-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mzm9eG8WrY6XvO6uPiN9inp/7gW8jyxdvLqaB7sZUOmZEUgn+QA5Frk+z+H3cZnA Uwbh/Fd4/veEXShRcNxqyQ== 0000003333-01-500009.txt : 20010914 0000003333-01-500009.hdr.sgml : 20010914 ACCESSION NUMBER: 0000003333-01-500009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010802 FILED AS OF DATE: 20010913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALBERTSONS INC /DE/ CENTRAL INDEX KEY: 0000003333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 820184434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06187 FILM NUMBER: 1736014 BUSINESS ADDRESS: STREET 1: 250 PARKCENTER BLVD STREET 2: P O BOX 20 CITY: BOISE STATE: ID ZIP: 83726 BUSINESS PHONE: 2083956200 MAIL ADDRESS: STREET 1: 250 PARKCENTER BLVD STREET 2: P O BOX 20 CITY: BOISE STATE: ID ZIP: 83726 10-Q 1 abs10q22001.txt FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2001 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For 26 Weeks Ended: August 2, 2001 Commission File Number: 1-6187 ALBERTSON'S, INC. ----------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 82-0184434 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho 83726 - ----------------------------------------------- ---------- (Address) (Zip Code) Registrant's telephone number, including area code: (208) 395-6200 -------------- 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 ----- ----- Number of Registrant's $1.00 par value common shares outstanding at September 5, 2001: 406,074,539 1 FORM 10-Q PART I. FINANCIAL INFORMATION ALBERTSON'S, INC. CONSOLIDATED EARNINGS (in millions except per share data) (unaudited)
13 WEEKS ENDED 26 WEEKS ENDED ---------------------------------- -------------------------------------- August 2, August 3, August 2, August 3, 2001 2000 2001 2000 ---------------- ----------------- ------------------ ------------------- Sales $9,577 $9,214 $18,908 $18,227 Cost of sales 6,862 6,572 13,535 13,069 ---------------- ----------------- ------------------ ------------------- Gross profit 2,715 2,642 5,373 5,158 Selling, general and administrative expenses 2,341 2,222 4,578 4,360 Restructuring charges and other 510 510 Merger-related (credits) charges (1) (1) (15) 1 ---------------- ----------------- ------------------ ------------------- Operating (loss) profit (135) 421 300 797 Other (expense) income: Interest, net (111) (99) (219) (182) Other, net (1) 3 (12) 4 ---------------- ----------------- ------------------ ------------------- (Loss) earnings before income taxes (247) 325 69 619 Income tax (benefit)expense (96) 131 34 246 ---------------- ----------------- ------------------ ------------------- NET (LOSS) EARNINGS $ (151) $ 194 $ 35 $ 373 ================ ================= ================== =================== (LOSS) EARNINGS PER SHARE: Basic $(0.37) $ 0.46 $ 0.09 $ 0.88 Diluted (0.37) 0.46 0.09 0.88 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 406 423 406 423 Diluted 406 423 408 423
See Notes to Consolidated Financial Statements. 2 FORM 10-Q ALBERTSON'S, INC. CONSOLIDATED BALANCE SHEETS (in millions)
August 2, 2001 February 1, (unaudited) 2001 --------------------- ------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 140 $ 57 Accounts and notes receivable 540 547 Inventories 3,236 3,364 Prepaid expenses 94 155 Property held for sale 257 71 Deferred income taxes 256 70 Refundable income taxes 70 36 ---------------------- ------------------- TOTAL CURRENT ASSETS 4,593 4,300 LAND, BUILDINGS AND EQUIPMENT (net of accumulated depreciation and amortization of $5,496 and $5,626, respectively) 9,212 9,622 GOODWILL AND INTANGIBLES, net 1,628 1,705 OTHER ASSETS 444 451 ---------------------- ------------------- $15,877 $16,078 ====================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,132 $ 2,163 Salaries and related liabilities 515 561 Taxes other than income taxes 189 141 Self-insurance 232 218 Unearned income 89 112 Merger related reserves 4 13 Restructuring reserves 83 Current portion of capitalized lease obligations 19 20 Current maturities of long-term debt 120 62 Other current liabilities 170 105 ---------------------- ------------------- TOTAL CURRENT LIABILITIES 3,553 3,395 LONG-TERM DEBT 5,492 5,715 CAPITALIZED LEASE OBLIGATIONS 244 227 SELF-INSURANCE 232 216 DEFERRED INCOME TAXES 92 116 OTHER LIABILITIES AND DEFERRED CREDITS 661 715 STOCKHOLDERS' EQUITY: Preferred stock - $1.00 par value; authorized - 10 shares; issued - none Common stock - $1.00 par value; authorized - 1,200 shares; issued - 406 shares and 405 shares, respectively 406 405 Capital in excess of par value 75 48 Retained earnings 5,122 5,241 ---------------------- ------------------- 5,603 5,694 ---------------------- ------------------- $15,877 $16,078 ====================== ===================
See Notes to Consolidated Financial Statements. 3 FORM 10-Q ALBERTSON'S, INC. CONSOLIDATED CASH FLOWS (in millions) (unaudited)
26 WEEKS ENDED ----------------------------------------------- August 2, August 3, 2001 2000 -------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 35 $ 373 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 495 458 Goodwill amortization 28 28 Noncash merger-related (credits) charges (13) 3 Noncash restructuring charges and other 454 Net loss on asset sales 12 8 Net deferred income taxes and other (199) 37 Decrease (increase) in cash surrender value of Company-owned life insurance 13 (4) Changes in operating assets and liabilities: Receivables and prepaid expenses 93 108 Inventories 80 359 Accounts payable (31) 58 Other current liabilities 85 (130) Self-insurance 30 (11) Unearned income (26) (20) Other long-term liabilities (49) (24) -------------------- -------------------- Net cash provided by operating activities 1,007 1,243 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net of proceeds from disposals (708) (708) Decrease in other assets 80 17 -------------------- -------------------- Net cash used in investing activities (628) (691) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 613 515 Payments on long-term borrowings (27) (345) Net commercial paper and bank line activity (743) (601) Proceeds from stock options exercised 15 5 Cash dividends paid (154) (156) Stock purchased and retired (95) -------------------- -------------------- Net cash used in financing activities (296) (677) -------------------- -------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 83 (125) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57 245 -------------------- -------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 140 $ 120 ==================== ====================
See Notes to Consolidated Financial Statements. 4 FORM 10-Q ALBERTSON'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in millions, except per share data) (unaudited) Description of Business Albertson's, Inc. (the Company) is incorporated under the laws of the State of Delaware and is the successor to a business founded by J.A. Albertson in 1939. Based on sales, the Company is one of the world's largest food and drug retailers. As of August 2, 2001, the Company operated 2,540 stores in 36 Western, Midwestern, Eastern and Southern states. Retail operations are supported by 19 major Company distribution operations, strategically located in the Company's operating markets. Basis of Presentation The accompanying unaudited consolidated financial statements include the results of operations, account balances and cash flows of the Company and its subsidiaries. All material intercompany balances have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the results of operations of the Company for the periods presented. The statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's 2000 Annual Report. The results of operations for the 26 weeks ended August 2, 2001, are not necessarily indicative of results for a full year. The balance sheet at February 1, 2001, has been taken from the audited consolidated financial statements at that date. The preparation of the Company's consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Inventory Net income reflects application of the LIFO method of valuing certain inventories, based upon estimated annual inflation ("LIFO Indices"). Albertson's recorded pretax LIFO expense of $15 and $12 for the 26 weeks ended August 2, 2001, and August 3, 2000, respectively. Actual LIFO Indices are calculated during the fourth quarter of the year based upon a statistical sampling of inventories. 5 FORM 10-Q Earnings Per Share ("EPS") Basic EPS is based on the weighted average outstanding common shares. Diluted EPS is based on the weighted average outstanding shares reduced by the dilutive effect of stock options. As a result of the net loss, 2 million shares were antidilutive and accordingly were not included in the diluted EPS calculation for the 13 weeks ended August 2, 2001. Incremental shares of 2 million were used in the calculation of diluted EPS for the 26 week period ended August 2, 2001. Stock options to purchase 15.4 million and 8.9 million shares of common stock for the 13 week periods and 15.4 million and 9.7 million shares of common stock for the 26 week periods ended August 2, 2001 and August 3, 2000, respectively, were outstanding but not included in the computation of diluted EPS because the option exercise price was greater than the average market price of the common shares. Comprehensive Income Comprehensive income is net income adjusted for certain other items that are recorded directly to stockholders' equity. Comprehensive income consisted only of reported net (loss) earnings for the periods ended August 2, 2001, and August 3, 2000, as there were no significant items of other comprehensive income. Reclassifications Certain reclassifications have been made in prior year's financial statements to conform to classifications used in the current year. Reporting Periods The Company's quarterly reporting periods are generally 13 weeks and periodically consist of 14 weeks because the fiscal year ends on the Thursday nearest to January 31 each year. Goodwill Under the Company's current accounting policies, goodwill is allocated to certain markets based on prior acquisitions. As part of normal, on-going review of performance of markets, the Company reviews long-lived assets (including goodwill) for impairment whenever events and circumstances indicate that the carrying amount of the assets may not be recoverable. For example, significant assets removed from a market would trigger a review for possible impairment based on the future expected cash flows of the remaining assets. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the assets, the Company recognizes an impairment loss. Impairments and costs incurred to close stores or markets, including lease termination costs, are recorded at the time executive management approves and commits to closing or relocating such assets. 6 FORM 10-Q Restructuring On July 17, 2001, the Company's Board of Directors approved a restructuring plan designed to improve future financial results and to drive future competitiveness. The plan includes certain exit costs and employee termination benefits, as described below, that will be incurred within approximately one year of the board approval date.
Action Status Reduction in administrative and corporate overhead In Progress Closing of 165 underperforming retail stores In Progress Consolidation and elimination of four division offices Completed Process streamlining In Progress
As a result of the restructuring plan, the Company recorded a pre-tax charge of $510 ($307 after tax or $0.75 per diluted share). The following table presents the pre-tax charge incurred by category of expenditure and related restructuring reserve accruals included in the Company's Consolidated Balance Sheets:
--------------- ------------------ ------------------- ---------- ---------- Employee Lease Severance Asset Termination Costs Impairments Costs Other Total --------------- ------------------ ------------------- ---------- ---------- Additions $ 44 $425 $ 36 $ 5 $510 Utilization 1 425 1 427 --------------- ------------------ ------------------- ---------- ---------- Balance at August 2, 2001 $ 43 $ $ 35 $ 5 $ 83 =============== ================== =================== ========== ==========
Employee severance costs consist of severance pay, health care continuation costs, and outplacement service costs for employees who participated in the Company's Voluntary Separation Plan and for employees who were terminated or notified of termination under the Company's Involuntary Severance Plan. In accordance with the restructuring plan, 1,341 managerial and administrative jobs above store level have been identified for termination in future periods. As part of the Company's restructuring plan, all stores were reviewed utilizing a methodology based on return on invested capital. Based on this review, the Company identified and committed to close and dispose 165 underperforming stores in 25 states. All stores identified for closure were evaluated for asset impairment by comparing the fair value, less selling cost, to the recorded book value. Fair value used in the impairment calculation was based on third party offers or market value for comparable properties. For stores under operating lease agreements, the present values of any remaining liability under the lease, net of sublease recoveries, or lease termination costs were expensed. Assets to be disposed of include land, buildings, equipment, and leasehold improvements for stores and division offices that were included in the restructuring discussed above. These assets are recorded at their estimated fair value, less selling costs, and reported as property held for sale in the Company's Consolidated Balance Sheets. Other costs include various expenses related to the Company's decision to exit certain insignificant businesses and the consolidation of the division offices. 7 FORM 10-Q Closed Store Reserves When executive management approves and commits to closing or relocating a store, the remaining investment in land, building, leasehold, and equipment is reviewed for impairment and the difference between book value and fair market value, less selling costs, is expensed. For properties under operating lease agreements, the present value of any remaining liability under the lease, net of expected sublease recovery, is expensed. The following table shows the pretax expense, and related reserves, for closed stores and other surplus property:
--------------------- ---------------------- -------------------- Lease Asset Liabilities Impairments Total --------------------- ---------------------- -------------------- Balance at February 1, 2001 $22 $ $ 22 Additions 3 8 11 Adjustments - first quarter 3 (4) (1) Adjustments - second quarter 22 26 48 Utilization (4) (30) (34) --------------------- ---------------------- -------------------- Balance at August 2, 2001 $46 $ $ 46 ===================== ====================== ====================
The restructuring plan included actions to accelerate the disposal of surplus property. This involves terminating leases through negotiated buyouts and selling owned properties through auctions. The $48 pre-tax adjustments recorded during the second quarter are the additional charges expected to be incurred as a result of these actions. This charge is included in selling, general and administrative expenses in the Company's Consolidated Earnings. $39 of the reserve balance as of August 2, 2001, is included with accounts payable and the remaining $7 is included with other liabilities and deferred credits in the Company's Consolidated Balance Sheets. The related assets are recorded at their estimated fair value, less selling costs, and reported as property held for sale in the Company's Consolidated Balance Sheets. Merger Related and Exit Costs As a result of the Company's merger with American Stores Company, results of operations for the 26 weeks ended August 2, 2001, include a net of $10 of merger-related credits ($6 after tax). The following table presents the pre-tax (credits) charges incurred by category of expenditure and merger-related accruals included in the Company's Consolidated Balance Sheets:
------------------ ---------------- ------------------- ----------- Asset Integration Impairments Severance And Other Total ------------------ ---------------- ------------------- ----------- Balance at February 1, 2001 $ $ 11 $ 2 $ 13 Additions 2 3 5 Adjustments (15) (15) Utilization 15 (9) (5) 1 ------------------ ---------------- ------------------- ----------- Balance at August 2, 2001 $ $ 4 $ $ 4 ================== ================ =================== ===========
Asset impairments include the loss on disposal of duplicate and abandoned facilities, including administrative offices, intangibles and information technology equipment which were abandoned by the Company. Operations for the 26 weeks ended August 2, 2001, included $15 of credits associated with the reversal of previous impairment charges related to the sale of the American Stores' Tower in Salt Lake City, Utah. The Company closed on the sale of this property on May 15, 2001, thus completing the asset dispositions resulting from the merger. 8 FORM 10-Q Severance consists of retention costs for certain individuals and termination benefit liabilities for individuals who have already been terminated. Integration and other costs consist primarily of incremental transition and integration costs associated with integrating the operations of Albertson's and American Stores Company and are being expensed as incurred. These include such costs as labor associated with system conversions and training and relocation costs. Indebtedness The Company has two revolving credit agreements which provide for borrowings up to $1,650 and a committed bank line for $100. These agreements contain certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth, as defined, of at least $2,100. As of August 2, 2001, no amounts were outstanding under these agreements. On May 1, 2001, the Company issued $600 of term notes and debentures under a shelf registration statement filed with the Securities and Exchange Commission in February 2001 (the "2001 Registration Statement"). The notes are comprised of $200 of principal bearing interest at 7.25% due May 2013 and the debentures are comprised of $400 of principal bearing interest at 8.00% due May 2031. Proceeds were used to repay amounts outstanding under the Company's commercial paper program and other general corporate purposes. Additional securities up to $2,400 of principal remain available for issuance under the Company's 2001 Registration Statement. Supplemental Cash Flow Information Selected cash payments and noncash activities were as follows:
26 Weeks Ended 26 Weeks Ended August 2, 2001 August 3, 2000 ------------------------ ------------------------ Cash payments for: Income taxes $278 $266 Interest, net of amounts capitalized 140 182 Noncash transactions: Capitalized leases incurred 25 28 Decrease (increase) in cash surrender value of Company-owned life insurance 13 (4)
Capital Stock The Board of Directors adopted a program on April 25, 2000, authorizing, but not requiring, the Company to purchase and retire up to $500 of the Company's common stock. This program was increased by an additional $1,000 by the Board of Directors on December 6, 2000, for a total of $1,500. The revised program enables the Company to purchase stock through December 6, 2001. During fiscal 2000, the Company purchased and retired 18.7 million shares at a total cost of $451, or an average price of $24.15 per share, under this authorization. No purchases were made during the 26 weeks ended August 2, 2001. 9 FORM 10-Q Certain Accounting Matters In June 2001, the Financial Accounting Standard Board issued two new pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which is effective for acquisitions initiated after June 30, 2001, prohibits the use of the pooling-of-interest method for business combinations and establishes the accounting and financial reporting requirements for business combinations accounted for by the purchase method. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill will continue to be amortized through the remainder of fiscal 2001 at which time amortization will cease and the Company will perform a transitional goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning after December 15, 2001. The Company is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. While the ultimate impact of the new accounting standards has yet to be determined, goodwill amortization expense for the 26 weeks ended August 2, 2001, was $28, or $0.07 per diluted share. On February 2, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended. This new standard, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It 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 adoption of this statement resulted in no transition adjustment or significant impact on financial results. The Company utilizes derivative contracts, such as treasury rate locks, for hedging interest rate risk associated with issuances of debt. During the quarter ended August 2, 2001, there were no transactions. There were no outstanding derivative contracts as of August 2, 2001. Legal Proceedings On April 5, 2000, a class action complaint was filed against Albertson's as well as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Mario Gardner, et al. v. American Stores Company, Albertson's, Inc., American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc.) seeking recovery of overtime due to plaintiffs' allegation that they were improperly classified as exempt under California law. A class action with respect to Sav-on Drug assistant managers was certified by the court. A case with very similar claims, also involving the assistant drug managers and operating managers, was filed against the Company's subsidiary Sav-on Drug Stores, Inc. in Los Angeles Superior Court (Rocher, Dahlein et. al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. The Company has strong defenses against these lawsuits, and is vigorously defending them. Although these lawsuits are subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect the ultimate resolution of these actions to have a material adverse effect on the Company's financial condition. 10 FORM 10-Q On August 23, 2000, a class action complaint was filed against Jewel Food Stores, Inc., a wholly-owned subsidiary of the Company, in the Circuit Court of Cook County, Illinois (Maureen Baker, et al., v. Jewel Food Stores, Inc. and Dominick's Finer Foods, Inc., Case No. 00L 009664) alleging milk price fixing. The Company has strong defenses against this lawsuit, and is vigorously defending it. Although this lawsuit is subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect the ultimate resolution of this action to have a material adverse effect on the Company's financial condition. An agreement has been reached, and court approval granted, to settle eight purported multi-state cases combined in the United States District Court in Boise, Idaho, which raise various issues including "off the clock" work allegations. Under the settlement agreement, current and former employees who meet eligibility criteria are in the process of presenting their claims to a settlement administrator. While the Company cannot specify the exact amount of their claims, the $37 pre-tax ($22 after-tax) charge recorded by the Company in 1999 is the Company's current estimate of the total monetary liability, including attorney fees, for all eight cases. During the first quarter of 2001 this liability was reduced by an $18 cash payment for legal expenses. The Company is also involved in routine litigation incidental to operations. The Company utilizes various methods of alternative dispute resolution, including settlement discussions, to manage the costs and uncertainties inherent in the litigation process. In the opinion of management, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company's financial condition. 11 FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in millions, except per share data) Results of Operations - Second Quarter The following table sets forth certain income statement components expressed as a percent to sales and the year-to-year percentage changes in the amounts of such components:
Percent to Sales Percentage 13 weeks ended Increase 8-2-01 8-3-00 (Decrease) ---------------- ----------------- ------------------ Sales 100.00% 100.00% 3.9% Gross profit 28.36 28.67 (2.8) Selling, general and administrative expenses 24.45 24.11 5.4 Restructuring charges and other 5.33 n.m. Operating (loss) profit (1.41) 4.57 n.m. Interest expense, net (1.16) (1.07) 12.9 (Loss) earnings before income taxes (2.58) 3.53 n.m. Net (loss) earnings (1.58) 2.11 n.m. n.m. - not meaningful
Sales for the quarter ended August 2, 2001, increased by 3.9% over the same quarter of the prior year. Increases in sales are primarily attributable to the continued development of new stores and identical and comparable store sales increases. Identical store sales increased 1.5% and comparable store sales, which include replacement stores, increased 1.9%. During the quarter the Company opened 14 combination food and drug stores and 13 stand alone drugstores, while closing 5 combination food and drug stores, 5 conventional stores, 3 warehouse stores and 9 drugstores. Net retail square footage increased by 3.0% from the prior year. Management estimates that there was overall inflation in products the Company sells of approximately 1.0% (annualized). This increase is being primarily driven by pharmacy products. During fiscal year 2000, the Company changed the alignment of the marketing organizational structure. Benefits continue to be realized from this change as the promotion and merchandising is tailored to fit individual markets. The Company-wide "Focus on Fresh", has become a principal marketing target for this year and has created a new level of satisfaction for shoppers who enter our supermarkets. The Company announced a new customer service program in March and finished the last rollout meeting in May. This program, "Service First, Second to None," puts best practices from across the Company into a brand new package and into tools the stores can use to achieve the highest standards of customer service. Albertson's has also increased focus on loyalty programs such as the new Associate Advantage Loyalty Card Program, and has entered a national agreement with Catalina Marketing Corporation to extend their program to all Albertson's combination food and drug stores. 12 FORM 10-Q Gross profit, as a percent to sales, decreased as a result of the Company's initiative to drive sales through more aggressive promotional pricing. The continued utilization of Company distribution facilities and increased buying efficiencies partially offset this decrease. The pre-tax LIFO charge reduced gross profit by $7 (0.08% to sales) for the 13 weeks ended August 2, 2001, as compared to $6 (0.07% to sales) for the 13 weeks ended August 3, 2000. Selling, general and administrative (SG&A) expenses, as a percent to sales, increased in 2001 as compared to the prior year primarily due to costs associated with asset impairments and lease terminations related to the acceleration of the disposal of surplus property (refer to "Restructuring Plan" below). SG&A for the 13 weeks ended August 2, 2001, included $1 of merger-related costs as compared to $26 for the 13 weeks ended August 3, 2000. Increases in other components of SG&A, such as energy costs, health and welfare benefits, and depreciation expense associated with the Company's expansion program, were offset by lower labor, maintenance, supplies and travel costs. The increase in net interest expense for the 13 weeks ended August 2, 2001, resulted primarily from higher average outstanding debt during the 13 weeks ended August 2, 2001, as compared to the 13 weeks ended August 3, 2000. Restructuring Plan On July 17, 2001, the Company's Board of Directors approved a restructuring plan designed to improve future financial results and to drive future competitiveness. Major components of the plan include the closure of 165 underperforming retail stores, the reduction in administrative and corporate overhead, consolidating and eliminating four division offices and the acceleration of the disposal of surplus property. In accordance with the plan, the Company recorded a pre-tax restructuring charge of $510 to cover employee severance costs, asset impairments and lease terminations. In addition to the restructuring charge, the Company also recorded (in selling, general and administrative expenses) pre-tax costs of $48 for asset impairments and lease terminations associated with the accelerated disposal of surplus property. These combined actions reduced operating profit for the 13 weeks ended August 2, 2001, by $558 and net earnings by $335. The Company expects to incur additional pre-tax charges of approximately $35 in future periods for certain actions related to the restructuring plan that have not yet been implemented. 13 FORM 10-Q Due to the significance of the costs associated with the restructuring plan and merger-related costs and their effect on operating results, the following table is presented to assist in the comparison of income statement components without these costs:
--------------------------------------------- --------------------------------------------- 13 Weeks Ended August 2, 2001 13 Weeks Ended August 3, 2000 --------------------------------------------- --------------------------------------------- Without Percent Without Percent As Adjust- adjust- To As Adjust- adjust- To Reported ments Ments Sales Reported Ments Ments Sales ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Sales $9,577 $ $9,577 100.00% $9,214 $ $ 9,214 100.00% Cost of sales 6,862 6,862 71.64 6,572 (1) 6,571 71.32 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Gross profit 2,715 2,715 28.36 2,642 1 2,643 28.68 Selling, general and administrative expenses 2,341 (50) 2,291 23.93 2,222 (26) 2,196 23.84 Restructuring charges and other 510 (510) Merger-related (credits) charges (1) 1 (1) 1 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Operating (loss) profit (135) 559 424 4.43 421 26 447 4.84 Interest, net (111) (111) (1.16) (99) (99) (1.07) Other (expense) income, net (1) (1) (0.01) 3 3 .03 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ (Loss) earnings before income taxes (247) 559 312 3.26 325 26 351 3.81 Income tax (benefit) expense (96) 224 128 1.34 131 9 140 1.52 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Net (loss) earnings $ (151) $ 335 $ 184 1.92% $ 194 $ 17 $211 2.29% =========== =========== ========== ========== ========== ========== ========== ============ (Loss) earnings per share: Basic $(0.37) $0.82 $0.45 $0.46 $0.04 $0.50 Diluted (0.37) 0.82 0.45 0.46 0.04 0.50
14 FORM 10-Q Results of Operations - Year-to-Date The following table sets forth certain income statement components expressed as a percent to sales and the year-to-year percentage changes in the amounts of such components:
Percent to Sales Percentage 26 weeks ended Increase 8-2-01 8-3-00 (Decrease) ---------------- ----------------- ------------------ Sales 100.00% 100.00% 3.7% Gross profit 28.42 28.30 4.2 Selling, general and administrative expenses 24.21 23.92 5.0 Restructuring charges and other 2.70 n.m. Merger-related (credits) charges (0.08) 0.01 n.m. Operating profit 1.59 4.37 (62.3) Interest expense, net (1.16) (1.00) 20.7 Earnings before income taxes 0.36 3.40 (88.9) Net earnings 0.18 2.05 (90.7) n.m. - not meaningful
Sales for the 26 weeks ended August 2, 2001, increased by 3.7% over the same period of the prior year. Identical store sales increased 1.2% and comparable store sales, which include replacement stores, increased 1.6%. During the 26 weeks ended August 2, 2001, the Company opened 39 combination food and drug stores, 1 conventional store and 30 stand alone drugstores, while closing 12 combination food and drug stores, 10 conventional stores, 4 warehouse stores and 16 drugstores. The new stores include 7 stores that were acquired in three separate transactions. Net retail square footage increased by 3.0% from the prior year. Management estimates that there was overall inflation in products the Company sells of approximately 1.0% (annualized). Sales results for the 26 weeks ended August 2, 2001, were the results of trends and programs similar to those experienced for the 13 weeks ended August 2, 2001, which are discussed in Results of Operations - Second Quarter. Gross profit, as a percent to sales, increased as a result of the continued utilization of Company distribution facilities, increased buying efficiencies, and lower advertising costs due to the elimination of incremental advertising costs incurred in the prior year associated with the Lucky banner change. Gross margin increases were partially offset by the Company's initiative to drive sales through more aggressive promotional pricing. The pre-tax LIFO charge reduced gross profit by $15 (0.08% to sales) for the 26 weeks ended August 2, 2001, as compared to $12 (0.07% to sales) for the 26 weeks ended August 3, 2000. 15 FORM 10-Q Selling, general and administrative (SG&A) expenses, as a percent to sales, increased in 2001 as compared to the prior year primarily due to costs associated with asset impairments and lease terminations related to the acceleration of the disposal of surplus property (refer to "Restructuring Plan" below). Increases in other components of SG&A, such as energy costs, health and welfare benefits, and depreciation expense associated with the Company's expansion program, were offset by lower labor, maintenance, supplies and travel costs. In addition, the increase was partially offset by a $20 charge recorded during first quarter 2000 for certain previously assigned leases and subleases to tenants who were in bankruptcy. The increase in net interest expense for the 26 weeks ended August 2, 2001, resulted primarily from higher average outstanding debt during the 26 weeks ended August 2, 2001, as compared to the 26 weeks ended August 3, 2000. This comparison also is impacted by a $16 interest expense reversal due to a favorable income tax settlement recorded in the first quarter of 2000. Restructuring Plan Refer to "Restructuring Plan" included with Results of Operations - Second Quarter. Merger-Related and Exit Costs Results of operations for the 26 weeks ended August 2, 2001, include a net of $10 of merger related credits ($6 after tax). The merger-related costs of integrating Albertson's, Inc. and American Stores Company have resulted in significant non-recurring charges and incremental expenses. These costs have had a significant effect on the prior two years' results of operations of the Company. Non-recurring charges and expenses of implementing integration actions were originally estimated to total $700 after income tax benefits. On an after-tax basis, and subsequent to the first quarter of 1999, the Company has incurred $633 of merger-related costs. With the exception of some system conversions, the integration is substantially complete and the Company does not expect to incur significant additional charges related to the merger. Unusual Items During the quarter ended May 3, 2001, the Company recorded (in selling, general and administrative expenses) $9 of compensation related costs for the executive management changes. During the quarter ended May 4, 2000, a $20 charge was incurred and included in selling, general and administrative expenses for liabilities related to certain previously assigned leases and subleases to tenants who are in bankruptcy. 16 FORM 10-Q Due to the significance of the costs associated with the restructuring plan and merger-related costs and other unusual items and their effect on operating results, the following table is presented to assist in the comparison of income statement components without these costs:
--------------------------------------------- --------------------------------------------- 26 Weeks Ended August 2, 2001 26 Weeks Ended August 3, 2000 --------------------------------------------- --------------------------------------------- Without Percent Without Percent As Adjust- adjust- To As Adjust- adjust- To Reported ments Ments Sales Reported Ments Ments Sales ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Sales $18,908 $18,908 100.00% $18,227 $18,227 100.00% Cost of sales 13,535 13,535 71.58 13,069 $ (23) 13,046 71.57 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Gross profit 5,373 5,373 28.42 5,158 23 5,181 28.43 Selling, general and administrative expenses 4,578 $(63) 4,515 23.88 4,360 (79) 4,281 23.49 Restructuring charges and other 510 (510) Merger-related (credits) charges (15) 15 1 (1) ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Operating profit 300 558 858 4.54 797 103 900 4.94 Interest, net (219) (219) (1.16) (182) (182) (1.00) Other (expense) income, net (12) (12) (0.06) 4 4 .02 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Earnings before income taxes 69 558 627 3.31 619 103 722 3.96 Income taxes 34 223 257 1.36 246 39 285 1.56 ----------- ----------- ---------- ---------- ---------- ---------- ---------- ------------ Net Earnings $ 35 $335 $ 370 1.96% $ 373 $ 64 $ 437 2.40% =========== =========== ========== ========== ========== ========== ========== ============ Earnings per share: Basic $0.09 $0.82 $0.91 $0.88 $0.15 $1.03 Diluted 0.09 0.82 0.91 0.88 0.15 1.03
17 FORM 10-Q Liquidity and Capital Resources Cash provided by operating activities during the 26 weeks ended August 2, 2001 was $1,007 as compared to $1,243 in the prior year. Net loss adjusted for noncash charges, changes in deferred income taxes and changes in income taxes payable for the 26 weeks ended August 2, 2001, was $243 as compared to $348 in the prior year. In addition, less cash was generated from the reduction of inventory levels in the current year as compared to the prior year. The implementation of the strategic imperative to maximize return on invested capital (see operational initiatives) is expected to enhance working capital by eliminating unproductive assets, reducing inventory and accounts receivable levels and increasing accounts payable leverage. These improvements are expected to reduce the cash requirements of the business. The future sale(s) of property held for sale over the next several quarters is expected to provide significant positive cash flow for the Company. The Company's cash flow from financing activities during the 26 weeks ended August 2, 2001, include net cash used for debt repayment of $157 and the payment of dividends of $154. The Board of Directors adopted a program on April 25, 2000, authorizing, but not requiring, the Company to purchase and retire up to $500 of the Company's common stock. This program was increased by an additional $1,000 by the Board of Directors on December 6, 2000, for a total of $1,500. The revised program enables the Company to purchase stock through December 6, 2001. No purchases were made during the 26 weeks ended August 2, 2001. As of August 2, 2001, the Company has purchased and retired 18.7 million shares at a total cost of $451 or an average price of $24.15 per share under this authorization. The Company utilizes its commercial paper and bank line programs primarily to supplement cash requirements for seasonal fluctuations in working capital and to fund its capital expenditure program. Accordingly, commercial paper and bank line borrowings will fluctuate between reporting periods. The Company had $410 of commercial paper borrowings outstanding as of August 2, 2001, compared to $1,153 as of February 1, 2001, and $1,028 as of August 3, 2000. The Company has two revolving credit agreements which provide for borrowings up to $1,650 and a committed bank line of $100. These agreements contain certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth (CTNW), as defined, of at least $2,100. At the end of second quarter 2001, CTNW, as defined, was approximately $4,000. As of August 2, 2001, no amounts were outstanding under the credit agreements or bank line. On May 1, 2001, the Company issued $600 of term notes and debentures under a shelf registration statement filed with the Securities and Exchange Commission in February 2001 (the "2001 Registration Statement"). The notes are comprised of $200 of principal bearing interest at 7.25% due May 2013 and the debentures are comprised of $400 of principal bearing interest at 8.00% due May 2031. Proceeds were used to repay amounts outstanding under the Company's commercial paper program and other general corporate purposes. Additional securities up to $2,400 of principal remain available for issuance under the Company's 2001 Registration Statement. 18 FORM 10-Q Certain Accounting Matters In June 2001, the Financial Accounting Standard Board issued two new pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which is effective for acquisitions initiated after June 30, 2001, prohibits the use of the pooling-of-interest method for business combinations and establishes the accounting and financial reporting requirements for business combinations accounted for by the purchase method. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill will continue to be amortized through the remainder of fiscal 2001 at which time amortization will cease and the Company will perform a transitional goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning after December 15, 2001. The Company is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. While the ultimate impact of the new accounting standards has yet to be determined, goodwill amortization expense for the 26 weeks ended August 2, 2001, was $28, $0.07 per diluted share. On February 2, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended. This new standard, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It 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 adoption of this statement resulted in no transition adjustment or significant impact on financial results. The Company utilizes derivative contracts, such as treasury rate locks, for hedging interest rate risk associated with issuances of debt. During the quarter ended August 2, 2001, there were no transactions. There were no outstanding derivative contracts as of August 2, 2001. Operational Initiatives The Company is focused on five strategic imperatives with the goal of achieving the Company's full potential. 1) Aggressive cost and process control has been implemented. Each main category of expense, including labor, is being rigorously monitored by a member of executive management. As a result of these actions, the Company will reduce administrative and corporate overhead through the Board approved Voluntary Separation Plan and Involuntary Severance Plan. 2) A formal process to review and measure investments, starting with a review of significant assets in the Company and using a return on invested capital approach, has been implemented. This review resulted in the identification of 165 underperforming stores which the Company has committed to close and dispose of. In addition, the Company has formulated plans to accelerate the disposal of surplus property. 19 FORM 10-Q 3) A customer-focused approach to growth is being implemented by examining elements of the customer proposition. The Company plans to re-direct non-value added dollars saved from the expense and process control programs back into the marketplace in order to impact customers and drive growth. 4) The Company plans to commit a greater share of its capital expenditures to information and process technology over the next three to five years with the goal of becoming an industry leader in technology. 5) The Company will strive to make Albertson's an employer of choice with less bureaucracy, fewer layers of management, stronger communication, better training programs and exciting new reward programs. 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 ongoing 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 of the Company. Charges against earnings for environmental remediation were not material for the 26 weeks ended August 2, 2001, or the 26 weeks ended August 3, 2000. Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private Securities Litigation Reform Act of 1995 From time to time, information provided by the Company, including written or oral statements made by its representatives, may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as integration of the operations of acquired or merged companies, expansion and growth of the Company's business, future capital expenditures and the Company's business strategy, contain forward-looking information. In reviewing such information it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. This forward-looking information is based on various factors and was derived using numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include changes in the general economy, changes in consumer spending, competitive factors and other factors affecting the Company's business in or beyond the Company's control. These factors include changes in the rate of inflation, changes in state or federal legislation or regulation, adverse determinations with respect to litigation or other claims (including environmental matters), labor negotiations, the cost and stability of energy sources, the Company's ability to recruit and develop employees, its ability to develop new stores or complete remodels as rapidly as planned, its ability to 20 FORM 10-Q implement new technology successfully, stability of product costs, the Company's ability to integrate the operations of acquired or merged companies, the Company's ability to execute its restructuring plan, and the Company's ability to achieve its five strategic imperatives. Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking information. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes regarding the Company's market risk position from the information provided under the caption "Quantitative and Qualitative Disclosures About Market Risk" on pages 27 and 28 of the Company's 2000 Annual Report to Stockholders. PART II. OTHER INFORMATION Item 1. Legal Proceedings The information required under this item is included in the Notes to Consolidated Financial Statements under the caption "Legal Proceedings" on page 10 of Part I, Financial Information of this Report on Form 10-Q. This information is incorporated herein by this reference thereto. Item 2. Changes in Securities In accordance with the Company's $1,650 revolving credit agreement, the Company's consolidated tangible net worth, as defined, shall not be less than $2,100. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Stockholders on June 14, 2001, and transacted the following business: (a) Election of Class III Directors:
Nominee Votes For Votes Withheld --------------------------- ------------------- --------------------- Cecil D. Andrus 338,939,933 6,804,282 Pamela G. Bailey 338,855,549 6,888,666 J.B. Scott 334,670,663 11,073,552 Will M. Storey 339,289,404 6,454,811
Election of Class II Directors:
Nominee Votes For Votes Withheld --------------------------- ------------------- --------------------- Henry I. Bryant 338,885,920 6,858,295
Continuing Class I Directors (Term expiring in 2002): Teresa Beck Clark A. Johnson Lawrence R. Johnston Victor L. Lund
21 FORM 10-Q Continuing Class II Directors (Term expiring in 2003): Gary Ames Paul I. Corddry Beatriz Rivera
Director Emeritus: Kathryn Albertson (b) Ratification of Appointment of Independent Auditors:
Votes Broker Votes For Against Abstentions Nonvotes -------------------- --------------------- -------------------- --------------------- 342,059,310 2,213,962 1,470,943 0
(c) To recommend the Albertson's Inc. Amended and Restated 1995 Stock-Based Incentive Plan:
Votes Broker Votes For Against Abstentions Nonvotes -------------------- --------------------- -------------------- --------------------- 314,131,279 29,310,568 2,302,368 0
(d) To recommend declassification of the Board of Directors:
Votes Broker Votes For Against Abstentions Nonvotes -------------------- --------------------- -------------------- --------------------- 178,080,117 119,681,046 2,884,539 45,098,513
(e) Stockholder proposal to identify and label genetically engineered foods:
Votes Broker Votes For Against Abstentions Nonvotes -------------------- --------------------- -------------------- --------------------- 17,462,273 270,614,110 12,569,319 45,098,513
(f) Stockholder proposal to adopt a policy that executive officer severance pay over $3 million must be approved by the shareholders as a separate issue for vote:
Votes Broker Votes For Against Abstentions Nonvotes -------------------- --------------------- -------------------- --------------------- 104,080,952 191,041,109 5,523,641 45,098,513
(g) Stockholder proposal to adopt the CERES Principles for environmental accountability:
Votes Broker Votes For Against Abstentions Nonvotes -------------------- --------------------- -------------------- --------------------- 20,364,455 268,159,512 12,121,735 45,098,513
Item 5. Other Information On July 17, 2001, the size of the Board of Directors was increased to thirteen and Peter L. Lynch was appointed to the Board as a Class I Director to serve a term expiring on the date of the Annual Meeting of Stockholders in 2002. On August 22, 2001, Felicia D. Thornton was named Executive Vice President and Chief Financial Officer. 22 FORM 10-Q Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10.36 Employment Agreement between Peter L. Lynch and Albertson's, Inc. dated January 26, 2001. 10.36.1 Amendment to Employment Agreement between Peter L. Lynch and Albertson's, Inc. dated April 23, 2001. 10.37 Agreement between Peter L. Lynch and Albertson's, Inc. dated June 18, 1999. 10.38 Albertson's Voluntary Separation Plan for Officers effective July 18, 2001. 10.39 Albertson's Severance Plan for Officers effective July 18, 2001. 10.40 Employment Agreement between the Company and Felicia D. Thornton dated August 6, 2001. b. There were no reports on Form 8-K filed during the quarter ended August 2, 2001. SIGNATURE Pursuant to the requirements 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. ALBERTSON'S, INC. ------------------------------------------- (Registrant) Date: September 12, 2001 /S/ Felicia D. Thornton ------------------------------------------- Felicia D. Thornton Executive Vice President and Chief Financial Officer 23 EX-10 3 abs10q22000exhibit10-36.txt EMPLOYMENT AGREEMENT EXHIBIT 10.36 January 26, 2001 Peter L. Lynch Albertson's, Inc. 250 E. Parkcenter Blvd. Boise, ID 83706 Dear Peter: This letter sets forth our agreement and understanding of the terms of a general release and certain benefits, which you are eligible to receive in the event of the occurrence of certain conditions and circumstances as described below. This agreement will become effective on the eighth (8th) day after the date of its execution by you. 1. Conditioned upon your agreement to the terms set forth in this letter, in the event Albertson's, Inc. (the "Company") terminates your employment other than for Cause (as defined in paragraph 2. below) or you terminate your employment with the Company for Good Reason (as defined in paragraph 2. below) prior to December 5, 2003, you will be entitled to the "Termination Benefits" described below. The date your employment with the Company terminates shall be referred to as the "Termination Date." Your receipt of the Termination Benefits is expressly conditioned upon your execution of the Release of Claims as contained in Exhibit A on or around your Termination Date. The "Termination Benefits" are as follows: (a) Upon your Termination Date, you will become vested in 100% of your award of 138,400 deferred stock units granted to you on December 6, 2000 (the "Stock Award") even if the performance standard set forth in the agreement granting the Stock Award has not been met. (b) The Company will reimburse you for any reasonable moving expenses you incur if you relocate your principal residence within one (1) year of the Termination Date to the extent that you are not otherwise entitled to be reimbursed for such expenses by a party unrelated to the Company. In connection with such a relocation 216603.06-Los Angeles Server 1A Peter L. Lynch January 26, 2001 Page 2 you may cause the Company to purchase your principal residence from you for the amount determined as (i) the average of three (3) appraisals or (ii) the purchase price paid by you for the principal residence, whichever is greater. (c) Effective on the Termination Date and continuing for up to one (1) year thereafter (unless such period is terminated prior to such time by your taking other employment as described below), you will be classified as a special employee of the Company and during such period will be entitled to those benefits (and only those benefits) specified in this letter agreement. Your status as a special employee will terminate on the date you accept paid employment of any kind with an employer other than the Company (including self-employment) (the "Special Employee Status Termination Date"). It is further understood that during such period you will not be eligible for or entitled to any additional salary, raises, bonuses, vacation pay, or any other compensation, with the following exceptions: (i) You shall be entitled to continued salary as in effect on the Termination Date, paid in accordance with the normal payroll practices and procedures of the Company, for a period of one (1) year following the Termination Date. In the event of your death or other termination of your status as a special employee prior to the expiration of this one-year period, any unpaid salary attributable to the remaining portion of this one-year period shall be payable to you or your estate, as applicable, in a lump sum as soon as practicable thereafter. (ii) You will be entitled to receive the entire target bonus for the fiscal year in which the Termination Date occurs as set forth in any bonus plan in which you were entitled to participate immediately prior to the Termination Date. (iii)Through the Special Employee Status Termination Date you will (1) be entitled to participate in the Company's 216603.06-Los Angeles Server 1A Peter L. Lynch January 26, 2001 Page 3 medical, dental, life insurance and retirement plans and (2) be eligible to defer salary under any deferred compensation plan in which you were entitled to participate immediately prior to the Termination Date. (iv) Through the Special Employee Status Termination Date you shall be treated as a current employee for purposes of vesting and exercisability under the Company's stock and deferred unit plans. Termination of your status as a special employee shall be treated as termination of your employment with the Company under any applicable stock, stock option or stock incentive plans. 2. (a) For purposes of this letter agreement, "Cause" shall mean: (i) Your willful and continued failure to perform substantially your duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) which has not been cured within thirty days after a written demand for substantial performance is delivered to you by the Board of Directors of the Company which specifically identifies the manner in which you have not substantially performed your duties, or (ii) Your willfully engaging 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 your part shall be considered "willful" unless it is done by you in bad faith or without reasonable belief that your action or omission was in the best interests of the Company. (b) For purposes of this letter agreement, "Good Reason" shall mean: (i) Your base salary is reduced below $600,000; 216603.06-Los Angeles Server 1A Peter L. Lynch January 26, 2001 Page 4 (ii) Your duties and responsibilities as President and Chief Operating Officer are materially and adversely diminished, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after written notice thereof is given by you to the Company; or (iii)You are required to be based at a location more than 35 miles from the location where your employment is based as of the date of this letter agreement. 3. Within 10 days of the Termination Date you shall return to the Company all of the Company's personal property, including without limitation all computers, books, records, documents, videos, cards, keys, credit cards issued to you, and all other such personal property of every nature and kind previously given to you by the Company. 4. In consideration of the Company's agreement to enter into this letter agreement and the Company's other covenants and agreements contained herein: (a) You do hereby knowingly and voluntarily, fully and finally release and forever discharge the Company, including its related or affiliated companies, partnerships, subsidiaries or other business entities, and its and their present and former respective officers, directors, shareholders, members, owners, agents, consultants, employees, representatives, insurers, successors and assigns (hereinafter referred to collectively as the "Released Parties"), from any and all claims, charges, complaints, liens, demands, causes of action, obligations, damages and liabilities, known or unknown, suspected or unsuspected, that you had, now have, or may hereafter claim to have against the Released Parties, arising out of or relating in any way to your employment with or separation from the Company or otherwise relating to any of the Released Parties from the beginning of time through the date you sign this agreement. This release specifically extends to, without limitation, claims or causes of action under any local, state and federal laws governing employment relations, including but not limited to 216603.06-Los Angeles Server 1A Peter L. Lynch January 26, 2001 Page 5 federal equal employment opportunity laws and federal and state labor statutes and regulations, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and the Employee Retirement Income Security Act of 1974, all as amended from time to time. With respect to the Released Parties, you expressly waive all rights afforded by any provision under Idaho or Delaware law which generally provides that a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Notwithstanding any such foregoing provision or comparable provision, you understand and agree that this agreement is intended to include all claims, if any, which you may have and which you do not now know or suspect to exist in your favor against the Released Parties and that this release extinguishes those claims. (b) Notwithstanding anything to the contrary contained in this agreement, you are not releasing any of your rights to the following: (i) To indemnification as an officer or director pursuant to Section 145 of the Delaware General Corporation Law; (ii) To exercise and obtain, in accordance with the terms of such options, any and all the benefits appurtenant to the options to purchase the Company's common stock held by you on the Termination Date; or (iii)Any of your rights to enforce this agreement or your Retention Bonus and Severance Agreement and Release dated June 18, 1999. (c) You acknowledge that the Company has advised you that you may consult with an attorney of your choosing prior to signing this agreement and that you have been given at least twenty-one days 216603.06-Los Angeles Server 1A Peter L. Lynch January 26, 2001 Page 6 during which to review and consider the provisions of this agreement before signing, although you may sign and return it sooner if you so desire. You further acknowledge that you have been advised by the Company that you have the right to revoke this agreement for a period of seven days after signing it and that this agreement shall not become effective or enforceable until such seven-day revocation period has expired. You acknowledge and agree that if you wish to revoke this agreement, you must do so in writing, and that such revocation must be signed by you and received by Steven D. Young, Executive Vice President, Human Resources at Albertson's Inc., 250 E. Parkcenter, Blvd., Boise, Idaho 83706 no later than 5:00 p.m. Mountain Standard Time on the seventh day after you have signed this agreement. You acknowledge and agree that, in the event that you revoke this agreement, you shall have no right to receive the Termination Benefits described above. 5. You represent and agree that neither you nor anyone acting on your behalf has assigned or transferred, or attempted to assign or transfer, to any person or entity, any of the claims you are releasing in this agreement. 6. It is agreed and understood that nothing in this agreement shall be construed as an admission of liability by the Company or you; rather, we are resolving any and all matters and disputes regarding your employment with the Company up to the date hereof. 7. All controversies, claims, or disputes arising out of or related to this agreement, or to any alleged prior or subsequent oral promises or assurances relating to this agreement, shall be settled by a binding arbitration in Boise, Idaho under the rules of the American Arbitration Association then in effect in the State of Idaho, as the sole and exclusive remedy of either party, and judgment upon such award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. 8. Any notices or other communications permitted or required hereunder shall be in writing and shall be deemed conclusively to have been given upon personal delivery at, two (2) business days following the 216603.06-Los Angeles Server 1A Peter L. Lynch January 26, 2001 Page 7 date of mailing by first class, registered or certified mail, postage prepaid, and return receipt requested to: To you: Mr. Peter L. Lynch 9401 Riverside Drive Boise, Idaho 83703 To the Company: Albertson's, Inc. 250 E. Parkcenter Blvd. Boise, Idaho 83706 Attn: General Counsel 9. If any provision of this agreement shall be determined under applicable law to be overly broad in duration, geographical coverage, substantive scope, or otherwise, such provision shall be deemed narrowed to the broadest term permitted by applicable law and shall be enforced as so narrowed. If any provision of this agreement nevertheless shall be unlawful, void, or unenforceable, it shall be deemed severable from and shall in no way affect the validity or enforceability of the remaining provisions of this agreement. This agreement will survive the performance of the specific arrangements herein. This agreement is binding on and shall inure to the benefit of the Company and you and each of our respective heirs, executors, administrators, successors and assigns. 10. This agreement and attached exhibits provide the entire agreement relating to the matters set forth herein between us and supercedes any and all other agreements, understandings, negotiations, or discussions, either oral or writing, express or implied, between us, other than (i) agreements relating to stock option and deferred unit awards, which agreements shall remain in full force and effect subject to the modifications, if any, set forth herein and (ii) your Retention Bonus and Severance Agreement and Release dated June 18, 1999, which shall remain in full force and effect. We each acknowledge that no representations, inducements, promises, agreements or warranties, oral or otherwise, have been made by us, or anyone acting on our behalf, which are not embodied in this agreement, and that we have not executed this agreement in reliance on any such representation, inducement, promise, agreement or warranty, and that no such 216603.06-Los Angeles Server 1A Peter L. Lynch January 26, 2001 Page 8 representation, inducement, promise, agreement or warranty not contained in this agreement, including, but not limited to, any purported supplements, modifications, waivers or terminations of this agreement, shall be valid or binding, unless executed in writing by both you and the Company. 11. The validity, interpretation, construction and performance of this agreement shall in all respects be governed by the laws of Delaware, without reference to principles of conflict of law. 12. This agreement may be executed in one or more counterparts, or duplicates of originals, all of which, taken together, shall constitute one and the same instrument. If this statement of the Company's understanding conforms to your understanding, please execute and return the enclosed copy of this letter to me no later than February 5, 2001. Very truly yours, ALBERTSON'S, INC. /s/ Michael F. Reuling Michael F. Reuling Vice Chairman of the Company By signing this letter, I acknowledge that I have had the opportunity to seek the advice of an attorney in connection with the negotiation and execution of this agreement; that I have read this agreement and understand its terms; that I have had sufficient time within which to consider the provisions of this agreement, and that I entered into this agreement freely, voluntarily, and without coercion. Agreed and accepted this 1st day of February 2001 in Boise, Idaho. /s/ Peter L. Lynch ___________________________ Peter L. Lynch 216603.06-Los Angeles Server 1A EXHIBIT A RELEASE OF CLAIMS In consideration of the Termination Benefits payable pursuant to the letter agreement between you and the Company dated January 26, 2001 (the "Letter Agreement"), you agree to the following terms and conditions as a condition of receiving such Termination Benefits. Terms not defined herein shall have the meaning set forth in the Letter Agreement. 1. You do hereby knowingly and voluntarily, fully and finally release and forever discharge the Company, including its related or affiliated companies, partnerships, subsidiaries or other business entities, and its and their present and former respective officers, directors, shareholders, members, owners, agents, consultants, employees, representatives, insurers, successors and assigns (hereinafter referred to collectively as the "Released Parties"), from any and all claims, charges, complaints, liens, demands, causes of action, obligations, damages and liabilities, known or unknown, suspected or unsuspected, that you had, now have, or may hereafter claim to have against the Released Parties, arising out of or relating in any way to your employment with or separation from the Company or otherwise relating to any of the Released Parties from the beginning of time through the date you sign this agreement. This release specifically extends to, without limitation, claims or causes of action under any local, state and federal laws governing employment relations, including but not limited to federal equal employment opportunity laws and federal and state labor statutes and regulations, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and the Employee Retirement Income Security Act of 1974, all as amended from time to time. With respect to the Released Parties, you expressly waive all rights afforded by any provision under Idaho or Delaware law, which generally provides that a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially 1 216603.06-Los Angeles Server 1A affected his settlement with the debtor. Notwithstanding any such foregoing provision or comparable provision, you understand and agree that this agreement is intended to include all claims, if any, which you may have and which you do not now know or suspect to exist in your favor against the Released Parties and that this agreement extinguishes those claims. 2. Notwithstanding anything to the contrary contained in this release, you are not releasing any of your rights to the following: (a) To indemnification as an officer or director pursuant to Section 145 of the Delaware General Corporation Law. (b) To exercise and obtain, in accordance with the terms of such options, any and all the benefits appurtenant to the options to purchase the Company's common stock held by you on the Termination Date; or (c) To continuation coverage, at your expense, as provided under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and any other continuation coverage as provided under applicable state law. (d) Any of your rights to enforce the Letter Agreement or your Retention Bonus and Severance Agreement and Release dated June 18, 1999. 3. You acknowledge that the Company has advised you that you may consult with an attorney of your choosing prior to signing this agreement and that you have been given at least twenty-one days during which to review and consider the provisions of this agreement before signing, although you may sign and return it sooner if you so desire. You further acknowledge that you have been advised by the Company that you have the right to revoke this agreement for a period of seven days after signing it and that this agreement shall not become effective or enforceable until such seven-day revocation period has expired. You acknowledge and agree that if you wish to revoke this agreement, you must do so in writing, and that such revocation must be signed by you and received by Steven D. Young, Executive Vice President, Human Resources at Albertson's Inc., 250 E. Parkcenter, Blvd., Boise, Idaho 83706 no later than 5:00 p.m. Mountain Standard Time on the seventh 2 216603.06-Los Angeles Server 1A day after you have signed this agreement. You acknowledge and agree that, in the event that you revoke this agreement, you shall have no right to receive the Termination Benefits as described in the Letter Agreement. 4. You agree that you shall not publish or cause to be published any public or private statement disparaging the Company, its related or affiliated companies, partnerships, subsidiaries or other business entities, and its and their present and former respective officers, directors, members, shareholders, owners, agents, consultants, or employees. The Company agrees not to make any public or private statements disparaging you. 5. You shall cooperate with the Company, its affiliates, and each of their respective attorneys or other legal representatives (collectively, the "Company attorneys") in connection with any claim, litigation, or judicial or arbitral proceeding which is now pending or may hereinafter be brought against the Company and/or its affiliates by any third party. Your duty of cooperation shall include, but not be limited to, (a) meeting with the Company attorneys by telephone or in person at mutually convenient times and places in order to state truthfully your knowledge of matters at issue and recollection of events; (b) appearance by you (that does not conflict with the needs or requirements of your then-current employer) as a witness at depositions or trials, without necessity of a subpoena, in order to state truthfully your knowledge of matters at issue; and (c) signing, upon the Company attorneys' request, declarations or affidavits that truthfully state matters of which you have knowledge. The Company shall promptly reimburse you for your actual and reasonable travel or other expenses that you may incur in cooperating with the Company in this Paragraph 5. You shall provide such other cooperation as the Company may reasonably request to assist the Company in the administration of its business, it being expressly agreed that requests for such cooperation which do not require more than four (4) hours of your time in any 30-day period are reasonable. You further agree that you will immediately forward to the Company's Chief Executive Officer any business information related to the Company that inadvertently has been directed to you. The Company agrees that it will immediately forward to you any mail addressed to you at the Company's offices which does not relate to the Company's business or affairs. 3 216603.06-Los Angeles Server 1A 6. Without the express prior written consent of the Company, you shall never disclose, communicate, divulge, furnish, make accessible to any person, firm, partnership, corporation or other entity, or use for your own benefit or purposes, any information of a confidential or proprietary nature obtained from or pertaining to the Company, its assets or business, including information concerning the Company's current or future proposed business plans, processes, operational methods, customer lists, trade secrets, suppliers, employees' personnel files and compensation, financial affairs or marketing strategies. 7. You represent and agree that neither you nor anyone acting on your behalf has assigned or transferred, or attempted to assign or transfer, to any person or entity, any of the claims you are releasing in this agreement. 8. You represent that you have not filed, initiated, or caused to be filed or initiated, any legal action covering any claim released in this agreement and hereby agree and promise that you will never file, initiate, or cause to be filed or initiated, at any time subsequent to the execution of this agreement, any claim, suit, complaint, action, or cause of action, in any state or federal court, based in whole or in part on the matters herein released, except to the extent such waiver is prohibited by law, order or regulation. You further agree not to seek any recovery arising out of, based upon, or relating to matters released hereunder, and agree you will not voluntarily participate, assist, or cooperate in any suit, action, or proceeding against or regarding the Released Parties, or any of them, unless compelled by law or except to the extent such waiver is prohibited by law, order or regulation. 9. You acknowledge that you might hereafter discover facts different from, or in addition to, those you now know or believe to be true with respect to a claim or claims released herein, and you expressly agree to assume the risk of possible discovery of additional or different facts, and agree that this agreement shall be and remain effective, in all respects, regardless of such additional or different discovered facts. 4 216603.06-Los Angeles Server 1A By signing this agreement, I acknowledge that I have had the opportunity to seek the advice of an attorney in connection with the negotiation and execution of this agreement; that I have read this agreement and understand its terms; that I have had sufficient time within which to consider the provisions of this agreement, and that I entered into this agreement freely, voluntarily, and without coercion. Agreed and accepted this ___ day of __________ 20__ in Boise, Idaho. - ---------------------------- Peter L. Lynch 5 216603.06-Los Angeles Server 1A EX-10 4 abs10q22000exhibit10-361.txt AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.36.1 April 23, 2001 Peter L. Lynch Albertson's, Inc. 250 E. Parkcenter Blvd. Boise, ID 83706 Dear Peter: This letter sets forth our agreement and understanding of an amendment to the letter agreement entered into between you and Albertson's, Inc, (the "Company") on January 26, 2001 (the "Agreement"). Paragraph 1(a) of the Agreement is amended by adding the following sentence to the end of such paragraph: Upon your Termination Date, you will become vested in 100% of your award of 100,000 deferred stock units granted to you on April 23, 2001. All of the terms of the Agreement, as modified herein, shall remain in full force and effect. This amendment to the Agreement may be executed in one or more counterparts, or duplicates of originals, all of which, taken together, shall constitute one and the same instrument. If this statement of the Company's understanding conforms to your understanding, please execute and return the enclosed copy of this letter to me. Very truly yours, ALBERTSON'S, INC. /s/ Michael F. Reuling Michael F. Reuling Vice Chairman of the Company Peter L. Lynch April 23, 2001 Page 2 By signing this agreement, I acknowledge that I have read this amendment to the Agreement and understand its terms and that I entered into this agreement freely, voluntarily, and without coercion. Agreed and accepted as of the 23rd day of April 2001 in Boise, Idaho. /s/ Peter L. Lynch - ----------------------------- Peter L. Lynch EX-10 5 abs10q22000exhibit10-37.txt RETENTION BONUS AND SEVERANCE AGREEMENT EXHIBIT 10.37 CONFIDENTIAL June 18, 1999 Peter Lynch Acme Markets, Inc. 75 Valley Stream Parkway Malvern, PA 19355 Re: Retention Bonus and Severance Agreement and Release Dear Peter: This Retention Bonus and Severance Agreement and Release (the "Letter Agreement") sets forth the terms of your employment with Albertson's Inc. or one of its affiliates ("Albertson's") commencing on the date of closing of the merger involving American Stores Company ("ASC") and Albertson's. The date of closing will occur when the certificate of merger is filed with the Secretary of State of Delaware (the "Closing Date"). You are referred to in this Letter Agreement as "you" or "the executive," and American Stores Company and Albertson's are referred to collectively as the "Company." Congratulations on your joining the Albertson's team. 1. Duration. The term of this Letter Agreement will begin on the Closing Date and end three years later, unless sooner terminated (the "Employment Term"). 2. Title. You will be employed as Executive Vice President, Operations. You will devote your best efforts and all of your business time, attention and skill to the performance of the duties associated with this position. You will report to The Chairman and Chief Executive Officer or his/her successor. You will also perform such other duties as The Chairman and Chief Executive Officer or his/her successor may in good faith assign to you, which shall not be inconsistent with your position with Albertson's. Your principal place of employment will be Boise, ID. 3. Compensation. Your annual base salary will be $375,000, which will be paid to you in accordance with Albertson's normal payroll procedures. You will be eligible to receive a target bonus equal to 70% of your base salary pursuant to the Albertson's, Inc. Officers' Bonus Plan in accordance with the terms and conditions of that Plan. You will be eligible to participate in the Albertson's Inc. Amended and Restated 1995 Stock-Based Incentive Plan. Stock option grants are discretionary and must be approved by the Board of Directors of Albertson's Inc. on an annual basis. Under that Plan, options are typically granted on an annual basis and vest at the rate of twenty percent per year based on continued employment with Albertson's. For illustrative purposes, a Executive Vice President may be granted an annual option target grant of approximately $2,000,000. This is the equivalent dollar amount "invested" in Albertson's stock through the plan. For example, if the stock price of Albertson's on the date of grant is $60.00, 33,334 shares would be granted ($2,000,000/$60.00 per share). For the first year of your employment, the amount of option grants are expected to be doubled (e.g., 66,667 shares assuming a $60.00 per share stock price). It is anticipated that the first stock option grants to you under the Plan will be made within thirty days following the closing of the merger. The foregoing does not obligate Albertson's to make any kind of option grant. 4. Benefits. During your employment, you will be eligible to participate in the applicable benefit plans and programs generally made available to other Albertson's executives of similar status, primary place of employment and title to you. You recognize that these plans and programs may change at any time. 5. Retention Bonus. You will be eligible for a retention bonus of up to $787,500 subject to the terms described below. One third of that amount (i.e., $262,500) will be paid to you only if you are employed by Albertson's on the first anniversary of the Closing Date. One third of that amount will be paid to you only if you are employed by Albertson's on the second anniversary of the Closing Date. And, one third of that amount will be paid to you only if you are employed by Albertson's on the third anniversary of the Closing Date. All such amounts will be paid as soon as reasonably practicable following the respective anniversary dates. 6. Termination. (a) If your employment is terminated by Albertson's without "Cause" (as defined below) or you terminate your employment with "Good Reason" (as defined below), Albertson's sole obligation to you hereunder shall be to pay or provide to you (i) any accrued and unpaid base salary earned through the date of termination, (ii) an amount equal to $787,500, less the amount of all payments theretofore paid to you pursuant to Section 5 hereof and (iii) for the duration of the three-year Employment Term, medical, dental and life insurance benefits as if your employment had not been terminated; provided, however, that if you become reemployed with another employer and are 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. You may terminate your employment for Good Reason only if you provide Albertson's written notice of such termination within ninety days of the occurrence of Good Reason. (b) If your employment with Albertson's terminates for "Cause" or you terminate without "Good Reason," Albertson's sole obligation to you hereunder shall be to pay to you any accrued and unpaid base salary earned through the date of termination. F:A\forms\RetentionBonusLetter - Tier I.doc 2 For purposes of this Letter Agreement "Cause" shall mean: (i) Your willful and continued failure to perform substantially your duties with Albertson's (other than any such failure resulting from incapacity due to physical or mental illness) which has not been cured within thirty days after a written demand for substantial performance is delivered to you by the Chief Executive Officer of Albertson's which specifically identifies the manner in which you have not substantially performed your duties, or (ii) Your willfully engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to Albertson's. For purposes of this provision, no act or failure to act on your part shall be considered "willful" unless it is done, or omitted to be done, by you in bad faith or without reasonable belief that your action or omission was in the best interests of Albertson's. For purposes of this Letter Agreement "Good Reason" shall mean: (i) Your base salary is reduced below $375,000; (ii) Your duties and responsibilities as Executive Vice President, Operations are materially and adversely diminished, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by Albertson's promptly after written notice thereof is given by you to Albertson's; or (iii) You are required to be based at a location more than 35 miles from the location where your employment is based pursuant to this Letter Agreement. (c) The severance pay and benefits provided for in this Section 6 shall be in lieu of any other severance pay to which you may be entitled under any severance policy; employment agreement or other policy, plan or program with Albertson's or any of its affiliates (including, after the Closing Date, American Stores Company and its affiliates). Your entitlement to any compensation or benefits other than as provided herein shall be determined in accordance with the employee benefit plans of Albertson's as in effect from time to time and as may be modified. (d) Any termination by Albertson's for Cause, or by you for Good Reason, shall be communicated by a Notice of Termination to the other party hereto. For purposes of this Letter Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Letter Agreement relied upon, and (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. The failure by you or Albertson's 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 yours or Albertson's, respectively, F:A\forms\RetentionBonusLetter - Tier I.doc 3 hereunder or preclude you or Albertson's, respectively, from asserting such fact or circumstance in enforcing yours or Albertson's rights hereunder. (e) You may be entitled to certain "gross up" payments in connection with the merger involving Albertson's and American Stores Company as set forth in Addendum A attached hereto and incorporated herein by reference. 7. Employment At-Will. At the end of the three year term of this Agreement, you will be employed on an at-will basis, such that you may terminate your employment at any time and Albertson's may terminate your employment at any time for any reason. 8. Entire Agreement. This Letter Agreement sets forth the entire agreement of the parties with respect to your employment with Albertson's and any of its affiliates and the termination thereof, and supercedes any and all agreements, oral or written, with respect thereto, including, but not limited to, your Employment Agreements with American Stores Company and your participation in the American Stores Company Employee Severance Policy, in which you will cease to participate as of the Closing Date, and any offer letters or other employment terms and conditions, which are hereby superceded and rendered null and void. 9. Effective Date. The rights and obligations of the parties under this Letter Agreement are conditioned upon the occurrence of the Closing Date. If the Closing Date does not occur, this Letter Agreement shall be null and void. 10. Governing Law. The validity, interpretation, construction and performance of this Letter Agreement shall in all respects be governed by the laws of Delaware, without reference to principles of conflict of law. 11. Disclosure. From and after the date of execution of this Letter Agreement, you will not disclose this Letter Agreement, or any of its contents, to any person, entity or corporation other than your spouse, immediate family, attorney, tax advisor or financial advisor. You may discuss this Letter Agreement with Executive Officers in Albertson's Human Resources or Legal departments. 12. Taxes. All payments and benefits hereunder shall be subject to all applicable taxes required to be withheld by Albertson's pursuant to federal, state or local laws. 13. Cooperation. In the event of your termination, for whatever reason, you shall cooperate with Albertson's and be reasonably available to Albertson's with respect to continuing and/or future matters arising out of your employment or any other relationship with Albertson's, whether such matters are business-related, legal or otherwise. You shall be compensated for such services at hourly rates approximately proportionate to your weekly salary divided by forty plus expenses. Any testimony you give must be truthful and accurate. F:A\forms\RetentionBonusLetter - Tier I.doc 4 14. Releases. Within the later of one week after the Closing Date or twenty-one days after you have been provided this Agreement for your consideration, you shall execute a General Release substantially in the form as set forth in Addendum B hereto. Additionally, as a condition to your receipt of the final installment of the retention bonus paid or payable under Section 5 and/or Section 6 of this Letter Agreement, you shall execute a General Release substantially in the form as set forth in Addendum B. 15. Non-Waiver of Rights. The failure to enforce at any time the provisions of this Letter Agreement or to require at any time performance by the other party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Letter Agreement or any part hereof, or the right of either party to enforce each and every provision in accordance with its terms. 16. Solicitation of Employees. You agree that for the one (1) year period following your termination of employment with Albertson's, you will not, either directly or indirectly, alone or in conjunction with another party, solicit, employ, or attempt to employ, any individual who on the date of termination is, or within one year prior thereto was, an employee of Albertson's. 17. Non-Assignment. You shall not assign all or any portion of this Letter Agreement without the prior written consent of Albertson's. 18. Modification. No provision of this Letter Agreement may be modified, altered or amended except by an instrument in writing executed by the parties hereto. 19. Full Settlement. Albertson's obligation to make the payments provided for in this Letter 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 Albertson's may have against you. In no event shall you be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this Letter Agreement and such amounts shall not be reduced whether or not you obtain other employment. 20. Confidential Information. You shall hold in a fiduciary capacity for the benefit of Albertson's all secret or confidential information, knowledge or data relating to Albertson's, and its businesses, which shall have been obtained by you during your employment by Albertson's (including American Stores Company and any of its affiliates) and which shall not be or become public knowledge (other than by acts by you or representatives of you in violation of this Letter Agreement). After termination of your employment, you shall not, without the prior written consent of Albertson's or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than Albertson's and those designated by it. In no event shall an asserted violation of the provisions of this Section 20 constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. F:A\forms\RetentionBonusLetter - Tier I.doc 5 21. Arbitration. By signing this Agreement, you agree that all claims or disputes covered by this Agreement or otherwise arising out of or relating to your employment during the term of the Agreement must be submitted to binding arbitration and that this arbitration will be the sole and exclusive remedy for resolving any such claim or dispute. This promise to resolve claims by arbitration is equally binding upon both you and Albertson's. Any arbitration will be administered by the American Arbitration Association under its Commercial Arbitration Rules. The arbitrator shall apply the Federal Rules of Evidence. The arbitrator shall have jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold pre-hearing conferences by telephone or in person as the arbitrator deems necessary. The Company shall pay the costs of arbitration and each party shall bear its own expenses; provided, that if you are the prevailing party in any such proceeding, the Company shall reimburse you for your reasonable costs and expenses, including attorney's fees, incurred in connection with such proceeding. If you accept the terms of this Letter Agreement, please sign below in the space provided. Very truly yours, ALBERTSON'S, INC. By: /s/ Steven D. Young ------------------------------- Name: Steven D. Young Title: Executive Vice President /s/ Peter L. Lynch - ---------------------- Executive Signature 7/16/99 - ---------------------- Date F:A\forms\RetentionBonusLetter - Tier I.doc 6 Addendum A Certain Additional Payments by the Company (a) Anything in the Retention Bonus and Severance Agreement and Release dated June 18, 1999, (the "Letter 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 the Letter Agreement or otherwise, but determined without regard to any additional payments required under this Addendum) (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 Addendum, 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 (c) below, all determinations required to be made under this Addendum, 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 a nationally recognized 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. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Addendum, 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 (c) below 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 thirty day period following the date on which it gives such notice to the Company (or such shorter F:A\forms\RetentionBonusLetter - Tier I.doc 7 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 to effectively 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 (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego 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 such 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 (c) above, 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 (c) above) 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 (c) above, 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 thirty days after such determination, then such advance shall be forgiven and F:A\forms\RetentionBonusLetter - Tier I.doc 8 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. The provisions of this Addendum apply to all payments and distributions made by the Company for the benefit of Executive that are considered to be contingent on the "change of control" that occurs for purposes of Sections 280G and 4999 of the Code in connection with or relating to the merger involving Albertson's and American Stores Company and under the Letter Agreement. It does not extend to any other merger, acquisition or other transaction that Albertson's could enter into in the future. F:A\forms\RetentionBonusLetter - Tier I.doc 9 Addendum B General Release I, with the intention of binding myself and my heirs, executors, administrators and assigns, do hereby release, remise, acquit and forever discharge Albertson's, as it is defined in the Retention Bonus and Severance Agreement and Release, dated June 18, 1999 (the "Agreement") and its present and former officers, directors, employees, agents, attorneys, executives, affiliated companies, divisions, subsidiaries, successors, predecessors and assigns (collectively the "Released Parties"), of and from any and all prior or current employment contracts, agreements, arrangements, practices, policies or other statements or conduct; claims; actions; causes of action; demands; rights; damages; debts; sums of money; accounts; financial obligations; suits; expenses; attorneys' fees and liabilities of whatever kind or nature in law, equity or otherwise, whether now known or unknown, suspected or unsuspected, which I, individually or as a member of a class, now have, own or hold, or have at any time heretofore had, owned or held, arising through the date hereof, against any Released Parties arising out of or in any way connected with my employment relationship with American Stores Company and/or any of its affiliates, including without limitation, any claims for severance or vacation benefits, unpaid wages, salary or incentive payment, breach of contract, wrongful discharge, impairment of economic opportunity, intentional infliction of emotional harm or other tort, or employment discrimination under any applicable federal, state or local statute, provision, order or regulation including, but not limited to, any claim under Title VII of the Civil Rights Act, the Federal Age Discrimination in Employment Act, the Americans With Disabilities Act and any similar or analogous state statute excepting only: A. those obligations of Albertson's payable under or contemplated by the Letter Agreement; and B. any rights to indemnification I may have under applicable corporate law, the by-laws or certificate of incorporation of American Stores Company, Albertson's, Inc., and/or any of their affiliates or as an insured under any Director's and Officer's liability insurance policy now or previously in force. I acknowledge and agree that I have not, with respect to any transaction or state of facts existing prior to the date of execution of this General Release, filed any complaints, charges or lawsuits against Albertson's, American Stores Company and/or any of their affiliates with any governmental agency or any court or tribunal. I further declare and represent that I have carefully read and fully understand the terms of this General Release and the Agreement, that I have been given not less than twenty-one (21) days to consider this General Release, that I have been advised to seek, and have had the opportunity to seek, the advice and assistance of counsel with regard to this General Release, and that I knowingly and voluntarily, of my own free will, without any duress, being fully informed and after due deliberate thought and action, accept the terms of and sign the same as my own free act. To the extent applicable to me, I expressly waive and relinquish all rights and benefits afforded by Section 1542 of the Civil Code of the State of California, and I do so understanding and acknowledging the significance and consequence of that waiver. Section 1542 of the Civil Code of the State of California states: F:A\forms\RetentionBonusLetter - Tier I.doc 10 A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. I understand that I may revoke this General Release anytime within seven (7) days of signing it and that the terms of this General Release will not be effective until the seven (7) day revocation period expires. /s/ Peter L. Lynch - ---------------------- Executive STATE OF Idaho ) ) SS. COUNTY OF Ada ) On this 16th day of July, 1999, before me personally appeared Peter L. Lynch, to me known to be the person described in and who executed the General Release and acknowledged that he/she executed the same as his/her free act and deed. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal in the Country and State aforesaid, the day and year first above written. /s/ Rose Marie Hansen ------------------------- Notary Public My Commission Expires: 12/27/04 F:A\forms\RetentionBonusLetter - Tier I.doc 11 EX-10 6 abs10q22000exhibit10-38.txt VOLUNTARY SEPARATION PLAN FOR OFFICERS EXHIBIT 10.38 ALBERTSON'S VOLUNTARY SEPARATION PLAN FOR OFFICERS EFFECTIVE JULY 18, 2001 SECTION 1--PURPOSE The purpose of the Albertson's Voluntary Separation Plan for Officers ("Plan") is to provide separation pay to certain full-time officers of Albertson's, Inc. and its subsidiaries (collectively the "Company") who elect to voluntarily terminate employment in connection with the Company's cost control initiatives, during the period from July 18, 2001 to August 2, 2001. The Plan will terminate on December 31, 2001. When the employment of such officers is so terminated, the employment relationship shall be completely severed and affected officers shall have no current or future right to employment on a full-time, part-time, per diem or other basis. The Plan is intended to be an "employee welfare benefit plan" as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended. Separation benefits for officers for this period shall be determined exclusively under this Plan except as otherwise provided in a separate written agreement. All of the corporate policies and practices regarding separation, or similar payments upon employment termination, with respect to officers eligible to participate herein are hereby superseded by this Plan. Benefits under this Plan are in no way contingent upon retirement under any Company retirement plan. SECTION 2--DEFINITIONS The following capitalized terms shall have the meanings set forth in this Section 2 unless the context clearly indicates otherwise: 2.1 Administrator means the Company or its delegees. 2.2 Company means Albertson's, Inc. and its wholly-owned subsidiaries. 2.3 Effective Date means July 18, 2001. 2.4 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 2.5 Officer means any active, full-time officer of the Company who is listed as an Officer on Exhibit C hereto who has been continuously employed by the Company for at least twenty full Years of Service as of December 31, 2001. An Officer who is on a Company-approved leave is considered "active" if the leave commenced after May 1, 2001 and the Officer is properly and actively at work at any time between July 18, 2001 and August 2, 2001. For purposes of this Plan, "Officer," as defined in Exhibit C excludes any individual who has an individual employment or severance agreement with the Company. 1 2.6 Participant means an Officer who during the period from July 18, 2001 to August 2, 2001 submits a completed and signed participation election (see Exhibit A) to the Company and who is accepted by the Company as a Participant. 2.7 Pay or Base Pay means the Officer's regular base salary on the date that such Officer submits the appropriate form to voluntarily terminate his or her termination of employment with the Company, excluding all extra pay such as premiums, bonuses, commissions, living or other allowance. Base Pay will not be increased or decreased during the period between the date that such Officer submits the appropriate form to voluntarily terminate his or her employment with the Company pursuant to this Plan and his or her Separation Date. 2.8 Plan means the Albertson's Voluntary Separation Plan for Officers. 2.9 Plan Year means the period from July 18, 2001 through December 31, 2001. 2.10 Release Agreement means the Separation Agreement and Release substantially in the form attached hereto as Exhibit B which shall include a general release given by the Participant to the Company and other matters stated therein. The Release Agreement shall bind the Participant and the Company 2.11 Separation Date means the date established by the Company as a Participant's last day of employment. 2.12 Years of Service shall mean the completed 12-month periods during which an Officer has been employed by the Company on a continuous basis measured from the Officer's most recent hire date or rehire date (not an adjusted or reinstated hire date). SECTION 3--ELIGIBILITY AND PAYMENT 3.1 An Officer who desires to become a Participant must submit between July 18 and August 2, 2001 a form provided by the Company pursuant to which he or she elects to voluntarily terminate his or her employment with the Company pursuant to this Plan. The Company's Vice President, Human Resources Administration shall review the form with respect to the Plan's eligibility criteria and shall approve the election to participate if the eligibility criteria are met. Each Participant's Separation Date shall be established by Company management and shall be no later than November 2, 2001; provided, however, that the Company reserves the right to delay a Participant's Separation Date beyond November 2, 2001. 3.2 A Participant shall be entitled to the separation pay set forth in Section 4 hereof, if: (a) the Officer returns a completed and executed Release Agreement to the Vice President, Human Resources Administration (fax number 208-395-4844) within the time period specified in the Release Agreement after such person's Separation Date; and, volsepplan-ofcrs(final7-13-2001)-Exh10-38 June 15, 2001 (b) the Officer is not and does not become disqualified from receiving separation pay pursuant to Section 3.3 hereof. 3.3 A Participant shall not be entitled to the separation pay set forth in Section 4 hereof, if: (a) the Officer fails to return a signed Release Agreement to the Company within the time period specified by the Company after that person's Separation Date; or (b) the Officer (i) terminates his or her employment, (ii) fails to show up and attend work prior to his or her Separation Date and/or (iii) fails to adequately perform his or her employment duties as determined by the Company in its sole discretion. An Officer who terminates before the Separation Date is not eligible to receive any benefit under this Plan; or (c) prior to the Separation Date, the Company terminates the employment of the Officer and either (i) separation is the result of actions by the Officer which, as determined by the Company in its sole discretion, would normally result in termination or discharge, or (ii) the Company determines after such termination that the Officer had engaged in conduct that was significantly detrimental to the Company, in clear violation of Company policies or procedures, or that resulted in a cost to the Company, and that would result in termination or discharge had such conduct been known to the Company prior to such termination. 3.4 Prior to the date the Participant's employment with the Company will terminate, such Participant will receive a Release Agreement. If the Participant accepts and agrees to his or her separation pay as determined, he or she shall execute the Release Agreement and return it to the Vice President, Human Resources Administration within the time period specified by the Company following his or her Separation Date. Such Release Agreement must be timely and appropriately executed by its terms for Participants to qualify for payments and benefits under Section 4. SECTION 4--AMOUNT AND PAYMENT OF SEPARATION PAY 4.1 A Participant's separation pay under this Section 4 shall be the number of weeks of Pay set forth in the following schedule based on such Participant's status and his or her number of full Years of Service and shall be paid in one lump sum as soon as practicable after the Participant's Separation Date with the Company or such longer period as may be required by the Release Agreement. Amounts to be paid are based on the Officer's Years of Service and employment status as follows: In the case of Participants who have (1) 20-24 Years of Service, 51 weeks' Pay, (2) 25-29 Years of Service, 55 weeks' Pay, (3) 30-34 Years of Service, 59 weeks' Pay, and (4) more than 35 Years of Service, 63 weeks' Pay. In addition, Participants receive 100 percent target bonus prorated based on the number of weeks actually worked during the fiscal year since the beginning of the most recent bonus eligibility period plus 100 percent target bonus prorated based on 39 weeks. 3 Employment taxes shall be withheld from all separation payments but voluntary deductions shall not be allowed. In addition, any amount payable under this paragraph shall be reduced (but not below zero) by any payment made as required by government-mandated programs that require payment of wages and fringe benefits in lieu of notice of closing, layoffs or termination of employment. 4.2 In addition to the separation payment described above, the Company will also offer additional benefits to all Participants as follows. (a) Participants shall have the right to continue medical and dental benefits under the continuation health coverage provisions of Title X of the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) after his or her Separation Date, if otherwise eligible, or may enroll in the Retiree Health Plan. To the extent that the Participant is eligible for and elects COBRA coverage, the Company shall cover the premiums or cost of such coverage on a monthly basis for the lesser of (1) the first 6 months of coverage, or (2) until Participant no longer qualifies to participate. At the end of the Officer's Company-paid COBRA coverage, the Officer may continue COBRA coverage at the Officer's expense or may elect to participate in the Company's self-pay retiree health care plan. Alternatively, the Officer may elect the self-pay retiree coverage at the end of the 18-month COBRA period. In no event shall any Participant be entitled to a cash payment in lieu of health coverage. (b) Participants shall be paid for normal termination vacation and any other earned pay pursuant to existing Company policy and applicable state law. (c) Benefits under any other employee benefit plans including but not limited to tax-qualified retirement plans, fringe benefit plans, policies, programs, stock option plans and nonqualified deferred compensation sponsored by the Company are governed solely by the terms of those plans, programs or policies. Participants may exercise stock options, to the extent that such options are exercisable under their terms. This Plan does not change the eligibility, termination or other provisions of those benefits. (d) The Company may offer additional benefits or programs which, if offered, will be described in appendices to this Plan. 4.3 The Company reserves the right to offset the benefits payable under Section 4, by any advance, loan or other monies the Participant owes the Company. SECTION 5--DEATH BENEFITS 5.1 If a Participant dies before receiving all of his or her separation pay due under this Plan, such pay will be distributed in one lump sum cash payment to the Officer's estate. 4 5.2 The Administrator may require that any individual or entity purporting to represent a Participant's estate provide such proof of such status as the Administrator may deem appropriate, including but not limited to letters testamentary or letters of administration. The Administrator shall also require that such individual, as a condition to receiving the separation pay execute a Release Agreement and agree, in a provision to be incorporated in the Release Agreement, to indemnify and hold harmless the Administrator and such other persons deemed appropriate by the Administrator for any financial responsibility, liability or expense arising out of a claim by another party or parties asserting entitlement to all or part of the benefit payable hereunder. In addition, the Company reserves the right to offset the benefits payable under this Section 5 by any advance, loan or other monies the Participant, with respect to whom the separation pay is being paid, owes the Company. SECTION 6--ADMINISTRATION 6.1 The Company shall have sole discretionary authority to interpret, apply and administer the terms of the Plan and to determine eligibility for and the amounts of benefits under the Plan including interpretation of ambiguous plan provisions, determination of disputed facts or application of Plan provisions to unanticipated circumstances. The Company's decision on any such matter shall be final and binding. 6.2 The Company shall be the administrator of the Plan for purposes of Section 3(16) of ERISA and shall have responsibility for complying with any ERISA reporting and disclosure rules applicable to the Plan for any Plan Year. The Administrator may at any time delegate to any other named person or body, or reassume therefrom, any of its fiduciary responsibilities (other than trustee responsibilities as defined in Section 405(c)(3) of ERISA) or administrative duties with respect to this Plan. 6.3 The Administrator may contract with one or more persons to render advice or services with regard to any responsibility it has under this Plan. 6.4 Subject to the limitations of this Plan, the Administrator shall from time to time establish such rules for the administration of this Plan as the Administrator may deem desirable. SECTION 7--CLAIMS PROCEDURE 7.1 If a Participant believes he or she has not been provided with separation pay benefits due under the Plan, then the Participant may file a request for benefits under this procedure with the Vice President, Human Resources Administration or its delegate within ninety (90) days after the date the Participant believes he or she should have received such benefits. If a Participant makes such a request for benefits under the Plan and that claim is denied, in whole or in part, the Administrator shall notify the Participant of the adverse determination within ninety (90) calendar days unless the Administrator determines that special circumstances require an extension of time for processing. If the Administrator determines that an extension of time is necessary, written notice shall be furnished to the claimant prior to the end of the initial ninety-day period and 5 the extension shall not exceed ninety days from the original ninety-day period. The extension notice shall indicate the special circumstances requiring an extension and the date by which the Administrator expects to render a determination. The Administrator shall notify the Participant of the specific reasons for the denial with specific references to pertinent Plan provisions on which the denial is based and shall notify the Participant of any additional material or information that is needed to perfect the claim and explanation of why such material or information is necessary. At that time the Participant will be advised of his or her right to appeal that determination, and given an explanation of the Plan's review and appeal procedure including time limits, and a statement regarding the Participant's right to bring a civil action under ERISA section 502(a) following an adverse determination or appeal. 7.2 A Participant may appeal from the determination or denial by submitting to the Administrator within sixty (60) calendar days after receiving a denial notice: (a) Requesting a review by the Administrator of the claim; (b) Setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and (c) Setting forth any issues or comments which the Participant deems relevant to the claim. The Participant may submit written comments, documents, records and other information relating to his claim. Upon request, the Participant may obtain free of charge, copies of all documents and records relevant to his claim. 7.3 The Administrator shall act upon the appeal taking into account all comments, documents, records and other information submitted by the Participant without regard to whether such information was submitted or considered in the initial benefit determination and shall render a decision within sixty (60) days, or one hundred twenty (120) days in special circumstances, after its receipt of the appeal. If the Administrator determines that an extension of time is necessary, written notice of the extension shall be furnished to the Participant prior to the end of the initial sixty-day period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Administrator expects to render a determination. The Administrator shall review the claim and all written materials submitted by the Participant, and may require him or her to submit, within ten (10) days of its written notice, such additional facts, documents, or other evidence as the Administrator in its sole discretion deems necessary or advisable in making such a review. On the basis of its review, the Administrator shall make an independent determination of the Participant's eligibility for benefits and the amount of such benefits under the Plan. The decision of the Administrator on any claim shall be final and conclusive upon all persons if supported by substantial evidence. 6 If the Administrator denies a claim on review in whole or in part, it shall give the Participant written notice of its decision setting forth the following: (a) the specific reasons for the denial and specific references to the pertinent Plan provisions on which its decision was based; (b) notice that the Participant may obtain free of charge, copies of all documents, records and other information relevant to the Participant's claim; and (c) a statement of the Participant's right to bring a civil action under section 502(a) of ERISA. 7.4 A Participant or his or her legal representative may appeal any final decision by filing an action in a federal court of competent jurisdiction, provided that such action is filed no later than 90 days after receipt of the final decision by the Participant or legal representative. SECTION 8--GENERAL 8.1 The benefits and costs of this Plan shall be paid by the Company out of its general assets. 8.2 This Plan is intended to be an "employee welfare benefit plan", as defined in Section 3(1), Subtitle A of Title 1 of ERISA. The Plan will be interpreted to effectuate this intent. Notwithstanding any other provision of this Plan, no Officer shall receive hereunder any payment exceeding twice that Officer's annual compensation during the year immediately preceding the termination of his service, within the meaning of 29 C.F.R. Section 2510.3-2, as the same was in effect on the effective date of this Plan. SECTION 9--AMENDMENT AND TERMINATION The Company reserves the right to amend this Plan, in whole or in part, or discontinue or terminate the Plan; provided, however, that any such amendment, discontinuance or termination shall not affect any right of any Participant to claim benefits under the Plan or as in effect prior to such amendment, discontinuance or termination, for events occurring prior to the date of such amendment, discontinuance or termination. An amendment to this Plan, and/or resolution of discontinuance or termination, may be made by the Administrator, to the extent permitted by resolution of the Board of Directors. 7 IN WITNESS WHEREOF, the Company has caused its officer, duly authorized by its Board of Directors to execute the Plan effective as of the 18th day of July 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ------------------ Name: Thomas R. Saldin Its: Executive Vice President and General Counsel 8 Exhibit A SAMPLE - -------------------------------------------------------------------------------- ALBERTSON'S VOLUNTARY SEPARATION PLAN ELECTION FORM - -------------------------------------------------------------------------------- Instructions: Carefully read this election form; the letter, highlights and questions and answers from your Executive Vice President; the Summary Plan Description sent to your home; and the separation agreement and release. If you have questions please contact your Human Resources representative, the intranet website, "Voluntary Separation Plan" or call toll-free 1-866-669-0998. After you have carefully considered all information, and if you are eligible, make your decision about whether you want to participate in the Voluntary Separation Plan. If you choose Voluntary Separation, you must fill in your name and most recent hire/rehire date on the lines below, sign and date at the bottom and submit by fax 208-395-4844 to David Biderman by 5:00 p.m. MDT on August 2, 2001. If you are eligible for Voluntary Separation your supervisor will talk with you about an appropriate termination date. Also, you will be informed of a time period in the future when you must sign and submit to Boise Human Resources the Separation Agreement and Release (a sample is attached to the Summary Plan Description). Do not submit the sample Separation Agreement and Release with this Election Form. I, ____________________________ have reviewed the offer made to me by my employer and elect to voluntarily terminate my employment, whether it is with Albertson's Inc. or any of its subsidiaries (collectively, the "Company"), in accordance with the applicable Albertson's Voluntary Separation Plan, and subject to the terms and conditions of such Plan and the Separation Agreement and Release. My decision is fully voluntary. It is based entirely on the explanation of the Plan contained in the written information that has been given to me and not on any statement or representation made to me by an Albertson's associate or representative. I understand this signed Election Form and my eligibility are subject to verification and that I will be required to sign the Separation Agreement and Release during a time period the Company will provide to me later. I also understand this signed form must be submitted to David Biderman by fax 208-395-4844 between July 18, 2001 and August 2, 2001 5:00 p.m. MDT. The effective date of my voluntary termination will be set by a supervisor over my area of responsibility. In any event, my separation from employment will occur between August 6, 2001, and November 2, 2001. The Company reserves the right to delay an eligible associate's employment separation beyond November 2, 2001, however. - --------------------------------- ------------------------------------- Your Most Recent Hire/Rehire Date Associate: Print Name Date: Signature: --------------------------- ------------------------------------- Associate: Signature - -------------------------------------------------------------------------------- TO BE COMPLETED BY BOISE HR Date Received: Signature: --------------- ------------------------------------- Time Received: David Biderman --------------- - -------------------------------------------------------------------------------- Note: To be effective, this request form must be submitted to David Biderman at fax 208-395-4844 no later than 5:00 p.m. MDT August 2, 2001. Election forms will NOT be accepted after that date and time. References to the "Voluntary Separation Plan" mean the Albertson's Voluntary Separation Plan for Officers and the Albertson's Voluntary Separation. 9 SAMPLE Exhibit B SEPARATION AGREEMENT AND RELEASE In consideration for the payment to me of (amount to be computed and added later), less lawful deductions, as separation pay, I, (name to be added), hereby make the following promises and agree to the terms of this Separation Agreement and Release, intending to be legally bound by them. 1. I hereby release Albertson's, Inc. ("Company") and its parent companies, subsidiaries, affiliates, and their respective successors, officers, directors, employees, and associates from any and all claims, actions, and causes of action arising out of my employment with, and/or termination from the Company, including but not limited to claims based on express or implied contract, covenants of fair dealing and good faith, wrongful discharge, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act of 1988, the Employee Retirement Income Security Act of 1974, as amended, and any other applicable federal, state, or local laws, ordinances, and regulations. This release does not, however, apply to or waive any rights I may have under applicable workers' compensation laws or employee benefit plans, or to claims under the Age Discrimination in Employment Act, or to claims which may arise after the date of this release except as to disability plan payments which may be offset by the Separation payment(s) herein. 2. I understand that by signing this Separation Agreement and Release, I am forever relinquishing any right to sue any of the companies and persons described in paragraph 1 above based on any claim arising out of my employment with, and/or termination from, the Company (other than claims arising under employee benefit plans, or to claims under the Age Discrimination in Employment Act, or claims for injuries compensable under workers' compensation laws), and I agree that I will never maintain any litigation against any of those companies or persons based on any of the claims I am giving up by signing this document. 3. I expressly waive and relinquish all rights and benefits afforded by Section 1542 of the Civil Code of the State of California, and I do so understanding and acknowledging the significance and consequence of that waiver. Section 1542 of the Civil Code of the State of California states: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 4. I acknowledge that, after I leave the employ of the Company, I am still obliged to abide by the Company's policies concerning confidential and proprietary information. 5. I shall cooperate with and assist the Company (including making myself available at reasonable times and places) so as to aid the Company in connection with any matters related to my employment by the Company or about which I am knowledgeable; provided, however, my cooperation with such matters shall not interfere unreasonably with my subsequent employment, if any. 6. I agree not to directly, indirectly, or through third parties solicit any Company associate for employment for two years. 7. I acknowledge that I am hereby advised to consult with the attorney or other advisor of my choice regarding the terms of this document before signing it. I understand that I may revoke this Separation Agreement And Release anytime within 7 days of signing it and that the terms of this agreement and release will not be effective until the 7-day revocation period expires. I must contact David Biderman, in writing, at Albertson's Human Resources Department in Boise (fax 208-395-4844) to revoke this agreement. 8. This Release will be governed by the laws of Idaho. 9. I have signed this document freely and voluntarily and not because of any deception or coercion. I understand the terms of this document and agree that they are fair and equitable. - --------------------- ----------------------- ------------------------------ Print Name of Witness Print Name of Associate Date of Associate's Signature - --------------------- ----------------------- ------------------------------ Signature of Witness Signature of Associate Last Date of Employment Note: Section 3 is required only if the severed associate has worked for the Company in the state of California, whether at the time of termination or some time prior. 10 Exhibit C Location Lname Fname - -------------------------------------------------------------------------------- 1) 48400 Adams Pat 2) 48400 Allen Craig 3) 71301 Apker Debra 4) 74200 Arnold William 5) 70428 Bailey Boyce 6) 71701 Banks Bob 7) 48300 Bassler Dennis 8) 55000 Bates Bill 9) 72900 Bates Mark 10) 48500 Bay Gerry 11) 71302 Bell Dario 12) 70405 Bergquist Renee 13) 70401 Bessent Mike 14) 73601 Biderman Dave 15) 71701 Bock Carolyn 16) 70405 Boyd John 17) 71301 Brady Kathy 18) 71302 Brother Tom 19) 72402 Brown Craig 20) 53000 Brune Jeff 21) 48700 Buckles Gerry 22) 71300 Butler Bob 23) 48400 Casey Karen 24) 50300 Casteel Ritchie 25) 71300 Cefalo Roe 26) 71704 Christoffersen Shirley 27) 50400 Clawson Mike 28) 74200 Cole Chip 29) 50100 Colgrove Bob 30) 54200 Colgrove John 31) 48300 Conrad Monty 32) 48600 Corry Tim 33) 48500 Cousin Ertharin 34) 71005 Croft John 35) 48500 Cygan Doug 36) 70400 Czarniecki Walt 37) 71304 Dean Dave 38) 48700 DeBruin Mark 39) 72905 DeMeyer Keith 40) 71300 Denningham Wayne 41) 57900 Eckstein Frank 42) 54200 Emmons William 43) 70467 Fehringer Joe 44) 70715 Fetzer Dennis 45) 48500 Gentile Jim 11 46) 56700 Giles Charla 47) 57100 Gloyne Clay 48) 71700 Goins Greg 49) 52700 Gossett Paul 50) 52700 Gray Kim 51) 71301 Gruell Kip 52) 53200 Gullickson Greg 53) 71301 Guthmiller Dick 54) 75501 Hamblin Laura 55) 71301 Hansen Larry 56) 72900 Hansen Roger 57) 48500 Hanson Ed 58) 54300 Hanson Greg 59) 48700 Harbecke William 60) 70416 Harmon Larry 61) 54000 Hays Scott 62) 48500 Herbert Kathy 63) 48700 Hiller Bruce 64) 74100 Hilton Steve 65) 73604 Hughes Terri 66) 48700 Hunstiger Gary 67) 72908 Imlay Thomas 68) 70700 Iverson John 69) 48600 Jablonski Carl 70) 72900 Jacobsen Jim 71) 48400 Javier Virginia 72) 52200 Jerry David 73) 71000 Johnston Larry 74) 79039 Jolley Tony 75) 73604 Jones Peggy 76) 72402 Kinde Dennis 77) 53400 Kowalski Eileen 78) 71701 Lavin Mark 79) 57000 Lawrence Michelle 80) 56500 Little Ed 81) 71000 Lynch Peter 82) 57800 Mann Bill 83) 48700 Massimino Mike 84) 71702 Mattefs Sue 85) 71302 McCarthy Mike 86) 48700 McGovern John 87) 48600 McKeon Colin 88) 71700 McKinney Dave 89) 56000 McNiff Greg 90) 71301 McReynolds Peggy 91) 48700 Mecham Rory 92) 54700 Melville Gerald 93) 71301 Michael Todd 94) 71600 Mielke Chris 95) 59000 Miles Matt 96) 48400 Molendyk Harvey 12 97) 56300 Morris Jacque 98) 48700 Mulcock Dave 99) 74200 Mumford Lee 100) 73610 Murphy Michele 101) 50800 Murty Brian 102) 72900 Muta Matt 103) 70400 Navarro Rick 104) 73608 Neumann Sue 105) 48500 Nielsen Keith 106) 70405 Ober Dave 107) 71304 Oddo Mitch 108) 74550 O'Riordan Kaye 109) 72901 Osban Jeff 110) 48300 Ouellette Mark 111) 53600 Ozark Gerard 112) 48700 Palmer Dennis 113) 73610 Paolini Bruce 114) 72402 Paterson Gary 115) 48400 Patton Mike 116) 54300 Perkins Jim 117) 72600 Pichulo Philip 118) 48300 Potter Bob 119) 71600 Powell Pamela 120) 70715 Raffo Ed 121) 71302 Raudabaugh John 122) 48500 Redfearn George 123) 71000 Reuling Mike 124) 50900 Rice Jim 125) 75308 Rissing Bob 126) 48400 Robbins Donna 127) 71302 Robertson Dave 128) 56100 Rocheleau Terry 129) 71302 Rood Brian 130) 74200 Rowan Paul 131) 71000 Saldin Tom 132) 54300 Sampson Shane 133) 72901 Schachtell Steve 134) 70700 Schroeder Kathy 135) 48300 Schuit Fred 136) 70408 Schuler Bob 137) 73610 Scoggin Andrew 138) 48700 Shadle Mark 139) 74200 Sharp Linc 140) 48300 Simonson Dave 141) 73602 Snow Jack 142) 71301 Spiers Gary 143) 48600 Spires Judy 144) 71300 Stablein Larry 145) 50200 Stachofsky Bob 13 146) 72900 Steele Pat 147) 71301 Stevens Clement 148) 71304 Strong John 149) 57700 Styer Don 150) 71304 Sutton Dan 151) 48300 Teall Martin 152) 71700 Thayer Scott 153) 72600 Tobin Dan 154) 71301 Tommack Ed 155) 71300 Tripp Kevin 156) 48300 Trom Brad 157) 48500 Van Helden Pete 158) 70400 Volger Ron 159) 72901 Wagner Hadley 160) 55300 Wahlstrom Larry 161) 48500 Walter Tom 162) 72480 Wardle Gerry 163) 54200 Washington Clem 164) 79039 Weiser Ed 165) 48300 White Wanda 166) 50900 Williams Marcia 167) 71301 Williams Shane 168) 48700 Willyard Jim 169) 50500 Withers Mike 170) 71304 Wright Steve 171) 73604 Yager Bryan 172) 52000 Yaksitch Frank 173) 73600 Young Steve 14 EX-10 7 abs10q22000exhibit10-39.txt SEVERANCE PLAN FOR OFFICERS EXHIBIT 10.39 ALBERTSON'S SEVERANCE PLAN FOR OFFICERS EFFECTIVE JULY 18, 2001 SECTION 1--PURPOSE The purpose of the Albertson's Severance Plan for Officers ("Plan") is to provide severance pay and benefits to certain Officers of Albertson's, Inc. and its subsidiaries (collectively the "Company") whose employment is involuntarily terminated in connection with the Company's cost control initiatives, where such employment termination is other than by discharge including unsatisfactory performance, during the period from July 18, 2001 to June 30, 2002. When the employment of such Officers is so terminated, the employment relationship shall be completely severed and affected Officers shall have no current or future right to employment on a full-time, part-time, per diem, consulting or other basis. The Plan is intended to be "employee welfare benefit plan" as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended. Severance benefits for this period shall be determined exclusively under this Plan unless a separate agreement has been or will be reached. All of the corporate policies and practices regarding severance, or similar payments upon employment termination, with respect to Officers eligible to participate herein are hereby superseded by this Plan. Benefits under this Plan are in no way contingent upon retirement under any Company retirement plan. SECTION 2--DEFINITIONS The following capitalized terms shall have the meanings set forth in this Section 2 unless the context clearly indicates otherwise: 2.1 Administrator means the Company or its delegees. 2.2 Company means Albertson's, Inc. and its subsidiaries except as excluded in the definition of "Officer" in Section 2.5. 2.3 Effective Date means July 18, 2001. 2.4 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 2.5 Officer means any active, full-time officer of the Company who is listed as an Officer on Exhibit B hereto. For purposes of this Plan, "Officer" as defined in Exhibit B excludes any individual who has an individual employment or severance agreement with the Company. 1 EXHIBIT 10.39 2.6 Participant means an Officer who is notified by the Company that his or her employment is to be involuntarily terminated by the Company on or after the Effective Date but on or before June 30, 2002, other than termination that is the result of actions by the Officer which, as determined by the Company in its sole discretion, would normally result in termination or discharge. 2.7 Pay or Base Pay means the Officer's regular base salary or wages on the Officer's Severance Date, excluding all extra pay such as overtime, premiums, bonuses, commissions, living or other allowance. 2.8 Plan means the Albertson's Severance Plan for Officers. 2.9 Plan Year means the period from July 18, 2001 through June 30, 2002. 2.10 Release Agreement means the Severance Agreement and Release attached hereto as Exhibit A, which shall include a general release given by the Participant to the Company and other matters stated therein. The Release Agreement shall bind the Participant and the Company. 2.11 Severance Date means the date established by the Company as a Participant's last day of employment. 2.12 Successor means any employer (whether or not the employer is affiliated with the Company) which acquires (through merger, consolidation, reorganization, transfer, sublease, assignment, or otherwise) (i) all or substantially all of the business or assets of the Company, of a division of the Company, or of a single facility or business unit of the Company, or (ii) the facility where the Officer usually works. 2.13 Years of Service shall mean the completed 12-month periods during which an Officer has been employed by the Company on a continuous basis measured from the Officer's most recent hire or rehire date (not an adjusted or reinstated hire date). SECTION 3--ELIGIBILITY AND PAYMENT 3.1 Subject to Sections 3.2, 3.3, and 3.4 of this Plan, an Officer shall become a Participant if, on or after the Effective Date, but on or before June 30, 2002, the Officer is notified by the Company that his or her employment with the Company is to be involuntarily terminated by the Company unless such termination is the result of actions by the Officer which, as determined by the Company in its sole discretion, would normally result in a termination or discharge. An employee who is on a Company-approved Family and Medical leave, worker's compensation or other medical or disability related leave will be subject to the appropriate Company leave policy when the employee returns from leave. 3.2 A Participant shall be entitled to the severance pay set forth in Section 4 hereof, if: 2 EXHIBIT 10.39 (a) he or she returns and does not revoke a completed and executed Release Agreement to the Company within the time period specified in the Release Agreement after such person's Severance Date; and, (b) he or she is not and does not become disqualified from receiving severance pay pursuant to Section 3.3 hereof at any time prior to such person's Severance Date. 3.3 A Participant shall not be entitled to the severance pay set forth in Section 4 hereof, if: (a) the Officer either (i) fails to return a signed Release Agreement to the Company within the time period specified in the Release Agreement after that person's Severance Date or (ii) revokes such Release Agreement within the time period specified in the Release Agreement; (b) prior to his or her Severance Date, the Officer (i) terminates voluntarily his or her employment, (ii) fails to show up and properly attend work, and/or (iii) fails to adequately perform his or her employment duties as established by the Company in its sole discretion; (c) the Officer begins employment or provides services as an independent contractor with or for the Company or any of its affiliates within 6 months following his or her Severance Date; (d) the Officer rejects an offer or fails to accept an offer of another position from a Successor or from any affiliate of the Company on or before his or her Severance Date; provided, however, that an Officer may still receive his or her severance benefits despite rejecting such offer if either (i) the new position has a Base Pay less than eighty (80) percent of his or her current Base Pay, or (ii) the new job will require the Officer to work in a facility located more than 50 miles from his or her current workplace; or (e) prior to the Severance Date, the Company terminates the employment of the Officer and either (i) the termination is the result of actions by the Officer which, as determined by the Company in its sole discretion would normally result in termination or discharge, or (ii) the Company determines after such termination that the Officer had engaged in conduct that was significantly detrimental to the Company, in clear violation of Company policies or procedures, or that resulted in a cost to the Company and that would result in termination or discharge had such conduct been known to the Company prior to such termination. 3.4 Prior to the date the Participant's employment with the Company will terminate, such Participant will receive a Release Agreement, substantially in the form attached to this Plan as Exhibit A. If the Participant accepts and agrees to his or her severance pay and benefits as determined, he or she shall execute the Release Agreement and return it to the Vice President, Human Resources Administration within the time period specified in the Release Agreement following his or her Severance Date. Such Release Agreement must be timely and 3 EXHIBIT 10.39 appropriately executed by its terms for the Participants to qualify for payments and benefits under Section 4. SECTION 4--AMOUNT AND PAYMENT OF SEVERANCE PAY 4.1 A Participant's severance pay under this Section 4 shall be the number of weeks of Pay set forth in the following schedule based on such Participant's status and his or her number of full Years of Service and shall be paid in one lump sum as soon as practicable after the Participant's Severance Date with the Company or such longer period as may be required by the Release Agreement. Amounts to be paid are as follows: Thirty-nine weeks' Pay plus (1) 100 percent target bonus prorated based on the number of weeks actually worked during the fiscal year since the beginning of the most recent bonus eligibility period, plus (2) 100 percent target bonus prorated based on twenty-six weeks. Employment taxes shall be withheld from all severance payments but voluntary deductions shall not be allowed. In addition, any amount payable under this Section above, shall be reduced (but not below zero) by any payment made as required by government-mandated programs that require payment of wages and fringe benefits in lieu of notice of closing, layoffs or termination of employment. 4.2 In addition to the severance payment described above, the Company will also offer additional benefits to all Participants as follows. (a) Participants shall have the right to continue medical and dental benefits under the continuation health coverage provisions of Title X of the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) after his or her Severance Date, if otherwise eligible and/or, if eligible, may enroll in the Retiree Health Plan. To the extent that the Participant is eligible for and elects COBRA coverage, the Company shall cover the premiums or cost of such coverage on a monthly basis for the lesser of (1) the first six months of coverage, or (2) until Participant no longer qualifies to participate. At the end of the Officer's Company-paid COBRA coverage, the Officer may continue COBRA coverage at the Officer's expense or to the extent eligible under the terms of such Plan may elect to participate in the Company's self-pay retiree health care plan. Alternatively, if eligible, the Officer may elect the self-pay retiree health coverage at the end of the 18-month COBRA period. In no event shall any Participant be entitled to a cash payment in lieu of health coverage. (b) Participants shall be paid for normal termination vacation pay and any other earned pay (if any) pursuant to existing Company policy and applicable state law. (c) Benefits under any other employee benefit plans, including but not limited to, tax-qualified retirement plans, retiree health care plan, fringe benefit plans, policies, programs, stock option 4 EXHIBIT 10.39 plans and nonqualified deferred compensation plans sponsored by the Company are governed solely by the terms of those plans, programs or policies. Participants may exercise stock options, to the extent that such options are exercisable under their terms. This Plan does not change the eligibility, termination or other provisions for those benefits. (d) The Company may offer additional benefits or programs which, if offered, shall be described in appendices to this Plan. 4.3 The Company reserves the right to offset the benefits payable under Section 4, by any advance, loan or other monies the Participant owes the Company. SECTION 5--DEATH BENEFITS 5.1 If a Participant dies before receiving all of his or her severance pay due under this Plan, such pay will be distributed in one lump sum cash payment to the Officer's estate. 5.2 The Administrator may require that any individual or entity purporting to represent a Participant's estate provide such proof of such status as the Administrator may deem appropriate, including but not limited to letters testamentary or letters of administration. The Administrator may also require that such individual, as a condition to receiving severance pay, agree in a provision to be incorporated in the Release Agreement, to indemnify and hold harmless the Administrator and such other persons deemed appropriate by the Administrator for any financial responsibility, liability or expense arising out of a claim by another party or parties asserting entitlement to all or part of the benefit payable hereunder. In addition, the Company reserves the right to offset the benefits payable under this Section 5 by any advance, loan or other monies the Participant, with respect to whom the severance pay is being paid, owes the Company. SECTION 6--ADMINISTRATION 6.1 The Company shall have sole discretionary authority to interpret, apply and administer the terms of the Plan and to determine eligibility for and the amounts of benefits under the Plan, including interpretation of ambiguous Plan provisions, determination of disputed facts or application of Plan provisions to unanticipated circumstances. The Company's decision on any such matter shall be final and binding. 6.2 The Company shall be the administrator of the Plan for purposes of Section 3(16) of ERISA and shall have responsibility for complying with any ERISA reporting and disclosure rules applicable to the Plan for any Plan Year. The Administrator may at any time delegate to any other named person or body, or reassume therefrom, any of its fiduciary responsibilities (other than trustee responsibilities as defined in Section 405(c)(3) of ERISA) or administrative duties with respect to this Plan. 6.3 The Administrator may contract with one or more persons to render advice or services with regard to any responsibility it has under this Plan. 5 EXHIBIT 10.39 6.4 Subject to the limitations of this Plan, the Administrator shall from time to time establish such rules for the administration of this Plan as the Administrator may deem desirable. SECTION 7--CLAIMS PROCEDURE 7.1 If a Participant believes he or she has not been provided with severance pay benefits due under the Plan, then the Participant may file a request for benefits under this procedure with the Human Resources Department or its delegate within ninety (90) days after the date the Participant believes he or she should have received such benefits. If a Participant makes such a request for benefits under the Plan and that claim is denied, in whole or in part, the Administrator shall notify the Participant of the adverse determination within ninety (90) calendar days unless the Administrator determines that special circumstances require an extension of time for processing. If the Administrator determines that an extension of time is necessary, written notice shall be furnished to the claimant prior to the end of the initial ninety-day period and the extension shall not exceed ninety days from the original ninety-day period. The extension notice shall indicate the special circumstances requiring an extension and the date by which the Administrator expects to render a determination. The Administrator shall notify the Participant of the specific reasons for the denial with specific references to pertinent Plan provisions on which the denial is based and shall notify the Participant of any additional material or information that is needed to perfect the claim and explanation of why such material or information is necessary. At that time the Participant will be advised of his or her right to appeal that determination, and given an explanation of the Plan's review and appeal procedure including time limits, and a statement regarding the Participant's right to bring a civil action under ERISA section 502(a) following an adverse determination or appeal. 7.2 A Participant may appeal from the determination or denial by submitting to the Administrator within sixty (60) calendar days after receiving a denial notice: (a) Requesting a review by the Administrator of the claim; (b) Setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and (c) Setting forth any issues or comments which the Participant deems relevant to the claim. The Participant may submit written comments, documents, records and other information relating to his claim. Upon request, the Participant may obtain free of charge, copies of all documents and records relevant to his claim. 7.3 The Administrator shall act upon the appeal taking into account all comments, documents, records and other information submitted by the 6 EXHIBIT 10.39 Participant without regard to whether such information was submitted or considered in the initial benefit determination and shall render a decision within sixty (60) days or one hundred twenty (120) days in special circumstances after its receipt of the appeal. If the Administrator determines that an extension of time is necessary, written notice of the extension shall be furnished to the Participant prior to the end of the initial sixty-day period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Administrator expects to render a determination. The Administrator shall review the claim and all written materials submitted by the Participant, and may require him or her to submit, within ten (10) days of its written notice, such additional facts, documents, or other evidence as the Administrator in its sole discretion deems necessary or advisable in making such a review. On the basis of its review, the Administrator shall make an independent determination of the Participant's eligibility for benefits and the amount of such benefits under the Plan. The decision of the Administrator on any claim shall be final and conclusive upon all persons if supported by substantial evidence. If the Administrator denies a claim on review in whole or in part, it shall give the Participant written notice of its decision setting forth the following: (a) the specific reasons for the denial and specific references to the pertinent Plan provisions on which its decision was based; (b) notice that the Participant may obtain free of charge, copies of all documents, records and other information relevant to the Participant's claim; and (c) a statement of the Participant's right to bring a civil action under section 502(a) of ERISA. 7.4 A Participant or his or her legal representative may appeal any final decision by filing an action in a federal court of competent jurisdiction, provided that such action is filed no later than 90 days after receipt of a final decision by the Participant or his or her legal representative. SECTION 8--GENERAL 8.1 The benefits and costs of this Plan shall be paid by the Company out of its general assets. 8.2 This Plan is intended to be an "employee welfare benefit plan", as defined in Section 3(1), Subtitle A of Title 1 of ERISA. The Plan will be interpreted to effectuate this intent. Notwithstanding any other provision of this Plan, no Officer shall receive hereunder any payment exceeding twice that Officer's annual compensation during the year immediately preceding the termination of his service, within the meaning of 29 C.F.R. Section 2510.3-2, as the same was in effect on the effective date of this Plan. SECTION 9--AMENDMENT AND TERMINATION The Company reserves the right to amend this Plan, in whole or in part, or discontinue or terminate the Plan; provided, however, that any such amendment, discontinuance or termination shall not affect any right of any Participant to 7 EXHIBIT 10.39 claim benefits under the Plan or as in effect prior to such amendment, discontinuance or termination, for events occurring prior to the date of such amendment, discontinuance or termination. An amendment to this Plan, and/or resolution of discontinuance or termination, may be made by the Administrator, to the extent permitted by resolution of the Board of Directors. IN WITNESS WHEREOF, the Company has caused its officer, duly authorized by its Board of Directors to execute the Plan effective as of the 18th day of July 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ---------------------- Name: Thomas R. Saldin Its: Executive Vice President and General Counsel 8 SAMPLE Exhibit A SEVERANCE AGREEMENT AND RELEASE In consideration for the payment to me of (amount to be computed and added later), less lawful deductions, as severance pay, I, (name to be added), hereby make the following promises and agree to the terms of this Severance Agreement and Release, intending to be legally bound by them. 1. I hereby release Albertson's, Inc. ("Company") and its parent companies, subsidiaries, affiliates, and their respective successors, officers, directors, employees, and associates from any and all claims, actions, and causes of action arising out of my employment with, and/or termination from the Company, including but not limited to claims based on express or implied contract, covenants of fair dealing and good faith, wrongful discharge, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act, the Worker Adjustment and Retraining Notification Act of 1988, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act of 1974, as amended, and any other applicable federal, state, or local laws, ordinances, and regulations. This release does not, however, apply to or waive any rights I may have under applicable workers' compensation laws or employee benefit plans, or to claims which may arise after the date of this release except as to disability plan payments which may be offset by the Severance payment(s) herein. 2. I understand that by signing this Severance Agreement and Release, I am forever relinquishing any right to sue any of the companies and persons described in paragraph 1 above based on any claim arising out of my employment with, and/or termination from, the Company (other than claims arising under employee benefit plans or claims for injuries compensable under workers' compensation laws), and I agree that I will never maintain any litigation against any of those companies or persons based on any of the claims I am giving up by signing this document. Any controversy or claim arising out of or relating to this release, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Employment Dispute Resolution Rules. 3. I expressly waive and relinquish all rights and benefits afforded by Section 1542 of the Civil Code of the State of California, and I do so understanding and acknowledging the significance and consequence of that waiver. Section 1542 of the Civil Code of the State of California states: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 4. I acknowledge that, after I leave the employ of the Company, I am still obliged to abide by the Company's policies concerning confidential and proprietary information. 5. I shall cooperate with and assist the Company (including making myself available at reasonable times and places) so as to aid the Company in connection with any matters related to my employment by the Company or about which I am knowledgeable; provided, however, my cooperation with such matters shall not interfere unreasonably with my subsequent employment, if any. 9 6. I agree not to directly, indirectly, or through third parties solicit any Company associate for employment for two years. 7. I understand that I will receive listings of the age and job title of persons who are eligible and ineligible for pay and benefits under the Albertson's Severance Plan applicable to me. I also understand that I will have forty-five calendar days following the date on which I receive those lists to consider whether to accept the pay and benefits under the Albertson's Severance Plan applicable to me. I understand that I waive the forty-five calendar day consideration period if I sign and return the Severance Agreement and Release before the end of the forty-five day period. I acknowledge that I am hereby advised to consult with the attorney or other advisor of my choice regarding the terms of this document before signing it. I understand that I may revoke this Severance Agreement And Release anytime within 7 days of signing it and that the terms of this agreement and release will not be effective until the 7-day revocation period expires. I must contact David Biderman, in writing, at Albertson's Human Resources Department in Boise (fax 208-395-4844) to revoke this agreement. 8. This Release will be governed by the laws of Idaho. 9. I have signed this document freely and voluntarily and not because of any deception or coercion. I understand the terms of this document and agree that they are fair and equitable. DO NOT SIGN AND RETURN THIS FORM UNTIL AFTER YOU HAVE RECEIVED THE LISTING OF THE AGES AND JOB TITLES OF THE INDIVIDUALS SELECTED FOR THE REDUCTION IN FORCE / SEVERANCE PAY AND BENEFIT. - --------------------- ---------------------- --------------------------- Print Name of Witness Print Name of Officer Date of Officer's Signature - --------------------- ---------------------- --------------------------- Signature of Witness Signature of Officer Last Date of Employment Note: Section 3 is required only if the severed associate has worked for the Company in the state of California, whether at the time of termination or some time prior. 10 Exhibit B Location Lname Fname - -------------------------------------------------------------------------------- 1) 48400 Adams Pat 2) 48400 Allen Craig 3) 71301 Apker Debra 4) 74200 Arnold William 5) 70428 Bailey Boyce 6) 71701 Banks Bob 7) 48300 Bassler Dennis 8) 55000 Bates Bill 9) 72900 Bates Mark 10) 48500 Bay Gerry 11) 71302 Bell Dario 12) 70405 Bergquist Renee 13) 70401 Bessent Mike 14) 73601 Biderman Dave 15) 71701 Bock Carolyn 16) 70405 Boyd John 17) 71301 Brady Kathy 18) 71302 Brother Tom 19) 72402 Brown Craig 20) 53000 Brune Jeff 21) 48700 Buckles Gerry 22) 71300 Butler Bob 23) 48400 Casey Karen 24) 50300 Casteel Ritchie 25) 71300 Cefalo Roe 26) 71704 Christoffersen Shirley 27) 50400 Clawson Mike 28) 74200 Cole Chip 29) 50100 Colgrove Bob 30) 54200 Colgrove John 31) 48300 Conrad Monty 32) 48600 Corry Tim 33) 48500 Cousin Ertharin 34) 71005 Croft John 35) 48500 Cygan Doug 36) 70400 Czarniecki Walt 37) 71304 Dean Dave 38) 48700 DeBruin Mark 39) 72905 DeMeyer Keith 40) 71300 Denningham Wayne 41) 57900 Eckstein Frank 42) 54200 Emmons William 43) 70467 Fehringer Joe 44) 70715 Fetzer Dennis 45) 48500 Gentile Jim 46) 56700 Giles Charla 47) 57100 Gloyne Clay 11 Exhibit B 48) 71700 Goins Greg 49) 52700 Gossett Paul 50) 52700 Gray Kim 51) 71301 Gruell Kip 52) 53200 Gullickson Greg 53) 71301 Guthmiller Dick 54) 75501 Hamblin Laura 55) 71301 Hansen Larry 56) 72900 Hansen Roger 57) 48500 Hanson Ed 58) 54300 Hanson Greg 59) 48700 Harbecke William 60) 70416 Harmon Larry 61) 54000 Hays Scott 62) 48500 Herbert Kathy 63) 48700 Hiller Bruce 64) 74100 Hilton Steve 65) 73604 Hughes Terri 66) 48700 Hunstiger Gary 67) 72908 Imlay Thomas 68) 70700 Iverson John 69) 48600 Jablonski Carl 70) 72900 Jacobsen Jim 71) 48400 Javier Virginia 72) 52200 Jerry David 73) 71000 Johnston Larry 74) 79039 Jolley Tony 75) 73604 Jones Peggy 76) 72402 Kinde Dennis 77) 53400 Kowalski Eileen 78) 71701 Lavin Mark 79) 57000 Lawrence Michelle 80) 56500 Little Ed 81) 71000 Lynch Peter 82) 57800 Mann Bill 83) 48700 Massimino Mike 84) 71702 Mattefs Sue 85) 71302 McCarthy Mike 86) 48700 McGovern John 87) 48600 McKeon Colin 88) 71700 McKinney Dave 89) 56000 McNiff Greg 90) 71301 McReynolds Peggy 91) 48700 Mecham Rory 92) 54700 Melville Gerald 93) 71301 Michael Todd 94) 71600 Mielke Chris 95) 59000 Miles Matt 96) 48400 Molendyk Harvey 12 Exhibit B 97) 56300 Morris Jacque 98) 48700 Mulcock Dave 99) 74200 Mumford Lee 100) 73610 Murphy Michele 101) 50800 Murty Brian 102) 72900 Muta Matt 103) 70400 Navarro Rick 104) 73608 Neumann Sue 105) 48500 Nielsen Keith 106) 70405 Ober Dave 107) 71304 Oddo Mitch 108) 74550 O'Riordan Kaye 109) 72901 Osban Jeff 110) 48300 Ouellette Mark 111) 53600 Ozark Gerard 112) 48700 Palmer Dennis 113) 73610 Paolini Bruce 114) 72402 Paterson Gary 115) 48400 Patton Mike 116) 54300 Perkins Jim 117) 72600 Pichulo Philip 118) 48300 Potter Bob 119) 71600 Powell Pamela 120) 70715 Raffo Ed 121) 71302 Raudabaugh John 122) 48500 Redfearn George 123) 71000 Reuling Mike 124) 50900 Rice Jim 125) 75308 Rissing Bob 126) 48400 Robbins Donna 127) 71302 Robertson Dave 128) 56100 Rocheleau Terry 129) 71302 Rood Brian 130) 74200 Rowan Paul 131) 71000 Saldin Tom 132) 54300 Sampson Shane 133) 72901 Schachtell Steve 134) 70700 Schroeder Kathy 135) 48300 Schuit Fred 136) 70408 Schuler Bob 137) 73610 Scoggin Andrew 138) 48700 Shadle Mark 139) 74200 Sharp Linc 140) 48300 Simonson Dave 141) 73602 Snow Jack 142) 71301 Spiers Gary 143) 48600 Spires Judy 144) 71300 Stablein Larry 13 Exhibit B 145) 50200 Stachofsky Bob 146) 72900 Steele Pat 147) 71301 Stevens Clement 148) 71304 Strong John 149) 57700 Styer Don 150) 71304 Sutton Dan 151) 48300 Teall Martin 152) 71700 Thayer Scott 153) 72600 Tobin Dan 154) 71301 Tommack Ed 155) 71300 Tripp Kevin 156) 48300 Trom Brad 157) 48500 Van Helden Pete 158) 70400 Volger Ron 159) 72901 Wagner Hadley 160) 55300 Wahlstrom Larry 161) 48500 Walter Tom 162) 72480 Wardle Gerry 163) 54200 Washington Clem 164) 79039 Weiser Ed 165) 48300 White Wanda 166) 50900 Williams Marcia 167) 71301 Williams Shane 168) 48700 Willyard Jim 169) 50500 Withers Mike 170) 71304 Wright Steve 171) 73604 Yager Bryan 172) 52000 Yaksitch Frank 173) 73600 Young Steve 14 EX-10 8 abs10q22000exhibit10-40.txt EMPLOYMENT AGREEMENT EXHIBIT 10.40 August 6, 2001 Ms. Felicia Denault Thornton 2546 Manhattan Avenue Hermosa Beach, California 90254 Dear Felicia: I am pleased to confirm my verbal offer of employment for the position of Executive Vice President and Chief Financial Officer (CFO) for Albertson's, Inc. (the "Company"). In this assignment, you will report directly to me. Your employment with the Company will commence on August 22, 2001 (the "Effective Date"). Your initial base salary ("Base Salary") will be $540,000 per annum, payable in accordance with the Company's policies relating to salaried employees. Your Base Salary may be increased (but not decreased) by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee") in its sole discretion. On the Effective Date, the Company shall pay to you an amount in cash equal to $250,000 as a signing bonus, less applicable tax withholding. Commencing with the fiscal year of the Company ("Fiscal Year") in which the Effective Date occurs, you will have the opportunity to earn a bonus for each Fiscal Year as recommended by the Compensation Committee in accordance with the Company's annual bonus plan applicable to the Company's senior officers (the "Annual Bonus Plan"). The amount of each annual bonus shall be set by the Compensation Committee and shall be equal to seventy percent (70%) of Base Salary if the applicable "target" performance goals (as defined in the Annual Bonus Plan for such period) are met (the "Target Bonus") and shall not exceed one hundred five percent (105%) of Base Salary. The criteria for determining the amount of any Target Bonus and the bases upon which such Target Bonus shall be payable shall be no less favorable to you than those used for other senior executives of the Company, such criteria and bases to be determined in the sole discretion of the Compensation Committee. As of the Effective Date, you will be granted 60,000 shares of deferrable restricted stock units of the Company ("Restricted Stock Unit Award") in accordance with the form of grant used by the Company for grants made to its senior executive officers; provided that the provisions of such grant shall not be inconsistent with, or provide for additional obligations upon you beyond, the terms of this letter agreement, and shall be subject to reasonable review by CHICAGO/#799708.6 Ms. Felicia Denault Thornton August 6, 2001 Page 2 your counsel. Such grant shall provide that 12,000 of such units shall vest on the Effective Date, and 12,000 of such units shall vest on each of the first, second, third and fourth anniversaries of the Effective Date; provided in each case that you have been continuously employed as a senior executive with the Company from the Effective Date through the applicable vesting date, except as otherwise provided in this letter agreement and in such deferrable restricted stock unit agreement. To the extent that dividends are paid on Company common stock after the Effective Date and prior to the date that the Company common stock that is subject to a Restricted Stock Unit Award is issued to you, you shall be entitled to receive a cash payment in an amount equal to the dividends you would have been entitled to receive had you been the owner of such unissued shares on the date such dividends are paid. Such cash payment shall be made at the same time payment of dividends are made to other shareholders of Company common stock. As of the Effective Date, you will be granted an option ("Initial Option") to purchase 200,000 shares of common stock of the Company at a per share exercise price equal to the fair market value of the common stock of the Company on the Effective Date in accordance with the form of grant used by the Company for grants made to its senior executive officers; provided that the provisions of such grant shall not be inconsistent with, or provide for additional obligations upon you beyond, the terms of this letter agreement, and shall be subject to reasonable review by your counsel. Such grant will vest and become exercisable in annual installments at the rate of 40,000 shares on each of the first, second, third, fourth, and fifth anniversaries of the Effective Date (each such installment, an "Initial Option Installment"); provided in each case that you have been continuously employed as a senior executive with the Company from the Effective Date through the applicable vesting date, except as otherwise provided in this letter agreement and in such stock option grant agreement. You will be entitled to receive additional grants of stock options to purchase shares of common stock of the Company from time to time as recommended by the Compensation Committee in its sole discretion; provided that not later than December 31, 2001, the Compensation Committee will grant to you an option to purchase shares of Company common stock which has a value equal to three million dollars ($3,000,000), the number of shares of which shall be equal to three million dollars ($3,000,000) divided by the closing New York Stock Exchange price of the Company's stock on the date of such grant (which would be approximately 100,000 shares based on the current stock price), and vesting at the rate of twenty percent (20%) of the total shares granted on each of the first, second, third, fourth and fifth anniversaries of the date of such grant (the "First Additional Option"). The First Additional Option grant will be in the same form as the Initial Option. Subsequent annual option awards otherwise shall be subject to the terms and conditions as generally apply to stock options granted to other senior executive officers who participate in the Company's equity incentive plans. The Company will also provide reimbursement for reasonable legal and other professional fees and expenses you incur in connection with the negotiation and preparation of this letter agreement. The Company will maintain, for your CHICAGO/#799708.6 Ms. Felicia Denault Thornton August 6, 2001 Page 3 benefit, officer liability insurance in a form it maintains for its other senior executive officers. You will be indemnified by the Company against liability as an officer of the Company and any subsidiary or affiliate of the Company to the same extent as the Company's other senior executive officers. Your rights to such indemnification and insurance will continue so long as you may be subject to liability, whether or not your employment may have terminated prior thereto. You will be provided with four (4) weeks of paid vacation per year and sick leave and paid holidays in accordance with the Company's standard policy regarding these benefits for senior executive officers of the Company. You will also be eligible to participate in each fringe, welfare and pension benefit and incentive programs adopted from time to time by the Company for the benefit of, and which generally apply to, its highest level of senior executive offers from time to time, including the Company's 401(k) and profit sharing plans. The Company will reimburse you in accordance with the Company's relocation policy provided under its "Full Service Move Program for Senior Executive Officers" (the "Relocation Program"), a copy of which has been provided to you previously, in connection with your relocation to Boise, Idaho. Pursuant to the Relocation Program, you will be entitled to a "gross-up" payment with respect to those reimbursement payments described in the Relocation Program in an amount such that, after payment of all applicable taxes on such reimbursement payments and "gross-up" payment, you retain an amount equal to the amount of such reimbursement payments. In the event of your termination of employment for any reason, within thirty (30) days following the date of termination, you shall be entitled to receive ("Accrued Obligations"): (a) Any earned, but unpaid, Base Salary; (b) Any earned, but unpaid, bonus for any Fiscal Year that ended prior to the Fiscal Year in which the date of termination occurs; (c) The cash equivalent of any accrued, but unused, vacation; and (d) Any accrued employee benefits, subject to the terms of the applicable employee benefit plans. In the event that your employment is terminated by the Company without Cause (as defined in Exhibit "A" hereto) or you voluntarily terminate your employment for Good Reason (as defined in Exhibit "A" hereto), you shall receive the following severance benefits, in addition to the Accrued Obligations: CHICAGO/#799708.6 Ms. Felicia Denault Thornton August 6, 2001 Page 4 (a) Severance payments and continuation of benefits as follows: (i) For any such termination which occurs prior to the first anniversary of the Effective Date, a lump sum payment equal to three (3) times the sum of Base Salary and Target Bonus, and continued participation in the Company's welfare benefit plans, fringe benefits, and employee perquisites for a period ("Continuation Period") of three (3) years (which shall be concurrent with any health care continuation benefits under COBRA); (ii) For any such termination which occurs after the first anniversary of the Effective Date but prior to the second anniversary of the Effective Date, a lump sum payment equal to two (2) times the sum of Base Salary and Target Bonus, and continued participation in the Company's welfare benefit plans, fringe benefits, and employee perquisites for a Continuation Period of two (2) years (which shall be concurrent with any health care continuation benefits under COBRA); and (iii)For any such termination which occurs after the second anniversary of the Effective Date, a lump sum payment equal to one (1) times the sum of Base Salary and Target Bonus, and continued participation in the Company's welfare benefit plans, fringe benefits, and employee perquisites for a Continuation Period of one (1) year (which shall be concurrent with any health care continuation benefits under COBRA). (b) For any such termination, you shall be entitled to receive a pro-rata portion of the amount due to you under the Annual Bonus Plan for the fiscal year in which the date of termination occurs, which amount shall be payable at the time of payment of bonuses under such plan to senior executives of the Company; (c) You shall be deemed to have earned vesting service under all unvested outstanding stock options and all unvested outstanding restricted stock equal to the applicable Continuation Period under subparagraph (a) above effective upon a termination of employment. All of your outstanding vested options to purchase Company common stock, after giving affect to additional vesting under the preceding sentence, shall remain exercisable for ninety (90) days from the date of termination; (d) Any vested Restricted Stock Unit Awards and restricted stock, after giving affect to additional vesting under subparagraph (c) above, shall become nonforfeitable; and CHICAGO/#799708.6 Ms. Felicia Denault Thornton August 6, 2001 Page 5 (e) You, to the extent determined to be nondiscriminatory under the Company's qualified employee benefit plans, shall become fully vested in your benefits under such plans, and you shall become fully vested with respect to any of the Company's non-qualified benefit plans in which you are a participant. In the event of a termination of your employment due to your death, you shall receive: (a) the Accrued Obligations, (b) all options to purchase stock shall be exercisable by your legal representatives and become vested to the extent and in the manner prescribed under the option plan pursuant to which such options were granted, and (c) all restricted stock units and restricted stock granted by the Company to you prior to your death shall become vested and paid to the extent and in the manner prescribed in the plan pursuant to which such units or stock were awarded. If a Change in Control shall occur while you are employed by the Company, you will be entitled to the following: (a) All of your outstanding options to purchase Company common stock shall become fully vested and shall be exercisable until the date of expiration of the full stated term of the option in the manner prescribed in the plan pursuant to which such options were awarded; and (b) Any Restricted Stock Unit Awards and restricted stock that are unvested shall become fully vested and nonforfeitable in the manner prescribed in the plan pursuant to which such units or stock were awarded. "Change in Control" shall have the meaning set forth in the Albertson's, Inc. 1995 Stock-Based Incentive Plan in effect on the date hereof, or as hereafter may be modified in a manner more favorable to you. If the aggregate of all payments or benefits made or provided to you under this letter agreement and under all other plans and programs of the Company (the "Aggregate Payment") is determined to constitute a parachute payment, as such term is defined in Section 280G(b)(2) of the Code, the Company shall pay to you, prior to or coincident with the time any excise tax imposed by Section 4999 of the Code (the "Excise Tax") is payable with respect to such Aggregate Payment, an additional amount that, after the imposition of all penalties, income, excise and other federal, state and local taxes thereon, is equal to the sum of the Excise Tax on the Aggregate Payment and interest and penalties imposed with respect to the Excise Tax and such additional amount ("Additional Amount"). The determination of whether the Aggregate Payment constitutes a Parachute Payment and, if so, the amount to be paid to you and the time of payment pursuant to this paragraph shall be made by an independent auditor (the "Auditor") jointly selected by the Company and you and paid by the Company. If the Company and you cannot agree on the firm to serve as the Auditor, then the Company and you shall CHICAGO/#799708.6 Ms. Felicia Denault Thornton August 6, 2001 Page 6 each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. Notwithstanding the foregoing, in the event that the amount of your Excise Tax liability is subsequently determined to be greater than the Excise Tax liability with respect to which an initial Additional Amount has been paid to you under this paragraph, the Company shall pay to you a further Additional Amount with respect to such additional Excise Tax (and any interest and penalties thereon) at the time and in the amount determined in the same manner as the initial Additional Amount was determined so as to make you whole, on an after-tax basis, with respect to such Excise Tax (and any interest and penalties thereon) and such additional amount paid by the Company. In the event the amount of your Excise Tax liability is subsequently determined to be less than the Excise Tax liability with respect to which an initial payment to you has been made, you shall, as soon as practical after the determination is made, pay to the Company the amount of the overpayment by the Company, reduced by the amount of any relevant taxes already paid by you and not refundable, all as determined by the Auditor. The Company and you shall cooperate with each other in connection with any proceeding or claim relating to the existence or amount of liability for Excise Tax, and all expenses incurred by you in connection therewith shall be paid by the Company promptly upon notice of demand from you. This letter shall not be construed to create an employment contract of any kind, express or implied, and your employment status shall be and remain "employment at will"; provided, however, that upon termination you shall be entitled to the benefits as set forth in this letter. As a condition to receipt of any severance payments or continued benefits under this letter upon your termination for any reason, you will execute a release agreement reasonably satisfactory to Albertson's releasing any and all claims arising out of your employment with the Company. In the event of any conflict between the terms of this letter agreement and the terms of any other agreement, award or arrangement contemplated hereby, the terms of this letter agreement shall control. If the terms outlined above reflect your understanding of our offer and you accept employment based on these terms, please indicate your acceptance by signing the two original letters provided. Please keep one letter for your records and return the other to me. CHICAGO/#799708.6 Ms. Felicia Denault Thornton August 6, 2001 Page 7 Felicia, we are extremely pleased to have you join the Albertson's team, and I look forward with great pleasure to our association with you in this important role at Albertson's. I anticipate benefiting from your expertise, and I believe you will help us establish a winning formula for success in the future. Sincerely, /s/ Lawrence R. Johnston ------------------------- Lawrence R. Johnston, Chief Executive Officer Accepted and agreed to this 6th day of August, 2001 /s/ Felicia Denault Thornton --------------------------- Felicia Denault Thornton CHICAGO/#799708.6 Ms. Felicia Denault Thornton August 6, 2001 Page 8 EXHIBIT A "Cause" means the occurrence of any one or more of the following: (a) That you have been convicted of, or plead guilty or nolo contendere to, a felony involving theft or moral turpitude; or (b) That you have engaged in conduct that constitutes gross neglect or willful gross misconduct (including misappropriation or embezzlement of property of, or fraud with respect to, the Company or its subsidiaries or their affiliates) with respect to your employment duties which results in material and demonstrable harm to the Company; provided, however, that for purposes of determining whether conduct constitutes willful gross misconduct, no act on your part shall be considered "willful" unless it is done by you in bad faith and without reasonable belief that your action was in the best interests of the Company. Notwithstanding the foregoing, the Company may not terminate your employment for Cause unless (i) a determination that Cause exists is made and approved by a majority of the Board, (ii) you are given at least 15 days' written notice of the Board meeting called to make such determination and an opportunity to cure during such notice period, and (iii) you and your legal counsel are given the opportunity to address such meeting. "Good Reason" means the occurrence of any one or more of the following, unless you have expressly consented in writing thereto: (a) The assignment to you of duties inconsistent in any material respect with your position (including status, offices, titles, and reporting relationships), authority, duties or responsibilities as contemplated hereunder, or any other action by the Company which results in a significant diminution in such position, authority, duties or responsibilities, excluding any isolated and inadvertent action not taken in bad faith and which is remedied by the Company within fifteen (15) days after receipt of notice thereof given by you; (b) Any failure by the Company to comply with any of the material provisions of this letter agreement other than an isolated and inadvertent failure not committed in bad faith and which is remedied by the Company within fifteen (15) days after receipt of notice thereof given by you; and (c) Your being required to relocate to a principal place of employment more than fifty (50) miles from your current principal place of employment as of the Effective Date. 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