SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 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 St.
Salt Lake City, Utah 84111
(Address of principal executive offices) (Zip Code)
801-539-0112
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 21, 1998: Common Stock, Par Value $1.00 - 274,522,065
shares.
Part I. Financial Information
Item 1. Financial Statements
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Earnings
(unaudited)
(In thousands, except per share data)
<TABLE>
Thirteen Weeks Ended
August 1, August 2,
1998 1997
<C> <C>
Sales $4,950,016 $4,763,174
Cost of merchandise sold, including
warehousing and transportation expenses 3,631,046 3,476,725
Gross profit 1,318,970 1,286,449
Operating and administrative expenses 1,106,478 1,074,029
Operating profit 212,492 212,420
Other income (expense):
Interest income 855 2,109
Interest expense (58,956) (56,709)
Net other income (expense) (58,101) (54,600)
Earnings before income taxes 154,391 157,820
Federal and state income taxes 66,231 67,863
Net earnings $ 88,160 $ 89,957
Basic earnings per share $ 0.32 $ 0.33
Diluted earnings per share $ 0.32 $ 0.33
Average number of common shares outstanding
used for basic earnings per share 274,437 272,535
Dilutive common stock options 1,468 1,722
Average number of common shares outstanding
used for dilutive earnings per share 275,905 274,257
Dividends per share $0.09 $0.09
</TABLE>
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Earnings
(unaudited)
(In thousands, except per share data)
<TABLE>
Twenty-Six Weeks Ended
August 1, August 2,
1998 1997
<C> <C>
Sales $9,822,702 $9,510,818
Cost of merchandise sold, including
warehousing and transportation expenses 7,237,190 6,973,564
Gross profit 2,585,512 2,537,254
Operating and administrative expenses 2,198,505 2,143,903
Restructuring and impairment 13,400
Operating profit 387,007 379,951
Other income (expense):
Interest income 1,819 2,853
Interest expense (119,088) (107,505)
Shareholder related expenses (33,913)
Net other income (expense) (117,269) (138,565)
Earnings before income taxes 269,738 241,386
Federal and state income taxes 115,717 117,204
Net earnings $ 154,021 $ 124,182
Basic earnings per share $ 0.56 $ 0.44
Diluted earnings per share $ 0.56 $ 0.44
Average number of common shares outstanding
used for basic earnings per share 274,189 279,386
Dilutive common stock options 1,563 1,422
Average number of common shares outstanding
used for dilutive earnings per share 275,752 280,808
Dividends per share $0.18 $0.17
</TABLE>
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Balance Sheets
(unaudited)
(In thousands of dollars)
<TABLE>
August 1, January 31,
1998 1998
<C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 34,380 $ 47,794
Inventories 1,549,924 1,714,229
Other current assets 451,891 499,757
Total current assets 2,036,195 2,261,780
Property, plant and equipment and property
under capital leases, less accumulated
depreciation and amortization of $2,556,824
on August 1, 1998 and $2,552,723 on
January 31, 1998 4,300,317 4,260,921
Goodwill 1,600,195 1,611,812
Other assets 482,696 401,502
Assets $8,419,403 $8,536,015
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $1,074,624 $1,186,845
Other current liabilities 722,819 833,554
Current maturities of long-term debt and
capital lease obligations 40,287 100,935
Total current liabilities 1,837,730 2,121,334
Other liabilities 888,305 903,629
Long-term debt and obligations under capital
leases, less current maturities 3,261,042 3,201,970
Shareholders' Equity - shares outstanding of
274,519,412 on August 1, 1998 and
273,606,510 on January 31, 1998 2,432,326 2,309,082
Liabilities and Shareholders' Equity $8,419,403 $8,536,015
</TABLE>
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Cash Flows
(unaudited)
(In thousands of dollars)
<TABLE>
Twenty-Six Weeks Ended
August 1, August 2,
1998 1997
<C> <C>
Cash Flows from Operating Activities:
Net earnings $ 154,021 $ 124,182
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 244,834 228,059
Net (gain) loss on asset sales (6,887) (3,820)
Changes in operating assets and liabilities (124,706) 81,292
Total adjustments 113,241 305,531
Net cash provided by operating
activities 267,262 429,713
Cash Flows from Investing Activities:
Expended for property, plant and equipment (330,861) (388,069)
Proceeds from sale of other assets 81,486 23,658
Net cash (used in) investing activities (249,375) (364,411)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings 145,000 500,000
Payments on long-term borrowings (50,000)
Net(decrease)increase in borrowings (95,524) (98,804)
Other changes in equity 18,533 29,090
Repurchase of common stock from major stockholder (550,000)
Issuance of common stock for overallotments 95,914
Cash dividends (49,310) (47,868)
Net cash (used in) provided by
financing activities (31,301) (71,668)
Net (decrease) in cash and
cash equivalents (13,414) (6,366)
Cash and cash equivalents:
Beginning of year 47,794 37,467
End of quarter $ 34,380 $ 31,101
Supplementary Information - Statements of Cash Flows:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 115,513 $ 100,700
Income taxes, net of refunds $ 99,153 $ 144,617
</TABLE>
AMERICAN STORES COMPANY
Notes to Consolidated Condensed Financial Statements
(unaudited)
August 1, 1998
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all normal recurring adjustments necessary to
present fairly the balance sheets of American Stores Company and its
subsidiaries as of August 1, 1998 and January 31, 1998 and the statements of
earnings for the thirteen weeks ended August 1, 1998 and August 2, 1997 and
statements of earnings and cash flows for the twenty-six weeks ended August 1,
1998 and August 2, 1997. The operating results for the interim periods are not
necessarily indicative of results for a full year. For a further discussion of
the Company's accounting policies, please refer to the Company's Form 10-K for
the fiscal year ended January 31, 1998.
Reclassification
The prior year financial statements have been reclassified to conform to the
current year presentation.
Net Earnings Per Share
Earnings per share amounts are calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Stock options
outstanding during the second quarter and year-to-date 1998 having no dilutive
effect totaled 225,900 at exercise prices ranging from $24.88-$25.00 per share.
Employee Stock Purchase Plan (ESPP)
During the quarter, 227,900 shares were issued under the ESPP at $20.32 per
share. As of August 1, 1998, 2.4 million shares had been issued under the ESPP
and 11.6 million shares remain authorized for issuance.
Debt
On March 19, 1998, the Company issued $45 million under the outstanding Series B
Medium Term Note Program. On March 30, 1998, the Company issued an additional
$100 million under the same Program. The $45 million notes bear interest at a
rate of 6.5% and mature March 20, 2008. The $100 million notes bear interest at
a rate of 7.1% and mature March 20, 2028. Proceeds were used to refinance
short-term debt and for general corporate purposes.
During the first quarter of 1998, the Company repaid $50 million of its
outstanding Series A Medium Term Notes which had an average interest rate of
8.38%.
During 1997 the Company entered into a $100 million treasury rate lock agreement
for the purpose of hedging the interest rate on a portion of debt to
Part I - Financial Information (continued)
Notes to Consolidated Condensed Financial Statements (continued)
be issued under the universal shelf registration statement. In March 1998, the
treasury lock was terminated in connection with the issuance of the $100 million
notes. The Company realized a net loss of $1.0 million, which is being
amortized over the term of the debt as an addition to interest expense.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." The statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company has not yet determined what effect, if any, these statements will
have on the Company.
Subsequent Event
On August 2, 1998 the Company entered into an Agreement and Plan Of Merger (the
Merger Agreement) between the Company, Albertson's Inc. (Albertson's) and Abacus
Holdings, Inc., a wholly-owned subsidiary of Albertson's (Merger Sub), pursuant
to which Merger Sub would be merged with and into the Company with the Company
surviving the merger as a wholly owned subsidiary of Albertson's. The merger is
subject to certain conditions, including, among others, approval by the
stockholders of both the Company and Albertson's, regulatory approvals and other
customary conditions.
In connection with the Merger Agreement, the Company and Albertson's entered
into reciprocal stock option agreements pursuant to which (a) the Company
granted Albertson's an option to purchase up to 54.5 million shares of Company
Common Stock (but in no event more than 19.9% of the outstanding shares of
Company Common Stock at the time of exercise) under certain circumstances and
upon the terms and conditions set forth in the stock option agreement, at an
exercise price of $30.24 per share and (b) Albertson's granted the Company an
option to purchase up to 48.8 million shares of Albertson's Common Stock (but in
no event more than 19.9% of the outstanding shares of Albertson's Common Stock
at the time of exercise) under certain circumstances and upon the terms and
conditions set forth in the stock option agreement at an exercise price of
$48.00 per share
The merger is expected to be accounted for as a pooling-of-interests. Upon
consummation of the transaction, each outstanding share of the Company's Common
Stock will be converted into the right to receive .63 shares of Albertson's
Common Stock.
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Total sales for the second quarter of 1998 increased 3.9% to $5.0 billion
compared to second quarter 1997 total sales of $4.8 billion. Year-to-date total
sales increased 3.3% in 1998 to $9.8 billion compared to 1997 year-to-date sales
of $9.5 billion. The increase is primarily due to increased retail square
footage from capital spending over the past few years and stronger pharmacy
sales. Net retail square footage increased 4.2% from second quarter 1997 to
second quarter 1998. Comparable store sales (sales from stores that have been
open at least one year, including replacement stores) increased 1.8% in the
second quarter and 1.4% year-to-date 1998 over the corresponding periods of 1997
due primarily to successful marketing and advertising promotions and stronger
pharmacy sales. Pharmacy department comparable sales in 1998 increased 18.4% in
the second quarter and 15.9% year-to-date over the prior year periods.
Gross profit as a percent of sales decreased to 26.7% in the second quarter of
1998 compared to 27.0% in the second quarter of 1997. Year-to-date gross profit
as a percent of sales decreased in 1998 to 26.3% compared to 26.7% in 1997. The
gross profit percentage decreases were primarily due to aggressive promotional
activity, particularly in Philadelphia and southern California, and lower
pharmacy margins compared to the prior year caused by the shift to third-party
payers, increased sales of new, lower margin drugs and the impact of inflation
on gross profit as a percent of sales.
Operating and administrative expenses as a percent of sales decreased to 22.4%
in the second quarter of 1998 from 22.5% in 1997. Year-to-date, operating and
administrative expenses as a percent of sales decreased to 22.4% in 1998
compared to 22.7% in 1997. Year-to-date operating and administrative expenses
in 1997 included costs related to the sale in the first quarter of a division of
the Company's communications subsidiary totaling $13.4. Adjusting for this
cost, year-to-date 1997 operating expense as a percent of sales was 22.5%. The
decreases as a percent to sales from the prior year were primarily attributable
to lower risk expense, improved labor management and better overall expense
control.
Total operating profit for the second quarter 1998 increased slightly to $212.5
million compared to $212.4 million in the second quarter of 1997. Year-to-date
operating profit was $387.0 million in 1998 compared to $380.0 million in 1997,
an increase of 1.9%. Operating profit was 4.3% of sales in the second quarter
and 3.9% year-to-date 1998 compared to 4.5% in the second quarter and 4.0% year-
to-date 1997. Year-to-date operating profit as a percent of sales in 1997
adjusted for the one-time cost of the sale of a division of the Company's
communications subsidiary was 4.1%. The decrease in 1998 operating profit as a
percent of sales, excluding the one-time charge, is due primarily to lower gross
profit margins.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Interest expense was $59.0 million in the second quarter of 1998 compared to
$56.7 million in the second quarter of 1997. Year-to-date interest expense
totaled $119.1 million 1998 compared to $107.5 million in 1997. Outstanding debt
levels were higher during the second quarter and year-to-date 1998 primarily due
to the continued capital expenditure program and the financing of the stock
repurchase(Stock Repurchase) from the Company's former chairman and related
parties in April of 1997.
The Company's effective income tax rate was 42.9% in the second quarter and
year-to-date 1998 compared to 43.0% and 48.5% for the same periods in 1997. The
prior year effective tax rates were higher due to the one-time non-deductible
expenses related to the Stock Repurchase. The year-to-date effective tax rate
in 1997 excluding one-time items was 43.0%.
Diluted earnings per share amounted to $0.32 per share in the second quarter and
$0.56 year-to-date 1998 compared to $0.33 and $0.44 per share for the same
periods in the prior year.
The Company recorded special charges aggregating approximately $100.0 million,
before taxes, or $0.21 per share, during 1996 related primarily to its re-
engineering program initiatives. The following table details the components of
the reserve and the activity to date as of the end of second quarter 1998:
<TABLE>
Original Reserve
Reserve Activity Reserve Balance
(in millions) Balance to Date Adjustments 8/1/98
<C> <C> <C> <C>
Warehouse consolidation $ 26.4 $35.7 $ 9.3 -
Office consolidation 26.3 19.2 (7.1) -
Asset impairment 26.4 24.2 (2.2) -
Closed store costs 12.9 12.9 -
Other 8.0 8.0 -
Total $100.0 $100.0 -
</TABLE>
As of the end of the second quarter, the total reserve had been utilized without
any necessary adjustments or modifications. The Company charged a total of
$16.3 million against the reserve related to termination benefits, of which $5.0
was paid during the thirteen week period ended August 1, 1998. A total of 550
people were terminated over the course of the restructuring. Total cash
expenditures related to the charge were $34.1 million.
Liquidity and Capital Resources
Cash provided by operating activities increased to $267.3 million year-to-date
1998 compared to $492.7 million in the same period of 1997. The decrease is
primarily attributable to the unusually large amount of cash provided by
operating activities during 1997 as a result of the implementation of the
Company's working capital initiatives. The Company initially realized
significant increases in working capital as a result of the working capital
initiatives which have tapered off over time as payables have become better
managed and inefficiencies have been eliminated. The working capital
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
initiatives are continuing in 1998 and cash provided by operating activities
during the second quarter of 1998 was in line with the Company's expectations.
Cash capital expenditures year-to-date 1998 and 1997 amounted to $330.9 million
and $388.1 million, respectively. Total capital expenditures, including the net
present value of leases, amounted to $398.5 million in 1998, compared to $496.6
million in 1997. For the second quarter of 1998, 13 new stores were opened, 13
stores were closed and 13 stores were remodeled. Year-to-date 1998, 26 new
stores were opened, 25 stores were closed and 19 stores were remodeled. Capital
expenditures for fiscal 1998 are expected to be approximately $1.0 billion and
will be funded from cash flows from operations and existing credit facilities.
In addition, the Company has $855 million available under its universal shelf
registration statement. The Company currently plans to open a total of 65 new
stores and remodel 70 stores in 1998.
On March 19, 1998, the Company issued $45 million under the outstanding Series B
Medium Term Note Program. On March 30, 1998, the Company issued an
additional $100 million under the same Program. The $45 million notes bear
interest at a rate of 6.5% and mature March 20, 2008. The $100 million notes
bear interest at a rate of 7.1% and mature March 20, 2028. Proceeds were used
to refinance short-term debt and for general corporate purposes.
During 1997 the Company entered into a $100 million treasury rate lock agreement
for the purpose of hedging the interest rate on a portion of debt to be issued
under the universal shelf registration statement. In March 1998, the treasury
lock was terminated in connection with the issuance of the $100 million notes.
The Company realized a net loss of $1.0 million, which is being amortized over
the term of the debt as an addition to interest expense.
During the first quarter of 1998, the Company repaid $50 million of its
outstanding Series A Medium Term Notes which had an average interest rate of
8.38%.
The net decrease in debt of $0.5 million in the first half of 1998 is compared
to a net increase of $401.2 million in the same period of 1997. The increase in
1997 was due primarily to the Stock Repurchase.
The Company believes that its cash flow from operations, supplemented by credit
available under the Company's existing credit facilities, availability under a
universal shelf registration statement, as well as its ability to refinance
debt, will be adequate to meet its presently identifiable cash requirements.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities." The statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (concluded)
position and measure those instruments at fair value. The Statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. The Company has not yet determined what effect, if any, these statements
will have on the Company.
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 $23.0 million on Year 2000
compliance through August 1, 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.
Subsequent Event
On August 2, 1998 the Company entered into an Agreement and Plan Of Merger (the
Merger Agreement) between the Company, Albertson's Inc. (Albertson's) and
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (concluded)
Abacus Holdings, Inc., a wholly-owned subsidiary of Albertson's (Merger Sub),
pursuant to which Merger Sub would be merged with and into the Company with the
Company surviving the merger as a wholly owned subsidiary of Albertson's. The
merger is subject to certain conditions, including, among others, approval by
the stockholders of both the Company and Albertson's, regulatory approvals and
other customary conditions.
In connection with the Merger Agreement, the Company and Albertson's entered
into reciprocal stock option agreements pursuant to which (a) the Company
granted Albertson's an option to purchase up to 54.5 million shares of Company
Common Stock (but in no event more than 19.9% of the outstanding shares of
Company Common Stock at the time of exercise) under certain circumstances and
upon the terms and conditions set forth in the stock option agreement, at an
exercise price of $30.24 per share and (b) Albertson's granted the Company an
option to purchase up to 48.8 million shares of Albertson's Common Stock (but in
no event more than 19.9% of the outstanding shares of Albertson's Common Stock
at the time of exercise) under certain circumstances and upon the terms and
conditions set forth in the stock option agreement at an exercise price of
$48.00 per share
The merger is expected to be accounted for as a pooling-of-interests. Upon
consummation of the transaction, each outstanding share of the Company's Common
Stock will be converted into the right to receive .63 shares of Albertson's
Common Stock.
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.
Part II - Other Information
Item 1.Legal Proceedings -- For a description of legal proceedings, please
refer to the footnote entitled "Legal Proceedings" contained in the
Notes to Consolidated Financial Statements section of the Company's Form
10-K for the fiscal year ended January 31, 1998.
The Company is also involved in various claims, administrative
proceedings and other legal proceedings which arise from time to time in
connection with the ordinary conduct of the Company's business.
Item 2.Changes in Securities -- None
Item 3.Defaults upon Senior Securities -- None
Item 4.Submission of Matters to a Vote of Security Holders -- The Annual
Meeting of the Company's Shareholders was held June 17, 1998 at which
time the shareholders voted on the following matters:
1. Election of Directors:
Nominee In Favor Withheld
Pamela G. Bailey 240,697,053 3,836,416
Henry I. Bryant 239,981,858 4,551,611
Arden B. Engebretsen 240,725,433 3,808,036
James B. Fisher 240,743,041 3,790,428
Fernando R. Gumucio 240,801,233 3,732,236
Leon. G Harmon 240,656,799 3,876,670
David L. Maher 240,725,005 3,808,464
Victor L. Lund 240,415,103 4,118,366
John E. Masline 240,718,534 3,814,935
Barbara Scott Prieskel 240,575,283 3,958,186
J.L. Scott 240,731,085 3,802,384
Arthur K. Smith 240,608,153 3,925,316
2. Ratification of the appointment of Ernst & Young as independent
certified public for fiscal year 1998:
For Against Abstain
243,483,791 603,628 446,050
Item 5.Other Information -- None
Item 6. Exhibits and Reports on Form 8-K --
(a) Exhibits --
10.1 Agreement and Plan of Merger, dated as of August 2, 1998, among
Albertson's, Abacus Holdings, Inc. and American Stores Company is
incorporated by reference to Exhibit 1 to the Schedule 13D filed by
American Stores Company on August 12, 1998.
10.2 Stock Option Agreement, dated as of August 2, 1998, between
Albertson's, Inc., as Issuer, and American Stores Company, as
Grantee is incorporated by reference to Exhibit 2 to the
Part II - Other Information
Schedule 13D filed by American Stores Company on August 12, 1998
with respect to the Common Stock of Albertson's, Inc.
10.3 Stock Option Agreement, dated as of August 2, 1998, between
American Stores Company, as Issuer, and Albertson's, Inc., as
Grantee is incorporated herein by reference to Exhibit 3 to the
Schedule 13D filed by American Stores Company on August 12, 1998
with respect to the Common Stock of American Stores Company.
10.4 American Stores Company Supplemental Executive Retirement Plan
1998 Restatement is incorporated herein by reference to Exhibit 4.1
of Form S-8 as filed with the Commission on July 13, 1998.
10.5 Amendment dated as of June 16, 1998 to American Stores Company Key
Executive Stock Purchase Incentive Plan.
10.6 Amendment to the 1989 Stock Option and Stock Award Plan dated as
of July 28, 1998.
10.7 Amendment to the 1985 Stock Option and Stock Award Plan dated as
of July 28, 1998.
10.8 Termination and Consulting Agreement, dated as of August 2, 1998,
by and among American Stores Company, Albertson's, Inc. and Victor
L. Lund.
10.9 Amendment to American Stores Company 1995 Employee Stock Purchase
Plan dated as of August 2, 1998.
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter --
Agreement and Plan of Merger, dated as of August 2, 1998, between
Albertson's, Inc., Abacus Holdings, Inc. and American Stores Company
(filed on August 5, 1998).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
American Stores Company
(Registrant)
Dated September 1, 1998 /s/ Neal J. Rider
Neal J. Rider
Chief Financial Officer
(Principal Financial Officer)
Dated September 1, 1998 /s/ Kathleen E. McDermott
Kathleen E. McDermott
Chief Legal Officer and Assistant Secretary
Dated September 1, 1998 /s/ Bradley M. Vierig
Bradley M. Vierig
Senior Vice President and Controller
(Chief Accounting Officer)
EXHIBIT 10.5
AMENDMENT OF AMERICAN STORES COMPANY
KEY EXECUTIVE STOCK PURCHASE INCENTIVE PLAN
The American Stores Company Key Executive Stock Purchase Incentive Plan
(the "Plan") is hereby amended by the Board of Directors of American Stores
Company, pursuant to its authority under Section 10 of the Plan, effective as
of June 16, 1998, as follows:
1. Section 7(b) of the Plan is hereby amended by adding the following
additional sentence at the end thereof:
Notwithstanding the foregoing, the Committee may, at the request of a
Participant, permit the release of shares of Common Stock and other
collateral (the "Collateral") pledged to the Company under a stock
pledge agreement pursuant to the Plan, if the Committee determines
that such release will facilitate the substitution of a margin loan or
other outside financing for all or part of the Purchase Loan that was
secured by the Collateral and that the Company will have adequate
security for any remaining balance of such Purchase Loan after such
substitution.
2. The Plan is in all other respects ratified and confirmed without
amendment.
CERTIFICATE OF ADOPTION BY BOARD OF DIRECTORS
The undersigned, Mary V. Sloan, Vice President and Secretary of American
Stores Company, hereby certifies that the foregoing Amendment to the American
Stores Company Key Executive Stock Purchase Incentive Plan was approved by the
Board of Directors of the Company at a meeting of the Board of Directors duly
called and held on June 16, 1998.
/s/ Mary V. Sloan
Mary V. Sloan
Vice President and Secretary
EXHIBIT 10.6
AMENDMENT TO AMERICAN STORES COMPANY
1989 STOCK OPTION AND STOCK AWARD PLAN
DATED AS OF JULY 28, 1998
The American Stores Company 1989 Stock Option and Stock Award Plan (the
"1989 Plan") is hereby amended by adding the following at the end of the first
sentence of the third paragraph of Section 19:
; provided, that if any right granted pursuant to this sentence would
make a Change in Control transaction ineligible for pooling of
interests accounting under APB No. 16 that is intended to be eligible
for such accounting treatment, the Committee shall have the ability to
substitute the cash payable pursuant to this paragraph with common
stock with a fair market value equal to the cash that would otherwise
be payable hereunder.
The 1989 Plan is further amended by adding the following at the end of the
first sentence of the fourth paragraph of Section 19:
; provided, that if any right granted pursuant to this sentence would
make a Change in Control transaction ineligible for pooling of
interests accounting under APB No. 16 that is intended to be eligible
for such accounting treatment, the Committee shall have the ability to
substitute the cash payable pursuant to this paragraph with common
stock with a fair market value equal to the cash that would otherwise
be payable hereunder.
CERTIFICATE OF ADOPTION BY BOARD OF DIRECTORS
The undersigned, Mary V. Sloan, Vice President and Secretary of American
Stores Company, hereby certifies that the foregoing Amendment to the American
Stores Company 1989 Stock Option and Stock Award Plan was approved by the Board
of Directors of the Company at a meeting of the Board of Directors duly called
and held on July 28, 1998.
/s/ Mary V. Sloan
Mary V. Sloan
Vice President and Secretary
EXHIBIT 10.7
AMENDMENT TO AMERICAN STORES COMPANY
1985 STOCK OPTION AND STOCK AWARD PLAN
DATED AS OF JULY 28, 1998
The American Stores Company 1985 Stock Option and Stock Award Plan (the
"1985 Plan") is hereby amended by adding the following at the end of the first
sentence of the third paragraph of Section 18(a):
; provided, that if any right granted pursuant to this sentence would
make a Change in Control transaction ineligible for pooling of
interests accounting under APB No. 16 that is intended to be eligible
for such accounting treatment, the Committee shall have the ability to
substitute the cash payable pursuant to this paragraph with common
stock with a fair market value equal to the cash that would otherwise
be payable hereunder.
The 1985 Plan is further amended by adding the following at the end of the
first sentence of the fourth paragraph of Section 18(a):
; provided, that if any right granted pursuant to this sentence would
make a Change in Control transaction ineligible for pooling of
interests accounting under APB No. 16 that is intended to be eligible
for such accounting treatment, the Committee shall have the ability to
substitute the cash payable pursuant to this paragraph with common
stock with a fair market value equal to the cash that would otherwise
be payable hereunder.
CERTIFICATE OF ADOPTION BY BOARD OF DIRECTORS
The undersigned, Mary V. Sloan, Vice President and Secretary of American
Stores Company, hereby certifies that the foregoing Amendment to the American
Stores Company 1985 Stock Option and Stock Award Plan was approved by the Board
of Directors of the Company at a meeting of the Board of Directors duly called
and held on July 28, 1998.
/s/ Mary V. Sloan
Mary V. Sloan
Vice President and Secretary
EXHIBIT 10.8
TERMINATION AND CONSULTING AGREEMENT
This Termination and Consulting Agreement by and among American Stores
Company, a Delaware corporation (the "Company"), Albertson's, Inc., a Delaware
corporation ("Parent") and Victor L. Lund (the "Executive") is dated as of the
second day of August, 1998.
WHEREAS, the Company, Parent and Abacus Holdings, Inc. ("Sub") have
entered into an Agreement and Plan of Merger dated as of the second day of
August, 1998 (the "Merger Agreement"), pursuant to which the Company will merge
with Sub (the "Merger"), becoming a wholly owned subsidiary of Parent; and
WHEREAS, the Executive and the Company are parties to an Amended and
Restated Employment Agreement dated as of December 9, 1997 (the "Employment
Agreement") and an Employment Agreement dated as of July 25, 1996, as amended as
of December 9, 1997 (the "Change of Control Agreement"), as well as to various
award agreements pursuant to the Company's 1997 Stock Option and Stock Award
Plan, 1989 Stock Option and Stock Award Plan, 1985 Stock Option and Stock Award
Plan and Employee Stock Purchase Plan (the "Stock Award Agreements"), and the
Executive is entitled to various benefits under employee benefit plans, programs
and policies of the Company (collectively, the "Employee Benefits"), including
without limitation the Supplemental Executive Retirement Plan (the "SERP"); and
WHEREAS, it is acknowledged by the parties hereto that as a result of
the consummation of the Merger and the other transactions contemplated by the
Merger Agreement, as of the Effective Time (as defined in the Merger Agreement),
the Change of Control Agreement shall have become effective and the Executive
will have "Good Reason" to terminate his employment pursuant to the Change of
Control Agreement; and
WHEREAS, the Company and Parent have determined that it is in the best
interests of their respective shareholders to set forth, and the Executive has
agreed to set forth, their mutual agreement as to the rights and entitlements of
the Executive under the Employment Agreement, the Change of Control Agreement
and the Employee Benefits from and after the Effective Time and to provide for
the continuing availability to the Company and Parent of the Executive's
services and expertise following the Effective Time, all on the terms and
conditions set forth below;
NOW, THEREFORE, it is hereby agreed as follows:
1. Termination of Employment. (a) The Executive agrees not to
terminate his employment before the day after the Closing Date (as defined in
the Merger Agreement). Any termination of the Executive's employment after the
Effective Time shall be deemed to be a termination of his employment for "Good
Reason" under the Change of Control Agreement, with the result that the
Executive shall be entitled to the payments and benefits set forth below in this
Section 1. The date of such termination of employment is hereinafter referred
to as the "Date of Termination."
(b) 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:
(i) the sum of (1) the Executive's Annual Base Salary (as defined
below) through the Effective Time to the extent not theretofore paid, and
(2) the product of (x) the higher of (I) the Recent Annual Bonus (as
defined below) and (II) the Annual Bonus (as defined below) 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 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 Effective Time, and
the denominator of which is 365; and
(ii) 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
(iii) the amount of the Executive's Special Long-Range Retirement Plan
"(SLRPP") benefit as required by Section VI-B of the Employment Agreement,
it being acknowledged that such benefit will become 100% vested upon the
consummation of the Merger and that such benefit will be payable in a lump
sum in accordance with clause 6. of said Section VI-B.
(c) For three years after the 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 to provide the Executive and/or
the Executive's family with "Welfare Benefits" (as defined below); provided,
however, that the benefits provided pursuant to this Section 1(c) shall not
duplicate any benefits required by Section 3(e) below.
(d) To the extent not theretofore paid or provided, or otherwise
specified in this Agreement, 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, including
without limitation the SERP, in accordance with the terms thereof.
2. Stock Awards. The Executive's Stock Awards shall be treated as
provided in the Merger Agreement, and in accordance with the terms of the Stock
Awards and the plans under which they were granted.
3. Post-Merger Services. (a) Parent shall cause the Executive to be
nominated to its Board of Directors (the "Board") for a term or terms extending
until the third annual meeting of Parent following the Effective Time. While
the Executive is a member of the Board, he shall serve as Vice Chairman thereof.
(b) From the Date of Termination through the first anniversary
thereof or such shorter period as may be provided pursuant to Section 3(g) or
(h) below (the "Consulting Term"), in consideration for the compensation and
benefits provided for below, the Executive shall render one thousand hours of
service as follows: (i) the Executive shall make himself available to Parent
and the Company, at mutually convenient times and places, for such consulting
services as may be requested by the Board or the Chief Executive Officer of
Parent, in connection with long-range planning, strategic direction, real estate
strategy and integration and rationalization matters; and (ii) the Executive
shall serve as the industry representative of Parent and the Company to the
National Association of Chain Drug Stores and CIES-The Food Business Forum.
(c) Parent shall pay the Executive a fee (the "Fee") of $70,834 per
month, payable monthly in advance, during the Consulting Term. In addition,
during the Consulting Term, the Executive shall be entitled to such other
perquisites (including expense reimbursement and transportation) as are made
available to senior executive officers of the Company in accordance with the
Company's policies and practices prevailing as of the date of this Agreement.
Without limiting the generality of the foregoing: (i) Parent shall reimburse
the Executive for all expenses incurred by him in the performance of services
hereunder, within thirty days of receipt by Parent of invoices setting forth a
description of the items for which reimbursement is sought together with the
cost or fair market value of such items and copies of invoices, receipts, credit
card statements and other supporting documentation; (ii) during the Consulting
Term, the Company's corporate aircraft N718R shall remain based in Salt Lake
City, and shall be available for the use of the Executive and that of Company
executives on a basis consistent with the Company's practice on the date of this
Agreement; and (iii) when the Executive travels in the course of performing
services hereunder, he and Mrs. Lund shall be entitled to use such corporate
aircraft or to first-class travel by commercial airliner.
(d) As of the Date of Termination, the Company shall transfer to the
Executive title to the Company-owned vehicle that he currently uses.
(e) The Company shall purchase medical, dental, vision and
prescription drug coverage for the Executive and his spouse, Linda Lund, at
least comparable to the coverage under the plans and programs in effect for
active employees of the Company in which the Executive participates as of the
date hereof. The premiums for such coverage shall be payable by the Company for
the lifetime of the Executive and for Mrs. Lund's lifetime. To the extent any
such premiums are considered taxable income to the Executive or to Mrs. Lund,
the Company shall make a gross-up payment to the Executive or Mrs. Lund, as
applicable, to make him or her whole on an after-tax basis. The Executive shall
have the opportunity afforded to all terminating employees of the Company to
convert, to the extent permitted, any group life or accident coverage to an
individual policy or program following the Effective Time.
(f) From the Date of Termination through October 31, 2012 (or the
date of the Executive's death, if earlier), the Company shall (i) pay the
Executive $39,000 per year, increased as of each anniversary of the Date of
Termination to reflect increases in the Consumer Price Index since the Date of
Termination or the last such anniversary, as applicable, in lieu of providing
him with an office and related occupancy expenses, as provided for in Section
VI-D of the Employment Agreement, and (ii) shall employ, and shall provide the
Executive with the full-time services of, Amy Stitt, his current executive
assistant or, if Ms. Stitt voluntarily ceases to be an employee of the Company,
with (at the Executive's election) the full-time services of another executive
secretary of comparable qualifications employed by Parent and loaned to the
Executive, or with reimbursement, on a net after-tax basis, of the direct and
indirect costs (including without limitation for benefits) incurred by the
Executive in hiring another executive secretary to render such services. During
her employment with the Company pursuant to the preceding sentence, Ms. Stitt
shall receive an annual salary at least equal to $55,000, increased as of each
anniversary of the Date of Termination to reflect increases in the Consumer
Price Index since the Date of Termination or the last such anniversary, as
applicable, or, if greater, as necessary to provide her with increases at least
equal, on a percentage basis, to the increases provided to similarly situated
executive secretaries of Parent.
(g) If the Executive should die or become permanently disabled before
the first anniversary of the Date of Termination, the Consulting Term shall end
on the date of such death or permanent disability, Parent shall pay to the
Executive's estate or to the Executive or his legal guardian, as applicable, any
portion of the Fee and any expense reimbursements pursuant to Section 3(c) above
that remain unpaid, and the provisions of this Section 3 shall have no further
force or effect.
(h) Parent may terminate the Consulting Term for Cause, in which
event the Executive shall not be required to render any further services and no
further monthly payments of the Fee shall be made. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties under this Section 3 (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 Parent 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 Parent or the Company.
For purposes of this Section 3(h), 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 Parent and 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 of Parent or based upon the advice of counsel for Parent or
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 Parent and the Company.
The Consulting Term shall not be terminated 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.
(i) The Executive's status during the Consulting Term shall be that
of an independent contractor and not, for any purpose, that of an employee or
agent with authority to bind the Company in any respect. All payments and other
consideration made or provided to the Executive under this Section 3 shall be
made or provided without withholding or deduction of any kind, and the Executive
shall assume sole responsibility for discharging, and he hereby agrees to
indemnify and defend Parent and the Company against, all tax or other
obligations associated therewith.
4. Confidentiality. The Executive shall hold in a fiduciary capacity
for the benefit of Parent and 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 all such information, knowledge or data relating to
Parent or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's service
as a consultant hereunder, 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 Consulting Term, the
Executive shall not, without the prior written consent of Parent or as may
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than Parent and those designated
by it. In no event shall an asserted violation of the provisions of this Section
4 constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
5. Noncompetition. During the Consulting Term and thereafter while
he is a member of the Board, without the consent of the Board, the Executive
shall not serve as an employee, officer, director (or in any other position of
comparable function) of, or consultant to any other business or entity engaged
in the retail grocery or drug store business which is in competition with
Parent, the Company, or their respective subsidiaries; provided, that the
foregoing shall not prevent the Executive from continuing to serve as a member
of the Boards of Directors on which he currently serves. In no event shall an
asserted violation of the provisions of this Section 5 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
6. Indemnification. Parent and the Company agree to indemnify,
protect, defend and hold the Executive and his estate, heirs, and personal
representatives, harmless from and against any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), and all losses, liabilities, damages and expenses,
including reasonable attorney's fees incurred by counsel reasonably designated
or approved by him, in connection with this Agreement or his services hereunder,
provided that any consulting services giving rise to such indemnification shall
have been performed by the Executive in good faith and, to the best of his
knowledge, in a lawful manner.
7. Certain Additional Payments. (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 Parent, the Company or
its affiliates 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 7) (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 7(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 7(c), all determinations
required to be made under this Section 7, 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 to Parent, 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 Parent or 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 Parent and the Company. Any Gross-Up Payment, as determined pursuant
to this Section 7, shall be paid by Parent or 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 Parent, 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 Parent or the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Parent
exhausts its remedies pursuant to Section 7(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 Parent or the Company to or for the
benefit of the Executive.
(c) The Executive shall notify Parent in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment 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 Parent 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 Parent (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If Parent notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give Parent any information reasonably requested by Parent
relating to such claim,
(ii) take such action in connection with contesting such claim as
Parent 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 Parent,
(iii) cooperate with Parent in good faith in order effectively to
contest such claim, and
(iv) permit Parent to participate in any proceedings relating to
such claim;
provided, however, that Parent 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 7(c), Parent 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 Parent shall determine;
provided, however, that if Parent directs the Executive to pay such claim and
sue for a refund, Parent 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, Parent'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
Parent pursuant to Section 7(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to Parent's
complying with the requirements of Section 7(c)) promptly pay to Parent 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 Parent pursuant to Section 7(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
Parent 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.
8. Parent Guaranty. Parent hereby irrevocably, absolutely and
unconditionally guarantees the payment by the Company of all compensation and
benefits (the "Payments") that the Company is obligated to provided to the
Executive under this Agreement. This obligation of Parent is the primary
obligation of Parent, and the Executive may enforce this guarantee against
Parent without any prior enforcement of the obligation to make the Payments
against the Company.
9. Definitions. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) "Annual Base Salary" shall mean the Executive's annual base salary
paid by the Company and its affiliated companies (including any base salary
which was earned but deferred), at the highest rate in effect in respect of the
twelve-month period immediately preceding the month in which the Effective Time
occurs, but in no event less than $850,000.
(b) "Recent Annual Bonus" shall mean the Executive's target bonus in
effect for the year in which the Effective Time occurs under the Company's
incentive plans (both annual and long-term), but in no event less than $595,000.
(c) "Welfare Benefits" shall mean all 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, which such plans,
practices, policies and programs provide the Executive with benefits shall be
not 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 who remain active employees of Parent,
the Company or any of their respective subsidiaries; 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.
10. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of Parent 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
Parent, the Company and their respective successors and assigns.
(c) Parent and the Company shall each require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of their respective businesses and/or assets to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that Parent or the Company (as applicable) would be required to perform
it if no such succession had taken place. As used in this Agreement, "Parent"
and the "Company" shall mean Parent and the Company, respectively, as
hereinbefore defined and any successor to their respective businesses and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
11. 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:
Victor L. Lund
P.O. Box 58739
Salt Lake City, UT 84158
If to Parent:
Thomas R. Saldin
250 Park Center Blvd.
Boise, Idaho 83726
If to the Company:
299 South Main Street
Salt Lake City, UT 84111
Attention: General Counsel or Secretary
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 (or portion
thereof) of this Agreement shall not affect the validity or enforceability of
any other provision (or portion thereof) 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) From and after the Date of Termination, this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof, including without limitation the Employment Agreement and the
Change of Control Agreement.
(f) This Agreement 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.
(g) This Agreement shall be null and void, ab initio, and of no
further effect if the Merger Agreement is terminated before the Effective Time.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from their respective Boards of
Directors, Parent and the Company have each caused these presents to be executed
in its name on its behalf, all as of the day and year first above written.
/s/ Victor L. Lund
Victor L. Lund
AMERICAN STORES COMPANY
By /s/ Kathleen E. McDermott
ALBERTSON'S, INC.
By /s/ Michael F. Reuling
Exhibit 10.9
AMENDMENT TO
AMERICAN STORES COMPANY
1995 EMPLOYEE STOCK PURCHASE PLAN
The American Stores Company 1995 Employee Stock Purchase Plan (the
"Plan") is hereby amended by the Board, pursuant to its power under Section 9 of
the Plan, as set forth below, effective as of August 2, 1998. Capitalized terms
used and not defined in this Amendment have the meanings given to them in the
Plan.
1. No additional Common Stock shall be offered for purchase under the
Plan from and after the date of this Amendment, until such time (if any) as the
Agreement and Plan of Merger dated as of August 2, 1998 by and between Alphabet,
Inc., Abacus Holdings, Inc. and the Company (such agreement, as it may hereafter
be amended, the "Merger Agreement") is terminated before the Effective Time (as
defined in the Merger Agreement).
2. The Plan shall be terminated effective as of the Effective Time,
unless the Merger Agreement is terminated before the Effective Time, in which
event the Plan shall remain in effect unless the Board takes action to terminate
it.
3. This amendment shall not have any effect on any Common Stock
offered for purchase during an Offering Period that began before the date of
this Amendment or on the rights of participants with respect thereto.
CERTIFICATE OF ADOPTION BY BOARD OF DIRECTORS
The undersigned, Mary V. Sloan, Vice President and Secretary of American
Stores Company, hereby certifies that the foregoing Amendment to the American
Stores Company Key Executive Stock Purchase Incentive Plan was approved by the
Board of Directors of the Company at a meeting of the Board of Directors duly
called and held on August 2, 1998.
/s/ Mary V. Sloan
Mary V. Sloan
Vice President and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statements for the twenty-six week period ended August 1, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-01-1998
<CASH> 34,380
<SECURITIES> 0
<RECEIVABLES> 357,890
<ALLOWANCES> 0
<INVENTORY> 1,549,924
<CURRENT-ASSETS> 2,036,195
<PP&E> 6,705,659
<DEPRECIATION> 2,462,172
<TOTAL-ASSETS> 8,419,403
<CURRENT-LIABILITIES> 1,837,730
<BONDS> 3,261,042
0
0
<COMMON> 299,778
<OTHER-SE> 2,132,548
<TOTAL-LIABILITY-AND-EQUITY> 8,419,403
<SALES> 9,822,702
<TOTAL-REVENUES> 9,822,702
<CGS> 7,237,190
<TOTAL-COSTS> 7,237,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,088
<INCOME-PRETAX> 269,738
<INCOME-TAX> 115,717
<INCOME-CONTINUING> 154,021
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,021
<EPS-PRIMARY> .56
<EPS-DILUTED> .56<F1>
<FN>
<F1>All numbers except EPS are in (000's)
</FN>
</TABLE>
