Standard
Statement No. 131, Disclosure about Segments of an Enterprise and Related
Information, was issued by the Financial Accounting Standards Board in June
1997, effective for fiscal years beginning after December 15, 1997. The Company
has determined that it will continue to have only one reportable segment.
Preferred Share Purchase Rights
On March 18, 1998, the Preferred Share Purchase Rights issued pursuant to a
Rights Agreement, dated March 18, 1988, as amended, expired in accordance with
their terms without renewal or extension.
10
Report of Independent Auditors
[ERNST & YOUNG LLP LOGO]
Shareholders and Board of Directors
American Stores Company
We have audited the accompanying consolidated balance sheets of American Stores
Company and subsidiaries as of January 31, 1998, February 1, 1997 and February
3, 1996, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
January 31, 1998. 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 January 31, 1998, February 1, 1997 and February 3,
1996, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended January 31, 1998, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
March 18, 1998
Salt Lake City, Utah
11
Consolidated Statements of Earnings
<TABLE>
<S> <C> <C> <C>
52 weeks 52 weeks 53 weeks
(In thousands, except per share data) 1997 1996 1995
Sales $19,138,880 $18,678,129 $18,308,894
Cost of merchandise sold, including ware-
housing and transportation expenses 14,039,263 13,713,151 13,558,690
Gross profit 5,099,617 4,964,978 4,750,204
Operating and administrative expenses 4,317,576 4,220,187 4,048,490
Restructuring and impairment 13,400 77,151
Operating profit 768,641 667,640 701,714
Other income (expense):
Interest income 5,647 8,470 8,747
Interest expense (216,710) (171,558) (159,545)
Shareholder related expense (33,913)
Total other income (expense) (244,976) (163,088) (150,798)
Earnings before income taxes 523,665 504,552 550,916
Federal and state income taxes (243,045) (217,331) (234,107)
Net earnings $ 280,620 $ 287,221 $ 316,809
Basic earnings per share $1.02 $.98 $1.08
Diluted earnings per share $1.01 $.98 $1.08
Average number of common shares outstanding
used for basic earnings per share 276,409 291,776 293,887
Dilutive common stock options 1,360 875 578
Average number of common shares outstanding
used for dilutive earnings per share 277,769 292,651 294,465
Outstanding employee stock options having
no dilutive effect (exercise price $23.72
- $25.00 per share) 4,350
</TABLE>
See notes to consolidated financial statements
12
Consolidated Balance Sheets
Year-end
<TABLE>
<S> <C> <C> <C>
(In thousands of dollars, except per share data) 1997 1996 1995
ASSETS
Current Assets
Cash and cash equivalents $ 47,794 $ 37,467 $ 102,422
Receivables 399,319 318,878 319,688
Inventories 1,714,229 1,725,542 1,572,242
Prepaid expenses 71,855 66,510 69,098
Deferred income tax benefits 28,583 18,099 20,517
Total Current Assets 2,261,780 2,166,496 2,083,967
Property, Plant and Equipment and Property Under
Capital Leases, at cost
Land 779,873 636,068 597,804
Buildings 2,325,388 1,980,660 1,582,485
Fixtures and equipment 2,877,019 2,616,786 2,415,479
Leasehold improvements 831,364 781,454 736,682
6,813,644 6,014,968 5,332,450
Less accumulated depreciation and amortization 2,552,723 2,361,255 2,126,550
Net Property, Plant and Equipment 4,260,921 3,653,713 3,205,900
Goodwill, net of accumulated amortization 1,611,812 1,665,242 1,722,892
Other Assets 401,502 395,954 350,205
Total Assets $8,536,015 $7,881,405 $7,362,964
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $1,186,845 $ 851,285 $ 996,354
Accrued payroll and benefits 301,656 325,806 331,843
Current portion of self-insurance reserves 108,263 121,144 153,464
Income taxes payable 11,293 21,290 17,292
Other current liabilities 412,342 416,153 353,598
Current maturities of long-term debt and
obligations under capital leases 100,935 66,003 135,152
Total Current Liabilities 2,121,334 1,801,681 1,987,703
Self-insurance Reserves, less current portion 390,661 403,981 434,028
Deferred Income Taxes 349,041 348,846 365,978
Other Liabilities 163,927 178,326 115,743
Long-term Debt and Obligations Under
Capital Leases, less current maturities 3,201,970 2,613,144 2,105,016
Shareholders' Equity
Common stock of $1.00 par value, authorized
700,000,000 shares; issued 299,778,472 shares 299,778 299,778 299,778
Additional paid-in capital 269,205 212,672 195,229
Retained earnings 2,320,322 2,136,744 1,942,874
Less cost of treasury stock; 26,171,962 shares
in 1997, 7,949,190 shares in 1996 and
6,882,902 shares in 1995 (580,223) (113,767) (83,385)
Total Shareholders' Equity 2,309,082 2,535,427 2,354,496
Total Liabilities and Shareholders' Equity $8,536,015 $7,881,405 $7,362,964
</TABLE>
See notes to consolidated financial statements
13
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
52 weeks 52 weeks 53 weeks
(In thousands of dollars) 1997 1996 1995
Cash Flows from Operating Activities:
Net earnings $280,620 $287,221 $316,809
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 468,869 440,445 404,562
Net (gain) loss on asset sales (772) 265 (3,219)
Self-insurance reserves (26,201) (62,367) (56,222)
Other (100,078) 59,654 (92,688)
(Increase) decrease in current assets:
Receivables (80,441) 810 (32,694)
Inventories 11,313 (152,920) (54,645)
Prepaid expenses (15,829) 5,006 28,164
Increase (decrease) in current liabilities:
Accounts payable 335,560 (145,069) 124,750
Other current liabilities 16,137 66,759 23,305
Accrued payroll and benefits (24,150) (6,037) (18,794)
Income taxes payable (9,997) 3,998 (30,249)
Total adjustments 574,411 210,544 292,270
Net cash provided by operating activities 855,031 497,765 609,079
Cash Flows from Investing Activities:
Expended for property, plant and equipment (996,288) (943,080) (772,611)
Proceeds from sale of assets 39,447 47,670 50,511
Net cash used in investing activities (956,841) (895,410) (722,100)
Cash Flows from Financing Activities:
Proceeds from long-term borrowing 500,000 350,000 278,500
Payment of long-term borrowing (160,000) (100,000) (125,000)
Net addition to (reduction of)debt and
obligations under capital leases 279,101 188,979 (201)
Proceeds from exercise of stock options, other 44,164 24,860 22,049
Repurchase of common stock (37,798) (72,987)
Repurchase of common stock from major shareholder (550,000)
Issuance of common stock for over-allotments 95,914
Cash dividends (97,042) (93,351) (82,607)
Net cash provided by financing activities 112,137 332,690 19,754
Net increase (decrease) in cash and cash
equivalents 10,327 (64,955) (93,267)
Cash and Cash Equivalents:
Beginning of Year 37,467 102,422 195,689
End of Year $ 47,794 $ 37,467 $102,422
</TABLE>
See notes to consolidated financial statements
14
Consolidated Statements of Shareholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional
(In thousands of dollars, Common Paid-In Retained Treasury
except per share data) Stock Capital Earnings Stock Total
Balances at beginning of 1995 $289,084 $ 71,876 $1,708,672 $ (18,711) $2,050,921
Net earnings -- 1995 (53 weeks) 316,809 316,809
Issuance of 1,184,286 shares of
stock for stock options and awards 914 7,583 8,497
Dividends ($.28 per share) (82,607) (82,607)
Stock Purchase Incentive Plans including
issuance of 120,000 shares 3,869 733 4,602
Conversion of convertible notes 10,694 113,868 124,562
Purchase of 248 shares for treasury (3) (3)
Stock Repurchase Program
5,045,000 shares (72,987) (72,987)
Other 4,702 4,702
Balances at year-end 1995 $299,778 $195,229 $1,942,874 $ (83,385) $2,354,496
Net earnings -- 1996 (52 weeks) 287,221 287,221
Issuance of 1,127,328 shares of
stock for stock options, awards and
Employee Stock Purchase Plan (ESPP) 7,891 7,497 15,388
Dividends ($.32 per share) (93,351) (93,351)
Stock Purchase Incentive Plans 8,856 8,856
Purchase of 13,124 shares for treasury,
including ESPP buybacks (103) (78) (181)
Stock Repurchase Program 2,180,000 shares (37,798) (37,798)
Other 799 (3) 796
Balances at year-end 1996 $299,778 $212,672 $2,136,744 $(113,767) $2,535,427
Net earnings -- 1997 (52 weeks) 280,620 280,620
Issuance of 1,652,397 shares of
stock for stock options, awards and
Employee Stock Purchase Plan (ESPP) 5,983 24,704 30,687
Shares related to directors' stock
compensation plan - 193,000 shares 3,931 86 4,017
Dividends ($.35 per share) (97,042) (97,042)
Stock Purchase Incentive Plans 10,425 10,425
Purchase of 59,183 shares for treasury,
including ESPP buybacks (967) (967)
Stock Repurchase from major shareholder -
24,444,444 shares (550,000) (550,000)
Stock issuance for over-allotments -
4,622,372 shares 36,194 59,721 95,915
Balances at year-end 1997 $299,778 $269,205 $2,320,322 $(580,223) $2,309,082
</TABLE>
See notes to consolidated financial statements
15
Notes to Consolidated Financial Statements
Nature of Operations
American Stores Company is one of the nation's leading food and drug retailers,
operating 1,557 stores in 26 states. The Company operates in a single industry
segment and its principal formats include supermarkets, stand-alone drug stores
and combination food/drug stores. Principal markets include California,
Illinois, New Jersey, Pennsylvania, Nevada, Indiana, Massachusetts 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 "1997", "1996" and "1995" represent the
52-week fiscal years ended January 31, 1998 and February 1, 1997 and the 53-week
fiscal year ended February 3, 1996, 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.
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 15 to 25 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 $390.4 million, $359.9 million and $324.5 million in fiscal 1997, 1996 and
1995, respectively. Amortization expense related to property under capital
leases amounted to $8.5 million, $9.2 million and $10.4 million in fiscal 1997,
1996 and 1995, 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. Accumulated
amortization amounted to $524.6 million, $471.2 million and $418.0 million in
1997, 1996 and 1995, respectively.
16
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.
Derivative Financial Instruments. The Company enters into treasury locks,
interest rate swaps and similar agreements to modify the interest rate
characteristics of its outstanding debt or on anticipated public debt financing
of the Company and holds them strictly for purposes other than trading. The
objective of these derivative transactions is to reduce the Company's exposure
to changes in interest rates, and each transaction is evaluated periodically by
the Company for changes in market value and counterparty credit exposure.
The agreements are usually in notional amounts less than the total amount of the
anticipated debt issue and are generally in effect for a period estimated to
expire concurrent with the anticipated debt issue. They involve the exchange of
amounts based on a fixed interest rate for amounts based on variable interest
rates over the life of the agreement without an exchange of the notional amount
upon which the payments are based. The difference to be paid or received as
interest rates change is recognized quarterly in the case of the LIBOR basket
swap. The fair value of the treasury rate lock is amortized over the term of
debt issued. In the event of the early extinguishment of an obligation, any
realized or unrealized gain or loss from the swap would be recognized in income
coincident with the extinguishment of the obligation.
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.
Earnings Per Share. Earnings per share amounts for all periods have been
restated to conform to the requirements of Statement of Financial Accounting
Standards No. 128, Earnings Per Share. The adoption of Statement No. 128 did
not have a material impact on earnings per share.
Environmental Remediation Costs. Costs incurred to investigate and remediate
contaminated sites 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 1997, the Company's
self-insured liabilities were supported by approximately $244.6 million of
undrawn letters of credit. The Company is also self-insured for health care
claims for eligible active and retired associates. Self-insured liabilities,
with the exception of postretirement health care benefits, are not discounted.
The basis for the amount of the Company's accrual for self insurance claims is
determined by an independent actuary who arrives at the ultimate costs of claims
17
that have occurred by analyzing amounts already paid to claimants, open case
reserves and an estimate of incurred but not reported losses, including both
claims that are unreported as of the valuation date and the future growth in
claim value that will occur as more information about each claim becomes known.
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.
New Accounting Standard
Statement No. 131, Disclosure about Segments of an Enterprise and Related
Information, was issued by the Financial Accounting Standards Board in June
1997, effective for fiscal years beginning after December 15, 1997. The Company
has determined that it will continue to have only one reportable segment.
Inventories
Approximately 94% of inventories are accounted for using the LIFO (last-in,
first-out) method for inventory valuation. If the FIFO (first-in, first-out)
and average cost methods had been used, inventories would have been $327.0
million, $324.5 million and $313.1 million higher at year-end 1997, 1996 and
1995, respectively. The LIFO charge to earnings was $2.4 million in 1997, $11.4
million in 1996 and $12.8 million in 1995. 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
inflation or deflation.
Advertising Expense
The Company expenses advertising costs when the advertisement occurs. Total
advertising expense amounted to $156.2 million, $133.2 million and $168.3
million in 1997, 1996 and 1995, respectively. Capitalized advertising costs
were $2.5 million, $4.0 million and $3.1 million in 1997, 1996 and 1995,
respectively.
Reclassification
The 1996 and 1995 financial statements have been reclassified to conform to the
current year presentation.
Stock Split
On June 17, 1997, the Board of Directors of the Company declared a two-for-one
split of the Company's common stock. The split was payable July 16, 1997, to
shareholders of record on July 1, 1997. All share and per share information has
been restated to reflect the stock split.
18
Debt
On May 2, 1997, the Company issued $300 million of debentures consisting of $100
million of 7.9% debentures due May 1, 2017 and $200 million of 7.5% debentures
due May 1, 2037. The $200 million, 40-year debentures are redeemable at the
option of each of the registered holders on May 1, 2009. Net proceeds were used
to refinance short-term variable rate borrowings and for general corporate
purposes.
On July 3, 1997, the Company entered into a $200 million term loan agreement.
The underlying notes bear interest at an average rate of 6.3% and mature July 1,
2004. Net proceeds were used to refinance short-term variable rate borrowings
and for general corporate purposes.
On March 28, 1997, the Company increased the capacity of its revolving credit
facility to a $1.5 billion five-year revolving credit facility which expires in
2002. This facility was the Company's principal bank credit agreement at year-
end 1997. Interest rates for borrowings under the revolving credit facility are
established at the time of borrowing through one of 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, among other customary
conditions, provides for a covenant of cash flow to total debt.
The Company also has a $1.0 billion commercial paper program supported by the
$1.5 billion revolving credit facility, and $330 million of uncommitted bank
lines, which are used for overnight and short-term bank borrowings. At year-end
1997, the Company had $512 million of debt outstanding under the credit
facility, $717 million outstanding under the commercial paper program and $229
million outstanding under uncommitted bank lines, leaving unused committed
borrowing capacity of $42 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. On February 3, 1998, the Company's $1.0
billion universal shelf registration statement become effective, of which $500
million has been designated for the Company's Series B Medium Term Note Program.
The Company capitalized interest costs associated with construction projects of
$16.2 million, $10.6 million and $8.5 million in 1997, 1996 and 1995,
respectively. The Company made cash payments for interest (net of amounts
capitalized) of $204.3 million, $160.8 million and $169.5 million in 1997, 1996
and 1995, respectively.
19
The aggregate amounts of debt maturing in each of the next five fiscal years are
listed below:
(In thousands of dollars)
<TABLE>
<S> <C>
1998 $ 92,407
1999 34,086
2000 154,946
2001 25,419
2002 1,718,453
Thereafter 1,216,854
Total debt 3,242,165
Capital lease obligations 60,740
Total debt and obligations
under capital leases $3,302,905
</TABLE>
20
The Company's various loans secured by real estate are collateralized by
properties with a net book value of $232.3 million at year-end 1997.
A summary of debt is as follows:
<TABLE>
<S> <C> <C> <C>
(In thousands of dollars) 1997 1996 1995
Public Debt (unsecured):
7.5% Debentures due 2037, put option 2009 $ 200,000
8.0% Debentures due 2026 350,000 $ 350,000
7.9% Debentures due 2017 100,000
7.4% Notes due 2005 200,000 200,000 $ 200,000
Medium Term Notes--fixed interest rates due
1998 through 2003--average interest rate 7.9% 200,000 250,000 250,000
9-1/8% Notes due 2002 249,320 249,191 249,075
Bank Borrowings (unsecured):
Revolving credit facility--variable
interest rates, effectively due 2002--
average interest rates 5.9% in 1997,
5.7% in 1996 and 6.2% in 1995 512,000 957,000 865,000
Lines of credit and commercial paper--
variable interest rates, effectively
due 2002--average interest rates 5.9%
in 1997, 5.6% in 1996 and 6.4% in 1995 945,899 183,000 69,000
Notes due 2004--average interest rate 6.3% 200,000
Other borrowings--due 2000--average
interest rates 6.6% in 1997 and
1996 and 6.5% in 1995 75,000 75,000 125,000
Other Unsecured Debt:
9.8% due in 1999 160,000 210,000
10.6% due in 2004 108,893 108,893 108,893
Other--due through 2001 31,505 2,988 3,625
Debt Secured by Real Estate:
Fixed interest rates--due through 2014--
average interest rate 13.4% in 1997,
13.3% in 1996 and 13.3% in 1995 69,548 77,365 83,456
Outstanding debt 3,242,165 2,613,437 2,164,049
Capital lease obligations 60,740 65,710 76,119
Total debt and obligations under capital leases 3,302,905 2,679,147 2,240,168
Less current maturities:
Debt 92,407 56,703 125,413
Capital lease obligations 8,528 9,300 9,739
Long-term debt and obligations under capital leases 3,201,970 2,613,144 2,105,016
Long-term capital lease obligations 52,212 56,410 66,380
Long-term debt $3,149,758 $2,556,734 $2,038,636
</TABLE>
On October 14, 1997, the Company prepaid a foreign loan in the principal amount
of 22 billion yen ($160 million U.S.) bearing interest at a yen interest rate of
6.0% and terminated the related interest rate and currency exchange swap
agreement that fixed the interest rate and eliminated the risk of currency
fluctuations. The Company incurred a net loss of $.7 million in connection with
the prepayment of the loan and termination of the swap agreement.
On October 27, 1997, the Company entered into a $300 million five-year LIBOR
basket swap. The agreement diversifies the indices used to determine the
interest rate on a portion of the Company's variable rate debt by providing for
payments based on foreign LIBOR indices which are reset every three months and
also provides for a maximum interest rate of 8.0%. The Company recognized
21
income of $.5 million in 1997 related to this swap. As of year-end 1997, the
estimated fair value of the agreement based on market quotes was a loss of $6.7
million.
On December 15, 1997, a $100 million treasury rate lock agreement was entered
into for the purpose of hedging the interest rate on a portion of the debt the
Company anticipates issuing in 1998 under a universal shelf registration
statement. The treasury lock fixed the rate on the 30-year treasury bond at
6.0% and has a term of 3 1/2 months. As of year-end 1997, the estimated fair
value of the agreement based on market quotes was a loss of $.6 million.
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 $300 million of debentures the Company issued on May 2, 1997
under the Company's previous shelf registration statement. The swap was
terminated in connection with the issuance of the debentures, and the Company
realized a net gain of $6.2 million, which is being amortized over the term of
the debt as a reduction to interest expense.
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 1997 was $3.4 billion compared to the carrying
value of $3.2 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 1997 for both capital and operating leases. Operating leases are shown net
of an aggregate $108.9 million of minimum rent income receivable under non-
cancelable subleases. Operating leases also exclude the amortization of
acquisition-related fair value adjustments.
22
<TABLE>
<S> <C> <C>
Operating Capital
(In thousands of dollars) Leases Leases
1998 $ 177,294 $ 14,693
1999 166,783 13,065
2000 152,054 10,944
2001 139,690 9,617
2002 130,737 8,506
Thereafter 1,140,465 51,012
Total minimum rent commitments $1,907,023 107,837
Less executory costs (such as taxes, insurance
and maintenance) included in capital leases 1,966
Net minimum lease payments 105,871
Less amount representing interest 45,131
Obligations under capital leases, including $8.5
million due within one year $ 60,740
</TABLE>
Additions to obligations under capital leases were $4.7 million in 1997. Rent
expense, excluding the amortization of acquisition-related fair value
adjustments of $13.9 million in 1997, $14.2 million in 1996 and $14.3 million in
1995, was as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Minimum Sublease Contingent Total
(In thousands of dollars) Rent Rent Net Rent Rent
1997 $206,749 $17,591 $189,158 $22,729 $211,887
1996 $189,105 $15,663 $173,442 $24,305 $197,747
1995 $180,933 $14,782 $166,151 $26,003 $192,154
</TABLE>
Income Taxes
Federal and state income taxes charged to earnings are summarized below:
<TABLE>
<S> <C> <C> <C>
52 weeks 52 weeks 53 weeks
(In thousands of dollars) 1997 1996 1995
Current:
Federal $214,005 $206,313 $124,317
State 23,572 25,731 15,979
Deferred:
Federal 4,847 (12,948) 81,859
State 621 (1,765) 11,952
Federal and state income taxes $243,045 $217,331 $234,107
</TABLE>
Cash payments of income taxes were $263.3 million, $226.8 million and $169.2
million in 1997, 1996 and 1995, respectively.
23
The Company's effective income tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<S> <C> <C> <C>
52 weeks 52 weeks 53 weeks
(Percent of earnings before income taxes) 1997 1996 1995
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income tax rate, net of federal
income tax effect 4.9 4.8 5.1
Goodwill amortization 4.0 4.2 3.8
Expenses for repurchase of major
shareholders' common stock 2.3
Tax credits (0.1) (0.1) (0.4)
Other 0.3 (0.8) (1.0)
Effective income tax rate 46.4% 43.1% 42.5%
</TABLE>
Deferred tax benefits and liabilities as of year-end 1997 related to the
following temporary differences:
<TABLE>
<S> <C> <C> <C>
(In thousands of dollars) Benefits Liabilities Total
Basis in fixed assets $ 29,649 $(251,607) $(221,958)
Self-insurance reserves 159,095 159,095
Purchase accounting valuation 31,436 (285,964) (254,528)
Compensation and benefits 39,172 (31,109) 8,063
Other, net 104,606 (115,736) (11,130)
Deferred tax benefits and liabilities $363,958 $(684,416) $(320,458)
</TABLE>
No valuation allowances have been considered necessary in the calculation of
deferred tax benefits.
Stock Compensation Plans
Fixed Stock Option Plans
The Company's Stock Option and Stock Awards Plans (Plans) provide for the grant
of options to purchase shares of common stock and the issuance of restricted
stock awards, subject to certain antidilution adjustments. At year-end 1997,
there were 6.4 million shares reserved for future grants or awards under the
Company's Plans.
A summary of the Company's stock option activity and related information for
1997, 1996 and 1995 follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
(Options in thousands) Options Price Options Price Options Price
Outstanding at beginning of year 6,030 $14.36 3,840 $11.37 2,721 $ 5.62
Granted 13,210 $23.14 2,712 $17.91 3,097 $12.20
Exercised (436) $11.34 (269) $ 8.70 (1,652) $ 3.64
Forfeited / Expired (536) $18.21 (253) $13.00 (326) $10.50
Outstanding at end of year 18,268 $20.67 6,030 $14.36 3,840 $11.37
Exercisable at end of year 1,056 424 473
Reserved for future grants 6,061 3,596 6,234
</TABLE>
24
At year-end 1997, there were stock options for 18.3 million shares outstanding
which expire through 2007. Exercise prices for outstanding options as of year-
end 1997 ranged from $6.84 to $24.88 and the weighted-average remaining
contractual life of those options is 7.2 years. Compensation expense related to
other options decreased pre-tax earnings by $3.4 million in 1995.
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 1997
employees contributed $17.2 million to the ESPP program and .9 million shares
were issued. Since the ESPP's inception, employees have contributed $30.8
million and 1.9 million shares have been issued. At year-end 1997, 12.1 million
shares were available for future issuances.
Long Term Incentive Plans
During 1997 the Company modified the Long Term Incentive Plans for 1995-1997 and
1996-1998 to provide participants with the option to receive shares of
restricted stock in lieu of cash as originally provided. The number of shares
issued to participants electing to receive shares of stock was based on the
projected value of the Plan pay-out and 282,016 shares were issued on July 1,
1997. Vesting takes place over the original Plan vesting periods; the 1995-1997
Plan vests in April 1998 and the 1996-1998 Plan vests in April 1999.
Performance Incentive Program
During 1997 the Company established the 1997 Performance Incentive Program which
would provide certain of the Company's key executives an incentive award of
shares of two-year restricted stock if certain Company performance objectives
were attained for the 1997 fiscal year. This Program replaced the Long Term
Incentive Plans. The Company did not achieve the minimum performance
objectives, thus no such shares were issued under the program.
Key Executive Equity Program
In 1997 the Company established the Key Executive Equity Program (KEEP), a
stock-based management incentive program. The new Program continues to link
executive incentive compensation to shareholder return. A total of
approximately 13.2 million stock options were granted to 165 of the Company's
officers in connection with the incentive Program with an exercise price of
$22.50 to $23.72 per share. 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 with respect to one-
half of the grant if minimum stock ownership requirements are satisfied, and
with respect to the other half of the grant if the ownership requirements are
met and the Company achieves annual performance goals. During 1997 the
performance goal was not achieved, and therefore the options subject to
25
accelerated vesting based on performance during 1997, will not vest until
February 24, 2002, the fifth anniversary of the grant date.
To assist the KEEP participants in meeting the stock ownership requirement, the
Company issued full recourse interest bearing purchase loans to 18 participants
to acquire additional shares of the Company's stock. The stock purchased by the
participants was purchased on the open market. The purchase loans have a
maturity date of April 1, 2002 and accrue interest at 8.5%, reset annually at
the then current prime rate. Outstanding loan balances at year-end 1997 totaled
$2.2 million.
Stock Plan for Non-Employee Directors
During 1997 the shareholders approved the 1997 Stock Plan for Non-Employee
Directors (Directors Plan), which provides for: 1) the grant of 2,000 shares
annually of the Company's Common Stock (Retainer Stock), 2) the grant on an
annual basis of stock options to acquire 1,200 shares of common stock to each
participant who satisfies the Minimum Stock Ownership Requirement, and 3) the
one time issuance of common stock (173,000 shares in total) to compensate such
directors for their respective interests in the Non-Employee Directors'
Retirement Plan (Retirement Stock), which was terminated concurrently with the
adoption of the Directors' Plan.
The options vest over a two-year period and have a term of 10 years. Retainer
Stock vests on the date of the next annual shareholders' meeting. Retirement
Stock (and dividends thereon which are reinvested in stock) will be delivered to
a participant on the earlier of: 1) death of Participant, 2) change of control
or, 3) the later of the date the Participant attains age 65 or the date the
Participant ceases to serve as a Director. Directors may elect to defer
delivery of Retainer Stock, Retirement Stock and dividends thereon.
Compensation expense related to the Retirement Stock and Retainer Stock
decreased pre-tax earnings by $4.0 million in 1997. The options were issued at
market value on the date of grant and thus no compensation expense was
recognized.
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 1997, 1996 and 1995 and for the ESPP in 1997 and 1996, after income
taxes, was $12.9 million for 1997, $4.8 million for 1996 and $.8 million for
1995. Pro forma net income would have been $267.7 million in 1997, $282.5
million in 1996 and $316.0 million in 1995. Diluted earnings per share would
have been $.97 for 1997, $.97 for 1996 and $1.07 for 1995.
The fair value of options was estimated at the date of grant assuming an average
expected volatility of 21.2% and dividend yield of 1.8%. Other assumptions for
1997, 1996 and 1995 are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
1997 1997 ESPP 1996 1996 ESPP 1995
Average risk-free interest rate 6.6% 5.0% 6.1% 5.1% 6.8%
Average life of options (years) 7.0 .25 4.0 .25 5.0
Average vesting date (years) 5.0 2.0 3.0 2.0 5.0
</TABLE>
26
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 Company 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, 8-year loans to
acquire the stock.
During fiscal 1997, the performance cycle for participants in the Director's
Plan and 15 of the 18 participants in the Executive Plan ended and each received
a deferred award, which was applied toward repayment of their loans. The balance
of the loans, together with accrued and unpaid interest thereon, is payable in
three equal installments on the sixth, seventh and eighth anniversaries of the
purchase date. The aggregate principal of these loans outstanding is recorded
as Other Assets in the balance sheet and as of January 31, 1998, the aggregate
outstanding balance (including accrued and unpaid interest) was $13.6 million.
Preferred Share Purchase Rights
On March 18, 1998, the Preferred Share Purchase Rights issued pursuant to a
Rights Agreement dated March 18, 1988, as amended, expired in accordance with
their terms without renewal or extension.
Repurchase of Common Stock
On April 8, 1997, the Company (i) repurchased 24.4 million shares of its common
stock from former chairman L.S. Skaggs and certain Skaggs family members and
charitable trusts (the Selling Stockholders) for an aggregate price of $550
million and (ii) sold 4.6 million shares of common stock for net proceeds of
$95.9 million pursuant to the exercise of an over-allotment option by the
underwriters in connection with a public offering of 30.8 million shares by the
Selling Stockholders.
27
In June 1996 the Company replaced its existing stock repurchase program with a
new repurchase program which authorizes the repurchase of up to four million
shares of common stock (not including the repurchase of shares from the Selling
Stockholders). There were no repurchases of common stock under the repurchase
program during 1997, and as of January 31, 1998, an additional 3.9 million
shares remained authorized for repurchase.
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>
<S> <C> <C> <C>
(In thousands of dollars) 1997 1996 1995
Current retirees $35,389 $38,107 $37,396
Current active employees 18,640 14,776 14,275
Unrecognized gain 12,058 12,969 14,390
Accumulated postretirement
benefit obligation (APBO) $66,087 $65,852 $66,061
Discount rate 7.5% 7.5% 8.5%
</TABLE>
The components of postretirement health care benefit expense are as follows:
<TABLE>
<S> <C> <C> <C>
52 weeks 52 weeks 53 weeks
(In thousands of dollars) 1997 1996 1995
Service cost - benefits earned during
the year $ 917 $ 671 $ 768
Interest cost on APBO 3,816 3,896 4,006
Adjustment of APBO (480) (789) (465)
Net postretirement health care
benefit expense $4,253 $3,778 $4,309
</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 1998 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 $2.6 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
28
provides for participation. Contributions to ASRE are made at the discretion of
the Board of Directors.
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.
During 1994 the Company entered into Employment Agreements (Agreements) with 15
of the Company's key executive officers. The Agreements, as amended, expire on
October 31, 2002 and are automatically renewed for subsequent one-year terms,
unless terminated by the Company at least two years prior to the end of the
term. The Agreements 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.
The Company also entered into an employment agreement with a key executive
officer in 1994 which, as amended, expires on October 31, 2002, and is
automatically renewed for subsequent two-year terms unless terminated by the
Company at least three years prior to the end of the term. The agreement
provides for an annual retirement benefit that vests over an eight-year period
which, if fully vested, would equal $700,000 adjusted for inflation. Payments
will be made over the life of the executive and his spouse. The retirement
benefit will be forfeited if the executive enters into competition with the
Company.
Retirement plans expense was as follows:
<TABLE>
<S> <C> <C> <C>
52 weeks 52 weeks 53 weeks
(In thousands of dollars) 1997 1996 1995
Company sponsored plans $ 93,342 $ 88,106 $ 81,704
Multi-employer plans 71,938 95,822 86,723
Retirement plans expense $165,280 $183,928 $168,427
</TABLE>
Restructuring and Impairment
Restructuring and impairment in 1997 of $13.4 million related to charges from
the sale of a division of the Company's communications subsidiary.
In 1996 the Company recorded special charges aggregating approximately $100.0
million before taxes, or $.21 per diluted share, related primarily to its re-
engineering initiatives. The initiatives are designed to transform the Company
from a holding company to a unified operating company. The special charges are
included in cost of merchandise sold ($10.0 million), operating and
29
administrative expense ($12.9 million) and restructuring and impairment ($77.1
million). The components of the charge include: warehouse consolidation costs,
administrative office consolidation costs, asset impairment costs, closed store
costs and other miscellaneous charges. Cash expenditures are estimated to
approximate $40.0 million of which $25.3 million was paid through the fourth
quarter of 1997. 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 had recorded a charge of $15.5 million related to termination
benefits to be paid to an estimated 445 people. At year-end 1997, the Company
estimated that a total of 550 people would be terminated at a cost of $16.8
million. Severance costs of $10.7 million were paid in connection with the
consolidation and 407 people were terminated. In 1997 the Company continued its
plan to close and consolidate its warehouses and offices and sublease unutilized
space where possible. The warehouse and office consolidation efforts were
originally projected to be completed during 1997. Due to delays, these projects
will be completed during 1998. The following table details the components of
the reserve:
<TABLE>
<S> <C> <C> <C> <C>
Original Reserve
Reserve Activity Reserve Balance
(In millions of dollars) Balance to Date Adjustments 1/31/98
Warehouse consolidation $ 26.4 $30.6 $ 8.0 $ 3.8
Office consolidation 26.3 5.6 (5.5) 15.2
Asset impairment 26.4 23.9 (2.5)
Closed store costs 12.9 12.9
Other 8.0 8.0
Total $100.0 $81.0 $19.0
</TABLE>
Environmental
The Company has identified environmental contamination sites related primarily
to underground petroleum storage tanks and ground water contamination at various
store, warehouse, office and manufacturing facilities (related to current
operations as well as previously disposed of businesses). The Company conducts
an on-going program for the inspection and evaluation of new sites proposed to
be acquired by the Company and the remediation/monitoring of contamination at
existing and previously owned sites. 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 1997, 1996 or 1995.
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.
30
Quarterly Results (unaudited)
In the opinion of management, all adjustments necessary for a fair presentation
have been included:
<TABLE>
<S> <C> <C> <C> <C> <C>
(In thousands of dollars, First Second Third Fourth Fiscal
except per share data)(1) Quarter Quarter Quarter Quarter (5) Year
1997 (2)
Sales $4,747,644 $4,763,174 $4,647,465 $4,980,597 $19,138,880
Gross profit 1,250,805 1,286,449 1,234,699 1,327,664 5,099,617
Operating profit (6) 167,531 212,420 161,468 227,222 768,641
Other (6) (33,169) 2,109 1,256 1,538 (28,266)
Net earnings 34,225 89,957 60,275 96,163 280,620
Basic earnings per share (7) $.12 $.33 $.22 $.35 $1.02
Diluted earnings per share (7) .12 .33 .22 .35 1.01
1996 (3)
Sales $4,580,028 $4,625,066 $4,563,362 $4,909,673 $18,678,129
Gross profit 1,195,176 1,226,328 1,216,966 1,326,508 4,964,978
Operating profit (6) 149,376 185,195 173,985 159,084 667,640
Other (6) 1,691 1,296 2,027 3,456 8,470
Net earnings 64,240 83,129 75,757 64,095 287,221
Basic earnings per share (7) $.22 $.28 $.26 $.22 $.98
Diluted earnings per share (7) .22 .28 .26 .22 .98
1995 (4)
Sales $4,362,237 $4,494,890 $4,361,183 $5,090,584 $18,308,894
Gross profit 1,120,869 1,150,890 1,145,142 1,333,303 4,750,204
Operating profit (6) 130,873 166,319 153,914 250,608 701,714
Other (6) 2,851 2,146 2,153 1,597 8,747
Net earnings 53,883 73,937 67,445 121,544 316,809
Basic earnings per share (7) $.18 $.25 $.23 $.42 $1.08
Diluted earnings per share (7) .18 .25 .23 .41 1.08
</TABLE>
(1) Restated as necessary to reflect the July 1997 two-for-one stock split
(2) First quarter 1997 "Other" included charges of $33.9 million related to the
sale of stock by a major shareholder and first quarter 1997 operating profit
included charges of $13.4 million related to the sale of a division of the
Company's communications subsidiary (total of $.14 per share).
(3) Fourth quarter 1996 includes special charges totaling $100.0 million pre-tax
($.21 per share, after tax) in operating profit, including $10.0 million in
gross profit.
(4) 53-week fiscal year and 14-week fourth quarter, compared to 52-week years
and 13-week quarters
for fiscal 1997 and 1996.
(5) Operating profit, before special charges, in the fourth quarter has exceeded
the prior three quarters in each of the three years presented due to the
seasonality of the food and drug retail business and LIFO inventory
adjustments. The holiday and the cold and flu season in the
fourth quarter benefits the food and drug retail business.
(6) Beginning in the fourth quarter of 1997, the Company classified certain
expenses as operating and administrative expense and restructuring and
impairment that were previously classified below operating profit. Prior
years and the first three quarters of 1997 have been reclassified to conform
to the current year presentation.
(7) The 1995, 1996 and first three quarters of 1997 earnings per share amounts
have been restated to comply with Statement of Financial Accounting
Standards No. 128, Earnings Per Share.
31
Exhibit 21
AMERICAN STORES COMPANY
PRINCIPAL SUBSIDIARIES
YEAR-END 1997
<TABLE>
<S> <C>
State of
Subsidiary Incorporation
Jewel Companies, Inc. DE
Acme Markets, Inc. DE
Jewel Food Stores, Inc. NY
American Drug Stores, Inc., dba IL
Osco Drug DE
Sav-on
RxAmerica, Inc. DE
Health 'n' Home Corporation DE
American Food and Drug, Inc. DE
Jewel Osco Southwest, Inc. IL
Lucky Stores, Inc. DE
American Stores Properties, Inc. DE
American Stores Realty Corp. PA
American Procurement and Logistics Company DE
ASC Services, Inc. DE
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Stores Company of our report dated March 18, 1998, included in the
1997 Annual Report to Shareholders of American Stores Company.
We also consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 33-25613; 2-94235; 33-48203; 33-48204; 33-08801; 33-32150;
33-63869; 333-27617; 333-27615 and S-3 Nos. 33-52331; 333-22701 and 333-43251)
of our report dated March 18, 1998, with respect to the consolidated financial
statements incorporated by reference in the Annual Report (Form 10-K) for the
year ended January 31, 1998.
ERNST & YOUNG LLP
Salt Lake City, Utah
April 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statements for the Fifty-two week period ended January 31,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 47,794
<SECURITIES> 0
<RECEIVABLES> 399,319
<ALLOWANCES> 0
<INVENTORY> 1,714,229
<CURRENT-ASSETS> 2,261,780
<PP&E> 6,645,785
<DEPRECIATION> 2,445,923
<TOTAL-ASSETS> 8,536,015
<CURRENT-LIABILITIES> 2,121,334
<BONDS> 3,201,970
0
0
<COMMON> 299,778
<OTHER-SE> 2,009,304
<TOTAL-LIABILITY-AND-EQUITY> 8,536,015
<SALES> 19,138,880
<TOTAL-REVENUES> 19,138,880
<CGS> 14,039,263
<TOTAL-COSTS> 14,039,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,710
<INCOME-PRETAX> 523,665
<INCOME-TAX> 243,045
<INCOME-CONTINUING> 280,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280,620
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01<F1>
<FN>
<F1>All numbers except EPS are in (000's).
</FN>
</TABLE>
