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UNITED STATES FORM 10-K x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 OR o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 000-31127 SPARTAN STORES, INC. Michigan 38-0593940 850 76th Street, S.W. 49518-8700 Registrant's telephone number, including area code: (616) 878-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes No X The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant based on the last sales price of such stock on The NASDAQ Stock Market on September 12, 2003 (which was the last trading day of the registrant's second quarter in the fiscal year ended March 27, 2004) was $55,394,462. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Common Stock, no par value, outstanding as of May 21, 2004: 20,353,422 shares. DOCUMENTS INCORPORATED BY REFERENCE Part II, Item 5 and Part III, Items 10, 11, Proxy Statement for Annual Meeting to be held August 11, 2004 Forward-Looking Statements The matters discussed in this Annual Report on Form 10-K include "forward-looking statements" about the plans, strategies, objectives, goals or expectations of Spartan Stores, Inc. (together with its subsidiaries, "Spartan Stores"). These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or its management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "forecasting," "optimistic" or "confident" or has "goals," "objectives" or "strategies" that a particular occurrence "will," "may," "could," "should" or "will likely" result or that a particular event "will," "may," "could," "should" or "will likely" occur in the future, that the "trend" is toward a particular result or occurrence, or similarly stated expectations. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. You sh
ould not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Annual Report and our other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially. Our ability to strengthen our retail-store performance; improve sales growth; increase gross margin; reduce operating costs; sell assets classified as held for sale on favorable terms; continue to meet the terms of our debt covenants; and implement the other programs, plans, strategies, objectives, goals or expectations described in this Annual Report will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and distribution industries and other factors including, among others, those discussed below. Anticipated future sales are subject to competitive pressures from many sources. Our Retail and Grocery Distribution businesses compete with many warehouse discount stores, supermarkets, pharmacies and product manufacturers. Future sales will be dependent on the number of retail stores that we own and operate, competitive pressures in the retail industry generally and our geographic markets specifically, and our ability to implement effective new marketing and merchandising programs. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees. We recently consolidated our retail supermarket banners, which resulted in changing the names of our six Ashcraft's Markets stores, our three Great Day Food Centers, our eight Prevo's Family Markets and our one Madison Family Market to either Family Fare Supermarkets or Glen's Markets. We can make no assuran
ces that these changes will be received favorably by our customers or that they will not negatively impact future sales. Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: difficulties in the operation of our current business segments; future business acquisitions; adverse effects on existing business relationships with independent retail grocery store customers; difficulties in the retention or hiring of employees; labor shortages, stoppages or disputes; business and asset divestitures; increased transportation or fuel costs; current or future lawsuits and administrative proceedings; and losses of, or financial difficulties of, customers or suppliers. Our operating and administrative expenses could also be adversely affected by changes in our sales mix. Our ongoing cost reduction initiatives and changes in our marketing and merchandising programs may not be as successful as we anticipate. Acts of terrorism or war have in the past and may in the future result in considerable economic and political uncertainties that
could have adverse effects on consumer buying behavior, fuel costs, shipping and transportation, product imports and other factors affecting our company and the grocery industry generally. Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of additional borrowings; changes in our borrowing arrangements and agreements; changes in the interest rate environment; and the amount of fees received on delinquent accounts. The availability of our senior secured revolving credit facility depends on compliance with the terms of the credit facility. As discussed in this Form 10-K, during fiscal 2004, we have sold substantially all of the assets of L&L/Jiroch Distributing Company ("L&L/Jiroch"), J.F. Walker Company, Inc. ("J.F. Walker"), United Wholesale Grocery Company ("United") and have sold or closed our remaining Food Town stores. These sales and closings have allowed us to better focus our efforts and capital on key strategic markets where we have the strongest growth and value creation opportunities. However, we cannot assure you that these transactions will be beneficial to our company or that actual exit costs will not exceed our allowances. The agreements relating to many of these transactions require us to indemnify these asset buyers for breaches of our representations and warranties contained in the agreements and certain other matters. This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information that we obtain after the date of this Annual Report. PART I Item 1. Business Overview Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio. We operate two primary business segments: Grocery Distribution and Retail. We are the eighth largest wholesale distributor to grocery stores in the United States and the largest wholesale distributor to grocery stores in Michigan. Our distribution and retail operations hold a combined #1 or #2 market share in many of the key Michigan markets we serve. For the fiscal year ended March 27, 2004 ("fiscal 2004"), we generated net sales from continuing operations of $2.1 billion as compared to net sales of $2.0 billion for the fiscal year ended March 29, 2003. Established in 1917 as a cooperative grocery distributor, Spartan Stores converted to a for-profit business corporation in 1973. In January 1999, we began to acquire retail supermarkets in our focused geographic regions. In August 2000, our common stock became listed on the NASDAQ Stock Market under the symbol "SPTN." We appointed Craig C. Sturken as President and Chief Executive Officer ("CEO") effective March 3, 2003. Mr. Sturken was appointed as Chairman of the Board of Directors in August 2003. Mr. Sturken has more than forty years of retail experience, including ten years as Chief Executive Officer of the Great Atlantic & Pacific Tea Company's Atlantic and Midwest regions. In addition, we hired Dennis Eidson as Executive Vice President Marketing and Merchandising in March 2003 and Ted Adornato as Executive Vice President Retail Operations in December 2003. Both Mr. Eidson and Mr. Adornato have over 20 years of experience in the food industry. We have also improved the leadership and retail experience of our Board of Directors with the appointments of Ms. M. Shân Atkins, Dr. Frank Gambino and Mr. Timothy O'Donovan in August 2003. Ms. Atkins formerly served as Executive Vice President, Strategic Initiatives for Sears Roebuck & Co. Dr. Frank Gambino is Associate Professor of Marketing and Director of the Food Marketing Program at Western Michigan University. Mr. O'Donovan is President and CEO of Wolverine World Wide, Inc., a publicly-traded company. We believe that our experience and expertise as a grocery distributor and the addition of key executive team members for our retail operations provides us with the tools for successful operation of our integrated business. Under Mr. Sturken's leadership, Spartan Stores has refocused its fundamental business strategies in both its distribution and retail operations and we are beginning to see the positive effects of these changes. Grocery Distribution Segment Spartan Stores is the eighth largest wholesale distributor to grocery stores in the United States and the largest wholesale distributor to grocery stores in Michigan. Our Grocery Distribution segment provides approximately 400 stores with a selection of approximately 40,000 products, including dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, pharmacy, and health and beauty care items. In addition, we offer our grocery distribution customers approximately 1,800 private label grocery and general merchandise items. Total distribution revenues from continuing operations of our Grocery Distribution segment, including shipments to our corporate owned stores, were $1.6 billion for fiscal 2004. Customers. Our Grocery Distribution segment supplies our corporate owned stores and a diverse group of independent grocery store operators that range from single stores to supermarket chains with as many as 21 stores. Pricing to our customers is generally based upon a "cost plus" model for grocery, frozen, dairy, pharmacy and health and beauty care items and a "variable mark-up" model for meat, deli, bakery, produce, seafood, floral and general merchandise products. Our Grocery Distribution customer base is very diverse, with no single customer exceeding 7% of consolidated net sales. Our five largest Grocery Distribution customers (excluding corporate owned stores) accounted for approximately 18.7% of our fiscal 2004 consolidated net sales. Distribution Functions. Our Grocery Distribution business utilizes approximately 2.0 million square feet of warehouse, distribution and office space. We supply our corporate owned stores and our independent grocery distribution customers from our distribution centers located in Grand Rapids and Plymouth, Michigan. We believe that our distribution facilities are strategically located to efficiently serve our customers. We are continually evaluating our inventory movement and assigning stock-keeping units (SKUs) to appropriate facilities within our distribution centers to reduce the time required to pick products. During fiscal 2003 and fiscal 2004, we implemented engineered labor standards across all direct labor functions within our distribution centers to improve productivity. Through-put (defined as cases shipped per hour) increased in comparison to fiscal 2003 by 2.7% in our grocery warehouses and 0.5% in our perishables warehouse. This is the second con
secutive year of improved productivity. As we make continuous progress towards our expected productivity levels, we would expect these increases to moderate in future years. To supply our Grocery Distribution customers, we operate a fleet of approximately 100 tractors, 200 conventional trailers and 175 refrigerated trailers, substantially all of which are leased. In fiscal 2004, we upgraded the on-board transportation management systems on our Grand Rapids fleet of tractors, or approximately 64 of our tractors. These computers have allowed us to reduce idle time by 20% and have helped us control costs. We expect to upgrade the on-board computers on the remainder of the fleet during fiscal 2005. This should allow us to further reduce costs and vehicle idle time. Additional Services. We also offer and provide many of our independent grocery distribution customers with value-added services, including: Site identification and market analyses Coupon redemption Store planning and development Product reclamation Marketing, promotion and advertising Printing Technology and information services Merchandising Accounting and tax preparation Real estate services Human resource services Construction management services Retail Segment Our Retail segment operates 54 retail supermarkets and 21 deep-discount food and drug stores predominantly in midsize metropolitan, tourist and rural areas of Michigan and Ohio. Beginning in fiscal 2004 we consolidated the number of banner names for our retail supermarkets from six to two. Currently, our retail supermarkets are operated under the banners Family Fare Supermarkets and Glen's Markets. We believe that the consolidation of our banner names will provide a stronger, more unified retail store brand identity, enhanced customer loyalty, a streamlined operating structure and the ability to deliver more concise, cohesive and effective advertising, which will improve our financial performance. Our 21 deep-discount food and drug stores operate under the banner The Pharm. We believe our retail supermarkets maintain a #1 or #2 market share position in many of the Michigan markets they serve. We believe that our strong market share positions result from our distinct "neighborhood market" focus and the favorable name recognition of our banners. Our neighborhood market strategy distinguishes our stores from supercenters and limited assortment stores by emphasizing convenient locations, demographically targeted merchandise selections, strong perishables offerings, customer service, value pricing and community involvement. Our 54 retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. Twenty-five of our grocery stores also offer pharmacy facilities. In addition to nationally advertised products, the stores carry our private label items: the "Spartan" and "Pharm" brands, and our value brand label, "HomeHarvest." These private label items provide above-average retail margins and we believe they help generate increased customer loyalty. See "Merchandising and Marketing-Corporate Brands." Our retail supermarkets range in size from approximately 20,000 to 64,000 total square feet and average approximately 38,000 total square feet per store. Our 21 deep-discount food and drug stores, which operate under the banner The Pharm, offer a unique combination of a full-service pharmacy, general merchandise products and basic food offerings. These stores operate under a deep discount format that emphasizes everyday low prices that are typically at or below supercenter offerings and are less than those of a traditional supermarket or drug store. The Pharm stores range in size from approximately 17,000 to 44,000 total square feet and average approximately 29,000 total square feet per store. We have acquired our stores as a result of six acquisitions from January 1999 to March 2001. Since the acquisitions, we have added 3 stores, closed 34 stores and sold 24 Food Town stores as a result of our continual evaluation of store performance. The following chart details the changes in the number of our retail stores over the last five years: Number of 2000 8 39 - 47 2001 47 83 3 127 2002 127 - - 127 2003 127 3 28 102 2004 102 - 27 75 During fiscal 2004, we reset and/or performed limited remodels on 37 of our stores, including all 21 Pharm stores. During fiscal 2005, we expect to reset and/or remodel an additional 13 stores. Capital expenditures, including remodeling, are expected to approximate $10.0 to $15.0 million per year as we continually maintain and update our store base. We will evaluate proposed retail projects based on demographics and competition within each market, and prioritize projects based on their expected returns on investment. We require projects to meet a targeted internal rate of return to be approved; however, we may undertake projects that do not meet this standard to the extent they represent required maintenance or necessary infrastructure improvements. We believe that focusing on such measures provides us with an appropriate level of discipline in our capital expenditures process. Operating Segment Financial Data More detailed information about our operating segments may be found in Note 11 to the consolidated financial statements included in Item 8, which is herein incorporated by reference. All of our sales and virtually all of our assets are in the United States of America. Discontinued Operations Our former convenience distribution operations, insurance operations, certain of our retail, grocery distribution and real estate operations have been recorded as discontinued operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, for all years presented all information in this Annual Report on Form 10-K have been adjusted and the discontinued operations information is excluded, unless otherwise noted. Discontinued Retail Operations. In March 2003, we announced our decision to close 13 Food Town stores and our plans to either sell or close our remaining 26 Food Town stores. During fiscal 2004, we completed the sale of 24 Food Town stores for net proceeds of $42.1 million. Stores not sold have been closed. Additionally, we had closed six Food Town, two Family Fare Supermarkets, one Glen's Markets and four The Pharm stores earlier in fiscal 2003. The operations of these stores are included in discontinued operations. Discontinued Convenience Distribution Operations. On June 9, 2003 we consumated the sale of substantially all the assets of L&L/Jiroch and J.F. Walker to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities. During the fourth quarter of fiscal 2004, Spartan Stores completed the sale of the operating assets of United Wholesale Grocery Company ("United") for net proceeds of $16.9 million. The asset sale includes a continuing supply agreement between Spartan Stores and the new owner; however, this supply agreement does not constitute a significant continuing involvement and the operations and discontinued cash flows of United have been eliminated from the ongoing operations of Spartan Stores, as defined by Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Discontinued Grocery Distribution Operations. We consolidated our Toledo, Ohio distribution operations into our Michigan facilities during the fourth quarter of fiscal 2003. As a result of the decision to exit the Food Town stores, the operating results related to these facilities have been classified as discontinued operations in the consolidated financial statements because the operations and cash flows of these facilities have been substantially eliminated from ongoing operations. Discontinued Real Estate Operations. Discontinued real estate operations include properties either held for sale or sold during fiscal 2004, fiscal 2003 and fiscal 2002. Discontinued Insurance Operations. Discontinued operations also include our discontinued insurance operations, which were sold in fiscal 2002 and 2001. Insurance reserves of $4.1 million for open claim liabilities related to policies that we will remain obligated under until all claims are closed are included in the Consolidated Balance Sheet at March 27, 2004. Marketing and Merchandising General. In fiscal 2004, we combined the marketing and merchandising departments of our Grocery Distribution and Retail segments to more effectively leverage the use of category management principles. We believe that this combination will produce greater focus, efficiencies and value while improving relationships with vendors and improving the offerings to our customers and consumers. Our Grocery Distribution segment has implemented marketing practices to more aggressively pursue incremental sales gains to existing and prospective customers. Our Retail segment's marketing and merchandising strategies have changed from supplier to consumer driven programs in keeping with the implementation of improved category management practices. We believe these changes have been fundamental to improving the financial performance of our retail operations, enhancing our competitive market position, driving incremental sales growth and capturing more of the natural synergies that exist between our retail stores, independent customer stores and distribution operations. With the efficiencies created from consolidation of these functions and by partnering with our vendors to develop more robust category management, we have been able to more effectively develop and roll-out our merchandising programs, which has aided our ability to increase our sales and earnings. We have and will look to expand these offerings and partner with our independent customers over time to continue to realize incremental benefits. Corporate Brands. We currently market and distribute approximately 1,800 highly recognized private label brand items under three exclusive store brands: the "Spartan" and "Pharm" brands, and our value brand, "HomeHarvest." During fiscal 2004, we began the process of reenergizing our "Spartan" brand and redesigned the label. The redesigned label is currently being used on approximately 50% of our private label products, with continued conversion expected during fiscal 2005. The new label has been well received by consumers and for the last two quarters of the current fiscal year, sales of private label products increased by approximately 8% in units and 18% in dollars at our corporate owned stores. We believe positive sales trends will continue as the new label continues to be implemented. We entered into new strategic relationships with private label brand partners that will provide us with greater category management expertise, product variety and improved costs. We believe these changes will further enhance the value of this already widely accepted and recognized private label brand. Competition Our Retail and Grocery Distribution segments operate in highly competitive markets, which typically result in low profit margins for the industry as a whole. Our Retail and Grocery Distribution segments compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, some of whom have greater resources than we do. The principal competitive factors in the retail grocery business include the location and image of the store; the price, quality and variety of the products; and the quality and consistency of service. We believe we have developed and implemented strategies and processes that allow us to be competitive in our Retail segment. We monitor planned store openings by our competitors and have established proactive strategies to respond to new competition. We have developed comprehensive plans to address competitor openings. Strategies to combat competition vary based on many factors, such as the competitor's format, strengths, weaknesses, pricing and sales focus. During fiscal 2003, eight competitor supercenters opened in significant markets that either we operate corporate owned stores, or in which our independent customers operate stores. During fiscal 2004, six additional competitor supercenters opened in similar markets and additional supercenter openings are expected to occur during fiscal 2005. The primary competitive factors in the distribution business include price, product quality, variety and service. We believe we have developed an internal set of matrices that allow us to measure our performance against these factors, compare our performance against our competitors and make improvements, as appropriate. We believe our overall service level, defined as actual units shipped divided by actual units ordered, is among industry leading performance. Seasonality Throughout the fiscal year our Retail and Grocery Distribution segment's sales and operating performance vary with seasonality. Our first and fourth quarters are typically our slowest sales quarters and therefore operating results are generally lower during these two quarters. Additionally, these two quarters can be affected based on the timing of the Easter holiday, which is a strong sales week. All quarters are 12 weeks, except for our third quarter, which is 16 weeks and includes the Thanksgiving and Christmas holidays. Most of our northern Michigan stores are dependent on tourism and therefore, most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months. Suppliers We purchase products from a large number of national, regional and local suppliers of name brand and private label merchandise. We have not encountered any material difficulty in procuring or maintaining an adequate level of products to serve our customers. No single supplier accounts for more than 9% of our purchases. We have developed strategic relationships with key suppliers that did not exist in prior years. We believe this will prove valuable in the development of enhanced promotional programs and consumer value perceptions. Intellectual Property We own valuable intellectual property, including trademarks and other proprietary information, some of which, including "Spartan," "Family Fare," "Glen's," "The Pharm," "HomeHarvest" and other related marks, are of material importance to our business. Technology We invest in technology as a means of maximizing the efficiency of our operations and improving service to our customers. Our focus during the last year has been to refine and maximize the utilization of our existing systems and to deploy and update systems in support of the business. During the last year we have done this with a focus on business process and data integrity in the use of all our systems. Supply Chain. During fiscal 2004, we completed the upgrade of our warehouse management systems. In addition, we completed the upgrade of our on-board transportation management system for our Grand Rapids fleet of tractors, as discussed in "Grocery Distribution Segment - Distribution Functions." We also made significant improvements in our systems for tracking detail item and costing information for complex items flowing through our supply chain systems. Retail Systems. During fiscal 2004, we installed "self-checkout" systems in eight of our retail supermarkets, with four additional installations planned for fiscal 2005. We will continue to expand our deployment of "self-checkout" systems in our larger stores. In addition, we completed the following during the current fiscal year: Upgraded our electronic payment system Began installation of EDI based receiving technology in our corporate owned stores Installed a new item management system in our corporate owned stores that will aid the potential implementation of perpetual inventory systems in these stores in the future Completed the installation of a new inventory and margin management system for our corporate owned stores Financial Systems. We streamlined processes and enhanced controls for many aspects of our financial systems. Human Resource Systems. We upgraded our human resource and payroll systems software. Information Technology. We significantly improved our business continuity capabilities and continued to refine the security of our internal network and systems. In addition, we have begun to install and service our independent retail store customers with "self-checkout" systems. Subsidiaries Our Grocery Distribution segment consists primarily of our wholly owned subsidiary, Spartan Stores Distribution, LLC. We operate our Retail segment primarily through two wholly owned subsidiaries, Family Fare, LLC and Seaway Food Town, Inc. and their respective subsidiaries. United Wholesale Grocery Company, L&L/Jiroch and J.F. Walker comprised our discontinued Convenience Distribution segment and substantially all assets of these three companies were sold during fiscal 2004. Associates We currently employ approximately 6,900 associates, approximately 4,000 of which are full-time and 2,900 of which are part-time. Unions represent approximately 22% of our associates, with contracts for approximately 840 distribution center and transportation associates expiring between April 2005 and October 2006 and contracts for approximately 630 retail associates expiring between June 2004 and March 2005. Approximately 12% of our associates and approximately 56% of our union associates are represented by contracts that expire by April 2005. We consider our relations with our union and non-union associates to be good and have not had any material work stoppages in the last five years. Regulation We are subject to federal, state and local laws and regulations covering the purchase, handling, sale and transportation of our products. Several of our products are subject to federal Food and Drug Administration regulation. We believe that we are in compliance with all Food and Drug Administration and other federal, state and local laws and regulations governing our businesses. Forward-Looking Statements The matters discussed in this Item 1 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K. Available Information The address of our web site is www.spartanstores.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act available on our web site as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission. Interested persons can view such materials without charge by clicking on "Investor Information" and then "SEC Filings" on our web site. Spartan Stores is not an "accelerated filer" within the meaning of Rule 12b-2 under the Securities Exchange Act. Item 2. Properties Grocery Distribution Segment Real Estate The following table lists the location, approximate size and ownership of the facilities used in our Grocery Distribution segment. Facilities Location Square Feet Ownership Dry grocery Grand Rapids, MI 585,492 Owned Perishables (refrigerated) Grand Rapids, MI 306,522 Owned General merchandise Grand Rapids, MI 232,700 Owned General office (including print shop) Grand Rapids, MI 127,323 Owned Transportation and salvage Grand Rapids, MI 78,760 Owned Warehouse and office Grand Rapids, MI 145,790 Leased Dry grocery Plymouth, MI 414,700 Leased Reclamation center/support services Charlotte, MI 80,000 Owned Total 1,971,287 Retail Segment Real Estate The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our retail supermarkets: Number Total Family Fare Supermarkets 20 Western Michigan 843,088 42,154 Leased Glen's Markets 34 Northern and central 1,228,313 36,127 Leased Total 54 2,071,401 38,359 In addition to the stores listed above, we own a 65% interest in a joint venture that operates a grocery store of approximately 45,700 square feet located in southeastern Michigan. The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our deep-discount food and drug stores: Number Total The Pharm 3 Northwestern and 78,010 26,003 Owned The Pharm 18 Northwestern and 525,177 29,177 Leased Total 21 603,187 28,723 Item 3. Legal Proceedings Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against Spartan Stores and its subsidiaries. While the ultimate effect of such lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of Spartan Stores. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of Spartan Stores' shareholders during the fourth quarter of fiscal 2004 through the solicitation of proxies or otherwise. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Spartan Stores common stock is traded on the National Market System of the NASDAQ Stock Market under the trading symbol "SPTN." Stock sale prices are based on transactions reported on the NASDAQ Stock Market. Information on quarterly high and low sales prices for Spartan Stores' common stock appears in Note 12 to the consolidated financial statements and is incorporated herein by reference. At May 21, 2004 there were approximately 765 shareholders of record of Spartan Stores common stock. During fiscal 2003 and 2004, we did not pay any dividends. The payment of future dividends will be determined by our board of directors. We anticipate that we will use any net earnings from our operations to repay debt and to acquire additional retail operations, and that we will not pay any dividends for the foreseeable future. Our credit facilities contain restrictions that do not allow us to pay future dividends or make a variety of other restricted payments. See the "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 below for a more detailed discussion of these restrictions, as well as Note 5 to the consolidated financial statements. The information required by Item 201(d) of Securities and Exchange Commission Regulation S-K is incorporated herein by reference from the section entitled "Equity Compensation Plans" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held August 11, 2004. Item 6. Selected Financial Data The following table provides selected historical consolidated financial information of Spartan Stores. The historical information was derived from our audited consolidated financial statements as of and for each of the five fiscal years ended March 25, 2000 through March 27, 2004. Fiscal 2001 was a 53-week year. Certain reclassifications have been made to the fiscal 2000 through fiscal 2003 selected financial data to conform to the fiscal 2004 presentation. As noted elsewhere in this Form 10-K, for all years presented, all information in this Form 10-K has been adjusted and the discontinued operations information is excluded, unless otherwise noted. See Note 3 for additional information on discontinued operations occuring in the periods presented below. (In thousands, except per share data) Year Ended March 27, March 29, March 30, March 31, March 25, Statements of Operations Data: Net sales $ 2,054,977 $ 1,975,677 $ 2,112,599 $ 2,197,986 $ 2,079,387 Cost of goods sold 1,676,361 1,608,882 1,715,556 1,826,034 1,766,319 Gross margin 378,616 366,795 397,043 371,952 313,068 Selling, general and administrative Provision for asset impairments and exit Operating earnings (loss) 12,562 (38,358 ) 31,293 38,832 29,841 Interest expense, net 12,791 16,625 15,669 16,756 14,076 Debt extinguishment (B) 8,798 - - - - Other (losses) gains, net 80 (33 ) (1,353 ) (297 ) (3,315 ) (Loss) earnings before income taxes, Income taxes (3,187 ) (19,159 ) 5,476 8,628 7,131 (Loss) earnings from continuing (Loss) earnings from discontinued Cumulative effect of a change in Net (loss) earnings $ (6,698 ) $ (122,332 ) $ 9,847 $ 23,442 $ 17,194 Basic weighted average shares (Loss) earnings from continuing
operations per share Basic (loss) earnings per share (0.33 ) (6.15 ) 0.50 1.35 1.28 Cash dividends per share - - - 0.0125 0.05 Balance Sheet Data: Total assets $ 392,511 $ 556,306 $ 760,591 $ 801,543 $ 568,555 Property and equipment, net 108,437 120,072 266,423 285,988 178,591 Working capital 34,214 87,164 115,631 82,199 91,574 Long-term obligations 138,871 202,676 304,920 315,203 266,071 Shareholders' equity 105,667 109,632 231,492 218,413 126,007 (A) See Note 4 to Consolidated Financial Statements (B) See Note 5 to Consolidated Financial Statements (C) See Note 3 to Consolidated Financial Statements (D) See Note 2 to Consolidated Financial Statements (E) See Note 10 to Consolidated Financial Statements Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Overview Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio. We currently operate two reportable business segments: Retail and Grocery Distribution. Our Retail segment operates 54 retail supermarkets in Michigan under the banners Family Fare Supermarkets and Glen's Markets and 21 deep-discount food and drug stores in Ohio and Michigan under the banner The Pharm. Beginning in fiscal 2004 we consolidated the number of banner names that we operate our retail supermarkets under from six to two. We believe that the consolidation of our banner names will provide a stronger, more unified retail store brand identity, enhanced customer loyalty, a streamlined operating structure and the ability to deliver more concise, cohesive and effective advertising, which will improve our financial performance. Our retail supermarkets have a "neighborhood market" focus to distinguish them from supercenters and limited assortment stores. Our deep-discount food and drug stores offer a unique combination of full-service pharmacy, gene
ral merchandise products and basic food offerings. Our Grocery Distribution segment provides a full line of grocery, general merchandise, frozen and perishable items to approximately 400 stores, including 330 independently owned grocery stores and 75 corporate owned stores. For fiscal 2004, we established four key management priorities we believed were central to our ability to refocus our organization on profitable growth. We have made significant progress towards achieving these short-term goals, which has provided stability to our business and allowed us to focus on future profitable growth. A summary of our goals and results follows: 1. Focus the Company on distribution and retail sales growth: For the year ended March 27, 2004, sales at our Grocery Distribution segment increased by 3.4% and sales at our Retail segment increased by 4.8%. 2. Restore retail operations to profitability by installing category management as a way of life: Category management, with the focus on the consumer, is now part of everything that we do. The Retail segment's operating losses have narrowed for the last three quarters. We believe that utilizing and expanding our category management principles throughout the organization combined with other initiatives will return the Retail segment to operating profitability in fiscal 2005. 3. Align operating cost structure with industry standards: Senior management worked throughout the year to implement cost containment initiatives and improve efficiencies, which coupled with corporate staff reductions in the first and third quarters of fiscal 2004, reduced SG&A over the last two quarters by $2.6 million. 4. Strengthen financial position by rationalizing under-performing assets: During the first and second quarters of fiscal 2004, we sold and/or closed all remaining Food Town supermarkets. In addition, during the first and fourth quarters, we sold substantially all of the assets of our convenience distribution operations, L&L/Jiroch Distributing Company ("L&L Jiroch"), J.F. Walker Company ("J.F. Walker") and United Wholesale Grocery Company ("United"). These transactions were the primary drivers that allowed us to reduce interest bearing debt by $91.6 million during fiscal 2004. In addition to these accomplishments, we also completed the refinancing of our bank facilities during the third quarter. Completion of this refinancing has been a major focus of the management team and its completion provides us with improved financial flexibility. Our strategic focus during fiscal 2005 will be on the customer. The customer will be at the forefront of all of our decisions. In conjunction with this focus, we have developed five "Phase I" priorities of our long-term strategic plan to attain our goals, they are: Establish operational excellence: Become the very best we can be at every level, in every department, every day. Rationalize the offer: Make what Spartan Stores offers to the marketplace a stronger, better - more compelling product. Maximize existing customer base: Grow sales to distribution and retail customers. Create a low cost structure: Be cost conscious and efficient in everything we do. Align the organization: Streamline and focus our company to meet the challenges we face together, in a positive, united manner. While we expect to return to net profitability during fiscal 2005, we will be faced with competitive store openings in several of the key markets we serve. While we believe that we have developed strategies to combat these competitors, the effectiveness of our strategies will affect our actual financial performance. The matters discussed in this Item 7 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K. Results of Operations The following table sets forth items from our Consolidated Statements of Operations as a percentage of net sales and the year-to-year percentage change in dollar amounts: Percentage of Net Sales Percentage Change March 27, March 29, March 30, Net sales 100.0 100.0 100.0 4.0 (6.5 ) Gross margin 18.4 18.6 18.8 3.2 (7.6 ) Selling, general and administrative Provision for asset impairments and Other 1.0 0.9 0.7 30.6 15.9 (Loss) earnings before income taxes, Income taxes (0.1 ) (1.0 ) 0.3 (83.4 ) * (Loss) earnings from continuing Loss from discontinued operations, net Cumulative effect of a change in Net (loss) earnings (0.3 ) (6.2 ) 0.5 (94.5 ) * * Percentage change is not meaningful Results of Continuing Operations for the Fiscal Year Ended March 27, 2004 Compared to the Fiscal Year Ended March 29, 2003 Net Sales. Net sales increased $79.3 million, or 4.0%, from $1,975.7 million in fiscal 2003 to $2,055.0 million in fiscal 2004. Net sales in our Grocery Distribution segment, after intercompany eliminations, increased $37.2 million, or 3.4%, from $1,095.2 million to $1,132.4 million. The increase resulted primarily from new customer sales of $38.9 million. Net sales in our Retail segment increased $42.1 million, or 4.8%, from $880.5 million to $922.6 million. Comparable-store sales increased by 3.2%. The sales increases were driven by improved merchandising and promotional programs driven by our focused category management efforts coupled with better operational excellence, sales from three stores open the entire fiscal year of $16.7 million, a shift in the Easter holiday from the fourth quarter of fiscal 2002 to the first quarter of fiscal 2004, the closure of our Food Town stores which transferred some business to select The Pharm locations and the closure of competing stores in three of our northern Michigan markets in the third quarter of fiscal 2004. We appointed Craig C. Sturken as President and Chief Executive Officer effective March 3, 2003. Mr. Sturken was appointed Chairman of the Board of Directors in August 2003. Mr. Sturken has more than forty years of retail experience, including ten years as Chief Executive Officer of the Great Atlantic & Pacific Tea Company's Atlantic and Midwest regions. In addition, we hired Dennis Eidson as Executive Vice President Marketing and Merchandising in March 2003 and Ted Adornato as Executive Vice President Retail Operations in December 2003. Both Mr. Eidson and Mr. Adornato have over 20 years of experience in the food industry. The new management brings strong leadership and experience in merchandising, marketing and retail store operations that we believe has improved our category management efforts, sales trends and operating results. We reported increased year-over-year sales in both of our segments for all four quarters during fiscal 2004. This growth is despite increasing competition from supercenters and other retailers. During the past year, approximately four supercenters have opened in our markets and we expect the opening of two additional supercenters during the second half of fiscal 2005. We believe that our improved marketing and merchandising practices and the continued weakening of conventional food competitors will allow us to sustain our growth, but at rates closer to industry averages. We are forecasting fiscal 2005 consolidated net sales to improve between 1.0% and 3.0%, with comparable-store sales of 0.0% to 1.5%. Gross Margin. Gross margin represents sales less cost of goods sold, which include purchase costs and promotional allowances. Vendor allowances that relate to our buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for our merchandising costs such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of goods sold when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. Gross margin increased by $11.8 million, or 3.2%, from $366.8 million to $378.6 million. As a percent of net sales, gross margin decreased from 18.6% to 18.4%. Gross margin was negatively impacted by a $3.7 million (0.2% of net sales) inventory adjustment due to the implementation of a stock ledger inventory and margin management system that significantly enhances our ability to calculate and track gross margin and inventory balances on a weekly basis. The stock ledger automatically captures purchase costs, retail prices and markdowns at the transaction level, making our inventory valuation estimates more precise and improving accountability for results of our merchants and store operators. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, utilities, equipment rental, depreciation and other administrative costs. SG&A expenses increased $8.7 million, or 2.4%, from $357.4 million to $366.1 million, and were 17.8% of net sales compared to 18.1% last year. The increase in SG&A is due to the following: Increased sales volume driving an increase in SG&A of approximately $6.1 million $1.4 million related to the retirement distribution to the former Chief Executive Officer Increases in operating costs associated with operating three new stores that opened in the last half of fiscal 2003 of approximately $2.9 million. Severance costs associated with corporate staff reductions during the first and third quarters of fiscal 2004 of $1.4 million, partially offset by savings in salaries and benefits related to the reductions General increases in other compensation and benefit costs Reduction in pension expense due to the suspension of service and transition credits for our defined benefit plan The accrual of service and transition credits have been reinstated for fiscal 2005, however, effective January 1, 2004, an amendment was made to our defined benefit plan, reducing service credits for certain participants. We expect pension expense to be approximately $2.6 million in fiscal 2005. Interest Expense. Interest expense from continuing operations decreased $3.9 million, or 22.5%, from $17.3 million to $13.4 million, and was 0.7% of net sales compared to 0.9% last year. Total average borrowings decreased to $174.6 from $270.8 million as a result of debt repayments primarily generated from the divestiture of non-core business activities. In accordance with Emerging Issues Task Force ("EITF") Issue No. 87-24, "Allocation of Interest to Discontinued Operations," interest was allocated to discontinued operations based on the interest on debt that will be required or was required to be repaid as a result of disposal transactions. Interest expense of $1.9 million and $8.6 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for fiscal 2004 and fiscal 2003, respectively. Interest expense allocated to discontinued operations decreased in fiscal 2004 due to the effect of debt paydowns as a result of the disposal of certain discontinued operations during the fiscal year. The decrease in interest expense from continuing operations was primarily due to the refinancing of our bank agreement during the third quarter and reductions in covenant waiver and compliance fees. Interest expense was $2.8 million lower during the fourth quarter of fiscal 2004 as compared to fiscal 2003. Fiscal 2003 also included a $0.7 million charge made in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," which required us to recognize a portion of our interest rate swap exposure as interest expense. This expense had previously been included in accumulated other comprehensive income (loss) ("AOCI") in the shareholders' equity section of the consolidated balance sheets. The weighted average interest rate decreased to 8.77% for fiscal 2004 from 9.59% for fiscal 2003. Debt Extinguishment. We recorded a non-cash pre-tax charge of $8.8 million during the third quarter of fiscal 2004 for unamortized bank fees associated with previous financing activities. Results of Continuing Operations for the Fiscal Year Ended March 29, 2003 Compared to the Fiscal Year Ended March 30, 2002 Net Sales. Net sales decreased $136.9 million, or 6.5%, from $2,112.6 million in fiscal 2002 to $1,975.7 million in fiscal 2003. We estimate that fiscal 2002 sales were higher than fiscal 2003 sales by approximately $7.4 million due to the two Easter holidays in fiscal 2002. Fiscal 2003 did not include an Easter holiday. Excluding the estimated effect of the early Easter holiday during fiscal 2002, net sales decreased 6.3%, from $2,072.1 million to $1,942.6 million. Net sales in our Grocery Distribution segment, after intercompany eliminations, declined $85.4 million, or 7.2%, from $1,180.6 million to $1,095.2 million. The decrease resulted from the weak Michigan economy, the ineffectiveness of our previous promotional program canceled in October 2002, increased competitive conditions affecting our distribution customers and the loss of a customer in the second quarter of fiscal 2002 which generated sales of $25.7 million in fiscal 2002. The shift in the Easter holiday, noted above, also accounted for a 0.1% decline. Net sales in our Retail segment decreased $51.5 million, or 5.5%, from $932.0 million to $880.5 million. Comparable-store sales decreased by 7.0%. The sales decreases were driven by increased competitive conditions, a shift in the Easter holiday from the fourth quarter of fiscal 2002 to the first quarter of fiscal 2004, representing a 0.3% decline, and the weak economic environment in Michigan. Gross Margin. Gross margin decreased by $30.2 million, or 7.6%, from $397.0 million to $366.8 million. As a percent of net sales, gross margin decreased from 18.8% to 18.6%. The decreases were primarily the result of more aggressive promotional activities and procurement activites in both segments to respond to the increasingly competitive market conditions and to protect market share. Selling, General and Administrative Expenses. SG&A expenses decreased $7.3 million, or 2.0%, from $364.7 million to $357.4 million, and were 18.1% of net sales in fiscal 2003 compared to 17.3% in fiscal 2002. SG&A expenses decreased primarily as a result of improved labor productivity in both segments. Also contributing to the decrease in SG&A expenses was the elimination of goodwill amortization expense in the Retail segment. In fiscal 2002, goodwill amortization expense was $3.3 million. Offsetting these decreases were SG&A expenses of $6.2 million related to the addition of three new retail supermarkets in fiscal 2003 and severance of $0.9 million associated with staffing reductions made in fiscal 2003. Asset Impairments and Exit Costs. In fiscal 2003, asset impairments and exit costs consist of goodwill impairment of $43.2 million, other long-lived asset impairments of $1.6 million and exit costs of $2.9 million. Based on unfavorable operating results through the third quarter of fiscal 2003, the earnings forecast was revised and a valuation of the Retail segment was conducted. Fair value was determined based on the discounted cash flows and comparable market values for the segment. As a result of the impairment analysis, a loss was recorded to reduce the carrying value of goodwill at the Retail segment to its implied fair value. The other long-lived asset impairments and exit costs relate to the closure of an administrative office for our Retail segment. In fiscal 2002, asset impairments and exit costs consisted primarily of exit costs related to the closure of underperforming stores. Interest Expense. Interest expense from continuing operations increased $0.1 million, or 0.4%, from $17.2 million to $17.3 million, and was 0.9% of net sales compared to 0.8% last year. Total average borrowings decreased to $270.8 million from $333.6 million as a result of debt repayments. Interest expense of $8.6 million and $9.3 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for fiscal 2003 and fiscal 2002, respectively. Allocated interest expense decreased in fiscal 2003 due to the effect of debt paydowns as a result of the disposal of certain discontinued operations, partially offset by an increase in the interest rate. The increase in interest expense from continuing operations was primarily due to a $1.2 million fee incurred for a covenant compliance waiver and a $0.7 million charge made in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," which required us to recognize a portion of our interest rate swap exposure as interest expense. This expense had previously been included in AOCI in the shareholders' equity section of the consolidated balance sheets. These increases were almost entirely offset by lower average borrowings. The weighted average interest rate (including the effect of interest rate swap agreements) increased to 9.59% for fiscal 2003 from 8.02% for fiscal 2002 partially due to bank waiver and compliance fees. Interest Income. Interest income decreased $0.9 million, or 56.0%, from $1.6 million in fiscal 2002 to $0.7 million in fiscal 2003. The fiscal 2002 balance includes $0.4 million in interest related to federal income tax refunds for prior years' filings. Interest income was adversely impacted by lower interest rates in fiscal 2003. Other, Net. Other, net decreased by $1.4 million, or 97.6%, from $1.4 million in fiscal 2002 to $0.0 million in fiscal 2003. During fiscal 2002, Other, net consisted primarily of a $1.4 million gain on sales of stock held in a supplier and a service provider. Income Taxes. Our effective tax rate increased from 32.3% for fiscal 2002 to 34.9% for fiscal 2003. During the second quarter of fiscal 2002, we reached a settlement with the Internal Revenue Service regarding certain deductions taken in prior years. The resulting refund reduced income tax expense by $0.7 million, resulting in a lower effective tax rate in fiscal 2002. Discontinued Operations Retail Operations. In March 2003, we announced our decision to close 13 Food Town stores and our plans to either sell or close our remaining 26 Food Town stores. During fiscal 2004, we completed the sale of 24 Food Town stores for net proceeds of $42.1 million that were used to reduce outstanding borrowings and pay related transaction expenses. Stores not sold have been closed. Additionally, we had closed six Food Town, two Family Fare Supermakets, one Glen's Markets and four The Pharm stores earlier in fiscal 2003. As a result of these actions, the results of operations of the Food Town stores and other stores closed during fiscal 2003 have been classified as discontinued operations in the consolidated financial statements. Discontinued retail operations include asset impairments and exit costs of $5.8 million and $53.5 million in fiscal 2004 and fiscal 2003, respectively. See Note 4 to the consolidat
ed financial statements. Convenience Distribution Operations. During the fourth quarter of fiscal 2004, we completed the sale of the operating assets of United. Proceeds received on the sale of these assets of $16.9 million were used to reduce outstanding borrowings and operating liabilities and pay related transaction expenses in the fourth quarter. The asset sale included a continuing supply agreement between Spartan Stores and the new owner; however, this supply agreement does not constitute a significant continuing involvement, as defined by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As such, the operations and discontinued cash flows of United have been eliminated from the ongoing operations of Spartan Stores. During the first quarter of fiscal 2004 we completed the sale of substantially all the assets of L&L/Jiroch and J.F. Walker to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities. The net proceeds were used to reduce outstanding borrowings. Grocery Distribution Operations. We consolidated our Toledo, Ohio distribution operations into our Michigan facilities during the fourth quarter of fiscal 2003. As a result of the decision to exit the Food Town stores, the operations related to these facilities have been classified as discontinued operations in the consolidated financial statements because the operations and cash flows of these facilities have been substantially eliminated from ongoing operations. We will continue to distribute to our The Pharm stores in Ohio from our distribution facilities in Michigan. Discontinued grocery distribution operations include asset impairments and exit costs of $0.7 million and $9.7 million in fiscal 2004 and fiscal 2003, respectively. Real Estate Operations. In fiscal 2004 and 2003, we sold properties representing substantially all of the remaining assets and operations of our former Real Estate segment; accordingly, we have reported the results of operations of the discontinued components of the Real Estate segment and the net gain (loss) on disposal as discontinued operations. The following table summarizes the sales activity for the discontinued real estate operations for preceding three fiscal years: Number of Net proceeds Pre-tax gain (loss) 2004 2 $1.6 $0.6 2003 11 $52.2 $18.6 2002 2 $8.6 ($0.1 ) Insurance Operations. At March 27, 2004, we had approximately $4.1 million remaining in insurance reserves for open claim liabilities related to policies that were not ceded (transferred) to an unrelated third party. We will remain obligated under these policies until all claims are closed and have retained an independent third party administrator to manage these claims. We have not issued policies since December 31, 2001 and retained liability only for those policies issued prior to September 1, 2000. In fiscal 2003, we recorded a charge of $1.5 million for additional amounts required to be paid to an unrelated third party for claim liabilities previously ceded based upon updated actuarial studies reflecting a larger than originally anticipated obligation. Net loss from insurance operations from the measurement date, January 2001, to March 27, 2004 totaled $2.8 million. Discontinued operations generated sales of $320.0 million, $1,279.8 million and $1,397.7 million in fiscal 2004, fiscal 2003 and fiscal 2002, respectively. Total assets of discontinued operations were $8.6 million at March 27, 2004 and $127.1 million at March 29, 2003. For all years presented, the Consolidated Statements of Operations, Consolidated Statements of Cash Flows and all related financial and nonfinancial disclosures in the notes to the consolidated financial statements in this Annual Report on Form 10-K have been adjusted and the discontinued operations information is excluded, unless otherwise noted. Critical Accounting Policies This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, which are based on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we will make adjustments as we consider appropriate under the current facts and circumstances. We believe that the following represent the more critical estimates and assumptions used in the preparation of our consolidated financial statements. Goodwill. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we are no longer recording amortization expense related to goodwill, and instead goodwill is reviewed for impairment on an annual basis. We adopted the provisions of SFAS No. 142 on March 31, 2002. A non-cash goodwill impairment charge of $35.4 million, net of provision for tax benefit of $6.2 million, was recorded in the Retail segment as a cumulative effect of a change in accounting principle in the first quarter of fiscal 2003. In the third quarter of fiscal 2003, we recorded an impairment charge of $45.0 million (including $1.8 million in discontinued operations), prior to tax benefit of $15.7 million, in the Retail segment. Fair value was determined based on the discounted cash flows and comparable market values of the segment. Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Our judgments are based on historical experience, current market trends and other information. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in different outcomes. In estimating future cash flows, we rely on internally generated five-year forecasts for sales and operating profits, including capital expenditures and a 3% long-term assumed growth rate of cash flows for periods after the five-year forecast. We generally develop these forecasts based on recent sales data for existing operations and other factors. Based on our annual review during fiscal 2004, no
goodwill impairment charge was required to be recorded. No goodwill impairment charge would be required even if the current estimate of future discounted cash flows was 10% lower. Impairment of Long-Lived Assets Other Than Goodwill. Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset's carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. No material impairments for long-lived assets to be held and used were determined to exist for fiscal 2004 or fiscal 2003. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less costs to sell. During fiscal 2004, asset impairment charges of $0.9 million were recorded in discontinued operations, prior to provision for tax benefit of $0.3 million. During fiscal 2003, asset impairment charges of $43.9 million (including $42.3 million in discontinued operations), prior to provision for tax benefit of $15.8 million, were recorded on assets at retail stores, office and warehouse facilities. The related assets are recorded in the Consolidated Balance Sheets as Property and equipment held for sale. Fair values are determined by independent appraisals, quotes or expected sales prices developed by internal real estate professionals. Estimates of expected sales prices are judgments based upon our experience, knowledge of market conditions and current offers received. Changes in market conditions, the economic environment and other factors can significantly
impact these estimates. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different outcome. Exit Costs. We record exit costs for closed stores that are subject to long-term lease commitments based upon the future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease rentals that could be reasonably obtained for the property. Future cash flows are based on contractual lease terms and knowledge of the market in which the closed store is located. These estimates are subject to multiple factors, including inflation, ability to sublease the property and other economic conditions. Internally developed estimates of sublease rentals are based upon the market in which the property is located, the results of previous efforts to sublease similar property and the current economic environment. Reserves may be adjusted in the future based upon the actual resolution of each of these factors. At March 27, 2004 exit costs of $18.3 million (including $15.0 million in discontinue
d operations), which is net of approximately $5.6 million of estimated sublease rentals. Pension. Accounting for defined-benefit pension plans involves estimating the cost of benefits to be provided in the future, based on vested years of service, and attributing those costs over the time period each employee works. The most significant factor affecting our pension costs is the fair value of plan assets and the selection of key assumptions, including the discount rate, expected return on plan assets, and rate of compensation increases used by our actuary to calculate our liability. We consider current market conditions, including changes in interest rates and investment returns, in selecting these assumptions. In fiscal 2004, we reduced our discount rate to 6.25% from 6.75%. We also lowered our expected return on plan assets to 8.50% from 8.75% based on the assumption that future returns will approximate the historical long-term rates of return for each asset class and our rate of increases in compensation decreased to 4.00% from 4.25% to refle
ct our long-term anticipated compensation trends. While we believe the assumptions selected are reasonable, significant differences in our actual experience, plan amendments or significant changes in the fair value of our plan assets may materially affect our pension obligations and our future expense. The unfunded portion of our defined benefit plans was $3.2 million and $19.0 million for fiscal 2004 and fiscal 2003, respectively. The improvement in the unfunded balance during fiscal 2004 is a result of a decrease in the projected benefit obligation based on lower service costs, due to the freezing of the cash balance pension plan during fiscal 2004, the effect of plan amendments, company contributions and return on plan assets in excess of benefits paid during the year. The plan assets increased by 10.7% primarily due to market gains on assets and company contributions of $4.9 million partially offset by benefit payments during the year of $8.2 million. Fiscal 2004 pension expense of $1.5 million includes $2.2 million of settlement expense related to the retirement of our former Chief Executive officer, staff reductions and the sale of discontinued operations. The settlement expense was partially offset by expected return on plan assets in excess of service and interest costs, amortization and deferrals and curtailment income of $0.2 million. Liquidity and Capital Resources The following table summarizes our consolidated statements of cash flows for fiscal 2004, fiscal 2003 and fiscal 2002 (in thousands): March 27, March 29, March 30, Net cash provided by operating activities $ 27,566 $ 20,230 $ 57,967 Net cash used in investing activities (10,283 ) (11,148 ) (14,511 ) Net cash used in financing activities (6,922 ) (47,570 ) (21,393 ) Net cash (used in) provided by discontinued operations (20,988 ) 33,840 (15,686 ) Net (decrease) increase in cash and cash equivalents (10,627 ) (4,648 ) 6,377 Cash and cash equivalents at beginning of year 23,306 27,954 21,577 Cash and cash equivalents at end of year $ 12,679 $ 23,306 $ 27,954 Net cash provided by operating activities increased during fiscal 2004 primarily due to the receipt of a tax refund associated with net operating loss carrybacks of $9.3 million in the first quarter of fiscal 2004 and lower losses from continuing operations. These improvements were offset by reductions in accounts payable due to changes in the timing of interest payments associated with our new bank financing and vendor payments. The decrease in net cash provided by operating activities of continuing operations in fiscal 2003 is primarily the result of decreased earnings from continuing operations and changes in working capital related to the payment of supply fees to certain customers, the recording of the $9.3 million tax refund and an increase in inventory. Net cash used in investing activities decreased in fiscal 2004 and fiscal 2003 due to reduced capital expenditure activity. Our Retail segment uses a majority, or 65.6%, 68.9% and 56.1% during fiscal 2004, fiscal 2003 and fiscal 2002, respectively, of our capital expenditure dollars. These capital expenditures are primarily spent on store refurbishments and new equipment. Under the terms of our senior secured revolving credit facility and our supplemental secured credit facility ("credit facilities"), should our available borrowings fall below certain levels, our capital expenditures are restricted to $22.0 million in fiscal 2005, increasing to $30.3 million per year by fiscal 2008. We expect capital expenditures to approximate $22.0 million in fiscal 2005. We are not currently governed by these restrictions, as discussed below. Net cash used in financing activities includes cash paid and received from our long-term borrowings and the payment of financing fees associated with our new credit facilities. Our current maturities of long-term debt at March 27, 2004 are $4.2 million. Our ability to borrow additional funds is governed by the terms of our credit facilities, discussed below. Net cash provided by (used in) discontinued operations contains the net cash flows of our discontinued operations and consists primarily of net proceeds received on the sale of assets, net of identifiable debt repayments, the payment of store exit cost reserves, partial year operating results and the payment of severance and related benefit accruals of employees that previously worked for discontinued operations. We expect the cash usage of our discontinued operations will be approximately $7.0 million in fiscal 2005 for the payment of store exit costs and other liabilities and will gradually decrease from that level over the next five years. Our principal sources of liquidity are cash flows generated from operations and effective December 23, 2003, a $170.0 million senior secured revolving credit facility and a $15.0 million supplemental secured credit facility. These two credit facilities terminate on December 23, 2007, and are secured by substantially all of our assets. We recorded a charge of $8.8 million for unamortized bank fees associated with previous financing activities during the third quarter of fiscal 2004. Available borrowings under the credit facilities are based on stipulated advance rates on eligible assets, as defined in the credit agreements. The credit facilities contain covenants that include the maintenance of minimum EBITDA and maximum capital expenditures, as defined in the credit agreements. These covenants will not be effective as long as we maintain a minimum excess availability level, as defined in the credit agreements. We have available borrowings of $38.9 million at March 27, 20
04 and maximum availability of $48.9 million, which exceeds the minimum excess availability levels. The credit facilities provide for the issuance of letters of credit of which $12.3 million were outstanding and unused as of March 27, 2004. The senior secured revolving credit facility bears interest at the Eurodollar rate plus 3.0% or the prime rate plus 0.75%
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For the fiscal year ended March 27, 2004.
For the transition period from _______________ to _______________.
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction)
of Incorporation or Organization)
(I.R.S. Employer Identification No.)
P.O. Box 8700
Grand Rapids, Michigan
(Address of Principal Executive Offices)
(Zip Code)
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Stores
Geographic
Region
Square
Feet
Average
Store Size
Ownership
central Ohio and
southeastern Michigan
central Ohio
2004
2003
2002
2001
2000
expenses
366,054
357,442
364,720
332,022
286,141
costs (A)
- -
47,711
1,030
1,098
(2,914
)
discontinued operations and
cumulative effect of a change
in accounting principle
(9,107
)
(54,950
)
16,977
22,373
19,080
operations
(5,920
)
(35,791
)
11,501
13,745
11,949
operations, net of taxes (C)
(778
)
(51,164
)
(1,654
)
9,697
5,245
accounting principle, net of taxes (D)
- -
(35,377
)
- -
- -
- -
outstanding (E)
20,016
19,896
19,549
17,333
13,432
$
(0.30
)
$
(1.80
)
$
0.59
$
0.79
$
0.89
2004
2003
2002
2004/2003
2003/2002
expenses
17.8
18.1
17.3
2.4
(2.0
)
exit costs
- -
2.4
0.0
(100.0
)
*
discontinued operations and
cumulative effect of a change in
accounting principle
(0.4
)
(2.8
)
0.8
(83.4
)
*
operations
(0.3
)
(1.8
)
0.5
(83.5
)
*
of taxes
(0.0
)
(2.6
)
0.0
(98.5
)
*
accounting principle
- -
(1.8
)
- -
(100.0
)
*
Fiscal Year
properties sold
(in millions)
(in millions)
2004
2003
2002
(weighted average interest rate of 4.21% at March 27, 2004). The supplemental secured credit facility bears interest at a fixed 16.0% interest rate.
Prior to refinancing our outstanding bank debt, we had a $385.0 million senior secured credit facility pursuant to an Amended and Restated Credit Agreement dated July 29, 2002, as amended, consisting of (1) a revolving credit facility in the amount of $60.0 million, (2) a term loan A in the amount of $100.0 million, (3) an acquisition facility in the amount of $75.0 million and (4) a term loan B in the amount of $150.0 million.
The credit agreements which govern our credit facilities do not allow us to make "restricted payments." "Restricted payments" include cash dividends, as well as redemption of shares and a variety of other types of payments as defined in the bank credit agreements, which are filed as an exhibit to this Form 10-K. The covenants in the bank credit agreements could allow for the payment of dividends in the future. However, we intend to use any net earnings generated from our operations, to repay debt and to acquire additional retail operations. We do not anticipate paying any cash dividends for the foreseeable future.
We have in the past offered non-subordinated variable rate promissory notes to the public. Effective March 31, 2003, we suspended the promissory note program and all notes were repaid as of that date.
Our current ratio decreased from 1.38:1.00 at March 29, 2003 to 1.25:1.00 at March 27, 2004 and our investment in working capital improved to $34.2 million at March 27, 2004 from $87.2 million at March 28, 2003. The reduced investment is the result of store closings, divestiture activity and more effective working capital management.
Our long-term debt to equity ratio at March 27, 2004 improved to 1.18:1.00 from 1.68:1.00 at March 29, 2003. The improvement was primarily due to the reduction of long-term debt by $91.6, including current maturities, during fiscal 2004, partially offset by the current year net loss.
Our total capital structure includes borrowings under our credit facilities, various other debt instruments, leases and shareholders' equity. Management believes that cash generated from operating activities and available borrowings under the credit facility will likely be sufficient to support operations under current circumstances.
The table below presents our significant contractual obligations as of March 27, 2004:
(In thousands) |
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
More than 5 |
|
Long-term debt |
$ |
128,793 |
|
$ |
4,177 |
|
$ |
8,505 |
|
$ |
113,123 |
|
$ |
2,988 |
|
Operating leases |
|
149,213 |
|
|
22,801 |
|
|
38,926 |
|
|
29,989 |
|
|
57,497 |
|
Lease and ancillary costs |
|
|
|
|
5,669 |
|
|
7,679 |
|
|
3,500 |
|
|
1,490 |
|
Purchase obligations (1) |
|
368,703 |
|
|
230,433 |
|
|
105,723 |
|
|
11,822 |
|
|
20,725 |
|
Self-insurance liability |
|
12,838 |
|
|
7,008 |
|
|
3,907 |
|
|
1,245 |
|
|
678 |
|
Other |
|
1,287 |
|
|
1,287 |
|
|
- |
|
|
- |
|
|
- |
|
Total |
$ |
679,172 |
|
$ |
271,375 |
|
$ |
164,740 |
|
$ |
159,679 |
|
$ |
83,378 |
|
(1) The majority of our purchase obligations involve supply contracts to purchase products for resale in the ordinary course of business. These contracts are typically cancellable and therefore no amounts have been included in the table above. The purchase obligations shown in this table represents the amount of product we are contractually obligated to purchase to earn $4.4 million in upfront contract monies received. If we do not fulfill these purchase obligations, we would only be obligated to repay the unearned upfront contract monies.
In addition to the above, we expect to contribute $0.8 million to our defined benefit plans in fiscal 2005 to meet the minimum funding requirements.
New Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No.145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." As a result, gains and losses from the extinguishment of debt should be reported as extraordinary items only if they meet the criteria of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains and losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations for all periods presented. We adopted the provisions of SFAS No. 145 on March 30, 2003. The $8.8 million debt extinguishment charge was recorded in th e loss from continuing operations as a result of adopting this statement.
Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor," provides that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction of cost of goods sold. If such payment is for assets or services delivered to the vendor, the cash consideration should be characterized as revenue, or if such payment is a reimbursement of costs incurred to sell the vendor's products, the cash consideration should be characterized as a reduction of that cost. EITF Issue No. 03-10, "Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers," provides additional guidance for adopting EITF Issue No. 02-16 relating to cash consideration received by a reseller in the form of reimbursement by the vendor for honoring the vendor's sale incentiv es offered directly to consumers (for example, coupons). When the four criteria specified in EITF Issue No. 03-10 are met, coupons offered directly to consumers should not be reported as a reduction of the cost of the reseller's purchases from the vendor. EITF Issue No. 02-16 was adopted on March 30, 2003 and EITF Issue No. 03-10 was adopted during the third quarter of fiscal 2004. The adoption of these Issues did not have a material impact on our financial statements.
In December 2003, the FASB issued a revision of Interpretation No. 46, "Consolidation of Variable Interest Entities," ("Revised Interpretation") which defers the effective date of provisions for certain variable interest entities ("VIE"), provides additional scope exceptions for certain other variable interests, clarifies the impact of troubled debt restructurings on whether an entity is a VIE or which party is the primary beneficiary of a VIE and provides additional guidance on what constitutes a variable interest. We adopted the provisions of the Revised Interpretation relating to special-purpose entities in the third quarter of fiscal 2004 and adopted the provision for all other types of VIE's during the fourth quarter of fiscal 2004. The adoption of the Revised Interpretation did not have a material impact on our financial statements.
In December 2003, the FASB issued a revision of SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," ("Revised SFAS 132") to improve financial statement disclosures for defined benefit plans. The Revised SFAS 132 requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. We are now required to provide additional disclosures, including, but not limited to, a breakdown of plan assets by category, a description of investment policies and strategies and target allocation percentages for these asset categories. We adopted the disclosure provisions of the Revised SFAS 132 in fiscal 2004.
In January 2004, the FASB issued FASB Staff Position ("FSP") FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." This statement permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act"). The Act, signed into law in December 2003, introduces a prescription drug benefit under Medicare ("Medicare Part D") and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP FAS 106-1 does not provide specific guidance as to whether a sponsor should recognize the effects of the Act on its accumulated postretirement benefit obligation ("APBO") and net postretirement benefit costs, and if so, when and how to account f or those effects. The Act introduces two new features to Medicare that a sponsor needs to consider when measuring its APBO and net periodic postretirement benefit costs: a subsidy to a plan sponsor that is based on 28% of an individual beneficiary's annual prescription drug costs between $250 and $5,000 and the opportunity for a retiree to obtain a prescription drug benefit under Medicare.
As permitted, we elected to defer the adoption of FSP FAS 106-1. Therefore, the APBO and net postretirement benefit costs disclosed in the financial statements do not reflect the impacts of the Act on the plan. The deferral will continue to apply until the specific authoritative accounting guidance for the federal subsidy is issued. Authoritative guidance on the accounting for the federal subsidy is pending, and when issued, could require information previously reported in the financial statements to change. The Act is not expected to have a significant impact on our APBO or net postretirement benefit costs.
Item 7A. |
Quantitative and Qualitative Disclosure About Market Risk |
We are exposed to industry related price changes on several commodities that we buy and sell in both our Grocery Distribution and Retail segments.
We are also exposed to interest rate risk on a portion of outstanding debt. The senior secured revolving credit facility bears interest at the Eurodollar rate plus 3.0% or the prime rate plus 0.75% (weighted average interest rate of 4.21% at March 27, 2004). An additional $3.1 million of our long-term debt is subject to fluctuations in the prime rate. The weighted average interest rates for fiscal 2004, fiscal 2003 and fiscal 2002 were 8.77%, 9.59%, and 8.02%, respectively.
We previously managed interest rate risk on a majority of our debt through the use of interest rate swap agreements that expired on June 30, 2003. We did not enter into new interest rate swap agreements at the expiration of the prior agreements.
The estimated carrying value of long-term debt approximates its fair value at March 27, 2004 and March 29, 2003 due to variable interest rates that cover a majority of the long-term debt and a comparison of fixed rate debt to estimated rates that would currently be available for debt with similar terms and maturities. The following table sets forth the maturities of our debt outstanding as of March 27, 2004:
(In thousands)
Fiscal Year |
|
|
|
|
2005 |
|
$ |
4,177 |
|
2006 |
|
|
5,757 |
|
2007 |
|
|
2,748 |
|
2008 |
|
|
112,545 |
|
2009 |
|
|
578 |
|
Thereafter |
|
|
2,988 |
|
|
|
$ |
128,793 |
|
Item 8. |
Financial Statements and Supplementary Data |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Spartan Stores, Inc.
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Spartan Stores, Inc. and subsidiaries as of March 27, 2004 and March 29, 2003 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 27, 2004. These financial statements are the responsibility of Spartan Stores, Inc. management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Spartan Stores, Inc. and subsidiaries as of March 27, 2004 and March 29, 2003 and the results of their operations and their cash flows for each of the three years in the period ended March 27, 2004, in conformity with accounting principles generally accepted in the United States of America.
As discussed in the notes to the consolidated financial statements, during the year ended March 29, 2003, Spartan Stores, Inc. and subsidiaries changed its method of accounting for goodwill (Note 2) and discontinued operations (Note 3) to conform to Statement of Financial Accounting Standards Nos. 142 and 144.
/s/Deloitte & Touche LLP
Grand Rapids, Michigan
April 30, 2004
CONSOLIDATED BALANCE SHEETS
Spartan Stores, Inc. and Subsidiaries
(In thousands)
|
March 27, |
|
March 29, |
||
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
12,679 |
|
$ |
23,306 |
Accounts receivable, net |
|
39,952 |
|
|
70,747 |
Inventories |
|
97,771 |
|
|
138,095 |
Prepaid expenses and other current assets |
|
9,578 |
|
|
14,846 |
Refundable income taxes |
|
- |
|
|
9,349 |
Deferred taxes on income |
|
6,353 |
|
|
4,113 |
Property and equipment held for sale |
|
4,051 |
|
|
54,684 |
Total current assets |
|
170,384 |
|
|
315,140 |
|
|
|
|
|
|
Other assets |
|
|
|
|
|
Goodwill, net |
|
72,105 |
|
|
68,743 |
Deferred taxes on income |
|
25,147 |
|
|
25,566 |
Other, net |
|
16,438 |
|
|
26,785 |
Total other assets |
|
113,690 |
|
|
121,094 |
|
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Land and improvements |
|
13,221 |
|
|
14,295 |
Buildings and improvements |
|
112,636 |
|
|
113,092 |
Equipment |
|
204,069 |
|
|
205,494 |
Total property and equipment |
|
329,926 |
|
|
332,881 |
Less accumulated depreciation and amortization |
|
221,489 |
|
|
212,809 |
Net property and equipment |
|
108,437 |
|
|
120,072 |
|
|
|
|
|
|
Total assets |
$ |
392,511 |
|
$ |
556,306 |
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS (continued)
Spartan Stores, Inc. and Subsidiaries
(In thousands)
|
March 27, |
|
|
March 29, |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable |
$ |
75,267 |
|
$ |
112,181 |
|
Accrued payroll and benefits |
|
23,597 |
|
|
28,533 |
|
Insurance reserves |
|
12,838 |
|
|
14,783 |
|
Accrued taxes |
|
5,476 |
|
|
16,735 |
|
Other accrued expenses |
|
14,815 |
|
|
19,150 |
|
Current maturities of long-term debt |
|
4,177 |
|
|
36,594 |
|
Total current liabilities |
|
136,170 |
|
|
227,976 |
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
14,255 |
|
|
18,859 |
|
Postretirement benefits |
|
11,803 |
|
|
16,022 |
|
Long-term debt |
|
124,616 |
|
|
183,817 |
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
Common stock, voting, no par value; 50,000 shares |
|
|
|
|
|
|
Preferred stock, no par value, 10,000 |
|
|
|
|
|
|
Deferred stock-based compensation |
|
(179 |
) |
|
- |
|
Accumulated other comprehensive loss |
|
(182 |
) |
|
(2,816 |
) |
Accumulated deficit |
|
(10,638 |
) |
|
(3,940 |
) |
Total shareholders' equity |
|
105,667 |
|
|
109,632 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
$ |
392,511 |
|
$ |
556,306 |
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Spartan Stores, Inc. and Subsidiaries
(In thousands, except per share data)
|
Year Ended |
|
|||||||||
|
March 27, |
|
|
March 29, |
|
|
March 30, |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
2,054,977 |
|
|
$ |
1,975,677 |
|
|
$ |
2,112,599 |
|
Cost of goods sold |
|
1,676,361 |
|
|
|
1,608,882 |
|
|
|
1,715,556 |
|
Gross margin |
|
378,616 |
|
|
|
366,795 |
|
|
|
397,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
366,054 |
|
|
|
357,442 |
|
|
|
364,720 |
|
Provision for asset impairments and exit costs |
|
- |
|
|
|
47,711 |
|
|
|
1,030 |
|
Total operating expenses |
|
366,054 |
|
|
|
405,153 |
|
|
|
365,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
12,562 |
|
|
|
(38,358 |
) |
|
|
31,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
13,419 |
|
|
|
17,320 |
|
|
|
17,251 |
|
Debt extinguishment |
|
8,798 |
|
|
|
- |
|
|
|
- |
|
Interest income |
|
(628 |
) |
|
|
(695 |
) |
|
|
(1,582 |
) |
Other, net |
|
80 |
|
|
|
(33 |
) |
|
|
(1,353 |
) |
Total other income and expenses |
|
21,669 |
|
|
|
16,592 |
|
|
|
14,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes, |
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
(3,187 |
) |
|
|
(19,159 |
) |
|
|
5,476 |
|
(Loss) earnings from continuing operations |
|
(5,920 |
) |
|
|
(35,791 |
) |
|
|
11,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued |
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
$ |
(6,698 |
) |
|
$ |
(122,332 |
) |
|
$ |
9,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
$ |
(0.30 |
) |
|
$ |
(1.80 |
) |
|
$ |
0.59 |
|
Loss from discontinued operations |
|
(0.03 |
) |
|
|
(2.57 |
) |
|
|
(0.09 |
) |
Cumulative effect of a change in accounting |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
$ |
(0.33 |
) |
|
$ |
(6.15 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
20,016 |
|
|
|
19,896 |
|
|
|
19,549 |
|
Diluted |
|
20,016 |
|
|
|
19,896 |
|
|
|
19,690 |
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Spartan Stores, Inc. and Subsidiaries
(In thousands)
|
|
|
|
|
|
|
Accumulated |
|
Retained |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - April 1, 2001 |
19,262 |
|
$ |
109,868 |
|
$ |
- |
|
$ |
- |
|
$ |
108,545 |
|
$ |
218,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for fiscal 2002 |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
9,847 |
|
|
9,847 |
|
Cumulative effect of a change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting principle |
- |
|
|
- |
|
|
- |
|
|
(1,588 |
) |
|
- |
|
|
(1,588 |
) |
Unrealized loss on securities |
- |
|
|
- |
|
|
- |
|
|
(36 |
) |
|
- |
|
|
(36 |
) |
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on interest rate swap |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
7,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of common stock |
(4 |
) |
|
(33 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(33 |
) |
Issuances of common stock |
508 |
|
|
5,887 |
|
|
- |
|
|
- |
|
|
- |
|
|
5,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 30, 2002 |
19,766 |
|
|
115,722 |
|
|
- |
|
|
(2,622 |
) |
|
118,392 |
|
|
231,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for fiscal 2003 |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(122,332 |
) |
|
(122,332 |
) |
Unrealized gain on interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swap agreements |
- |
|
|
- |
|
|
- |
|
|
2,077 |
|
|
- |
|
|
2,077 |
|
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities |
- |
|
|
- |
|
|
- |
|
|
157 |
|
|
- |
|
|
157 |
|
Total comprehensive loss |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(122,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of common stock |
233 |
|
|
666 |
|
|
- |
|
|
- |
|
|
- |
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 29, 2003 |
19,999 |
|
|
116,388 |
|
|
- |
|
|
(2,816 |
) |
|
(3,940 |
) |
|
109,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for fiscal 2004 |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(6,698 |
) |
|
(6,698 |
) |
Unrealized gain on interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swap agreements |
- |
|
|
- |
|
|
- |
|
|
372 |
|
|
- |
|
|
372 |
|
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities |
- |
|
|
- |
|
|
- |
|
|
(121 |
) |
|
- |
|
|
(121 |
) |
Total comprehensive loss |
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(4,064 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of common stock |
(56 |
) |
|
(164 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(164 |
) |
Issuances of restricted stock |
149 |
|
|
442 |
|
|
(442 |
) |
|
- |
|
|
- |
|
|
- |
|
Amortization of restricted stock |
- |
|
|
- |
|
|
263 |
|
|
- |
|
|
- |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 27, 2004 |
20,092 |
|
$ |
116,666 |
|
$ |
(179 |
) |
$ |
(182 |
) |
$ |
(10,638 |
) |
$ |
105,667 |
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Spartan Stores, Inc. and Subsidiaries
(In thousands)
|
Year Ended |
||||||||||
|
March 27, |
|
March 29, |
|
March 30, |
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
$ |
(6,698 |
) |
|
$ |
(122,332 |
) |
|
$ |
9,847 |
|
Loss from discontinued operations |
|
778 |
|
|
|
51,164 |
|
|
|
1,654 |
|
Cumulative effect of a change in accounting principle |
|
- |
|
|
|
35,377 |
|
|
|
- |
|
(Loss) earnings from continuing operations |
|
(5,920 |
) |
|
|
(35,791 |
) |
|
|
11,501 |
|
Adjustments to reconcile net (loss) earnings to |
|
|
|
|
|
|
|
|
|
|
|
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Debt extinguishment |
|
8,798 |
|
|
|
- |
|
|
|
- |
|
Provision for asset impairments and exit costs |
|
- |
|
|
|
47,711 |
|
|
|
1,030 |
|
Depreciation and amortization |
|
28,433 |
|
|
|
30,022 |
|
|
|
32,413 |
|
Postretirement benefits |
|
(553 |
) |
|
|
(987 |
) |
|
|
(976 |
) |
Deferred taxes on income |
|
(3,202 |
) |
|
|
(34,130 |
) |
|
|
2,362 |
|
Other, net |
|
273 |
|
|
|
643 |
|
|
|
(1,228 |
) |
Change in operating assets and liabilities, net of |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
3,422 |
|
|
|
6,680 |
|
|
|
42 |
|
Inventories |
|
8,501 |
|
|
|
(3,841 |
) |
|
|
(731 |
) |
Prepaid expenses and other assets |
|
6,597 |
|
|
|
(8,052 |
) |
|
|
260 |
|
Refundable income taxes |
|
9,349 |
|
|
|
(9,349 |
) |
|
|
- |
|
Accounts payable |
|
(20,074 |
) |
|
|
15,326 |
|
|
|
15,975 |
|
Accrued payroll and benefits |
|
3,490 |
|
|
|
3,296 |
|
|
|
(10,888 |
) |
Insurance reserves |
|
43 |
|
|
|
(367 |
) |
|
|
3,403 |
|
Accrued taxes |
|
(5,851 |
) |
|
|
4,759 |
|
|
|
772 |
|
Other accrued expenses and other liabilities |
|
(5,740 |
) |
|
|
4,310 |
|
|
|
4,032 |
|
Net cash provided by operating activities |
|
27,566 |
|
|
|
20,230 |
|
|
|
57,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
(11,539 |
) |
|
|
(12,104 |
) |
|
|
(17,498 |
) |
Net proceeds from the sale of assets |
|
630 |
|
|
|
233 |
|
|
|
4,383 |
|
Acquisitions, net of cash acquired |
|
- |
|
|
|
- |
|
|
|
(2,106 |
) |
Other |
|
626 |
|
|
|
723 |
|
|
|
710 |
|
Net cash used in investing activities |
|
(10,283 |
) |
|
|
(11,148 |
) |
|
|
(14,511 |
) |
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
Net proceeds (payments) from revolver |
|
108,801 |
|
|
|
(300 |
) |
|
|
13,000 |
|
Proceeds from long-term borrowings |
|
15,000 |
|
|
|
- |
|
|
|
4,017 |
|
Repayment of long-term debt |
|
(121,637 |
) |
|
|
(43,448 |
) |
|
|
(37,941 |
) |
Financing fees paid |
|
(9,086 |
) |
|
|
(4,488 |
) |
|
|
(1,242 |
) |
Proceeds from sale of common stock |
|
- |
|
|
|
666 |
|
|
|
806 |
|
Common stock purchased |
|
- |
|
|
|
- |
|
|
|
(33 |
) |
Net cash used in financing activities |
|
(6,922 |
) |
|
|
(47,570 |
) |
|
|
(21,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations |
|
(20,988 |
) |
|
|
33,840 |
|
|
|
(15,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
(10,627 |
) |
|
|
(4,648 |
) |
|
|
6,377 |
|
Cash and cash equivalents at beginning of year |
|
23,306 |
|
|
|
27,954 |
|
|
|
21,577 |
|
Cash and cash equivalents at end of year |
$ |
12,679 |
|
|
$ |
23,306 |
|
|
$ |
27,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
$ |
19,415 |
|
|
$ |
24,783 |
|
|
$ |
25,558 |
|
Cash paid for income taxes |
$ |
99 |
|
|
$ |
497 |
|
|
$ |
196 |
|
See notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Summary of Significant Accounting Policies and Basis of Presentation
Principles of Consolidation: The consolidated financial statements include the accounts of Spartan Stores, Inc. and its subsidiaries ("Spartan Stores"). All significant intercompany accounts and transactions have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods might differ from those estimates.
Risks and Uncertainties: Approximately 12% of Spartan Stores' associates, which represents approximately 56% of union associates, are represented by contracts that expire by April 2005.
Fiscal Year: Spartan Stores' fiscal year ends on the last Saturday of March. The fiscal years ended March 27, 2004, March 29, 2003 and March 30, 2002 consisted of 52 weeks.
Revenue Recognition: The Retail segment recognizes revenues from the sale of products at the point of sale. The Grocery Distribution segment recognizes revenues when products are shipped or ancillary services are provided.
Cost of Goods Sold: Cost of goods sold includes purchase costs and promotional allowances. Vendor allowances that relate to our buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for our merchandising costs such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of goods sold when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms.
Fair Value Disclosures of Financial Instruments: Financial instruments include cash and cash equivalents, marketable securities, accounts and notes receivable, accounts payable, long-term debt and interest rate swap agreements. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts and notes payable approximate fair value at March 27, 2004 and March 29, 2003 because of the short-term nature of these financial instruments. The estimated carrying value of long-term debt approximates its fair value at March 27, 2004 and March 29, 2003 due to variable interest rates that cover a majority of the long-term debt and a comparison of fixed rate debt to estimated rates that would currently be available for debt with similar terms and maturities.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less at the date of purchase.
Accounts Receivable: Accounts receivable are shown net of allowances for credit losses of $4.8 million in fiscal 2004 and $6.3 million in fiscal 2003.
Inventory Valuation: Inventories are stated at the lower of cost or market using the last-in, first-out ("LIFO") method. If replacement cost had been used, inventories would have been $40.9 million and $53.8 million higher at March 27, 2004 and March 29, 2003, respectively.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Spartan Stores utilizes the retail inventory method to value inventory at the Retail segment. Under the retail inventory method, inventory is stated at cost with cost of goods sold and gross margin calculated by applying a cost ratio to the retail value of inventories. During the fourth quarter of fiscal 2004, Spartan Stores implemented a stock ledger inventory and margin management system that significantly enhances its ability to calculate and track gross margin and inventory balances on a weekly basis. The stock ledger automatically captures purchase costs, retail prices and markdowns at the transaction level, making our inventory valuation estimates more precise. Spartan Stores recorded a pretax non-cash charge of $3.7 million ($2.4 million after tax) in Cost of goods sold as a result of the implementation of this system.
Long-Lived Assets Other than Goodwill: Spartan Stores reviews and evaluates long-lived assets for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset's carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less the cost to sell. Fair values are determined by independent appraisals or expected sales prices developed by internal real estate professionals. Estimates of future cash flows and expected sales prices are judgments based upon Spartan Stores' experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, real estate market conditions and inflation.
Property and Equipment Held for Sale: Property and equipment held for sale consists of land, buildings and equipment that Spartan Stores expects to sell within 12 months. The assets are included in the following segments (in thousands):
|
|
|
2004 |
|
|
|
2003 |
|
|
Grocery Distribution |
$ |
2,652 |
|
|
$ |
914 |
|
|
Discontinued operations - Retail |
|
551 |
|
|
|
39,274 |
|
|
Discontinued operations - Grocery Distribution |
|
- |
|
|
|
1,368 |
|
|
Discontinued operations - Convenience Distribution |
|
- |
|
|
|
11,612 |
|
|
Discontinued operations - Real Estate |
|
848 |
|
|
|
1,516 |
|
|
Total |
$ |
4,051 |
|
|
$ |
54,684 |
|
Goodwill: Goodwill represents the excess purchase price over the fair value of tangible net assets acquired in business combinations after amounts have been allocated to intangible assets. Goodwill is not amortized, but is reviewed at least annually for impairment using a discounted cash flow model.
Other Assets: Included in Other assets are intangibles, debt issuance costs and the long-term portion of prepaid customer supply agreements which are being amortized over the terms of the related agreements. Intangible assets consist of favorable lease agreements and non-compete agreements, which are amortized on a straight-line basis over the lease terms of 3 to 20 years, or the agreement length of 3 to 15 years.
During fiscal 2002, net gains of approximately $1.4 million were recognized from the sales of stock held in a supplier and a service provider accounted for by the cost method and are included in Other, net in the Consolidated Statements of Operations.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property and Equipment: Property and equipment are recorded at cost and depreciated over the shorter of the estimated useful lives or lease periods of the assets. Expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation is computed using the straight-line and declining balance methods as follows:
|
Land and improvements |
|
15 to 40 years |
|
|
Buildings and improvements |
|
3 to 40 years |
|
|
Equipment |
|
3 to 20 years |
|
Software development costs are generally capitalized and amortized between 3 and 5 year periods commencing as each system is implemented.
Accounts Payable: Accounts payable include checks that have been issued and have not cleared Spartan Stores' controlled disbursement bank accounts.
Insurance Reserves: Insurance reserves include a provision for reported and incurred but not reported losses related to reinsurance policies that insure the run-off of retained risk associated with the discontinued Insurance segment. Also included are provisions for workers' compensation, health and property insurance for which Spartan Stores is self-insured. Losses are recorded when reported and consist of individual case estimates. Incurred but not reported losses are actuarially estimated based on available historical information.
Income Taxes: Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Derivative Financial Instruments: Spartan Stores previously used interest rate swap agreements that expired on June 30, 2003. The agreements effectively converted a portion of variable rate debt to a fixed rate basis. These agreements were considered to be a hedge against changes in future cash flows. Accordingly, the interest rate swap agreements are included in Other long-term liabilities in the Consolidated Balance Sheets as of March 29, 2003, and the related gain or loss on these contracts was deferred in shareholders' equity as a component of accumulated other comprehensive income.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock-Based Compensation: Spartan Stores has a stock incentive plan, which is more fully described in Note 10. Spartan Stores accounts for the plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based compensation cost for stock options is reflected in net (loss) earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net (loss) earnings and (loss) earnings per share as if Spartan Stores had applied the fair value recognition principles of Statement of Financial Accounting Standards ("SFAS") Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation:
(In thousands, except per share data) |
|
|
|
|
|
|
|||
|
2004 |
|
2003 |
|
2002 |
|
|||
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings, as reported |
$ |
(6,698 |
) |
$ |
(122,332 |
) |
$ |
9,847 |
|
Deduct: Total stock-based employee compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) earnings |
$ |
(7,140 |
) |
$ |
(123,629 |
) |
$ |
8,949 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share |
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share |
|
|
|
|
|
|
|
|
|
Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
Dividend yield |
0.00% |
|
0.00% |
|
0.00% |
|
Expected volatility |
39.00% |
|
39.00% |
|
37.00% |
|
Risk-free interest rate |
3.19% - 3.81% |
|
3.21% - 5.03% |
|
4.38 - 5.14% |
|
Expected life of option |
8 years |
|
8 years |
|
6 years |
|
(Loss) earnings per share: Basic (loss) earnings per share ("EPS") excludes dilution and is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by increasing the weighted average number of common shares outstanding by the dilutive effect of the issuance of common stock for options outstanding under Spartan Stores' stock option plans.
Weighted average shares issuable upon the exercise of stock options that were not included in the (loss) earnings per share calculations were 1,430,340 in fiscal 2004, 1,419,239 in fiscal 2003 and 334,014 in fiscal 2002.
Advertising Costs: Spartan Stores' gross advertising costs are expensed as incurred and included in selling, general and administrative expenses in the Consolidated Statements of Operations. Advertising expenses were $16.2 million in fiscal 2004, $16.3 million in fiscal 2003 and $16.6 million in fiscal 2002.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Comprehensive Income: Comprehensive income (loss) is net earnings (loss) adjusted for the net gain or loss on interest rate swap agreements, including the cumulative effect of a change in accounting, unrealized gains and losses on securities and minimum pension liability, net of applicable income taxes.
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
Balances at March 31, 2002 |
$ |
(36 |
) |
$ |
(2,449 |
) |
$ |
(137 |
) |
$ |
(2,622 |
) |
Other comprehensive gain (loss) for 2003 |
|
157 |
|
|
2,077 |
|
|
(2,428 |
) |
|
(194 |
) |
Balances at March 29, 2003 |
|
121 |
|
|
(372 |
) |
|
(2,565 |
) |
|
(2,816 |
) |
Other comprehensive gain (loss) for 2004 |
|
(121 |
) |
|
372 |
|
|
2,383 |
|
|
2,634 |
|
Balances at March 27, 2004 |
$ |
- |
|
$ |
- |
|
$ |
(182 |
) |
$ |
(182 |
) |
Recently Issued Accounting Standards: In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No.145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt." As a result, gains and losses from the extinguishment of debt should be reported as extraordinary items only if they meet the criteria of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains and losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations for all periods presented. Spartan Stores adopted the provisions of SFAS No. 145 on March 30, 2003. The $8.8 million debt extinguishment cha rge was recorded in the loss from continuing operations as a result of adopting this statement.
Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor," provides that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction of cost of goods sold. If such payment is for assets or services delivered to the vendor, the cash consideration should be characterized as revenue, or if such payment is a reimbursement of costs incurred to sell the vendor's products, the cash consideration should be characterized as a reduction of that cost. EITF Issue No. 03-10, "Application of EITF Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers," provides additional guidance for adopting EITF Issue No. 02-16 relating to cash consideration received by a reseller in the form of reimbursement by the vendor for honoring the vendor's sale incentiv es offered directly to consumers (for example, coupons). When the four criteria specified in EITF Issue No. 03-10 are met, coupons offered directly to consumers should not be reported as a reduction of the cost of the reseller's purchases from the vendor. EITF Issue No. 02-16 was adopted on March 30, 2003 and EITF Issue No. 03-10 was adopted during the third quarter of fiscal 2004. The adoption of these Issues did not have a material impact on Spartan Stores' financial statements.
In December 2003, the FASB issued a revision of Interpretation No. 46, "Consolidation of Variable Interest Entities," ("Revised Interpretation") which defers the effective date of provisions for certain variable interest entities ("VIE"), provides additional scope exceptions for certain other variable interests, clarifies the impact of troubled debt restructurings on whether an entity is a VIE or which party is the primary beneficiary of a VIE and provides additional guidance on what constitutes a variable interest. Spartan Stores adopted the provisions of the Revised Interpretation relating to special-purpose entities in the third quarter of fiscal 2004 and adopted the provision for all other types of VIE's during the fourth quarter of fiscal 2004. The adoption of the Revised Interpretation did not have a material impact on Spartan Stores' financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In December 2003, the FASB issued a revision of SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," ("Revised SFAS 132") to improve financial statement disclosures for defined benefit plans. The Revised SFAS 132 requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. Spartan Stores is now required to provide additional disclosures, including, but not limited to, a breakdown of plan assets by category, a description of investment policies and strategies and target allocation percentages for these asset categories. Spartan Stores adopted the disclosure provisions of the Revised SFAS 132 in fiscal 2004.
In January 2004, the FASB issued FASB Staff Position ("FSP") FAS 106-1 , "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." This statement permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act"). The Act, signed into law in December 2003, introduces a prescription drug benefit under Medicare ("Medicare Part D") and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP FAS 106-1 does not provide specific guidance as to whether a sponsor should recognize the effects of the Act on its accumulated postretirement benefit obligation ("APBO") and net postretirement benefit costs, and if so, when and how to account for those effects. The Act introduces two new features to Medicare that a sponsor needs to consider when measuring its APBO and net periodic postretirement benefit costs: a subsidy to a plan sponsor that is based on 28% of an individual beneficiary's annual prescription drug costs between $250 and $5,000 and the opportunity for a retiree to obtain a prescription drug benefit under Medicare.
As permitted, Spartan Stores elected to defer the adoption of FSP FAS 106-1. Therefore, the APBO and net postretirement benefit costs disclosed in the financial statements do not reflect the impacts of the Act on the plan. The deferral will continue to apply until the specific authoritative accounting guidance for the federal subsidy is issued. Authoritative guidance on the accounting for the federal subsidy is pending, and when issued, could require information previously reported in the financial statements to change. The Act is not expected to have a significant impact on Spartan Stores' APBO or net postretirement benefit costs.
Reclassifications: Certain reclassifications have been made to the fiscal 2003 and fiscal 2002 financial statements to conform to the fiscal 2004 presentation.
Note 2
Goodwill and Other Intangible Assets
SFAS No. 142, "Goodwill and Other Intangible Assets," provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but tested at least annually for impairment. Under the provisions of SFAS No. 142, any impairment loss identified upon adoption of this standard is recognized as a cumulative effect of a change in accounting principle. Any impairment loss incurred subsequent to initial adoption of SFAS No. 142 is recorded as a charge to current period earnings. SFAS No. 142 also requires that goodwill be assigned to reporting units based upon the expected benefits to be derived from synergies resulting from the business combination.
SFAS No. 142 was adopted on March 31, 2002. In accordance with the provisions of SFAS No. 142, goodwill of approximately $30.3 million previously included in the Retail segment was assigned to the Grocery Distribution segment based upon the expected benefits to be realized by each segment. Under the transitional provisions of SFAS No. 142, goodwill was tested for impairment as of March 31, 2002. Each reporting unit was tested for impairment by comparing the fair value of each reporting unit with its carrying value. Fair value was determined based on the discounted cash flows and comparable market values of the segment. As a result of the impairment testing, an
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
impairment loss was recorded to reduce the carrying value of goodwill at the Retail segment by $41.6 million (prior to provision for tax benefit of $6.2 million) to its implied fair value. Impairment was due to a number of factors, including operating performance and the impact of new competition. In accordance with SFAS No. 142, the impairment charge was reflected as a cumulative effect of a change in accounting principle in the Consolidated Statements of Operations.
Spartan Stores' adoption of SFAS No. 142 eliminated the amortization of goodwill as of the beginning of fiscal 2003.
The following table adjusts net (loss) earnings and (loss) earnings per share for the adoption of SFAS No. 142:
(In thousands, except per share data) |
|
|
|
|
|
|
|||
|
2004 |
|
2003 |
|
2002 |
|
|||
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings, as reported |
$ |
(6,698 |
) |
$ |
(122,332 |
) |
|
9,847 |
|
Add: Goodwill amortization, net of tax |
|
- |
|
|
- |
|
|
2,912 |
|
Adjusted net (loss) earnings |
$ |
(6,698 |
) |
$ |
(122,332 |
) |
$ |
12,759 |
|
|
|
|
|
|
|
|
|
|
|
Reported basic and diluted (loss) earnings per share |
$ |
(0.33 |
) |
$ |
(6.15 |
) |
$ |
0.50 |
|
Add: Goodwill amortization, net of tax |
|
- |
|
|
- |
|
|
0.15 |
|
Adjusted basic and diluted (loss) earnings per share |
$ |
(0.33 |
) |
$ |
(6.15 |
) |
$ |
0.65 |
|
Changes in the carrying amount of goodwill were as follows:
(in thousands) |
|
|
Grocery |
|
|
|
|
|
||||
Balance at March 30, 2002, net of |
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of goodwill upon adoption of SFAS No. 142 |
|
(30,300 |
) |
|
30,300 |
|
|
- |
|
|
- |
|
Impairment of goodwill recognized as a cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill recognized in operating |
|
|
|
|
- |
|
|
- |
|
|
|
|
Impairment of goodwill recognized in discontinued |
|
|
|
|
|
|
|
- |
|
|
|
|
Other |
|
100 |
|
|
- |
|
|
- |
|
|
100 |
|
Balance at March 29, 2003 |
|
38,400 |
|
|
30,300 |
|
|
43 |
|
|
68,743 |
|
Other |
|
- |
|
|
- |
|
|
(43 |
) |
|
(43 |
) |
Acquisition of retail operations |
|
3,405 |
|
|
- |
|
|
- |
|
|
3,405 |
|
Balance at March 27, 2004 |
$ |
41,805 |
|
$ |
30,300 |
|
$ |
- |
|
$ |
72,105 |
|
During the fourth quarter of fiscal 2004, Spartan Stores acquired the equipment and lease rights for two Northern Supermarket's Inc. retail stores for approximately $3.6 million. These stores were located in markets currently served by Spartan Stores. One of the acquired locations will remain closed, while Spartan Stores will transfer the operations of its existing store into the other acquired store due to its larger size and better overall location in the community. As a result, store exit costs of $3.3 million have been recorded.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During the third quarter of fiscal 2003, a valuation of the Retail segment was conducted due to significantly lower than anticipated operating results and cash flows. Fair value was determined based on the discounted cash flows and comparable market values for the segment. As a result of the impairment analysis, a loss was recorded to reduce the carrying value of goodwill at the Retail segment by $45.0 million (including $1.8 million in discontinued operations), prior to provision for tax benefit of $15.7 million, to its implied fair value.
The following table reflects the components of amortized intangible assets, included in Other, net on the Consolidated Balance Sheets:
(In thousands) |
|
March 27, 2004 |
|
March 29, 2003 |
|
||||
|
|
Gross |
|
|
|
Gross |
|
|
|
Non-compete agreements |
$ |
5,382 |
$ |
2,816 |
$ |
6,739 |
$ |
3,401 |
|
Favorable leases |
|
2,506 |
|
909 |
|
2,506 |
|
699 |
|
Total |
$ |
7,888 |
$ |
3,725 |
$ |
9,245 |
$ |
4,100 |
|
The weighted average amortization period of non-compete agreements, favorable leases, and intangible assets in total is 10.5 years, 15.0 years and 11.8 years, respectively. Amortization expense for intangible assets was $0.9 million and $1.0 million for the fiscal years 2004 and 2003, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows:
(In thousands) |
|
|
Amortization |
|
|
2005 |
$ |
643 |
|
|
2006 |
|
562 |
|
|
2007 |
|
471 |
|
|
2008 |
|
406 |
|
|
2009 |
|
399 |
|
|
|
|
|
|
|
Total |
$ |
2,481 |
|
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3
Discontinued Operations
The following table details the results of discontinued operations reported on the Consolidated Statements of Operations by operating segment:
(In thousands) |
Year Ended |
|
|||||||||
|
March 27, |
|
|
March 29, |
|
|
March 30, |
|
|||
Discontinued retail operations |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (less applicable taxes of |
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations (less applicable |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued retail operations |
|
(5,639 |
) |
|
|
(56,104 |
) |
|
|
(3,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued convenience distribution operations |
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations (less applicable |
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations (less applicable |
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued convenience distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued grocery distribution operations |
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from discontinued operations (less applicable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued real estate operations |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (less applicable taxes of |
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations (less applicable |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued real estate operations |
|
388 |
|
|
|
11,341 |
|
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued insurance operations |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (less applicable taxes of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations (less applicable taxes of |
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations (less applicable |
|
|
|
|
|
|
|
|
|
|
|
Total loss from discontinued operations |
$ |
(778 |
) |
|
$ |
(51,164 |
) |
|
$ |
(1,654 |
) |
Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all years presented, unless otherwise noted.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Retail Operations
During fiscal 2003, Spartan Stores announced the closing of 13 of our Food Town retail stores principally located in Toledo, Ohio and outlying areas with the remaining 26 Food Town stores to be sold or closed. During fiscal 2004, Spartan Stores completed the sale of 24 Food Town stores for net proceeds of $42.1 million. Stores not sold have been closed. Additionally, during the first three quarters of fiscal 2003, 15 retail stores were closed. As a result of these actions, the results of operations of the Food Town stores and other stores closed during fiscal 2003 have been classified as discontinued operations in the consolidated financial statements. Discontinued retail operations include asset impairments and exit costs of $5.8 million and $53.5 million in fiscal 2004 and fiscal 2003, respectively.
Convenience Distribution Operations
During the fourth quarter of fiscal 2004, Spartan Stores completed the sale of the operating assets of United Wholesale Grocery Company ("United"). Proceeds received on the sale of these assets of $16.9 million were used to reduce outstanding borrowings and operating liabilities and pay related transaction expenses in the fourth quarter. The asset sale included a continuing supply agreement between Spartan Stores and the new owner; however, this supply agreement does not constitute a significant continuing involvement, as defined by Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As such, the operations and discontinued cash flows of United have been eliminated from the ongoing operations of Spartan Stores.
During the first quarter of fiscal 2004 we completed the sale of substantially all the assets of L&L/Jiroch Distributing Company and J.F. Walker Company to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities.
Grocery Distribution Operations
Spartan Stores consolidated its Toledo, Ohio distribution operations into its Michigan facilities during the fourth quarter of fiscal 2003. As a result of the decision to exit the Food Town stores, the operations related to these facilities have been classified as discontinued operations in the consolidated financial statements because the operations and cash flows of these facilities have been substantially eliminated from ongoing operations. Spartan Stores continues to distribute to its The Pharm stores in Ohio from its distribution facilities in Michigan. Discontinued grocery distribution operations include asset impairments and exit costs of $0.7 million and $9.7 million in fiscal 2004 and fiscal 2003, respectively.
Real Estate Operations
In fiscal 2004 and 2003, we sold properties representing substantially all of the remaining assets and operations of our former Real Estate segment; accordingly, we have reported the results of operations of the discontinued components of the Real Estate segment and the net gain (loss) on disposal as discontinued operations. The following table summarizes the sales activity for the discontinued real estate operations for preceding three fiscal years:
|
|
Number of |
Net proceeds |
Pre-tax gain (loss) |
|
|||
|
2004 |
2 |
|
$1.6 |
|
$0.6 |
|
|
|
2003 |
11 |
|
$52.2 |
|
$18.6 |
|
|
|
2002 |
2 |
|
$8.6 |
|
($0.1 |
) |
|
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Insurance Operations
At March 27, 2004, Spartan Stores had approximately $4.1 million remaining in insurance reserves for open claim liabilities related to policies that were not ceded (transferred) to an unrelated third party. Spartan Stores will remain obligated under these policies until all claims are closed and have retained an independent third party administrator to manage these claims. Spartan Stores has not issued policies since December 31, 2001 and retains liability only for those policies issued prior to September 1, 2000. In fiscal 2003, Spartan Stores recorded a charge of $1.5 million for additional amounts required to be paid to an unrelated third party for claim liabilities previously ceded based upon updated actuarial studies reflecting a larger than originally anticipated obligation. Net loss from the insurance operations from the measurement date, January 2001, to March 27, 2004 totaled $2.8 million.
Sales and significant assets and liabilities of discontinued operations are included below:
|
|
|
|
|
Convenience |
|
|
Grocery |
|
|
|
|
|
|
|
|||||
(In thousands, except per |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2004 |
|
$ |
59,802 |
|
|
$ |
260,236 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
March 29, 2003 |
|
|
403,452 |
|
|
|
873,007 |
|
|
|
* |
|
|
|
3,372 |
|
|
|
- |
|
March 30, 2002 |
|
|
501,867 |
|
|
|
882,120 |
|
|
|
* |
|
|
|
4,567 |
|
|
|
9,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2004 |
|
$ |
(0.27 |
) |
|
$ |
0.27 |
|
|
$ |
(0.03 |
) |
|
$ |
0.02 |
|
|
$ |
(0.02 |
) |
March 29, 2003 |
|
|
(2.82 |
) |
|
|
0.19 |
|
|
|
(0.44 |
) |
|
|
0.57 |
|
|
|
(0.07 |
) |
March 30, 2002 |
|
|
(0.18 |
) |
|
|
0.19 |
|
|
|
0.00 |
|
|
|
(0.00 |
) |
|
|
(0.10 |
) |
* All sales from the discontinued Grocery Distribution operations were intercompany, and therefore, eliminated in consolidation.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
Convenience |
|
|
Grocery |
|
|
|
|
|
|
|
|||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets * |
|
$ |
1,243 |
|
|
$ |
457 |
|
|
$ |
- |
|
|
$ |
909 |
|
|
$ |
1,288 |
|
Property, net |
|
|
4,437 |
|
|
|
- |
|
|
|
226 |
|
|
|
- |
|
|
|
- |
|
Other long-term assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
Current liabilities |
|
|
5,889 |
|
|
|
1,594 |
|
|
|
227 |
|
|
|
- |
|
|
|
3,288 |
|
Long-term liabilities |
|
|
6,204 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets * |
|
$ |
62,108 |
|
|
$ |
46,483 |
|
|
$ |
1,368 |
|
|
$ |
1,570 |
|
|
$ |
6,921 |
|
Property, net |
|
|
5,599 |
|
|
|
2,828 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other long-term assets |
|
|
206 |
|
|
|
44 |
|
|
|
- |
|
|
|
7 |
|
|
|
- |
|
Current liabilities |
|
|
11,274 |
|
|
|
15,909 |
|
|
|
- |
|
|
|
185 |
|
|
|
11,216 |
|
Long-term liabilities |
|
|
10,182 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
* Includes property and equipment held for sale
Note 4
Asset Impairments and Exit Costs
Spartan Stores evaluated long-lived assets for impairment and recorded charges in fiscal 2003 of $1.5 million and in fiscal 2002 of $0.2 million in the Retail segment. The charges recorded were based on estimated market values of these assets.
The Retail segment recognized charges of $3.0 million and $0.9 million in fiscal 2003 and fiscal 2002, respectively, for all other store and office facility exit costs, which include the present value of future minimum lease payments, calculated using a risk-free interest rate, and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease recoveries, as well as severance benefits. Also in fiscal 2003, management determined that one store that had previously been designated for closure would not be closed because market conditions in the area changed.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table provides the activity of exit costs for fiscal years 2004, 2003 and 2002. Exit costs recorded in the Consolidated Balance Sheets are included in Other accrued expenses in current liabilities and Other long-term liabilities based on when the costs are expected to be paid.
(In thousands) |
|
Lease and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2001 |
$ |
5,799 |
|
|
$ |
- |
|
Provision for lease and related ancillary costs, net of estimated |
|
|
|
|
|
|
|
Payments, net of interest accretion |
|
(1,666 |
) |
|
|
- |
|
Balance at March 30, 2002 |
|
5,006 |
|
|
|
- |
|
Provision for lease and related ancillary costs, net of estimated |
|
|
|
|
|
|
|
Provision for severance |
|
|
|
|
|
4,021 |
(b) |
Payments, net of interest accretion |
|
(3,969 |
) |
|
|
(155 |
) |
Balance at March 29, 2003 |
|
18,973 |
|
|
|
3,866 |
|
Provision for lease and related ancillary costs, net of estimated |
|
|
|
|
|
|
|
Assumption of leases (See Note 2) |
|
3,347 |
|
|
|
- |
|
Provision for severance |
|
- |
|
|
|
3,299 |
(d) |
Payments, net of interest accretion |
|
(6,560 |
) |
|
|
(6,542 |
) |
Balance at March 27, 2004 |
$ |
18,338 |
|
|
$ |
623 |
|
(a) Includes $14.9 million of charges recorded in discontinued Retail operations and $0.1 million recorded in discontinued Grocery Distribution operations.
(b) Includes $3.1 million of charges recorded in discontinued Retail operations and $0.9 million recorded in discontinued Grocery Distribution operations.
(c) Includes $2.0 million of charges recorded in discontinued Retail operations and $0.6 million recorded in discontinued Grocery Distribution operations.
(d) Includes $3.1 million of charges recorded in discontinued Retail operations and $0.2 million recorded in discontinued Convenience Distribution operations.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5
Notes Payable and Long-Term Debt
Spartan Stores' long-term debt consists of the following:
|
March 27, |
|
March 29, |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured revolving credit facility, due December 2007 |
$ |
97,223 |
|
$ |
- |
|
Supplemental secured credit facility, due December 2007, |
|
|
|
|
|
|
Senior credit facility, Term Loan A |
|
- |
|
|
32,317 |
|
Senior credit facility, Term Loan B |
|
- |
|
|
106,468 |
|
Senior credit facility, Acquisition facility |
|
- |
|
|
41,294 |
|
Senior credit facility, Revolving credit facility |
|
- |
|
|
12,700 |
|
Variable Rate Promissory Notes |
|
- |
|
|
8,256 |
|
Other |
|
16,770 |
|
|
19,376 |
|
|
|
128,793 |
|
|
220,411 |
|
Less current portion |
|
4,177 |
|
|
36,594 |
|
Total long-term debt |
$ |
124,616 |
|
$ |
183,817 |
|
Effective December 23, 2003, Spartan Stores repaid its outstanding bank loans under its former senior secured facility and entered into a $170.0 million senior secured revolving credit facility and a $15.0 million supplemental secured credit facility. These two credit facilities terminate on December 23, 2007, and are secured by substantially all of Spartan Stores' and its subsidiaries assets. Spartan Stores recorded a non-cash charge of $8.8 million for unamortized bank fees associated with previous financing activities during the third quarter of fiscal 2004. Available borrowings under the credit facilities are based on stipulated advance rates on eligible assets, as defined in the credit agreements. The credit facilities contain covenants that include the maintenance of minimum EBITDA and maximum capital expenditures, as defined in the credit agreements. These covenants will not be effective as long as Spartan Stores maintains a minimum excess availability level, as defined in the credit agreements. Sp artan Stores had available borrowings of $38.9 million at March 27, 2004 and maximum availability of $48.9 million, which exceeds the minimum excess availability levels. The credit facilities provide for the issuance of letters of credit of which $12.3 million were outstanding and unused as of March 27, 2004. The senior secured revolving credit facility bears interest at the Eurodollar rate plus 3.0% or the prime rate plus 0.75% (weighted average interest rate of 4.21% at March 27, 2004). The supplemental secured credit facility bears interest at a fixed 16.0% interest rate.
Prior to refinancing its outstanding bank debt, Spartan Stores had a $385.0 million senior secured credit facility pursuant to an Amended and Restated Credit Agreement dated July 29, 2002, as amended, consisting of (1) a revolving credit facility in the amount of $60.0 million, (2) a term loan A in the amount of $100.0 million, (3) an acquisition facility in the amount of $75.0 million and (4) a term loan B in the amount of $150.0 million.
The weighted average interest rates for fiscal 2004, fiscal 2003 and fiscal 2002 were 8.77%, 9.59%, and 8.02%, respectively.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At March 27, 2004 long-term debt was due as follows:
(In thousands)
Fiscal Year |
|
|
|
|
2005 |
|
$ |
4,177 |
|
2006 |
|
|
5,757 |
|
2007 |
|
|
2,748 |
|
2008 |
|
|
112,545 |
|
2009 |
|
|
578 |
|
Thereafter |
|
|
2,988 |
|
|
|
$ |
128,793 |
|
Spartan Stores has in the past offered non-subordinated variable rate promissory notes to the public. Effective March 31, 2003 Spartan Stores suspended the promissory note program and all notes were repaid as of that date.
Note 6
Commitments and Contingencies
Spartan Stores subleases property for seven locations to customers and receives annual rental income of $1.7 million. In the event of the customer's default, Spartan would be responsible for fulfilling these lease obligations. The future payment obligations under these leases are disclosed in Note 7.
Various other lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against Spartan Stores. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of Spartan Stores.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7
Leases
Rental expense was $25.4 million, $26.4 million and $24.7 million in fiscal 2004, fiscal 2003 and fiscal 2002, respectively. Future minimum obligations under operating leases in effect at March 27, 2004 are as follows:
(In thousands)
|
|
|
Used in |
|
|
Subleased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
21,786 |
|
$ |
1,015 |
|
$ |
22,801 |
|
2006 |
|
|
19,998 |
|
|
800 |
|
|
20,798 |
|
2007 |
|
|
17,635 |
|
|
493 |
|
|
18,128 |
|
2008 |
|
|
15,596 |
|
|
305 |
|
|
15,901 |
|
2009 |
|
|
13,820 |
|
|
268 |
|
|
14,088 |
|
Thereafter |
|
|
55,734 |
|
|
1,763 |
|
|
57,497 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
144,569 |
|
$ |
4,644 |
|
$ |
149,213 |
|
One of Spartan Stores' subsidiaries leases retail store facilities to non-related entities. Of the stores leased, several are owned and others were obtained through leasing arrangements and are accounted for as operating leases. Substantially all of the leases provide for minimum and contingent rentals based upon stipulated sales volumes.
Owned assets, included in property and equipment, which are leased to others are as follows:
|
March 27, |
|
March 29, |
|
||
|
|
|
|
|
|
|
Land and improvements |
$ |
4,686 |
|
$ |
2,417 |
|
Buildings |
|
2,480 |
|
|
1,271 |
|
|
|
7,166 |
|
|
3,688 |
|
Less accumulated depreciation |
|
2,374 |
|
|
2,044 |
|
Net property |
$ |
4,792 |
|
$ |
1,644 |
|
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Future minimum rentals to be received under operating leases in effect at March 27, 2004 are as follows:
(In thousands)
|
|
|
Owned |
|
|
Leased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
1,074 |
|
$ |
1,339 |
|
$ |
2,413 |
|
2006 |
|
|
1,005 |
|
|
1,071 |
|
|
2,076 |
|
2007 |
|
|
882 |
|
|
723 |
|
|
1,605 |
|
2008 |
|
|
882 |
|
|
450 |
|
|
1,332 |
|
2009 |
|
|
228 |
|
|
287 |
|
|
515 |
|
Thereafter |
|
|
- |
|
|
1,869 |
|
|
1,869 |
|
Total |
|
$ |
4,071 |
|
$ |
5,739 |
|
$ |
9,810 |
|
Note 8
Associate Retirement Plans
Spartan Stores' retirement programs include pension plans providing non-contributory benefits, salary reduction defined contribution plans and profit-sharing plans providing contributory benefits. Substantially all of Spartan Stores' associates not covered by collective bargaining agreements are covered by either a non-contributory cash balance pension plan ("Company Plan"), a defined contribution plan or both. Associates covered by collective bargaining agreements are included in multi-employer pension plans.
Spartan Stores' Company Plan benefit formula utilizes a cash balance approach. Under the cash balance formula, credits are added annually to a participant's "account" based on a percent of the participant's compensation and years of vested service at the beginning of each calendar year. Transition credits are also added at Spartan's discretion to certain participants' accounts until the year 2007 if certain age and years-of-service requirements are met. Spartan Stores suspended the accrual of service and transition credits to the Company Plan for fiscal 2004. The suspension of these credits reduced pension expense by approximately $4.0 million in fiscal 2004. Interest credits continued to accrue. The accrual of service and transition credits to the Company Plan have been reinstated for fiscal 2005; however, effective January 1, 2004, an amendment was made to the Company Plan, reducing service credits for certain participants.. At Spartan's discretion, interest credits are also added annually to a particip ant's account based upon the participant's account balance as of the last day of the immediately preceding calendar year. Annual payments to the pension trust fund are determined in compliance with the Employee Retirement Income Security Act of 1976 ("ERISA"). Company Plan assets consist principally of common stocks and U.S. government and corporate obligations. At March 27, 2004 and March 29, 2003 Company Plan assets included shares of Spartan Stores common stock valued at $0.9 million and $0.4 million, respectively.
Spartan Stores also maintains a Supplemental Executive Retirement Plan ("SERP"), which provides nonqualified deferred compensation benefits to Spartan Stores' officers. Benefits under the SERP are paid from Spartan Stores' general assets, as there is no separate trust established to fund benefits. On March 21, 2003 Spartan Stores paid $2.9 million in SERP benefits under the provisions of the plan. In fiscal 2004, $1.4 million of this distribution was recognized as expense under settlement accounting, as described by SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits."
Matching contributions made by Spartan Stores to salary reduction defined contribution plans and contributions to profit sharing plans totaled $2.5 million, $3.1 million and $3.3 million in fiscal 2004, fiscal 2003 and fiscal 2002, respectively.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition to the plans described above, Spartan Stores participates in several multi-employer and other defined contribution plans for substantially all associates covered by collective bargaining agreements. The expense for these plans totaled approximately $4.7 million in fiscal 2004, $5.8 million in fiscal 2003 and $6.4 million in fiscal 2002.
The Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to establish funding requirements and obligations for employers participating in multi-employer plans, principally related to employer withdrawal from or termination of such plans. Separate actuarial calculations of Spartan Stores' position with respect to the multi-employer plans are not available.
Spartan Stores and certain subsidiaries provide health care benefits to retired associates who have at least 30 years of service or 10 years of service and have attained age 55, and who were not covered by collective bargaining arrangements during their employment ("covered associates"). Qualified covered associates that retired prior to March 31, 1992 receive major medical insurance with deductible and coinsurance provisions until age 65 and Medicare supplemental benefits thereafter. Covered associates retiring after April 1, 1992 are eligible for monthly postretirement health care benefits of $5 multiplied by the associate's years of service. This benefit is in the form of a credit against the monthly insurance premium. The balance of the premium is paid by the retiree.
The following tables set forth the change in benefit obligation, change in plan assets, weighted average assumptions used in actuarial calculations and components of net periodic benefit costs for Spartan Stores' pension and postretirement benefit plans. The accrued benefit costs are reported in Postretirement benefits in the Consolidated Balance Sheets. The measurement date was December 31 of each year.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands) |
Pension Benefits |
|
SERP Benefits |
|
Postretirement Benefits |
|
||||||||||||
|
March 27, |
|
March 29, |
|
March 27, |
|
March 29, |
|
March 27, |
|
March 29, |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
$ |
53,555 |
|
$ |
50,123 |
|
$ |
3,105 |
|
$ |
2,453 |
|
$ |
6,050 |
|
$ |
5,150 |
|
Service cost |
|
263 |
|
|
4,041 |
|
|
- |
|
|
93 |
|
|
232 |
|
|
198 |
|
Interest cost |
|
3,417 |
|
|
3,443 |
|
|
44 |
|
|
176 |
|
|
398 |
|
|
368 |
|
Plan amendments |
|
(5,149 |
) |
|
- |
|
|
(18 |
) |
|
- |
|
|
- |
|
|
- |
|
Actuarial (gain) loss |
|
(2,576 |
) |
|
2,380 |
|
|
359 |
|
|
438 |
|
|
(142 |
) |
|
533 |
|
Benefits paid |
|
(5,269 |
) |
|
(6,432 |
) |
|
(2,929 |
) |
|
(55 |
) |
|
(163 |
) |
|
(199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at measurement date |
$ |
44,241 |
|
$ |
53,555 |
|
$ |
561 |
|
$ |
3,105 |
|
$ |
6,375 |
|
$ |
6,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value at beginning of year |
$ |
37,615 |
|
$ |
47,978 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Actual return on plan assets |
|
7,379 |
|
|
(5,591 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Company contributions |
|
1,925 |
|
|
1,660 |
|
|
2,929 |
|
|
55 |
|
|
163 |
|
|
199 |
|
Benefits paid |
|
(5,269 |
) |
|
(6,432 |
) |
|
(2,929 |
) |
|
(55 |
) |
|
(163 |
) |
|
(199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value at measurement date |
$ |
41,650 |
|
$ |
37,615 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
$ |
(2,591 |
) |
$ |
(15,940 |
) |
$ |
(561 |
) |
$ |
(3,105 |
) |
$ |
(6,375 |
) |
$ |
(6,050 |
) |
Unrecognized net loss |
|
7,862 |
|
|
14,684 |
|
|
299 |
|
|
1,401 |
|
|
1,316 |
|
|
1,502 |
|
Unrecognized prior service cost |
|
(9,283 |
) |
|
(4,667 |
) |
|
(18 |
) |
|
4 |
|
|
(967 |
) |
|
(1,027 |
) |
Unrecognized net transition obligation |
|
11 |
|
|
15 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost at measurement date |
|
(4,001 |
) |
|
(5,908 |
) |
|
(280 |
) |
|
(1,700 |
) |
|
(6,026 |
) |
|
(5,575 |
) |
Contributions during fourth quarter |
|
- |
|
|
801 |
|
|
15 |
|
|
- |
|
|
- |
|
|
- |
|
Benefits paid |
|
- |
|
|
- |
|
|
- |
|
|
2,889 |
|
|
- |
|
|
- |
|
(Accrued) prepaid benefit cost at end of year |
$ |
(4,001 |
) |
$ |
(5,107 |
) |
$ |
(265 |
) |
$ |
1,189 |
|
$ |
(6,026 |
) |
$ |
(5,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability |
$ |
(4,001 |
) |
$ |
(8,530 |
) |
$ |
(545 |
) |
$ |
(520 |
) |
$ |
(6,026 |
) |
$ |
(5,575 |
) |
Prepaid expense |
|
- |
|
|
- |
|
|
- |
|
|
1,189 |
|
|
- |
|
|
- |
|
Intangible asset |
|
- |
|
|
- |
|
|
- |
|
|
4 |
|
|
- |
|
|
- |
|
Accumulated other comprehensive income |
|
- |
|
|
3,423 |
|
|
280 |
|
|
516 |
|
|
- |
|
|
- |
|
|
$ |
(4,001 |
) |
$ |
(5,107 |
) |
$ |
(265 |
) |
$ |
1,189 |
|
$ |
(6,026 |
) |
$ |
(5,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
6.25% |
|
|
6.75% |
|
|
6.25% |
|
|
6.75% |
|
|
6.25% |
|
|
6.75% |
|
Expected return on plan assets |
|
8.50% |
|
|
8.75% |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
Rate of compensation increase |
|
4.00% |
|
|
4.25% |
|
|
4.00% |
|
|
4.25% |
|
|
N/A |
|
|
N/A |
|
The accumulated benefit obligation for both of the defined benefit plans was $40.8 million at December 31, 2003.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Components of net periodic benefit cost
(In thousands) |
Pension Benefits |
|
SERP |
|
||||||||||||||
|
March 27, |
|
March 29, |
|
March 30, |
|
March 27, |
|
March 29, |
|
March 30, |
|
||||||
Service cost |
$ |
263 |
|
$ |
4,041 |
|
$ |
3,504 |
|
$ |
- |
|
$ |
93 |
|
$ |
90 |
|
Interest cost |
|
3,417 |
|
|
3,443 |
|
|
3,525 |
|
|
44 |
|
|
176 |
|
|
159 |
|
Expected return on plan assets |
|
(3,860 |
) |
|
(4,630 |
) |
|
(4,774 |
) |
|
- |
|
|
- |
|
|
- |
|
Net amortization and deferral |
|
(356 |
) |
|
(356 |
) |
|
(481 |
) |
|
21 |
|
|
59 |
|
|
77 |
|
Curtailment income |
|
(172 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Settlement expense |
|
726 |
|
|
- |
|
|
- |
|
|
1,444 |
|
|
- |
|
|
- |
|
Net periodic benefit cost |
$ |
18 |
|
$ |
2,498 |
|
$ |
1,774 |
|
$ |
1,509 |
|
$ |
328 |
|
$ |
326 |
|
(In thousands) |
Postretirement Benefits |
|
|
|||||||
|
March 27, |
|
March 29, |
|
March 30, |
|
|
|||
Service cost |
$ |
232 |
|
$ |
198 |
|
$ |
201 |
|
|
Interest cost |
|
398 |
|
|
368 |
|
|
352 |
|
|
Net amortization and deferral |
|
(16 |
) |
|
(35 |
) |
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
$ |
614 |
|
$ |
531 |
|
$ |
511 |
|
|
Spartan Stores has assumed an average long-term expected return on pension plan assets of 8.50% as of March 29, 2004. The expected return is based on upon the assumption that future returns will approximate the historical long-term rates of return for each asset class.
Spartan Stores has an investment policy for the pension plan with a long-term asset allocation mix designed to meet the long-term retirement obligations. The asset allocation mix is reviewed annually and, on a regular basis, actual allocations are rebalanced to approximate the prevailing targets. The following table summarizes actual allocations as of March 27, 2004, December 31, 2003 and December 31, 2002:
(In thousands) |
|
Plan Assets |
|
|||||||||
|
|
Target |
|
|
March 27, |
|
|
December 31, |
|
|
December 31, |
|
Asset Category |
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
65.0 |
% |
|
65.1 |
% |
|
73.4 |
% |
|
61.6 |
% |
Fixed income |
|
35.0 |
|
|
34.9 |
|
|
26.6 |
|
|
38.4 |
|
Total |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
The investment policy emphasizes the following key objectives: (1) maintain the purchasing power of the current assets and all future contributions by producing positive real rates of return on plan assets; (2) maximize return within reasonable and prudent levels of risk in order to minimize contributions and (3) control costs of administering the plan and managing the investments.
Spartan Stores expects to contribute $0.8 million to its defined benefit plans in fiscal 2005 to meet the minimum funding requirements.
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement plan. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5.00% for fiscal 2004, fiscal 2003 and fiscal 2002 and will remain at that level for all future years. A 1% increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation by 0.98% and the periodic postretirement benefit cost by 0.66%. A 1% decrease in the assumed health care cost trend rate would decrease the accumulated postretirement benefit obligation by 0.90% and periodic postretirement benefit cost by 0.60%.
Note 9
Taxes on Income
The income tax provision for continuing operations is summarized as follows:
(In thousands) |
March 27, |
|
|
March 29, |
|
|
March 30, |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Currently (refundable) payable |
$ |
(79 |
) |
|
$ |
(60 |
) |
|
$ |
1,508 |
|
Deferred |
|
(3,108 |
) |
|
|
(19,099 |
) |
|
|
3,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,187 |
) |
|
$ |
(19,159 |
) |
|
$ |
5,476 |
|
The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
|
|
2004 |
|
2003 |
|
2002 |
|||
|
|
|
|
|
|
|
|
|
|
Statutory income tax rate |
|
35.0 |
% |
|
35.0 |
% |
|
35.0 |
% |
Tax credits |
|
0.8 |
|
|
0.1 |
|
|
(0.2 |
) |
Research and development credit |
|
- |
|
|
- |
|
|
(4.9 |
) |
Other |
|
(0.8 |
) |
|
(0.2 |
) |
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
35.0 |
% |
|
34.9 |
% |
|
32.3 |
% |
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred tax assets and liabilities resulting from temporary differences as of March 27, 2004 and March 29, 2003 are as follows:
(In thousands) |
|
|
|
|
||
|
2004 |
|
2003 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
Employee benefits |
$ |
8,244 |
|
$ |
10,721 |
|
Accounts receivable |
|
1,155 |
|
|
1,263 |
|
Goodwill |
|
7,438 |
|
|
12,467 |
|
Net operating loss |
|
14,481 |
|
|
3,884 |
|
Asset impairment and closed store reserves |
|
8,973 |
|
|
21,021 |
|
All other |
|
2,756 |
|
|
3,016 |
|
Total deferred tax assets |
|
43,047 |
|
|
52,372 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
Depreciation |
|
7,157 |
|
|
15,015 |
|
Inventory |
|
1,532 |
|
|
4,948 |
|
All other |
|
2,858 |
|
|
2,730 |
|
Total deferred tax liabilities |
|
11,547 |
|
|
22,693 |
|
|
|
|
|
|
|
|
Net deferred tax asset |
$ |
31,500 |
|
$ |
29,679 |
|
Spartan Stores has a net operating loss carryforward of $41.4 million, of which $11.1 million expires in fiscal year 2023 and $30.3 million expires in fiscal 2024.
Note 10
Shareholders' Equity
Spartan Stores has a shareholder-approved stock incentive plan covering 2,000,000 shares of Spartan Stores common stock. The plan provides for the granting of incentive stock options as well as non-qualified stock options, restricted stock and stock awards to directors, officers and other key associates.
Spartan Stores accounts for stock option grants in accordance with SFAS No. 123, and as allowed by this statement recognizes expense using the intrinsic value method prescribed by APB Opinion No. 25 and related Interpretations. Accordingly, no compensation cost has been recognized for stock option grants since the options have exercise prices equal to the fair market value at the date of grant. Options must be exercised within ten years of the date of grant.
Spartan Stores awarded 148,399 shares of restricted stock during fiscal 2004. These shares generally vest over a three-year period and are subject to certain transfer restrictions and forfeiture prior to vesting. Deferred stock-based compensation, representing the fair value of the stock at the measurement date of the award, is amortized to compensation expense over the vesting period. No restricted stock awards were issued in fiscal 2003 or fiscal 2002.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The authorization to grant options and restricted stock under the plan terminates on May 8, 2011. The following table also includes outstanding options granted under the 1991 Stock Option Plan. As of March 27, 2004, 723,197 shares remained unissued under the plan.
|
|
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at April 1, 2001 |
|
369,088 |
|
|
$ |
7.58 |
|
|
|
|
Granted |
|
628,500 |
|
|
|
13.73 |
|
$ |
6.29 |
|
Cancelled |
|
(97,834 |
) |
|
|
11.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 30, 2002 |
|
899,754 |
|
|
$ |
11.47 |
|
|
|
|
Granted |
|
753,784 |
|
|
|
6.60 |
|
$ |
3.50 |
|
Exercised |
|
(16,666 |
) |
|
|
7.44 |
|
|
|
|
Cancelled |
|
(217,633 |
) |
|
|
10.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 29, 2003 |
|
1,419,239 |
|
|
$ |
9.08 |
|
|
|
|
Granted |
|
381,500 |
|
|
|
2.44 |
|
$ |
1.20 |
|
Cancelled |
|
(370,399 |
) |
|
|
8.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 27, 2004 |
|
1,430,340 |
|
|
$ |
7.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 27, 2004 |
|
482,295 |
|
|
$ |
9.58 |
|
|
|
|
The following table sets forth options outstanding at March 27, 2004 by exercise price and remaining contractual life:
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8.46 - 9.96 |
|
4,008 |
|
|
3.2 - 5.1 |
|
|
|
2.68 - 16.57 |
|
896,498 |
|
|
6.1 - 8.5 |
|
|
|
1.75 - 5.65 |
|
529,834 |
|
|
8.6 - 9.7 |
|
|
$ |
1.75 - 16.57 |
|
1,430,340 |
|
|
8.06 |
|
Spartan Stores has a stock bonus plan covering 300,000 shares of Spartan Stores common stock. Under the provisions of this plan, officers and certain key associates of Spartan Stores may elect to receive a portion of their annual bonus in common stock rather than cash and will be granted additional shares of common stock worth 30% of the portion of the bonus they elect to receive in stock. Stock issued under the stock bonus plan is accounted for in accordance with APB Opinion No. 25. Compensation expense is recorded based upon the market price of the stock as of the measurement date. At March 27, 2004, 300,000 shares remained unissued under the plan.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Spartan Stores has an associate stock purchase plan covering 700,000 shares of Spartan Stores common stock. The plan provides that associates of Spartan Stores and its subsidiaries may purchase shares at 85% of the fair market value. At March 27, 2004, 199,823 shares had been issued under the plan.
Spartan Stores has a directors' stock purchase plan covering 25,000 shares of Spartan Stores common stock. The plan provides that directors of Spartan Stores may elect to receive at least 25% and up to 100% of their director's fees in the form of Spartan Stores common stock. At March 27, 2004, no shares remain available for issuance under this plan and use of the plan has been discontinued.
Spartan Stores had a long-term incentive plan covering 668,000 shares of Spartan Stores common stock. No amounts have been accrued and no shares have been or will be issued under this plan, as the plan was terminated.
Spartan Stores' restated articles of incorporation provide that the board of directors may at any time, and from time to time, provide for the issuance of up to 10 million shares of preferred stock in one or more series, each with such designations as determined by the board of directors. At March 27, 2004, there were no shares of preferred stock outstanding.
Note 11
Operating Segment Information
Using the management approach as required by SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," Spartan Stores' operating segments are identified by products sold and customer profile and include the Retail and Grocery Distribution segments.
The operations of the Insurance, Real Estate and Convenience Distribution segments and a portion of the Retail segment are classified as discontinued operations. Residual real estate business operations are considered to be immaterial under the criteria in SFAS No. 131 and have not been separately classified. Those operations have been recorded in the Grocery Distribution segment. See Note 3 for further discussion. Segment information for earlier periods has been restated to reflect changes in the composition of the reportable segments.
The Retail segment operates supermarkets and deep-discount food drug stores in Michigan and Ohio that typically offer dry grocery, produce, dairy products, meat, floral, seafood, health and beauty care, cosmetics, delicatessen and bakery goods. Larger retail stores also typically offer pharmacy services.
Spartan Stores' Grocery Distribution segment supplies Spartan Stores' retail stores and independent retail customers with dry grocery, produce, dairy products, meat, beverages, frozen food, seafood, floral, general merchandise, pharmacy and health and beauty care items. To supply its wholesale customers, Spartan Stores operates a fleet of tractors, conventional trailers and refrigerated trailers, substantially all of which are leased by Spartan Stores.
Identifiable assets represent total assets directly associated with the various operating segments. Eliminations in assets identified to segments include intercompany receivables, payables and investments.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables set forth information about the Company by operating segment:
(In thousands) |
|
|
|
Grocery |
|
|
|
|
|||
Year Ended March 27, 2004 |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
922,639 |
|
|
$ |
1,132,338 |
|
|
$ |
2,054,977 |
|
Depreciation and amortization |
|
17,196 |
|
|
|
8,681 |
|
|
|
25,877 |
|
Operating (loss) earnings |
|
(5,802 |
) |
|
|
18,364 |
|
|
|
12,562 |
|
Capital expenditures |
|
7,567 |
|
|
|
3,972 |
|
|
|
11,539 |
|
Year Ended March 29, 2003 |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
880,494 |
|
|
$ |
1,095,183 |
|
|
$ |
1,975,677 |
|
Provision for asset impairments and exit costs |
|
47,711 |
|
|
|
- |
|
|
|
47,711 |
|
Depreciation and amortization |
|
16,172 |
|
|
|
10,883 |
|
|
|
27,055 |
|
Operating (loss) earnings |
|
(51,745 |
) |
|
|
13,387 |
|
|
|
(38,358 |
) |
Capital expenditures |
|
8,341 |
|
|
|
3,763 |
|
|
|
12,104 |
|
Year Ended March 30, 2002 |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
931,973 |
|
|
|
1,180,626 |
|
|
|
2,112,599 |
|
Provision for asset impairments and exit costs |
|
1,030 |
|
|
|
- |
|
|
|
1,030 |
|
Depreciation and amortization |
|
18,066 |
|
|
|
12,525 |
|
|
|
30,591 |
|
Operating earnings |
|
17,604 |
|
|
|
13,689 |
|
|
|
31,293 |
|
Capital expenditures |
|
9,815 |
|
|
|
7,683 |
|
|
|
17,498 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
Retail |
$ |
181,125 |
|
|
$ |
190,428 |
|
|
$ |
286,138 |
|
Grocery Distribution |
|
202,825 |
|
|
|
238,744 |
|
|
|
168,195 |
|
Discontinued operations - Retail |
|
5,680 |
|
|
|
67,913 |
|
|
|
165,574 |
|
Discontinued operations - Convenience Distribution |
|
457 |
|
|
|
49,355 |
|
|
|
56,857 |
|
Discontinued operations - Grocery Distribution |
|
226 |
|
|
|
1,368 |
|
|
|
31,445 |
|
Discontinued operations - Real Estate |
|
910 |
|
|
|
1,577 |
|
|
|
36,076 |
|
Discontinued operations - Insurance |
|
1,288 |
|
|
|
6,921 |
|
|
|
16,306 |
|
Total |
$ |
392,511 |
|
|
$ |
556,306 |
|
|
$ |
760,591 |
|
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 12
Quarterly Financial Information (unaudited)
Earnings (loss) per share amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year. Stock sales prices are based on transactions reported on The NASDAQ Stock Market. The following financial information has been restated to exclude discontinued operations information.
(In thousands, except per share data) |
|
|
|||||||||||||
Fiscal 2004 |
Full Year |
|
4th Quarter |
|
3rd Quarter |
|
2nd Quarter |
|
1st Quarter |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
2,054,977 |
|
|
456,918 |
|
|
644,119 |
|
|
491,371 |
|
|
462,569 |
|
Gross margin |
|
378,616 |
|
|
83,462 |
|
|
116,203 |
|
|
93,380 |
|
|
85,571 |
|
(Loss) earnings from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of taxes |
|
(778 |
) |
|
3,215 |
|
|
(8 |
) |
|
(958 |
) |
|
(3,027 |
) |
Net (loss) earnings |
|
(6,698 |
) |
|
1,724 |
|
|
(4,077 |
) |
|
1,772 |
|
|
(6,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share - Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sale price - High |
|
6.07 |
|
|
6.07 |
|
|
5.96 |
|
|
3.85 |
|
|
2.90 |
|
Common stock sale price - Low |
|
2.00 |
|
|
4.25 |
|
|
2.61 |
|
|
2.40 |
|
|
2.00 |
|
(In thousands, except per share data) |
|
|
|||||||||||||
Fiscal 2003 |
Full Year |
|
4th Quarter |
|
3rd Quarter |
|
2nd Quarter |
|
1st Quarter |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
1,975,677 |
|
|
437,980 |
|
|
612,909 |
|
|
473,313 |
|
|
451,475 |
|
Gross margin |
|
366,795 |
|
|
79,322 |
|
|
109,829 |
|
|
90,632 |
|
|
87,012 |
|
Provision for asset impairments and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of taxes |
|
(51,164 |
) |
|
(13,730 |
) |
|
(22,056 |
) |
|
(4,619 |
) |
|
(10,759 |
) |
Cumulative effect of a change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
(122,332 |
) |
|
(20,917 |
) |
|
(57,075 |
) |
|
(587 |
) |
|
(43,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sale price - High |
|
8.51 |
|
|
3.89 |
|
|
3.25 |
|
|
4.80 |
|
|
8.51 |
|
Common stock sale price - Low |
|
1.21 |
|
|
1.52 |
|
|
1.21 |
|
|
2.80 |
|
|
3.74 |
|
Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
Item 9A. |
Controls and Procedures |
An evaluation of the effectiveness of the design and operation of Spartan Stores' disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of March 27, 2004 (the "Evaluation Date"). This evaluation was performed under the supervision and with the participation of Spartan Stores' management, including its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). As of the Evaluation Date, Spartan Stores' management, including the CEO and CFO, concluded that Spartan Stores' disclosure controls and procedures were effectively designed and operated to cause material information relating to Spartan Stores (including its consolidated subsidiaries) required to be included in Spartan Stores' periodic filings with the Securities and Exchange Commission to be accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. During the last fisca l quarter, there were no significant changes in Spartan Stores' internal controls or in other factors that has affected or is reasonably likely to material affect Spartan Stores' internal controls.
PART III
Item 10. |
Directors and Executive Officers of the Registrant |
The information required by this item is incorporated herein by reference from the sections entitled "The Board of Directors," "Spartan Stores' Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held August 11, 2004.
Item 11. |
Executive Compensation |
The information required by this item is incorporated herein by reference from the sections entitled "Executive Compensation" and "Compensation of Directors" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held August 11, 2004.
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item is incorporated herein by reference from the sections entitled "Ownership of Spartan Stores Stock" and "Equity Compensation Plan Information" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held August 11, 2004.
Item 13. |
Certain Relationships and Related Transactions |
The information required by this item is incorporated herein by reference from the section entitled "Certain Relationships and Related Transactions" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held August 11, 2004.
Item 14. |
Principal Accountant Fees and Services |
The information required by this item is incorporated herein by reference from the section entitled "Certain Relationships and Related Transactions" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held August 11, 2004.
PART IV
Item 15. |
Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
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(a) |
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The following documents are filed as part of this Report: |
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1. |
Financial Statements. |
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Report of Independent Registered Public Accounting Firm of Deloitte & Touche LLP dated April 30, 2004 |
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Consolidated Balance Sheets at March 27, 2004 and March 29, 2003 |
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Consolidated Statements of Operations for each of the three years in the period ended March 27, 2004 |
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Consolidated Statements of Shareholders' Equity for each of the three years in the period ended March 27, 2004 |
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Consolidated Statements of Cash Flows for each of the three years in the period ended March 27, 2004 |
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Notes to Consolidated Financial Statements |
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2. |
Financial Statement Schedules. |
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Schedule |
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Document |
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II |
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Valuation and Qualifying Accounts |
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3. |
Exhibits. |
Exhibit |
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2.1 |
Asset Purchase Agreement dated May 7, 2003, by and among The H.T. Hackney Co., Spartan Stores, Inc., L&L/Jiroch Distributing Company and J.F. Walker Company, Inc. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed June 24, 2003. Here incorporated by reference. |
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2.2 |
Contract of Sale dated as of May 23, 2003, between Seaway Food Town, Inc., Gruber's Food Town, Inc., Buckeye Real Estate Management Co., Gruber's Real Estate, LLC and The Kroger Co. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the year ended March 29, 2003. Here incorporated by reference. |
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2.3 |
Asset Purchase Agreement dated October 2, 2003, as amended by Amendments One, Two, Three and Four, by and among United Wholesale Grocery Company, United Distribution Group, L.L.C. and United Properties Group, L.L.C. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended January 3, 2004. Here incorporated by reference. |
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3.1 |
Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-effective Amendment No. 1 to Registration Statement on Form S-4 filed June 5, 2000. Here incorporated by reference. |
Exhibit |
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3.2 |
Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 13, 2003. Here incorporated by reference. |
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4.1 |
Articles IV, V, VIII, IX, X, XII and XIII of the Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-effective Amendment No. 1 to Registration Statement on Form S-4 filed June 5, 2000. Here incorporated by reference. |
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4.2 |
Articles II, III and X of the Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 13, 2003. Here incorporated by reference. |
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10.1 |
Amended and Restated Lease, dated as of January 26, 2000, between Plymouth Investors Limited Liability Company and Spartan Stores Distribution, LLC. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 31, 2001. Here incorporated by reference. |
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10.2* |
Spartan Stores, Inc. 1991 Stock Option Plan, as amended. Previously filed as an exhibit to Spartan Stores' Registration Statement on Form S-3 filed January 12, 2001. Here incorporated by reference. |
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10.3* |
Spartan Stores, Inc. Supplemental Executive Retirement Plan. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 27, 1999. Here incorporated by reference. |
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10.4* |
Spartan Stores, Inc. 2000 Annual Incentive Plan. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 31, 2001. Here incorporated by reference. |
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10.5* |
Spartan Stores, Inc. 2001 Stock Incentive Plan. Previously filed as Appendix B to Spartan Stores' Definitive Proxy Statement for its 2001 Annual Meeting of Shareholders, filed on June 8, 2001. Here incorporated by reference. |
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10.6* |
Spartan Stores, Inc. 2001 Stock Bonus Plan. Previously filed as Appendix C to Spartan Stores' Definitive Proxy Statement for its 2001 Annual Meeting of Shareholders, filed on June 8, 2001. Here incorporated by reference. |
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10.7* |
Spartan Stores, Inc. 2001 Associate Stock Purchase Plan, as amended. Previously filed as Appendix A to Spartan Stores' Definitive Proxy Statement on Schedule 14A, filed on July 2, 2003. Here incorporated by reference. |
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10.8* |
Spartan Stores, Inc. Supplemental Executive Savings Plan. Previously filed as an exhibit to Spartan Stores Form S-8 Registration Statement filed on December 21, 2001. Here incorporated by reference. |
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10.9* |
Spartan Stores, Inc. Directors' Stock Purchase Plan. Previously filed as an exhibit to Spartan Stores' Registration Statement on Form S-3 filed January 12, 2001. Here incorporated by reference. |
Exhibit |
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10.10 |
Loan and Security Agreement dated December 23, 2003, by and among Spartan Stores, Inc. and certain subsidiaries as borrowers, Congress Financial Corporation (Central) as agent, the lenders named therein as lenders, and joined in by certain subsidiaries of Spartan Stores, Inc. as guarantors. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended January 3, 2004. Here incorporated by reference. |
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10.11 |
Loan Agreement dated December 23, 2003, between Spartan Stores, Inc. and Kimco Central Spartan LLC, and related letter agreement dated December 23, 2003, between Spartan Stores, Inc. and Kimco Central Spartan LLC. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended January 3, 2004. Here incorporated by reference. |
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10.12* |
Form of Employment Agreements between Spartan Stores, Inc. and certain executive officers. |
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10.13* |
Employment Agreement dated March 3, 2003 between Spartan Stores, Inc. and Craig C. Sturken. |
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10.14* |
Employment Agreement dated March 17, 2003 between Spartan Stores, Inc. and Dennis Eidson. |
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10.15* |
Form of Executive Severance Agreement between Spartan Stores, Inc. and certain executive officers. |
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10.16* |
Executive Severance Agreement dated March 3, 2003 between Spartan Stores, Inc. and Craig C. Sturken. |
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10.17* |
Executive Severance Agreement dated March 17, 2003 between Spartan Stores, Inc. and Dennis Eidson. |
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10.18* |
Supplemental Savings Plan for Directors. Previously filed as an exhibit to Spartan Stores' Form S-8 registration statement, filed December 5, 2003. Here incorporated by reference. |
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10.19 |
Purchase Agreement dated as of June 2, 2003 between Market Development Corporation and New Plan Excel Realty Trust, Inc. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 29, 2003. Here incorporated by reference. |
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21 |
Subsidiaries of Spartan Stores, Inc. |
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23 |
Independent Registered Public Accounting Firm's Consent and Report on Schedule. |
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24 |
Powers of Attorney. |
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31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
Certification pursuant to 18 U.S.C. § 1350. This exhibit is furnished, not filed, in accordance with SEC Release Number 33-8212. |
* These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form 10-K.
(b) Spartan Stores furnished the following Forms 8-K during the quarter ended March 27, 2004.
Date of Report |
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Filing Date |
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Item(s) Reported |
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February 4, 2004 |
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February 4, 2004 |
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Under Items 7 and 12, this Form 8-K included a press release that reported Spartan Stores' financial results for the third quarter of fiscal 2004, which ended January 3, 2004. The press release included summary consolidated financial data for the quarters ended January 3, 2004 and January 4, 2003 and the year-to-date periods ended January 3, 2004 and January 4, 2003. The press release also contained balance sheet information as of January 3, 2004 and March 29, 2003. |
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February 10, 2004 |
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February 10, 2004 |
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Under Items 2 and 7, this Form 8-K reported the consummation of the transactions contemplated by the Asset Purchase Agreement dated October 2, 2003, by and among United Distribution Group, L.L.C. and United Properties Group, L.L.C., as buyers, and United Wholesale Grocery Company (a wholly owned subsidiary of Spartan Stores). The Form 8-K also included unaudited pro forma condensed consolidated balance sheets as of March 29, 2003 and January 3, 2004, unaudited pro forma condensed consolidated statements of operations for the year ended March 29, 2003 and the three quarters (40 weeks) ended January 3, 2004, and notes thereto. |
All of the foregoing Forms 8-K were furnished pursuant to Regulation FD and are considered to have been "furnished" but not "filed" with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Spartan Stores, Inc. (the Registrant) has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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SPARTAN STORES, INC. |
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Date: |
May 26, 2004 |
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By |
/s/ Craig C. Sturken |
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Craig C. Sturken |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Spartan Stores, Inc. and in the capacities and on the dates indicated.
May 26, 2004 |
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By |
/s/ M. Shân Atkins* |
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M. Shân Atkins |
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May 26, 2004 |
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By |
/s/ Dr. Frank M. Gambino* |
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Dr. Frank M. Gambino |
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May 26, 2004 |
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By |
/s/ Gregory P. Josefowicz* |
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Gregory P. Josefowicz |
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May 26, 2004 |
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By |
/s/ Elizabeth A. Nickels* |
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Elizabeth A. Nickels |
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Director |
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May 26, 2004 |
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By |
/s/ Timothy J. O'Donovan* |
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Timothy J. O'Donovan |
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May 26, 2004 |
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By |
/s/ Kenneth T. Stevens* |
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Kenneth T. Stevens |
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May 26, 2004 |
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By |
/s/ Craig C. Sturken |
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Craig C. Sturken |
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May 26, 2004 |
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By |
/s/ James F. Wright* |
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James F. Wright |
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May 26, 2004 |
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By |
/s/ David M. Staples |
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David M. Staples |
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May 26, 2004 |
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*By |
/s/ David M. Staples |
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David M. Staples |
SCHEDULE II
SPARTAN STORES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
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COLUMN A |
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COLUMN B |
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COLUMN C |
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COLUMN D |
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COLUMN E |
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BALANCE |
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CHARGED |
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BALANCE |
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ALLOWANCE FOR |
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Year ended 3/30/02 |
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$ |
2,760 |
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$ |
2,774 |
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$ |
1,403 |
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$ |
4,131 |
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Year ended 3/29/03 |
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$ |
4,131 |
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$ |
6,502 |
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$ |
4,284 |
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$ |
6,349 |
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Year ended 3/27/04 |
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$ |
6,349 |
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$ |
2,090 |
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$ |
3,671 |
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$ |
4,768 |
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INSURANCE RESERVES: |
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Year ended 3/30/02 |
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$ |
20,840 |
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$ |
23,825 |
$ |
27,402 |
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$ |
17,263 |
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Year ended 3/29/03 |
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$ |
17,263 |
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$ |
5,528 |
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$ |
8,008 |
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$ |
14,783 |
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Year ended 3/27/04 |
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$ |
14,783 |
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$ |
5,062 |
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$ |
7,007 |
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$ |
12,838 |
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(A) |
Bad debt expense of $919, $2,699 and $1,440 and insurance expense of $0, $762 and $6,765 is recorded in discontinued operations in fiscal 2004, 2003 and fiscal 2002, respectively. |
(B) |
Represents the write-off of uncollectible accounts as it relates to the allowance for doubtful accounts and payments made as it relates to insurance reserves. |
EXHIBIT INDEX
Exhibit |
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2.1 |
Asset Purchase Agreement dated May 7, 2003, by and among The H.T. Hackney Co., Spartan Stores, Inc., L&L/Jiroch Distributing Company and J.F. Walker Company, Inc. Previously filed as an exhibit to Spartan Stores' Current Report on Form 8-K, filed June 24, 2003. Here incorporated by reference. |
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2.2 |
Contract of Sale dated as of May 23, 2003, between Seaway Food Town, Inc., Gruber's Food Town, Inc., Buckeye Real Estate Management Co., Gruber's Real Estate, LLC and The Kroger Co. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the year ended March 29, 2003. Here incorporated by reference. |
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2.3 |
Asset Purchase Agreement dated October 2, 2003, as amended by Amendments One, Two, Three and Four, by and among United Wholesale Grocery Company, United Distribution Group, L.L.C. and United Properties Group, L.L.C. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended January 3, 2004. Here incorporated by reference. |
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3.1 |
Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-effective Amendment No. 1 to Registration Statement on Form S-4 filed June 5, 2000. Here incorporated by reference. |
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3.2 |
Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 13, 2003. Here incorporated by reference. |
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4.1 |
Articles IV, V, VIII, IX, X, XII and XIII of the Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-effective Amendment No. 1 to Registration Statement on Form S-4 filed June 5, 2000. Here incorporated by reference. |
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4.2 |
Articles II, III and X of the Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 13, 2003. Here incorporated by reference. |
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10.1 |
Amended and Restated Lease, dated as of January 26, 2000, between Plymouth Investors Limited Liability Company and Spartan Stores Distribution, LLC. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 31, 2001. Here incorporated by reference. |
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10.2* |
Spartan Stores, Inc. 1991 Stock Option Plan, as amended. Previously filed as an exhibit to Spartan Stores' Registration Statement on Form S-3 filed January 12, 2001. Here incorporated by reference. |
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10.3* |
Spartan Stores, Inc. Supplemental Executive Retirement Plan. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 27, 1999. Here incorporated by reference. |
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10.4* |
Spartan Stores, Inc. 2000 Annual Incentive Plan. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 31, 2001. Here incorporated by reference. |
Exhibit |
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10.5* |
Spartan Stores, Inc. 2001 Stock Incentive Plan. Previously filed as Appendix B to Spartan Stores' Definitive Proxy Statement for its 2001 Annual Meeting of Shareholders, filed on June 8, 2001. Here incorporated by reference. |
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10.6* |
Spartan Stores, Inc. 2001 Stock Bonus Plan. Previously filed as Appendix C to Spartan Stores' Definitive Proxy Statement for its 2001 Annual Meeting of Shareholders, filed on June 8, 2001. Here incorporated by reference. |
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10.7* |
Spartan Stores, Inc. 2001 Associate Stock Purchase Plan, as amended. Previously filed as Appendix A to Spartan Stores' Definitive Proxy Statement on Schedule 14A, filed on July 2, 2003. Here incorporated by reference. |
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10.8* |
Spartan Stores, Inc. Supplemental Executive Savings Plan. Previously filed as an exhibit to Spartan Stores Form S-8 Registration Statement filed on December 21, 2001. Here incorporated by reference. |
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10.9* |
Spartan Stores, Inc. Directors' Stock Purchase Plan. Previously filed as an exhibit to Spartan Stores' Registration Statement on Form S-3 filed January 12, 2001. Here incorporated by reference. |
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10.10 |
Loan and Security Agreement dated December 23, 2003, by and among Spartan Stores, Inc. and certain subsidiaries as borrowers, Congress Financial Corporation (Central) as agent, the lenders named therein as lenders, and joined in by certain subsidiaries of Spartan Stores, Inc. as guarantors. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended January 3, 2004. Here incorporated by reference. |
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10.11 |
Loan Agreement dated December 23, 2003, between Spartan Stores, Inc. and Kimco Central Spartan LLC, and related letter agreement dated December 23, 2003, between Spartan Stores, Inc. and Kimco Central Spartan LLC. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended January 3, 2004. Here incorporated by reference. |
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10.12* |
Form of Employment Agreements between Spartan Stores, Inc. and certain executive officers. |
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10.13* |
Employment Agreement dated March 3, 2003 between Spartan Stores, Inc. and Craig C. Sturken. |
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10.14* |
Employment Agreement dated March 17, 2003 between Spartan Stores, Inc. and Dennis Eidson. |
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10.15* |
Form of Executive Severance Agreement between Spartan Stores, Inc. and certain executive officers. |
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10.16* |
Executive Severance Agreement dated March 3, 2003 between Spartan Stores, Inc. and Craig C. Sturken. |
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10.17* |
Executive Severance Agreement dated March 17, 2003 between Spartan Stores, Inc. and Dennis Eidson. |
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10.18* |
Supplemental Savings Plan for Directors. Previously filed as an exhibit to Spartan Stores' Form S-8 registration statement, filed December 5, 2003. Here incorporated by reference. |
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10.19 |
Purchase Agreement dated as of June 2, 2003 between Market Development Corporation and New Plan Excel Realty Trust, Inc. Previously filed as an exhibit to Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 29, 2003. Here incorporated by reference. |
Exhibit |
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21 |
Subsidiaries of Spartan Stores, Inc. |
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23 |
Independent Registered Public Accounting Firm's Consent and Report on Schedule. |
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24 |
Powers of Attorney. |
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31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
Certification pursuant to 18 U.S.C. § 1350. This exhibit is furnished, not filed, in accordance with SEC Release Number 33-8212. |
* These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form 10-K.
EXHIBIT 10.12
Schedule to Notes in Form of Employment Agreement
Note 1 |
Note 2 |
Note 3 |
Note 4 |
Note 5 |
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made by SPARTAN STORES, INC., a Michigan corporation (the "Company"), and [Note 1] ("Executive"). The parties agree as follows:
1. Effective Date and Term. This Agreement will take effect as of [Note 2] , 2001, and will remain in effect during Executive's employment with the Company and thereafter as to those provisions that expressly state that they will remain in effect after termination of the Executive's employment.
2. Employment. Executive will serve as the Company's [Note 3] , or in other positions as an officer of Spartan Stores, Inc. ("Officer") and such additional positions with the Company or an Affiliate as may be assigned by the Company (the "Employment"). Executive will perform the duties assigned from time to time to Executive's position. The Employment will be full time and Executive's entire business time and efforts will be devoted to the Employment, except as otherwise provided by written Company policy. Executive agrees to comply with Company policies, including but not limited to any applicable Company policy requiring Executive to own shares of common stock in the Company. As used in this Agreement, the term "Affiliate" includes any organization controlling, controlled by or under common control with the Company.
3. Term of Employment. The term of the Employment will be indefinite and will continue until terminated pursuant to this Agreement.
4. Compensation. Executive will be compensated during the Employment as follows:
(a) Salary. The Executive's salary as of the effective date of this Agreement is $ [Note 4] per year (or a pro rated weekly amount for any partial year), subject to normal payroll deductions and payable in accordance with the Company's normal payroll practices. Executive's salary will be reviewed annually by the Company and subject to the limitations in Section 5(b)(i) may be adjusted to reflect Company determinations of Executive's performance, Company performance, or business or economic conditions.
(b) Bonus. Executive will be eligible to participate in any bonus programs designated by the Company from time to time for Officers occupying positions at the same level as Executive's position, in accordance with the terms of such programs, which are subject to change from time to time in the Company's discretion.
(c) Benefits. Executive will be eligible to participate in fringe benefit programs covering the Company's salaried employees as a group, and in any programs applicable under Company policy to Officers occupying positions at the same level as Executive's position. The terms of applicable insurance policies and benefit plans in effect from time to time will govern with regard to specific issues of coverage and benefit eligibility. All benefit programs are subject to change from time to time in the Company's discretion.
(d) Business Expenses. The Company will reimburse Executive for reasonable ordinary and necessary business expenses that are specifically authorized or authorized by Company policy, subject to Executive's prompt submission of proper documentation for tax and accounting purposes.
5. Termination of Employment.
(a) Termination Without Severance Pay. Executive shall not be entitled to any further compensation from the Company or any Affiliate after termination of the Employment as permitted by this Section 5(a), except (A) unpaid salary installments through the end of the week in which the Employment terminates, and (B) any vested benefits accrued before the termination of Employment under the terms of any written Company policy or benefit program.
i. Death. The Employment will terminate automatically upon Executive's death.
ii. Disability. If Executive is unable to perform Executive's duties under this Agreement due to physical or mental disability for a continuous period of one hundred eighty days (180) days or longer and the Executive is eligible for benefits under the Company's long-term disability insurance policy, the Company
may terminate the Employment under this subsection (a)(ii). If the Company terminates the Employment as the result of Executive's inability to perform Executive's duties for less than one-hundred eighty (180) days due to a disability, other than as provided above, the termination of Employment will be deemed to be pursuant to subsection 5(b)(ii) below.
iii. Termination by Company for Cause. The Company may terminate the Employment for "Cause", defined as Executive's: (A) breach of any provision of Sections 7, 8, or 9 of this Agreement; (B) willful continued failure to perform or willful poor performance of duties (other than due to disability) after warning and reasonable opportunity to meet reasonable required performance standards; (C) gross negligence causing or placing the Company at risk of significant damage or harm; (D) misappropriation of or intentional damage to Company property; (E) conviction of a felony (other than negligent vehicular homicide); or (F) intentional act or omission that Executive knows or should know is significantly detrimental to the interests of the Company.
If the Company becomes aware after termination of the Employment other than for Cause that Executive engaged before the termination of Employment in willful misconduct constituting Cause, the Company may recharacterize Executive's termination as having been for Cause.
iv. Discretionary Termination by Executive. Executive may terminate the Employment at will, with at least thirty (30) days advance written notice. If Executive gives such notice of termination, the Company may (but need not) relieve Executive of some or all of Executive's responsibilities for part or all of such notice period, provided that Executive's pay and benefits are continued for the lesser of thirty (30) days or the remaining period of the Employment.
(b) Termination With Severance Pay. Executive shall not be entitled to any further compensation from the Company or any Affiliate after termination of the Employment as permitted by this Section 5(b), except (A) unpaid salary installments through the end of the week in which the Employment terminates, (B) any vested benefits accrued before the termination of Employment under the terms of any written Company policy or benefit program, (C) any Severance Pay to which Executive is entitled under this subsection 5(b).
i. Termination by Executive for Good Reason. Executive may terminate the Employment for "Good Reason" if and only if (A) the Company materially breaches the Company's obligations to Executive under this Agreement, or reduces the Executive's salary other than an economic or business motivated reduction accompanied by proportionate reductions in the salaries of all other Officers, (B) Executive notifies the Company's Chief Executive Officer in writing, within thirty (30) days after the act or omission in question, asserting that the act or omission in question constitutes Good Reason and explaining why the act or omission constitutes a material breach, (C) the Company fails, within
fifteen (15) days after the notification, to take all reasonable steps to cure the breach, and (D) Executive resigns by written notice within thirty (30) days after expiration of the fifteen (15) day period under subsection (b)(i)(C). If Executive terminates the Employment for Good Reason, Executive will be entitled to Severance Pay as provided in and subject to Section 6. Executive's failure to object to a material breach as provided above will not waive Executive's right to resign with Good Reason after following the above procedure with regard to any subsequent material breach.
ii. Discretionary Termination by Company. The Company may terminate the Employment at will, but if the Company does so Executive will be entitled to Severance Pay as provided in and subject to Section 6. Any termination of Executive's Employment by the Company under subsection 5(a) that is found not to meet the standards of such subsection will be considered to have been a termination under this subsection Section 5(f).
6. Severance Pay. The Company will pay and provide the Executive with the payments and benefit continuation provided in this Section 6 ("Severance Pay") if the Executive's Employment is terminated as provided in Section 5(b) above.
(a) Amount and Duration of Severance Pay. Subject to the other provisions of this Section, Severance Pay will consist of:
i. Salary Continuation. Continuation of Executive's salary for fifty-two (52) weeks following the week in which the Employment terminates (the "Severance Pay Period"); and
ii. Health Coverage Continuation. Payment by the Company of the COBRA continuation coverage premium necessary to continue the Executive's then current employee and dependent health, dental, and prescription drug coverage during the Severance Pay Period, provided that (A) Executive elects and remains eligible for COBRA continuation coverage, (B) Executive continues to pay the normal employee contribution for such coverage, and (C) that the Company's obligation to provide coverage will end if Executive becomes eligible for comparable coverage from a new employer; and
iii. Outplacement Assistance. Up to $10,000 of outplacement assistance from an outplacement assistance firm selected by the Executive and approved by the Company (whose approval shall not be unreasonably withheld).
The Executive will receive the salary continuation provided in Section 6(a)(i) notwithstanding any other earnings that the Executive may have, and subject to offset only as provided in Section 6(c). If Executive dies during the Severance Pay Period, Severance Pay will continue for the remainder of the Severance Pay Period for the benefit of Executive's designated beneficiary (or Executive's estate if Executive fails to designate a beneficiary). If the Executive becomes eligible for long-term disability
benefits during the Severance Pay Period, Severance Pay will end on the date that Executive is eligible to begin receiving such disability benefits.
(b) Conditions to Severance Pay. To be eligible for Severance Pay, Executive must meet the following conditions: (i) Executive must comply with Executive's obligations under this Agreement that continue after termination of the Employment; (ii) Executive must not claim unemployment compensation for any week for which Executive receives salary continuation under subsection 6(a)(i) above; (iii) Executive must promptly sign and continue to honor a release, in form acceptable to the Company, of any and all claims arising out of or relating to the Executive's Employment or its termination and that the Executive might otherwise have against the Company, the Company's Affiliates, any of their officers, directors, employees and agents, provided that the release will not waive Executive's right to any payments due under this Section or Section 5, or any right of Executive to liability insurance coverage under any liability insurance policy or to indemnification under the Company's Articles of Incorporation or Bylaws or any written indemnification agreement; (iv) Executive must reaffirm in writing upon request by Company Executive's obligations under Sections 7, 8 and 9 of this Agreement; (v) Executive must resign upon written request by Company from all positions with or representing the Company or any Affiliate, including but not limited, to membership on boards of directors, and (vi) Executive must provide the Company for a period of ninety (90) days after the Employment termination date with consulting services regarding matters within the scope of Executive's former duties, upon request by the Company's Chief Executive Officer; provided, however, that Executive will only be required to provide those services by telephone at Executive's reasonable convenience and without substantial interference with Executive's other activities or commitments.
(c) Offsets to Severance Pay. The Severance Pay due to Executive under Section 6(a)(i) for any week will be reduced (but not below 0) by: (i) any disability benefits to which Executive is entitled for that week under any disability insurance policy or program of the Company or any Affiliate (including but not limited to worker's disability compensation); and (ii) any severance pay payable to the Executive under any other agreement or Company policy; (iii) any payment due to Executive under the Federal Worker Adjustment and Retraining Notification Act or any comparable state statute or local ordinance; and (iv) any amount owing by Executive to the Company that the Company is legally entitled to set off against the Severance Pay under applicable law.
7. Loyalty and Confidentiality; Certain Property and Information.
(a) Loyalty and Confidentiality. Executive will be loyal to the Company during the Employment and will forever hold in strictest confidence, and not use or disclose, any information regarding techniques, processes, developmental or experimental work, trade secrets, customer or prospect names or information, or proprietary or confidential information relating to the current or planned products, services, sales, employees or business of the Company or any Affiliate, except as disclosure or use may be required in connection with Executive's work for the Company or any Affiliate. Executive will also keep the terms of this Agreement confidential. The
Executive's commitment not to use or disclose information does not apply to information that becomes publicly known without any breach of this Agreement by Executive.
(b) Certain Property and Information. Upon termination of the Employment, Executive will deliver to the Company any and all property owned by the Company or any Affiliate and any and all materials and information (in whatever form) relating to the business of the Company or any Affiliate, including without limitation all customer lists and information, financial information, business notes, business plans, documents, keys, credit cards and Company provided automobiles or other equipment. All Company property will be returned promptly and in good condition except for normal wear.
Executive's commitments in this Section will continue in effect after termination of the Employment. The parties agree that any breach of Executive's covenants in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
8. Ideas, Concepts, Inventions and Other Intellectual Property. All business ideas and concepts and all inventions, improvements, developments and other intellectual property made or conceived by Executive, either solely or in collaboration with others, during the Employment, whether or not during working hours, and relating to the business or any aspect of the business of the Company or any Affiliate or to any business or product the Company or any Affiliate is actively planning to enter or develop, shall become and remain the exclusive property of the Company, and the Company's successors and assigns. Executive shall disclose promptly in writing to the Company all such inventions, improvements, developments and other intellectual property, and will cooperate in confirming, protecting, and obtaining legal protection of the Company's ownership rights. Executive's commitments in this Section will continue in effect after terminatio n of the Employment as to ideas, concepts, inventions, improvements and developments and other intellectual property made or conceived in whole or in part before the date the Employment terminates. The parties agree that any breach of Executive's covenants in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
Executive represents and warrants that there are no ideas, concepts, inventions, improvements, developments or other intellectual property that Executive invented or conceived before becoming employed by the Company to which Executive, or any assignee of Executive, now claims title, and that are to be excluded from this Agreement.
9. Covenant Not to Compete.
(a) Executive's Commitments. During the Employment Executive will not do or prepare to do, and for twelve (12) months after any termination of the Employment Executive will not do, any of the following:
i. directly or indirectly compete with the Company or any Affiliate; or
ii. be employed by, perform services for, advise or assist, own any interest in or loan or otherwise provide funds to, any other business that is engaged (or seeking Executive's services with a view to becoming engaged) in any Competitive Business (as defined below); or
iii. solicit or suggest, or provide assistance to anyone else seeking to solicit or suggest, that any person having or contemplating a Covered Relationship (as defined below) with the Company or an Affiliate refrain from entering into or terminate the Covered Relationship, or enter into any similar relationship with anyone else instead of the Company or the Affiliate.
Provided, however, that nothing in this Section 9 prohibits Executive from owning not more than 2% of any class of securities of a publicly traded entity, provided that Executive does not engage in other activity prohibited by this Section 9.
Executive's commitments in this section will continue in effect after termination of the Employment for the 12-month period set forth above. The parties agree that any breach of Executive's commitments in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
(b) Definitions. As used in this Section 9:
i. "Competitive Business" means a business that
(A) owns, or
(B) operates, or
(C) sells or supplies products similar to or that substitute for products supplied by the Company to,
any Covered Operation (as defined below) that is located in any state of the United States in which the Company owns, operates, sells or supplies products to, any Covered Operation; and
ii. "Covered Operation" means any grocery store, grocery superstore, wholesale club, supermarket, limited assortment store, convenience store, drug store, pharmacy or any other store that offers grocery or food products separate or in combination with pharmaceutical products, general merchandise or other nonfood products, or any grocery or convenience store product distribution facility; and
iii. "Covered Relationship" means a customer relationship, a vendor relationship, an employment relationship, or any other contractual or independent contractor relationship).
10. Amendment and Waiver. No provisions of this Agreement may be amended, modified, waived or discharged unless the waiver, modification, or discharge is agreed to in a
11. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect. If a court of competent jurisdiction ever determines that any provision of this Agreement (including, but not limited to, all or any part of the non-competition covenant in this Agreement) is unenforceable as written, the parties intend that the provision shall be deemed narrowed or revised in that jurisdiction (as to geographic scope, duration, or any other matter) to the extent necessary to allow enforcement of the provision. The revision shall thereafter govern in that jurisdiction, subject only to any allowable appeals of that court decision.
12. Entire Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to Executive's Employment with the Company or any of the subjects covered by this Agreement have been made by either party that are not set forth expressly in this Agreement and the Executive Severance Agreement dated [Note 5] , between Executive and the Company ("Executive Severance Agreement"), and this Agreement supersedes any pre-existing employment agreements and any other agreements on the subjects covered by this Agreement, except the Executive Severance Agreement.
13. Coordination of This Agreement with Executive Severance Agreement.
(a) Circumstances Under Which Section 9 of This Agreement will Lapse. If there is a termination of Executive's Employment entitling Executive to Severance Benefits under Section 3 of the Executive Severance Agreement, then Section 9 of this Agreement ("Covenant Not to Compete") will lapse and become void and of no further effect on the date of such termination of Employment.
(b) Coordination of Severance Pay under this Agreement and Severance Benefits under Executive Severance Agreement. If Executive receives Severance Benefits under Section 3 of the Executive Severance Agreement, Executive will not be entitled to Severance Pay under this Agreement. If Executive becomes entitled to receive Severance Benefits under Section 3 of the Executive Severance Agreement after receiving Severance Pay under this Agreement, the amount of Severance Benefits to which Executive is entitled under Section 3 of the Executive Severance Agreement will be reduced by the amount of Severance Pay received by Executive under this Agreement.
14. Non-Contravention. Executive represents and warrants that:
(a) No Restrictive Agreement. Executive is not a party to or bound by any agreement that purports to prohibit or restrict Executive from: (i) engaging in the Employment that Executive has been offered by the Company; or (ii) inducing any person to become an employee of the Company; or (iii) using any information and expertise that Executive possesses (other than information constituting a trade secret of another person under applicable law) for the benefit of the Company;
(b) No Abuse of Trade Secrets. Executive will not use in the course of his Employment with the Company, or disclose to the Company or its personnel, any information belonging to any other person that constitutes a trade secret of another person under applicable law.
15. Dispute Resolution.
(a) Arbitration. The Company and Executive agree that except as provided in Section 15(b) the sole and exclusive method for resolving any dispute between them arising out of or relating to this Agreement shall be arbitration under the procedures set forth in this Section; provided, however, that nothing in this Section prohibits a party from seeking preliminary or permanent judicial injunctive relief, or from seeking judicial enforcement of the arbitration award. The arbitrator shall be selected pursuant to the Rules for Commercial Arbitration of the American Arbitration Association. The arbitrator shall hold a hearing at which both parties may appear, with or without counsel, and present evidence and argument. Pre-hearing discovery shall be allowed in the discretion of and to the extent deemed appropriate by the arbitrator, and the arbitrator shall have subpoena power. The procedural rules for an arbitration hearing under this Se ction shall be the rules of the American Arbitration Association for Commercial Arbitration hearings and any rules as the arbitrator may determine. The hearing shall be completed within ninety (90) days after the arbitrator has been selected and the arbitrator shall issue a written decision within sixty (60) days after the close of the hearing. The hearing shall be held in Grand Rapids, Michigan. The award of the arbitrator shall be final and binding and may be enforced by and certified as a judgment of the Circuit Court for Kent County, Michigan or any other court of competent jurisdiction. One-half of the fees and expenses of the arbitrator shall be paid by the Company and one-half by the Executive. The attorney fees and expenses incurred by the parties shall be paid by each party; provided, however, that the attorney fees and expenses of the party who substantially prevails in any arbitration brought pursuant to this Agreement shall be paid by the other party or, if each party prevails in part, then a pro portionate part of each party's attorney fees and expenses shall be paid by the other party, with such proportion to represent the approximate portion of such attorney fees and expenses relating to the issues on which each party prevailed.
(b) Section 15(a) shall be inapplicable to a dispute arising out of or relating to Sections 7, 8 or 9 of this Agreement.
16. Assignability. This Agreement contemplates personal services by Executive, and Executive may not transfer or assign Executive's rights or obligations under this Agreement, except that Executive may designate beneficiaries for Severance Pay in the event of Executive's death, and may designate beneficiaries for benefits as allowed by the Company's benefit programs. This Agreement may be assigned by the Company to any subsidiary or parent corporation or a division of that corporation; provided, however, that the Company shall remain liable for any Severance Pay due under this Agreement and not paid by any assignee. The Company is not required to assign this Agreement but if the Agreement is assigned as provided above, Executive will be given notice and this Agreement will continue in effect.
17. Notices. Notices to a party under this Agreement must be personally delivered or sent by certified mail (return receipt requested) and will be deemed given upon post office delivery or attempted delivery to the recipient's last known address. Notices to the Company must be sent to the attention of the Company's Chief Executive Officer.
18. Governing Law. The validity, interpretation, and construction of this Agreement are to be governed by Michigan laws, without regard to choice of law rules. The parties agree that any judicial action involving a dispute arising under this Agreement will be filed, heard and decided in the courts in either Kent County Circuit Court or the U.S. District Court for the Western District of Michigan. The parties agree that they will subject themselves to the personal jurisdiction and venue of either court, regardless of where Executive or the Company may be located at the time any action may be commenced. The parties agree that Kent County is a mutually convenient forum and that each of the parties conducts business in Kent County.
19. Counterparts. This Agreement may be signed in original or by fax in counterparts, each of which shall be deemed an original, and together the counterparts shall constitute one complete document.
The parties have signed this Employment Agreement as of the effective date in Section 1.
SPARTAN STORES, INC. |
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Craig C. Sturken |
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Its: |
Chairman, President and |
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"Company" |
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"Executive" |
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made by SPARTAN STORES, INC., a Michigan corporation (the "Company"), and CRAIG STURKEN ("Executive"). The parties agree as follows:
1. Effective Date and Term. This Agreement will take effect as of March 3, 2003 ("Effective Date"), and will remain in effect during Executive's employment with the Company and thereafter as to those provisions that expressly state that they will remain in effect after termination of Executive's employment.
2. Employment. Executive will serve as the Company's President and Chief Executive Officer, or in such other positions as an officer of Spartan Stores, Inc. ("Officer") and such additional positions with the Company or an Affiliate as may be assigned by the Company (the "Employment"). Executive will perform the duties assigned from time to time to Executive's position. The Employment will be full time and Executive's entire business time and efforts will be devoted to the Employment, except as otherwise provided by written Company policy. Executive agrees to comply with Company policies, including but not limited to any applicable Company policy requiring Executive to own shares of common stock in the Company. As used in this Agreement, the term "Affiliate" includes any organization controlling, controlled by or under common control with the Company.
3. Term of Employment. The term of the Employment will be indefinite and will continue until terminated pursuant to this Agreement.
4. Compensation. Executive will be compensated during the Employment as follows:
(a) Salary. The Executive's salary as of the Effective Date is $520,000 per year (or a pro rated weekly amount for any partial year), subject to normal payroll deductions and payable in accordance with the Company's normal payroll practices. Executive's salary will be reviewed annually by the Company and subject to the limitations in Section 5(b)(i) may be adjusted to reflect Company determinations of Executive's performance, Company performance, or business or economic conditions.
(b) Bonus. Executive will be eligible to participate in any bonus programs designated by the Company from time to time, in accordance with the terms of such programs, which are subject to change from time to time in the Company's discretion. Executive's Annual Incentive Bonus, to be determined by the compensation committee of the Company's board of directors, in its sole discretion, will be targeted at 40% of his annual base salary and will not exceed more than 80% of his annual base salary. For the fiscal year ending March 27, 2004, Executive's Annual Incentive Bonus will be not less than 40% of his annual base salary, except as otherwise provided in this Agreement. Except as otherwise provided in the Executive Severance Agreement dated March 3, 2003, between Executive and the Company ("Executive Severance Agreement"),
consistent with Company policy, Executive will receive no bonus if for any reason Executive is not employed by the Company at the end of a fiscal year.
(c) Benefits. Executive will be eligible to participate in fringe benefit programs covering the Company's salaried employees as a group, and in any programs applicable under Company policy to senior executive Officers. The terms of applicable insurance policies and benefit plans in effect from time to time will govern with regard to specific issues of coverage and benefit eligibility. All benefit programs are subject to change from time to time in the Company's discretion.
(d) Business Expenses. The Company will reimburse Executive for reasonable ordinary and necessary business expenses that are specifically authorized or authorized by Company policy, subject to Executive's prompt submission of proper documentation for tax and accounting purposes.
5. Termination of Employment.
(a) Termination Without Severance Pay. Executive shall not be entitled to any further compensation from the Company or any Affiliate after termination of the Employment as permitted by this Section 5(a), except (A) unpaid salary installments through the end of the week in which the Employment terminates, and (B) any vested benefits accrued before the termination of Employment under the terms of any written Company policy or benefit program.
i. Death. The Employment will terminate automatically upon Executive's death.
ii. Disability. If Executive is unable to perform Executive's duties under this Agreement due to physical or mental disability for a continuous period of one hundred eighty days (180) days or longer and Executive is eligible for benefits under the Company's long-term disability insurance policy, the Company may terminate the Employment under this Section (a)(ii). If the Company terminates the Employment as the result of Executive's inability to perform Executive's duties for less than one-hundred eighty (180) days due to a disability, the termination of Employment will be deemed to be pursuant to Section 5(b)(ii) below.
iii. Termination by Company for Cause. The Company may terminate the Employment for "Cause", defined as Executive's: (A) breach of any provision of Sections 7, 8, or 9 of this Agreement; (B) willful continued failure to perform or willful poor performance of duties (other than due to disability) after warning and reasonable opportunity to meet reasonable required performance standards; (C) gross negligence causing or placing the Company at risk of significant damage or harm; (D) misappropriation of or intentional damage to Company property; (E) conviction of a felony (other than negligent vehicular
If the Company becomes aware after termination of the Employment other than for Cause that Executive engaged before the termination of Employment in willful misconduct constituting Cause, the Company may recharacterize Executive's termination as having been for Cause.
iv. Discretionary Termination by Executive. Executive may terminate the Employment at will, with at least thirty (30) days advance written notice. If Executive gives such notice of termination, the Company may (but need not) relieve Executive of some or all of Executive's offices and responsibilities for part or all of such notice period, provided that Executive's pay and benefits are continued for the lesser of thirty (30) days or the remaining period of the Employment.
v. Inability to Perform, Risk of Liability. The Company may terminate the Employment if the Company's board of directors, or a committee of the board of directors, determines in its sole discretion that there is more than an insubstantial risk that:
A. Executive will be temporarily or permanently unable to fully perform Executive's duties under this Agreement, or
B. the Employment of Executive would subject the Company to material liability,
by reason of any agreement, judgment, restraining order, injunction, or other order of a court or arbitrator, whether or not disclosed or known to the Company on the Effective Date, to which Executive is or hereafter becomes a party or by which he is or hereafter becomes bound.
(b) Termination With Severance Pay. Executive shall not be entitled to any further compensation from the Company or any Affiliate after termination of the Employment as permitted by this Section 5(b), except (A) unpaid salary installments through the end of the week in which the Employment terminates, (B) any vested benefits accrued before the termination of Employment under the terms of any written Company policy or benefit program, (C) any Severance Pay to which Executive is entitled under this Section 5(b).
i. Termination by Executive for Good Reason. Executive may terminate the Employment for "Good Reason" if and only if (A) the Company materially breaches the Company's obligations to Executive under this Agreement, or reduces Executive's salary other than an economic or business motivated reduction accompanied by proportionate reductions in the salaries of all other Officers, (B) Executive notifies the Company's Secretary in writing, within
ii. Discretionary Termination by Company. The Company may terminate the Employment at will, but if the Company does so Executive will be entitled to Severance Pay as provided in and subject to Section 6. Any termination of Executive's employment by the Company under Section 5(a) that is found not to meet the standards of such Section will be considered to have been a termination under this Section 5(f).
6. Severance Pay. The Company will pay and provide Executive with the payments and benefit continuation provided in this Section 6 ("Severance Pay") if Executive's Employment is terminated as provided in Section 5(b) above.
(a) Amount and Duration of Severance Pay. Subject to the other provisions of this Section, Severance Pay will consist of:
i. Salary Continuation. Continuation of Executive's salary for fifty-two (52) weeks following the week in which the Employment terminates (the "Severance Pay Period"); and
ii. Health Coverage Continuation. Payment by the Company of the COBRA continuation coverage premium necessary to continue Executive's then current employee and dependent health, dental, and prescription drug coverage during the Severance Pay Period, provided that (A) Executive elects and remains eligible for COBRA continuation coverage, (B) Executive continues to pay the normal employee contribution for such coverage, and (C) that the Company's obligation to provide coverage will end if Executive becomes eligible for comparable coverage from a new employer; and
iii. Outplacement Assistance. Up to $10,000 of outplacement assistance from an outplacement assistance firm selected by Executive and approved by the Company (whose approval shall not be unreasonably withheld).
The Executive will receive the salary continuation provided in Section 6(a)(i) notwithstanding any other earnings that Executive may have, and subject to offset only as provided in Section 6(c). If Executive dies during the Severance Pay Period, salary continuation under Section 6(a)(i) will continue for the remainder of the Severance Pay
(b) Conditions to Severance Pay. To be eligible for Severance Pay, Executive must meet the following conditions: (i) Executive must comply with Executive's obligations under this Agreement that continue after termination of the Employment; (ii) Executive must not claim unemployment compensation for any week for which Executive receives salary continuation under Section 6(a)(i) above; (iii) Executive must promptly sign and continue to honor a release, in form acceptable to the Company, of any and all claims arising out of or relating to Executive's Employment or its termination and that Executive might otherwise have against the Company, the Company's Affiliates, any of their officers, directors, employees and agents, provided that the release will not waive Executive's right to any payments due under this Section or Section 5, or any right of Executive to liability insurance coverage under any liability insurance policy or to indemnification under the Company's Articles of Incorporation or Bylaws or any written indemnification agreement; (iv) Executive must reaffirm in writing upon request by Company Executive's obligations under Sections 7, 8 and 9 of this Agreement; (v) Executive must resign upon written request by Company from all positions with or representing the Company or any Affiliate, including but not limited, to membership on boards of directors, and (vi) Executive must provide the Company for a period of ninety (90) days after the Employment termination date with consulting services regarding matters within the scope of Executive's former duties upon request; provided, however, that Executive will only be required to provide those services by telephone at Executive's reasonable convenience and without substantial interference with Executive's other activities or commitments.
(c) Offsets to Severance Pay. The Severance Pay due to Executive under Section 6(a)(i) for any week will be reduced (but not below 0) by: (i) any disability benefits to which Executive is entitled for that week under any disability insurance policy or program of the Company or any Affiliate (including but not limited to worker's disability compensation); and (ii) any severance pay payable to Executive under any other agreement or Company policy; (iii) any payment due to Executive under the Federal Worker Adjustment and Retraining Notification Act or any comparable state statute or local ordinance; and (iv) any amount owing by Executive to the Company that the Company is legally entitled to set off against the Severance Pay under applicable law.
7. Loyalty and Confidentiality; Certain Property and Information.
(a) Loyalty and Confidentiality. Executive will be loyal to the Company during the Employment and will forever hold in strictest confidence, and not use or disclose, any information regarding techniques, processes, developmental or experimental work, trade
(b) Certain Property and Information. Upon termination of the Employment, Executive will deliver to the Company any and all property owned or leased by the Company or any Affiliate and any and all materials and information (in whatever form) relating to the business of the Company or any Affiliate, including without limitation all customer lists and information, financial information, business notes, business plans, documents, keys, credit cards and other Company-provided equipment. All Company property will be returned promptly and in good condition except for normal wear.
Executive's commitments in this Section will continue in effect after termination of the Employment. The parties agree that any breach of Executive's covenants in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
8. Ideas, Concepts, Inventions and Other Intellectual Property. All business ideas and concepts and all inventions, improvements, developments and other intellectual property made or conceived by Executive, either solely or in collaboration with others, during the Employment, whether or not during working hours, and relating to the business or any aspect of the business of the Company or any Affiliate or to any business or product the Company or any Affiliate is actively planning to enter or develop, shall become and remain the exclusive property of the Company, and the Company's successors and assigns. Executive shall disclose promptly in writing to the Company all such inventions, improvements, developments and other intellectual property, and will cooperate in confirming, protecting, and obtaining legal protection of the Company's ownership rights. Executive's commitments in this Section will continue in effect after termination of the Employme nt as to ideas, concepts, inventions, improvements and developments and other intellectual property made or conceived in whole or in part before the date the Employment terminates. The parties agree that any breach of Executive's covenants in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
Executive represents and warrants that there are no ideas, concepts, inventions, improvements, developments or other intellectual property that Executive invented or conceived before becoming employed by the Company to which Executive, or any assignee of Executive, now claims title, and that would be covered by this Section if made or conceived by Employee during the Employment.
9. Covenant Not to Compete.
(a) Executive's Commitments. During the Employment Executive will not do or prepare to do, and for twelve (12) months after any termination of the Employment Executive will not do, any of the following:
i. directly or indirectly compete with the Company or any Affiliate; or
ii. be employed by, perform services for, advise or assist, own any interest in or loan or otherwise provide funds to, any other business that is engaged (or seeking Executive's services with a view to becoming engaged) in any Competitive Business (as defined below); or
iii. solicit or suggest, or provide assistance to anyone else seeking to solicit or suggest, that any person having or contemplating a Covered Relationship (as defined below) with the Company or an Affiliate refrain from entering into or terminate the Covered Relationship, or enter into any similar relationship with anyone else instead of the Company or the Affiliate.
Provided, however, that nothing in this Section 9 prohibits Executive from owning not more than 2% of any class of securities of a publicly traded entity, provided that Executive does not engage in other activity prohibited by this Section 9.
Executive's commitments in this Section will continue in effect after termination of the Employment for the 12-month period set forth above. The parties agree that any breach of Executive's commitments in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
(b) Definitions. As used in this Section 9:
i. "Competitive Business" means a business that
(A) owns, or
(B) operates, or
(C) sells or supplies products similar to or that substitute for products supplied by the Company to,
any Covered Operation (as defined below) that is located in any state of the United States in which the Company owns, operates, sells or supplies products to, any Covered Operation; and
ii. "Covered Operation" means any grocery store, grocery superstore, wholesale club, supermarket, limited assortment store, convenience store, drug store, pharmacy or any other store that offers grocery or food products separate or in combination with pharmaceutical products, general merchandise or other nonfood products, or any grocery or convenience store product distribution facility; and
iii. "Covered Relationship" means a customer relationship, a vendor relationship, an employment relationship, or any other contractual or independent contractor relationship).
10. Amendment and Waiver. No provisions of this Agreement may be amended, modified, waived or discharged unless the waiver, modification, or discharge is authorized by the Company's board of directors, or a committee of the board of directors, and is agreed to in a writing signed by Executive and by the Company. No waiver by either party at any time of any breach or non-performance of this Agreement by the other party shall be deemed a waiver of any prior or subsequent breach or non-performance.
11. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect. If a court of competent jurisdiction ever determines that any provision of this Agreement (including, but not limited to, all or any part of the non-competition covenant in this Agreement) is unenforceable as written, the parties intend that the provision shall be deemed narrowed or revised in that jurisdiction (as to geographic scope, duration, or any other matter) to the extent necessary to allow enforcement of the provision. The revision shall thereafter govern in that jurisdiction, subject only to any allowable appeals of that court decision.
12. Entire Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to Executive's Employment with the Company or any of the subjects covered by this Agreement have been made by either party that are not set forth expressly in this Agreement and the Executive Severance Agreement, and this Agreement supersedes any pre-existing employment agreements and any other agreements on the subjects covered by this Agreement, except the Executive Severance Agreement.
13. Coordination of This Agreement with Executive Severance Agreement.
(a) Circumstances Under Which Section 9 of This Agreement will Lapse. If there is a termination of Executive's Employment entitling Executive to Severance Benefits under Section 3 of the Executive Severance Agreement, then Section 9 of this Agreement ("Covenant Not to Compete") will lapse and become void and of no further effect on the date of such termination of Employment.
(b) Coordination of Severance Pay under this Agreement and Severance Benefits under Executive Severance Agreement. If Executive receives Severance Benefits under Section 3 of the Executive Severance Agreement, Executive will not be entitled to Severance Pay under this Agreement. If Executive becomes entitled to receive Severance Benefits under Section 3 of the Executive Severance Agreement after receiving Severance Pay under this Agreement, the amount of Severance Benefits to which Executive is entitled under Section 3 of the Executive Severance Agreement will be reduced by the amount of Severance Pay received by Executive under this Agreement.
14. Non-Contravention. Executive represents and warrants that:
(a) No Restrictive Agreement. Executive is not a party to or bound by any agreement that purports to prevent or restrict Executive from: (A) engaging in the Employment that Executive has been offered by the Company; (B) inducing any person to become an employee of the Company; (C) using any information and expertise that
(b) No Abuse of Confidential Information or Trade Secrets. Executive will not use in the course of his Employment with the Company, or disclose to the Company or its personnel, any information belonging to any other person that is subject to any confidentiality agreement with or constitutes a trade secret of another person.
15. Forfeiture of Certain Compensation.
(a) Rescission of Securities Grants. If the Employment is terminated pursuant to Sections 5(a)(iii), (iv) or (v) above, the Company's board of directors, or a committee of the board of directors, may rescind and terminate any stock option, restricted stock, or stock award previously granted to Executive within the ninety-day period preceding the date of such termination of Employment, and upon receipt of notice of such rescission, Executive shall promptly return to the Company any shares of the Company stock received pursuant to any such award.
(b) Sarbanes-Oxley Act Compliance. If obligated to reimburse the Company under Section 304(a) of the Sarbanes-Oxley Act of 2002, Executive will promptly reimburse the Company for any profit, any bonus or other incentive-based or equity-based compensation, or any other sums as required by Section 304(a), within five (5) days of the earlier of becoming aware of such obligation or receiving written notice of such obligation from the Company.
16. Dispute Resolution.
(a) Arbitration. The Company and Executive agree that except as provided in Section 16(b) the sole and exclusive method for resolving any dispute between them arising out of or relating to this Agreement shall be arbitration under the procedures set forth in this Section; provided, however, that nothing in this Section prohibits a party from seeking preliminary or permanent judicial injunctive relief, or from seeking judicial enforcement of the arbitration award. The arbitrator shall be selected pursuant to the Rules for Commercial Arbitration of the American Arbitration Association. The arbitrator shall hold a hearing at which both parties may appear, with or without counsel, and present evidence and argument. Pre-hearing discovery shall be allowed in the discretion of and to the extent deemed appropriate by the arbitrator, and the arbitrator shall have subpoena power. The procedural rules for an arbitration hearing under this Section shall be th
e rules of the American Arbitration Association for Commercial Arbitration hearings and any rules as the arbitrator may determine. The hearing shall be completed within ninety (90) days after the arbitrator has been selected and the arbitrator shall issue a written decision within sixty (60) days after the close of the hearing. The hearing shall be held in Grand Rapids, Michigan. The award of the arbitrator shall be final and binding and may be enforced by and certified as a judgment of the Circuit Court for Kent County, Michigan or any other court of competent jurisdiction. One-half of the
(b) Subsection 16(a) shall be inapplicable to a dispute arising out of or relating to Sections 7, 8 or 9 of this Agreement.
17. Assignability. This Agreement contemplates personal services by Executive, and Executive may not transfer or assign Executive's rights or obligations under this Agreement, except that Executive may designate beneficiaries for Severance Pay in the event of Executive's death, and may designate beneficiaries for benefits as allowed by the Company's benefit programs. This Agreement may be assigned by the Company to any subsidiary or parent corporation or a division of that corporation; provided, however, that the Company shall remain liable for any Severance Pay due under this Agreement and not paid by any assignee. The Company is not required to assign this Agreement but if the Agreement is assigned as provided above, Executive will be given notice and this Agreement will continue in effect.
18. Notices. Notices to a party under this Agreement must be personally delivered or sent by certified mail (return receipt requested) and will be deemed given upon post office delivery or attempted delivery to the recipient's last known address. Notices to the Company must be sent to the attention of the Company's Secretary.
19. Governing Law. The validity, interpretation, and construction of this Agreement are to be governed by Michigan laws, without regard to choice of law rules. The parties agree that any judicial action involving a dispute arising under this Agreement will be filed, heard and decided in the courts in either Kent County Circuit Court or the U.S. District Court for the Western District of Michigan. The parties agree that they will subject themselves to the personal jurisdiction and venue of either court, regardless of where Executive or the Company may be located at the time any action may be commenced. The parties agree that Kent County is a mutually convenient forum and that each of the parties conducts business in Kent County.
20. Counterparts. This Agreement may be signed in original or by fax in counterparts, each of which shall be deemed an original, and together the counterparts shall constitute one complete document.
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The parties have signed this Employment Agreement as of the Effective Date in Section 1.
SPARTAN STORES, INC.
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/s/ Mark C. Eriks |
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/s/ Craig Sturken |
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Mark C. Eriks |
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Craig Sturken |
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Vice President Human Resources |
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"Company" |
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made by SPARTAN STORES, INC., a Michigan corporation (the "Company"), and DENNIS EIDSON ("Executive"). The parties agree as follows:
1. Effective Date and Term. This Agreement will take effect as of March 17, 2003 ("Effective Date"), and will remain in effect during Executive's employment with the Company and thereafter as to those provisions that expressly state that they will remain in effect after termination of Executive's employment.
2. Employment. Executive will serve as the Company's Executive Vice President, Merchandising and Marketing, or in such other positions as an officer of Spartan Stores, Inc. ("Officer") and such additional positions with the Company or an Affiliate as may be assigned by the Company (the "Employment"). Executive will perform the duties assigned from time to time to Executive's position. The Employment will be full time and Executive's entire business time and efforts will be devoted to the Employment, except as otherwise provided by written Company policy. Executive agrees to comply with Company policies, including but not limited to any applicable Company policy requiring Executive to own shares of common stock in the Company. As used in this Agreement, the term "Affiliate" includes any organization controlling, controlled by or under common control with the Company.
3. Term of Employment. The term of the Employment will be indefinite and will continue until terminated pursuant to this Agreement.
4. Compensation. Executive will be compensated during the Employment as follows:
(a) Salary. The Executive's salary as of the Effective Date is $250,000 per year (or a pro rated weekly amount for any partial year), subject to normal payroll deductions and payable in accordance with the Company's normal payroll practices. Executive's salary will be reviewed annually by the Company and subject to the limitations in Section 5(b)(i) may be adjusted to reflect Company determinations of Executive's performance, Company performance, or business or economic conditions.
(b) Bonus. Executive will be eligible to participate in any bonus programs designated by the Company from time to time for Officers occupying positions at the same level as Executive's position, in accordance with the terms of such programs, which are subject to change from time to time in the Company's discretion. Executive's Annual Incentive Bonus, to be determined by the compensation committee of the Company's board of directors, in its sole discretion, will be targeted at 30% of his annual base salary and will not exceed more than 60% of his annual base salary. Except as otherwise provided in the Executive Severance Agreement dated March 17, 2003, between Executive and the Company ("Executive Severance Agreement"), consistent with Company policy, Executive will receive no bonus if for any reason Executive is not employed by the Company at the end of a fiscal year.
(c) Benefits. Executive will be eligible to participate in fringe benefit programs covering the Company's salaried employees as a group, and in any programs applicable under Company policy to senior executive Officers. The terms of applicable insurance policies and benefit plans in effect from time to time will govern with regard to specific issues of coverage and benefit eligibility. All benefit programs are subject to change from time to time in the Company's discretion.
(d) Business Expenses. The Company will reimburse Executive for reasonable ordinary and necessary business expenses that are specifically authorized or authorized by Company policy, subject to Executive's prompt submission of proper documentation for tax and accounting purposes.
5. Termination of Employment.
(a) Termination Without Severance Pay. Executive shall not be entitled to any further compensation from the Company or any Affiliate after termination of the Employment as permitted by this Section 5(a), except (A) unpaid salary installments through the end of the week in which the Employment terminates, and (B) any vested benefits accrued before the termination of Employment under the terms of any written Company policy or benefit program.
i. Death. The Employment will terminate automatically upon Executive's death.
ii. Disability. If Executive is unable to perform Executive's duties under this Agreement due to physical or mental disability for a continuous period of one hundred eighty days (180) days or longer and Executive is eligible for benefits under the Company's long-term disability insurance policy, the Company may terminate the Employment under this Section (a)(ii). If the Company terminates the Employment as the result of Executive's inability to perform Executive's duties for less than one-hundred eighty (180) days due to a disability, the termination of Employment will be deemed to be pursuant to Section 5(b)(ii) below.
iii. Termination by Company for Cause. The Company may terminate the Employment for "Cause", defined as Executive's: (A) breach of any provision of Sections 7, 8, or 9 of this Agreement; (B) willful continued failure to perform or willful poor performance of duties (other than due to disability) after warning and reasonable opportunity to meet reasonable required performance standards; (C) gross negligence causing or placing the Company at risk of significant damage or harm; (D) misappropriation of or intentional damage to Company property; (E) conviction of a felony (other than negligent vehicular homicide); or (F) intentional act or omission that Executive knows or should know is significantly detrimental to the interests of the Company.
If the Company becomes aware after termination of the Employment other than for Cause that Executive engaged before the termination of Employment in willful misconduct constituting Cause, the Company may recharacterize Executive's termination as having been for Cause.
iv. Discretionary Termination by Executive. Executive may terminate the Employment at will, with at least thirty (30) days advance written notice. If Executive gives such notice of termination, the Company may (but need not) relieve Executive of some or all of Executive's offices and responsibilities for part or all of such notice period, provided that Executive's pay and benefits are continued for the lesser of thirty (30) days or the remaining period of the Employment.
v. Inability to Perform, Risk of Liability. The Company may terminate the Employment if the Company's board of directors, or a committee of the board of directors, determines in its sole discretion that there is more than an insubstantial risk that:
A. Executive will be temporarily or permanently unable to fully perform Executive's duties under this Agreement, or
B. the Employment of Executive would subject the Company to material liability,
by reason of any agreement, judgment, restraining order, injunction, or other order of a court or arbitrator, whether or not disclosed or known to the Company on the Effective Date, to which Executive is or hereafter becomes a party or by which he is or hereafter becomes bound.
(b) Termination With Severance Pay. Executive shall not be entitled to any further compensation from the Company or any Affiliate after termination of the Employment as permitted by this Section 5(b), except (A) unpaid salary installments through the end of the week in which the Employment terminates, (B) any vested benefits accrued before the termination of Employment under the terms of any written Company policy or benefit program, (C) any Severance Pay to which Executive is entitled under this Section 5(b).
i. Termination by Executive for Good Reason. Executive may terminate the Employment for "Good Reason" if and only if (A) the Company materially breaches the Company's obligations to Executive under this Agreement, or reduces Executive's salary other than an economic or business motivated reduction accompanied by proportionate reductions in the salaries of all other Officers, (B) Executive notifies the Company's Secretary in writing, within thirty (30) days after the act or omission in question, asserting that the act or omission in question constitutes Good Reason and explaining why the act or omission constitutes a material breach, (C) the Company fails, within fifteen (15) days after the notification, to take all reasonable steps to cure the breach, and (D)
ii. Discretionary Termination by Company. The Company may terminate the Employment at will, but if the Company does so Executive will be entitled to Severance Pay as provided in and subject to Section 6. Any termination of Executive's Employment by the Company under Section 5(a) that is found not to meet the standards of such Section will be considered to have been a termination under this Section 5(f).
6. Severance Pay. The Company will pay and provide Executive with the payments and benefit continuation provided in this Section 6 ("Severance Pay") if Executive's Employment is terminated as provided in Section 5(b) above.
(a) Amount and Duration of Severance Pay. Subject to the other provisions of this Section, Severance Pay will consist of:
i. Salary Continuation. Continuation of Executive's salary for fifty-two (52) weeks following the week in which the Employment terminates (the "Severance Pay Period"); and
ii. Health Coverage Continuation. Payment by the Company of the COBRA continuation coverage premium necessary to continue Executive's then current employee and dependent health, dental, and prescription drug coverage during the Severance Pay Period, provided that (A) Executive elects and remains eligible for COBRA continuation coverage, (B) Executive continues to pay the normal employee contribution for such coverage, and (C) that the Company's obligation to provide coverage will end if Executive becomes eligible for comparable coverage from a new employer; and
iii. Outplacement Assistance. Up to $10,000 of outplacement assistance from an outplacement assistance firm selected by Executive and approved by the Company (whose approval shall not be unreasonably withheld).
The Executive will receive the salary continuation provided in Section 6(a)(i) notwithstanding any other earnings that Executive may have, and subject to offset only as provided in Section 6(c). If Executive dies during the Severance Pay Period, salary continuation under Section 6(a)(i) will continue for the remainder of the Severance Pay Period for the benefit of Executive's designated beneficiary (or Executive's estate if Executive fails to designate a beneficiary), and health coverage continuation under Section 6(a)(ii) will continue for Executive's eligible dependants for the remainder of the Severance Pay Period subject to the conditions in Sections 6(b)(ii)(A) and (B). If
(b) Conditions to Severance Pay. To be eligible for Severance Pay, Executive must meet the following conditions: (i) Executive must comply with Executive's obligations under this Agreement that continue after termination of the Employment; (ii) Executive must not claim unemployment compensation for any week for which Executive receives salary continuation under Section 6(a)(i) above; (iii) Executive must promptly sign and continue to honor a release, in form acceptable to the Company, of any and all claims arising out of or relating to Executive's Employment or its termination and that Executive might otherwise have against the Company, the Company's Affiliates, any of their officers, directors, employees and agents, provided that the release will not waive Executive's right to any payments due under this Section or Section 5, or any right of Executive to liability insurance coverage under any liability insurance policy or to indemnification under the Company's Articles of Incorporation or Bylaws or any written indemnification agreement; (iv) Executive must reaffirm in writing upon request by Company Executive's obligations under Sections 7, 8 and 9 of this Agreement; (v) Executive must resign upon written request by Company from all positions with or representing the Company or any Affiliate, including but not limited, to membership on boards of directors, and (vi) Executive must provide the Company for a period of ninety (90) days after the Employment termination date with consulting services regarding matters within the scope of Executive's former duties upon request; provided, however, that Executive will only be required to provide those services by telephone at Executive's reasonable convenience and without substantial interference with Executive's other activities or commitments.
(c) Offsets to Severance Pay. The Severance Pay due to Executive under Section 6(a)(i) for any week will be reduced (but not below 0) by: (i) any disability benefits to which Executive is entitled for that week under any disability insurance policy or program of the Company or any Affiliate (including but not limited to worker's disability compensation); and (ii) any severance pay payable to Executive under any other agreement or Company policy; (iii) any payment due to Executive under the Federal Worker Adjustment and Retraining Notification Act or any comparable state statute or local ordinance; and (iv) any amount owing by Executive to the Company that the Company is legally entitled to set off against the Severance Pay under applicable law.
7. Loyalty and Confidentiality; Certain Property and Information.
(a) Loyalty and Confidentiality. Executive will be loyal to the Company during the Employment and will forever hold in strictest confidence, and not use or disclose, any information regarding techniques, processes, developmental or experimental work, trade secrets, customer or prospect names or information, or proprietary or confidential information relating to the current or planned products, services, sales, employees or business of the Company or any Affiliate, except as disclosure or use may be required in connection with Executive's work for the Company or any Affiliate. The Executive's
(b) Certain Property and Information. Upon termination of the Employment, Executive will deliver to the Company any and all property owned or leased by the Company or any Affiliate and any and all materials and information (in whatever form) relating to the business of the Company or any Affiliate, including without limitation all customer lists and information, financial information, business notes, business plans, documents, keys, credit cards and other Company-provided equipment. All Company property will be returned promptly and in good condition except for normal wear.
Executive's commitments in this Section will continue in effect after termination of the Employment. The parties agree that any breach of Executive's covenants in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
8. Ideas, Concepts, Inventions and Other Intellectual Property. All business ideas and concepts and all inventions, improvements, developments and other intellectual property made or conceived by Executive, either solely or in collaboration with others, during the Employment, whether or not during working hours, and relating to the business or any aspect of the business of the Company or any Affiliate or to any business or product the Company or any Affiliate is actively planning to enter or develop, shall become and remain the exclusive property of the Company, and the Company's successors and assigns. Executive shall disclose promptly in writing to the Company all such inventions, improvements, developments and other intellectual property, and will cooperate in confirming, protecting, and obtaining legal protection of the Company's ownership rights. Executive's commitments in this Section will continue in effect after termination of the Employme nt as to ideas, concepts, inventions, improvements and developments and other intellectual property made or conceived in whole or in part before the date the Employment terminates. The parties agree that any breach of Executive's covenants in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
Executive represents and warrants that there are no ideas, concepts, inventions, improvements, developments or other intellectual property that Executive invented or conceived before becoming employed by the Company to which Executive, or any assignee of Executive, now claims title, and that would be covered by this Section if made or conceived by Employee during the Employment.
9. Covenant Not to Compete.
(a) Executive's Commitments. During the Employment Executive will not do or prepare to do, and for twelve (12) months after any termination of the Employment Executive will not do, any of the following:
i. directly or indirectly compete with the Company or any Affiliate; or
ii. be employed by, perform services for, advise or assist, own any interest in or loan or otherwise provide funds to, any other business that is engaged (or seeking Executive's services with a view to becoming engaged) in any Competitive Business (as defined below); or
iii. solicit or suggest, or provide assistance to anyone else seeking to solicit or suggest, that any person having or contemplating a Covered Relationship (as defined below) with the Company or an Affiliate refrain from entering into or terminate the Covered Relationship, or enter into any similar relationship with anyone else instead of the Company or the Affiliate.
Provided, however, that nothing in this Section 9 prohibits Executive from owning not more than 2% of any class of securities of a publicly traded entity, provided that Executive does not engage in other activity prohibited by this Section 9.
Executive's commitments in this Section will continue in effect after termination of the Employment for the 12-month period set forth above. The parties agree that any breach of Executive's commitments in this Section would cause the Company irreparable harm, and that injunctive relief would be appropriate.
(b) Definitions. As used in this Section 9:
i. "Competitive Business" means a business that
(A) owns, or
(B) operates, or
(C) sells or supplies products similar to or that substitute for products supplied by the Company to,
any Covered Operation (as defined below) that is located in any state of the United States in which the Company owns, operates, sells or supplies products to, any Covered Operation; and
ii. "Covered Operation" means any grocery store, grocery superstore, wholesale club, supermarket, limited assortment store, convenience store, drug store, pharmacy or any other store that offers grocery or food products separate or in combination with pharmaceutical products, general merchandise or other nonfood products, or any grocery or convenience store product distribution facility; and
iii. "Covered Relationship" means a customer relationship, a vendor relationship, an employment relationship, or any other contractual or independent contractor relationship).
10. Amendment and Waiver. No provisions of this Agreement may be amended, modified, waived or discharged unless the waiver, modification, or discharge is authorized by the
11. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect. If a court of competent jurisdiction ever determines that any provision of this Agreement (including, but not limited to, all or any part of the non-competition covenant in this Agreement) is unenforceable as written, the parties intend that the provision shall be deemed narrowed or revised in that jurisdiction (as to geographic scope, duration, or any other matter) to the extent necessary to allow enforcement of the provision. The revision shall thereafter govern in that jurisdiction, subject only to any allowable appeals of that court decision.
12. Entire Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to Executive's Employment with the Company or any of the subjects covered by this Agreement have been made by either party that are not set forth expressly in this Agreement and the Executive Severance Agreement, and this Agreement supersedes any pre-existing employment agreements and any other agreements on the subjects covered by this Agreement, except the Executive Severance Agreement.
13. Coordination of This Agreement with Executive Severance Agreement.
(a) Circumstances Under Which Section 9 of This Agreement will Lapse. If there is a termination of Executive's Employment entitling Executive to Severance Benefits under Section 3 of the Executive Severance Agreement, then Section 9 of this Agreement ("Covenant Not to Compete") will lapse and become void and of no further effect on the date of such termination of Employment.
(b) Coordination of Severance Pay under this Agreement and Severance Benefits under Executive Severance Agreement. If Executive receives Severance Benefits under Section 3 of the Executive Severance Agreement, Executive will not be entitled to Severance Pay under this Agreement. If Executive becomes entitled to receive Severance Benefits under Section 3 of the Executive Severance Agreement after receiving Severance Pay under this Agreement, the amount of Severance Benefits to which Executive is entitled under Section 3 of the Executive Severance Agreement will be reduced by the amount of Severance Pay received by Executive under this Agreement.
14. Non-Contravention. Executive represents and warrants that:
(a) No Restrictive Agreement. Executive is not a party to or bound by any agreement that purports to prevent or restrict Executive from: (A) engaging in the Employment that Executive has been offered by the Company; (B) inducing any person to become an employee of the Company; (C) using any information and expertise that Executive possesses (other than information constituting a trade secret of another person under applicable law) for the benefit of the Company; or (D) performing any obligation under this Agreement.
(b) No Abuse of Confidential Information or Trade Secrets. Executive will not use in the course of his Employment with the Company, or disclose to the Company or its personnel, any information belonging to any other person that is subject to any confidentiality agreement with or constitutes a trade secret of another person.
15. Forfeiture of Certain Compensation.
(a) Rescission of Securities Grants. If the Employment is terminated pursuant to Sections 5(a)(iii), (iv) or (v) above, the Company's board of directors, or a committee of the board of directors, may rescind and terminate any stock option, restricted stock, or stock award previously granted to Executive within the ninety-day period preceding the date of such termination of Employment, and upon receipt of notice of such rescission, Executive shall promptly return to the Company any shares of the Company stock received pursuant to any such award.
(b) Sarbanes-Oxley Act Compliance. If obligated to reimburse the Company under Section 304(a) of the Sarbanes-Oxley Act of 2002, Executive will promptly reimburse the Company for any profit, any bonus or other incentive-based or equity-based compensation, or any other sums as required by Section 304(a), within five (5) days of the earlier of becoming aware of such obligation or receiving written notice of such obligation from the Company.
16. Dispute Resolution.
(a) Arbitration. The Company and Executive agree that except as provided in Section 16(b) the sole and exclusive method for resolving any dispute between them arising out of or relating to this Agreement shall be arbitration under the procedures set forth in this Section; provided, however, that nothing in this Section prohibits a party from seeking preliminary or permanent judicial injunctive relief, or from seeking judicial enforcement of the arbitration award. The arbitrator shall be selected pursuant to the Rules for Commercial Arbitration of the American Arbitration Association. The arbitrator shall hold a hearing at which both parties may appear, with or without counsel, and present evidence and argument. Pre-hearing discovery shall be allowed in the discretion of and to the extent deemed appropriate by the arbitrator, and the arbitrator shall have subpoena power. The procedural rules for an arbitration hearing under this Section shall be th
e rules of the American Arbitration Association for Commercial Arbitration hearings and any rules as the arbitrator may determine. The hearing shall be completed within ninety (90) days after the arbitrator has been selected and the arbitrator shall issue a written decision within sixty (60) days after the close of the hearing. The hearing shall be held in Grand Rapids, Michigan. The award of the arbitrator shall be final and binding and may be enforced by and certified as a judgment of the Circuit Court for Kent County, Michigan or any other court of competent jurisdiction. One-half of the fees and expenses of the arbitrator shall be paid by the Company and one-half by Executive. The attorney fees and expenses incurred by the parties shall be paid by each party; provided, however, that the attorney fees and expenses of the party who substantially prevails in any arbitration brought pursuant to this Agreement shall be paid by the other party or, if each party prevails in part, then a proportionate part of ea
ch
(b) Subsection 16(a) shall be inapplicable to a dispute arising out of or relating to Sections 7, 8 or 9 of this Agreement.
17. Assignability. This Agreement contemplates personal services by Executive, and Executive may not transfer or assign Executive's rights or obligations under this Agreement, except that Executive may designate beneficiaries for Severance Pay in the event of Executive's death, and may designate beneficiaries for benefits as allowed by the Company's benefit programs. This Agreement may be assigned by the Company to any subsidiary or parent corporation or a division of that corporation; provided, however, that the Company shall remain liable for any Severance Pay due under this Agreement and not paid by any assignee. The Company is not required to assign this Agreement but if the Agreement is assigned as provided above, Executive will be given notice and this Agreement will continue in effect.
18. Notices. Notices to a party under this Agreement must be personally delivered or sent by certified mail (return receipt requested) and will be deemed given upon post office delivery or attempted delivery to the recipient's last known address. Notices to the Company must be sent to the attention of the Company's Secretary.
19. Governing Law. The validity, interpretation, and construction of this Agreement are to be governed by Michigan laws, without regard to choice of law rules. The parties agree that any judicial action involving a dispute arising under this Agreement will be filed, heard and decided in the courts in either Kent County Circuit Court or the U.S. District Court for the Western District of Michigan. The parties agree that they will subject themselves to the personal jurisdiction and venue of either court, regardless of where Executive or the Company may be located at the time any action may be commenced. The parties agree that Kent County is a mutually convenient forum and that each of the parties conducts business in Kent County.
20. Counterparts. This Agreement may be signed in original or by fax in counterparts, each of which shall be deemed an original, and together the counterparts shall constitute one complete document.
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The parties have signed this Employment Agreement as of the Effective Date in Section 1.
SPARTAN STORES, INC.
By: |
/s/ Mark C. Eriks |
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/s/ Dennis Eidson |
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Mark C. Eriks |
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Its: |
Vice President Human Resources |
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"Company" |
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"Executive" |
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EXHIBIT 10.15
Schedule to Notes in Form of Executive Severance Agreement
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EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of [Note 1] (the "Effective Date"), by and between SPARTAN STORES, INC. a Michigan corporation ("Spartan Stores"), and [Note 2] ("Executive").
W I T N E S S E T H:
WHEREAS, Executive currently serves as a key employee of Spartan Stores and/or its subsidiaries (the "Company") and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company's principal operating facilities, divisions, or subsidiaries; and
WHEREAS, Spartan Stores considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders; and
WHEREAS, the Board has determined that it is in the best interests of Spartan Stores and its shareholders to secure Executive's continued services and to ensure Executive's continued dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as hereafter defined) of Spartan Stores, without concern as to whether Executive might be hindered or distracted by personal uncertainties and risks created by any such possible Change in Control, and to encourage Executive's full attention and dedication to Spartan Stores and/or its subsidiaries, the Board has authorized Spartan Stores to enter into this Agreement.
NOW, THEREFORE, COMPANY AND EXECUTIVE AGREE AS FOLLOWS:
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Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below: |
(a) "Board" means the Board of Directors of Spartan Stores.
(b) "Cause" means (1) the willful and continued failure by Executive to substantially perform his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental injury or illness, or any such actual or anticipated failure resulting from Executive's termination for Good Reason) after a demand for substantial performance is delivered to Executive by the Board (which demand shall specifically identify the manner in which the Board believes that Executive has not substantially performed his or her duties); or (2) the willful engaging by Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this Section, no act or failure to act on the part of Executive shall be considered "willful" unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action(s) or omission(s) was in the best interests of the Co mpany. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until the Company provides Executive with a copy of a resolution adopted by an affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive, with counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive has been guilty of conduct set forth in subsections (1) or (2) above, setting forth the particulars in detail. A determination for Cause by the Board shall not be binding upon or entitled to deference by any finder of fact in the event of a dispute, it being the intent of the parties that such finder of fact shall make an independent determination of whether the termination was for "Cause" as defined in (1) or (2) above.
(C) "Change in Control" means:
(1) the acquisition by any individual, entity, or group (a "Person"), including any "person" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or more of either (i) the then outstanding shares of common stock of Spartan Stores (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of Spartan Stores entitled to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any Person controlled by the Company, (C) any acquisition by any corporation pursuant to a reorganization, merger, or consolidation involving the Company, if, immediately after such reorganization, merger, or consolidation, each of the conditions described in clauses (i), (ii), and (iii) of subsection (c)(3) shall be satisfied, or (D) any acquisition by the Executive or any group of persons including the Executive; and provided further that, for purposes of clause (A), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 20% or more of the Outstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Voting Securities, such additional beneficial ownership shall constitute a Change in Control; (2) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of Spartan Stores subsequent to the date hereof whose election, or nomination for election by the shareholders of Spartan Stores, was approved by the vote of at least two-thirds of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Spartan Stores in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of Spartan Stores as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, o r any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board, shall be deemed to have been a member of the Incumbent Board;
(3) approval by the shareholders of Spartan Stores of a reorganization, merger, or consolidation unless, in any such case, immediately after such reorganization, merger, or consolidation, (i) more than 50% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation
and more than 50% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger, or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than (A) the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger, or consolidation (or any corporation controlled by the Company), or (B) any Person which beneficial ly owned, immediately prior to such reorganization, merger, or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of such corporation or 20% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger, or consolidation; or (4) approval by the shareholders of Spartan Stores of (i) a plan of complete liquidation or dissolution of Spartan Stores or (ii) the sale or other disposition of all or substantially all of the assets of Spartan Stores other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 50% of the then outstanding shares of common stock thereof and more than 50% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately pri or to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the
case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of Common stock thereof or 20% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition. Notwithstanding anything contained in this Agreement to the contrary, if Executive's employment is terminated prior to a Change in Control and Executive reasonably demonstrates that such termination was at the request of or in response to a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party"), and who subsequently effectuates a Change in Control, then for all purposes of this Agreement, the date of a Change in Control shall mean the date immediately prior to the date of such termination of Executive's employment.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the common stock of Spartan Stores, no par value per share.
(f) "Company" means Spartan Stores, Inc., a Michigan corporation, and any corporation or other entity in which Spartan Stores, Inc. has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors.
(g) "Date of Termination" means the effective date on which Executive's employment by the Company terminates as specified in a Notice of Termination by the Company or Executive, as the case may be. Notwithstanding the previous sentence, (i) if the Executive's employment is terminated for Disability, as defined in Section 1(h), then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the Executive's employment is terminated by the Company
other than for Cause, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received.(h) "Disability" means Executive's failure to be available to substantially perform his duties with the Company on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive's incapacity due to mental or physical illness.
(i) "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after or in connection with a Change in Control:
(1) (i) the assignment to Executive of any duties inconsistent in any material adverse respect with Executive's position(s), duties, responsibilities, or status with the Company immediately prior to such Change in Control, (ii) a material adverse change in Executive's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control, (iii) any removal or involuntary termination of Executive by the Company otherwise than as expressly permitted by this Agreement (including any purported termination of employment which is not effected by a Notice of Termination), or (iv) any failure to re-elect Executive to any position with the Company held by Executive immediately prior to such Change in Control;
(2) a reduction by the Company in Executive's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter;
(3) any requirement of the Company that Executive (i) be based anywhere other than the facility where Executive is located at the time of the Change in Control or reasonably equivalent facilities within Kent County, Michigan or (ii) engage in business travel to an extent substantially more burdensome than the travel obligations of Executive immediately prior to such Change in Control;
(4) the failure of the Company to continue the Company's executive incentive plans or bonus plans in which Executive is participating immediately prior to such Change in Control or a reduction of the Executive's target incentive award opportunity under any such bonus plan, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits or receives
compensation as a substitute for such plans providing Executive with a substantially equivalent economic benefit; (5) the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which Executive is participating immediately prior to such Change in Control, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits or receives compensation as a substitute for such plans providing Executive with a substantially equivalent after-tax economic benefit, or the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan, (ii) provide Executive and Executive's dependents with welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs, and polici es of the Company in effect for Executive immediately prior to such Change in Control, (iii) provide other fringe benefits in accordance with the most favorable plans, practices, programs, and policies of the Company in effect for Executive immediately prior to such Change in Control, or (iv) provide Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company as in effect for Executive immediately prior to such Change in Control;
(6) the failure of the Company to pay any amounts owed Executive as salary, bonus, deferred compensation or other compensation;
(7) the failure of Spartan Stores to obtain any assumption agreement contemplated in Section 9(b);
(8) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination which satisfies the requirements of a Notice of Termination; or
(9) any other material breach by Spartan Stores of its obligations under this Agreement.
For purposes of this Agreement, any good faith determination of Good Reason made by Executive shall be conclusive on the parties; provided, however, that an isolated and insubstantial action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Any event or condition described in
this Section 1(i) which occurs prior to a Change in Control, but which Executive reasonably demonstrates was at the request of or in response to a Third Party who effectuates a Change in Control or who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control.Executive may not terminate the employment for "Good Reason" unless:
(i) Executive notifies the Board of Directors in writing, within 60 days after Executive becomes aware of the act or omission constituting Good Reason that the act or omission in question constitutes Good Reason and explaining why the Executive considers it to constitute Good Reason;
(ii) the Company fails, within 10 days after notice from Executive under (i) above, to revoke the action or correct the omission and make the Executive whole; and
(iii) Executive gives notice of termination within 30 days after expiration of the 10-day period under (ii) above.
Executive's failure to give notice as provided in (i) above will not waive Executive's right to resign with Good Reason, provided that he follows the above procedure, with regard to any subsequent act or omission constituting Good Reason.
Executive need not fulfill the above conditions a second time if the Company repeats the act or omission constituting Good Reason.
(j) "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than for Good Reason with Notice of Termination, (3) as a result of Executive's death, (4) by the Company due to Executive's Disability, unless within thirty (30) days after Notice of Termination is provided to Executive, Executive shall have returned (or offered to return, if not permitted by the Company to do so) to substantial performance of Executive's duties on a full-time basis, or (5) as a result of Executive's Retirement.
(k) "Notice of Termination" means a written notice by the Company or Executive, as the case may be, to the other, which (1) indicates the specific reason for Executive's termination, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment, and (3) specifies the termination date.
The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder.(l) "Retirement" means termination of employment by either the Executive or the Company on or after the Executive's normal retirement date under the terms of retirement plans of the Company, but not earlier than the age of 65.
(m) "SERP" means the Spartan Stores, Inc. Supplemental Executive Retirement Plan, as amended from time to time.
(n) "Termination Period" means the period of time beginning with a Change in Control and ending 24 months following such Change in Control.
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Term of Agreement. This Agreement shall commence on the Effective Date and shall continue in effect until Spartan Stores has fulfilled all of its obligations under this Agreement following any termination of Executive's employment with the Company. |
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Severance Benefits. If the employment of Executive with the Company shall terminate during the Termination Period, other than by reason of a Nonqualifying Termination, then Executive shall receive the following severance benefits as compensation for services rendered: |
(a) Lump Sum Cash Payment. Within five (5) days after the Date of Termination, Executive shall receive a lump sum cash payment in an amount equal to the sum of the following:
(1) Executive's unpaid base salary from the Company through the Date of Termination at the rate in effect (without taking into account any reduction of base salary constituting Good Reason), just prior to the time a Notice of Termination is given plus any benefit awards (including both the cash and stock components) and bonus payments which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid;
(2) A bonus will be paid under the Company's Annual Incentive Plan or any successor plan ("Annual Plan") for the time Executive was employed by the Company in the fiscal year of termination, in an amount equal to the product of (i) the number of days Executive was
employed by the Company prior to the Date of Termination in the year of termination divided by the number of days in the year, multiplied by (ii) 100% of the Executive's current year target bonus (with such calculations to be made as though the target level has been achieved for each Performance Goal (as defined in the Annual Plan)) . (3) A bonus will be paid under the Long Term Incentive Plan or any successor Plan ("Long Term Plan"), in an amount equal to the payment called for under the Long Term Plan (as in effect on the date of this Agreement) upon termination of Executive's employment without Cause during a year.
(4) An amount equal to [Note 3] times the sum of (i) the higher of the Executive's annual rate of base salary from the Company in effect on the Date of Termination or in effect on the day before the Change in Control; and (ii) the higher of the (A) Executive's current year target bonus under the Annual Plan (with such calculations to be made as though the target level has been achieved for each performance goal (as defined in the Annual Plan)), or (B) the bonus awarded to the Executive under the Annual Plan for the fiscal year immediately preceding the Change in Control.
(b) Benefits. Except for any retirement plans covered by Section 4 below, the Company shall maintain in full force and effect for the benefit of Executive and his spouse and covered dependents the employee benefit plans, programs and arrangements listed in subparagraphs 3(b)(i), (ii) and (iii) below in which the Executive and his spouse and covered dependents were entitled to participate in immediately prior to the Date of Termination until the earlier of the end of the [Note 4] month following the month in which the Date of Termination occurs, or (as to any particular benefit) the date upon which the Executive receives a substantially equal benefit from a new employer. If the participation of the Executive and his spouse and covered dependents in any such plans or programs is not permitted by the terms of any such plans or programs, or would cause the Executive to experience adverse tax consequences, the Company shall provide comparable benefits eliminating the adverse tax consequences but providing substantially the same after-tax benefit levels as the Executive, spouse and covered dependents previously received under such plans and programs. The covered benefits are:
(i) all health, dental and prescription drug benefits,
(ii) the Executive's tax and financial planning benefit, and
(iii) all Company funded life insurance coverage.
(c) Automobile. The Company shall cause the title to Executive's Company-provided automobile to be transferred to Executive, free and clear.
(d) Outplacement Services. The Company will provide the Employee with outplacement services through an outplacement services firm selected by the Company with the Employee's approval, which shall not be withheld if the firm selected is reputable at a cost not to exceed an amount equal to 15 percent of the Executive's base salary at the time of the termination.
(e) Certain Reductions Disregarded. In computing the payments under sections (a) through (d) above, any reduction in Executive's base salary, bonus or fringe benefits shall be disregarded if such reduction constituted "Good Reason" as defined in this Agreement.
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Retirement Benefits. |
(a) The Executive is a Participant in the SERP. If the employment of Executive with the Company shall terminate during the Termination Period other than by reason of a Nonqualifying Termination, then Executive shall receive (as a lump sum, to be paid within five (5) days after the Date of Termination) an amount equal to the difference between (i) the total amounts the Executive is eligible to receive as of the Date of Termination under the Spartan Stores, Inc. Cash Balance Pension Plan and any successor plan ("Pension Plan") and the SERP (assuming election by Executive of the lump sum payment options under the Pension Plan and SERP); and (ii) the total amounts the Executive would have been eligible to receive under the Pension Plan and SERP if the Executive were fully vested under the pension plan and the Executive's employment had continued until the end of the [Note 5] month following the month in which the Date of Termination occurs.
(b) The payments to Executive under this Section 4 shall be in addition to any payments under Section 3 of this Agreement and any payments under the Pension Plan and SERP.
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Acceleration of Vesting Upon Change in Control. Effective at the time of a Change in Control, all unvested stock options and stock previously issued to Executive as to which rights of ownership are subject to forfeiture shall immediately vest; all risk of forfeiture of the ownership of stock or stock options and restrictions on the exercise of options shall lapse; and, Executive shall be entitled to exercise any or all options, such that the underlying shares will be considered outstanding at the time of the Change in Control. |
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Certain Additional Payments by the Company. |
(a) Anything in this Agreement to the contrary notwithstanding, if any payments or distributions by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise ("Payments")) trigger application of the excise tax imposed by Section 4999 of the Code, or any successor Code provision (such excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), or any interest or penalties are incurred by Executive with respect to Excise Tax on such amount, then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect theret o) and any Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments, it being the intent of this section that the Executive shall be held harmless from all Excise Tax and interest and penalties on Excise Tax.
(b) Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, 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 the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company or Executive (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity, or group affecting the Change in Control, Executive shall appoint another nationally recognized public accounti ng firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive within five (5) days of the receipt of the Determination. If the Accounting Firm determines that no Excise Taxes are payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive; however, as
a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make payment of any Excise Tax that qualifies for a Gross-Up Payment in accordance with this Section 6, 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 Executive.(c) 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 a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after 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. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:
(i) give the Company any information reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such claim, and
(iv) permit the Company to participate in any proceeding 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 Executive harmless, on an after-tax basis, for any Excise Tax or income or employment 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 6(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 Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and 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 further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income or employment tax (including interest or penalties with respect thereto) imposed with respect to such adva nce or with respect to any imputed income with respect to such advance; and provided further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of 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 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 Executive of an amount advanced by the Company pursuant to Section 6, Executive becomes entitled to receive, and receives, any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 6) 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 Executive of an amount advanced by the Company pursuant to Section 6, a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amo unt of Gross-Up Payment required to be paid.
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Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local, or other law, the Company is required to withhold therefrom. |
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Reimbursement of Expenses. If any contest or dispute shall arise under or related to this Agreement involving termination of Executive's employment with the Company or |
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involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute regardless of the result thereof. |
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9. |
Successors; Binding Agreement. |
(a) This Agreement shall not be terminated by any merger or consolidation of Spartan Stores whereby Spartan Stores is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of Spartan Stores. In the event of any such merger, consolidation, or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred.
(b) Spartan Stores agrees that concurrently with any merger, consolidation or transfer of assets referred to in this Section 9, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of Spartan Stores to obtain such assumption prior to the effectiveness of any such merger, consolidation, or transfer of assets shall be a breach of this Agreement and shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation, or transfer becomes effecti ve shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive.
(c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate.
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Notice. For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or received by facsimile transmission or five (5) days after deposit in |
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the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: |
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If to the Executive: |
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______________________ |
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If to Spartan Stores: |
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Spartan Stores, Inc. |
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or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. |
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Full Settlement; Resolution of Disputes. |
(a) The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment.
(b) If there shall be any dispute between the Company and Executive in the event of any termination of Executive's employment then, until there is a final, nonappealable, determination pursuant to arbitration declaring that such termination was for Cause, that the determination by Executive of the existence of Good Reason was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to Executive and his dependents or other beneficiaries, as the case may be, under Sections 3 and 4, the Company shall pay all amounts, and provide all benefits, to Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Sections 3 and 4 as though such
termination were by the Company without Cause or by Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this Section 11 except upon receipt of an undertaking by or on behalf of Executive to repay all such amounts to which Executive is ultimately determined by the arbitrator not to be entitled.(c) Arbitration. Any dispute or controversy under this Agreement shall be settled exclusively by arbitration in Grand Rapids, Michigan, in accordance with the rules of the American Arbitration Association then in effect; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid pursuant to Section 11(b) during a dispute. Judgment may be entered on the arbitration award in any court having jurisdiction. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 11(c).
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Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Michigan without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. |
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13. |
Establishment of Trust. Immediately prior to a Change in Control, the Company shall establish and maintain a Trust in the form attached as Exhibit A. Upon the occurrence of a Change in Control the Company shall pay into the Trust the amounts called for under Exhibit A, and shall thereafter make such additional payments as called for under Exhibit A. No payment to the Trust by the Company shall reduce the Company's obligations to make payments to Executive under this Agreement. |
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Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. |
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Miscellaneous. No provision of this Agreement may be modified or waived unless such modification is agreed to in writing and signed by Executive and by a duly authorized officer of the Company, or such waiver is signed by the waiving party. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including without limitation, the right |
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of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. The rights of, and benefits payable to, Executive, his estate, or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate, or his beneficiaries under any other employee benefit plan or compensation program of the Company, except that no benefits pursuant to any other employee plan or compensation program that become payable or are paid in accordance with this Agreement shall be duplicated by operation of this Agreement. No agreements or representations, oral or otherwise, express or implied, with regard to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. |
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of Spartan Stores. Executive has executed this Agreement as of the day and year written below.
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SPARTAN STORES, INC. |
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By: |
/s/ Craig C. Sturken |
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Craig C. Sturken |
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AGREED TO THIS [Note 6] |
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"Executive" |
EXHIBIT 10.16
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the 3rd day of March, 2003 (the "Effective Date"), by and between SPARTAN STORES, INC. a Michigan corporation ("Spartan Stores"), and CRAIG STURKEN ("Executive").
W I T N E S S E T H:
WHEREAS, Executive currently serves as a key employee of Spartan Stores and/or its subsidiaries (the "Company") and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company's principal operating facilities, divisions, or subsidiaries; and
WHEREAS, Spartan Stores considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders; and
WHEREAS, the Board has determined that it is in the best interests of Spartan Stores and its shareholders to secure Executive's continued services and to ensure Executive's continued dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as hereafter defined) of Spartan Stores, without concern as to whether Executive might be hindered or distracted by personal uncertainties and risks created by any such possible Change in Control, and to encourage Executive's full attention and dedication to Spartan Stores and/or its subsidiaries, the Board has authorized Spartan Stores to enter into this Agreement.
NOW, THEREFORE, COMPANY AND EXECUTIVE AGREE AS FOLLOWS:
1. |
Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below: |
  (a)   "Board" means the Board of Directors of Spartan Stores.
  (b)   "Cause" means (1) the willful and continued failure by Executive to substantially perform his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental injury or illness, or any such actual or anticipated failure resulting from Executive's termination for Good Reason) after a demand for substantial performance is delivered to Executive by the Board (which demand shall specifically identify the manner in which the Board believes that Executive has not substantially performed his or her duties); or (2) the willful engaging by Executive in gross misconduct materially
and demonstrably injurious to the Company. For purposes of this Section, no act or failure to act on the part of Executive shall be considered "willful" unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action(s) or omission(s) was in the best interests of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until the Company provides Executive with a copy of a resolution adopted by an affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive, with counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive has been guilty of conduct set forth in subsections (1) or (2) above, setting forth the particulars in detail. A determination for Cause by the Board shall not be binding upo n or entitled to deference by any finder of fact in the event of a dispute, it being the intent of the parties that such finder of fact shall make an independent determination of whether the termination was for "Cause" as defined in (1) or (2) above.
    (c)   "Change in Control" means:
  (1)   the acquisition by any individual, entity, or group (a "Person"), including any "person" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or more of either (i) the then outstanding shares of common stock of Spartan Stores (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of Spartan Stores entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any Person co ntrolled by the Company, (C) any acquisition by any corporation pursuant to a reorganization, merger, or consolidation involving the Company, if, immediately after such reorganization, merger, or consolidation, each of the conditions described in clauses (i), (ii), and (iii) of subsection (c)(3) shall be satisfied, or (D) any acquisition by the Executive or any group of persons including the Executive; and provided further that, for purposes of clause (A), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 20% or more of the Outstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of
an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Voting Securities, such additional beneficial ownership shall constitute a Change in Control;
  (2)   individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of Spartan Stores subsequent to the date hereof whose election, or nomination for election by the shareholders of Spartan Stores, was approved by the vote of at least two-thirds of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Spartan Stores in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of Spartan Stores as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board, shall be deemed to have been a member of the Incumbent Board;
  (3)   approval by the shareholders of Spartan Stores of a reorganization, merger, or consolidation unless, in any such case, immediately after such reorganization, merger, or consolidation, (i) more than 50% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation and more than 50% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger, or consolidat ion, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than (A) the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger, or consolidation (or any corporation controlled by the Company), or (B) any Person which beneficially owned, immediately prior to such
reorganization, merger, or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of such corporation or 20% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger, or consolidation; or
  (4)   approval by the shareholders of Spartan Stores of (i) a plan of complete liquidation or dissolution of Spartan Stores or (ii) the sale or other disposition of all or substantially all of the assets of Spartan Stores other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 50% of the then outstanding shares of common stock thereof and more than 50% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of Common stock thereof or 20% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board pr oviding for such sale or other disposition.
  Notwithstanding anything contained in this Agreement to the contrary, if Executive's employment is terminated prior to a Change in Control and Executive reasonably demonstrates that such termination was at the request of or in response to a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party"), and who subsequently effectuates a Change in Control, then for all purposes of this Agreement, the date of a Change in Control shall mean the date immediately prior to the date of such termination of Executive's employment.
  (d)   "Code" means the Internal Revenue Code of 1986, as amended.
  (e)   "Common Stock" means the common stock of Spartan Stores, no par value per share.
  (f)   "Company" means Spartan Stores, Inc., a Michigan corporation, and any corporation or other entity in which Spartan Stores, Inc. has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors.
  (g)   "Date of Termination" means the effective date on which Executive's employment by the Company terminates as specified in a Notice of Termination by the Company or Executive, as the case may be. Notwithstanding the previous sentence, (i) if the Executive's employment is terminated for Disability, as defined in Section 1(h), then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the Executive's employment is terminated by the Company other than for Cause, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received.
  (h)   "Disability" means Executive's failure to be available to substantially perform his duties with the Company on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive's incapacity due to mental or physical illness.
  (i)   "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after or in connection with a Change in Control:
  (1)   (i) the assignment to Executive of any duties inconsistent in any material adverse respect with Executive's position(s), duties, responsibilities, or status with the Company immediately prior to such Change in Control, (ii) a material adverse change in Executive's positions,
reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control, (iii) any removal or involuntary termination of Executive by the Company otherwise than as expressly permitted by this Agreement (including any purported termination of employment which is not effected by a Notice of Termination), or (iv) any failure to re-elect Executive to any position with the Company held by Executive immediately prior to such Change in Control;
  (2)   a reduction by the Company in Executive's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter;
  (3)   any requirement of the Company that Executive (i) be based anywhere other than the facility where Executive is located at the time of the Change in Control or reasonably equivalent facilities within Kent County, Michigan or (ii) engage in business travel to an extent substantially more burdensome than the travel obligations of Executive immediately prior to such Change in Control;
  (4)   the failure of the Company to continue the Company's executive incentive plans or bonus plans in which Executive is participating immediately prior to such Change in Control or a reduction of the Executive's target incentive award opportunity under any such bonus plan, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits or receives compensation as a substitute for such plans providing Executive with a substantially equivalent economic benefit;
  (5)   the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which Executive is participating immediately prior to such Change in Control, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits or receives compensation as a substitute for such plans providing Executive with a substantially equivalent after-tax economic benefit, or the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan, (ii) provide Executive and Executive's dependents with welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs, and policies of the Company in effect for
Executive immediately prior to such Change in Control, (iii) provide other fringe benefits in accordance with the most favorable plans, practices, programs, and policies of the Company in effect for Executive immediately prior to such Change in Control, or (iv) provide Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company as in effect for Executive immediately prior to such Change in Control;
  (6)   the failure of the Company to pay any amounts owed Executive as salary, bonus, deferred compensation or other compensation;
  (7)   the failure of Spartan Stores to obtain any assumption agreement contemplated in Section 9(b);
  (8)   any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination which satisfies the requirements of a Notice of Termination; or
  (9)   any other material breach by Spartan Stores of its obligations under this Agreement.
  For purposes of this Agreement, any good faith determination of Good Reason made by Executive shall be conclusive on the parties; provided, however, that an isolated and insubstantial action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Any event or condition described in this Section 1(i) which occurs prior to a Change in Control, but which Executive reasonably demonstrates was at the request of or in response to a Third Party who effectuates a Change in Control or who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control.
  Executive may not terminate the employment for "Good Reason" unless:
  (i)   Executive notifies the Board of Directors in writing, within 60 days after Executive becomes aware of the act or omission constituting Good Reason that the act or omission in question constitutes Good Reason and explaining why the Executive considers it to constitute Good Reason;
  (ii)   the Company fails, within 10 days after notice from Executive under (i) above, to revoke the action or correct the omission and make the Executive whole; and
  (iii)   Executive gives notice of termination within 30 days after expiration of the 10-day period under (ii) above.
  Executive's failure to give notice as provided in (i) above will not waive Executive's right to resign with Good Reason, provided that he follows the above procedure, with regard to any subsequent act or omission constituting Good Reason.
  Executive need not fulfill the above conditions a second time if the Company repeats the act or omission constituting Good Reason.
  (j)   "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than for Good Reason with Notice of Termination, (3) as a result of Executive's death, (4) by the Company due to Executive's Disability, unless within thirty (30) days after Notice of Termination is provided to Executive, Executive shall have returned (or offered to return, if not permitted by the Company to do so) to substantial performance of Executive's duties on a full-time basis, or (5) as a result of Executive's Retirement.
  (k)   "Notice of Termination" means a written notice by the Company or Executive, as the case may be, to the other, which (1) indicates the specific reason for Executive's termination, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment, and (3) specifies the termination date. The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder.
  (l)   "Retirement" means termination of employment by either the Executive or the Company on or after the Executive's normal retirement date under the terms of retirement plans of the Company, but not earlier than the age of 65.
  (m)   "SERP" means the Spartan Stores, Inc. Supplemental Executive Retirement Plan, as amended from time to time.
  (n)   "Termination Period" means the period of time beginning with a Change in Control and ending three years following such Change in Control.
2. |
Term of Agreement. This Agreement shall commence on the Effective Date and shall continue in effect until Spartan Stores has fulfilled all of its obligations under this Agreement following any termination of Executive's employment with the Company. |
3. |
Severance Benefits. If the employment of Executive with the Company shall terminate during the Termination Period, other than by reason of a Nonqualifying Termination, then Executive shall receive the following severance benefits as compensation for services rendered: |
  (a)   Lump Sum Cash Payment.   Within five (5) days after the Date of Termination, Executive shall receive a lump sum cash payment in an amount equal to the sum of the following:
  (1)   Executive's unpaid base salary from the Company through the Date of Termination at the rate in effect (without taking into account any reduction of base salary constituting Good Reason), just prior to the time a Notice of Termination is given plus any benefit awards (including both the cash and stock components) and bonus payments which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid;
  (2)   A bonus will be paid under the Company's Annual Incentive Plan or any successor plan ("Annual Plan") for the time Executive was employed by the Company in the fiscal year of termination, in an amount equal to the product of (i) the number of days Executive was employed by the Company prior to the Date of Termination in the year of termination divided by the number of days in the year, multiplied by (ii) 100% of the Executive's current year target bonus (with such calculations to be made as though the target level has been achieved for each Performance Goal (as defined in the Annual Plan)).
  (3)   A bonus will be paid under the Long Term Incentive Plan or any successor Plan ("Long Term Plan"), in an amount equal to the payment called for under the Long Term Plan (as in effect on the date of this Agreement) upon termination of Executive's employment without Cause during a year.
  (4)   An amount equal to three (3) times the sum of (i) the higher of the Executive's annual rate of base salary from the Company in effect on the Date of Termination or in effect on the day before the Change in Control; and (ii) the higher of the (A) Executive's current year target bonus under the Annual Plan (with such calculations to be made as though
the target level has been achieved for each performance goal (as defined in the Annual Plan)), or (B) the bonus awarded to the Executive under the Annual Plan for the fiscal year immediately preceding the Change in Control.
  (b)   Benefits. The Company shall maintain in full force and effect for the benefit of Executive and his spouse and covered dependents those employee benefit plans, programs and arrangements listed in subparagraphs 3(b)(i), (ii) and (iii) below in which the Executive and his spouse and covered dependents were entitled to participate in immediately prior to the Date of Termination until the earlier of the end of the thirty-sixth (36th) month following the month in which the Date of Termination occurs, or (as to any particular benefit) the date upon which the Executive receives a substantially equal benefit from a new employer. If the participation of the Executive and his spouse and covered dependents in any such plans or programs is not permitted by the terms of any such plans or programs, or would cause the Executive to experience adverse tax consequences, the Company shall provide comparable benefits eliminating the adver se tax consequences but providing substantially the same after-tax benefit levels as the Executive, spouse and covered dependents previously received under such plans and programs. The covered benefits are:
  (i)   all health, dental and prescription drug benefits,
  (ii)   the Executive's tax and financial planning benefit, and
  (iii)   all Company funded life insurance coverage.
  (c)   Outplacement Services. The Company will provide the Executive with outplacement services through an outplacement services firm selected by the Company with the Executive's approval, which shall not be withheld if the firm selected is reputable, at a cost not to exceed an amount equal to 15 percent of the Executive's annual base salary at the time of the termination.
  (d)   Certain Reductions Disregarded. In computing the payments under subsections (a) through (d) above, any reduction in Executive's base salary, bonus or fringe benefits shall be disregarded if such reduction constituted "Good Reason" as defined in this Agreement.
4. |
Retirement Benefits. |
  (a)   The Executive is a Participant in the SERP. If the employment of Executive with the Company shall terminate during the Termination Period other than by reason of a Nonqualifying Termination, then Executive shall receive (as a
lump sum, to be paid within five (5) days after the Date of Termination) an amount equal to the difference between (i) the total amounts the Executive is eligible to receive as of the Date of Termination under the Spartan Stores, Inc. Cash Balance Pension Plan and any successor plan ("Pension Plan") and the SERP (assuming election by Executive of the lump sum payment options under the Pension Plan and SERP); and (ii) the total amounts the Executive would have been eligible to receive under the Pension Plan and SERP if the Executive were fully vested under the pension plan and the Executive's employment had continued until the end of the thirty-sixth (36th) month following the month in which the Date of Termination occurs.
  (b)   The payments to Executive under this Section 4 shall be in addition to any payments under Section 3 of this Agreement and any payments under the Pension Plan and SERP.
  (c)   In computing the payment under subsection (a) above, any change to the SERP shall be disregarded if such change constituted "Good Reason" as defined in this Agreement.    
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Acceleration of Vesting Upon Change in Control. Effective at the time of a Change in Control, all unvested stock options and stock previously issued to Executive as to which rights of ownership are subject to forfeiture shall immediately vest; all risk of forfeiture of the ownership of stock or stock options and restrictions on the exercise of options shall lapse; and, Executive shall be entitled to exercise any or all options, such that the underlying shares will be considered outstanding at the time of the Change in Control. |
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Certain Additional Payments by the Company. |
  (a)   Anything in this Agreement to the contrary notwithstanding, if any payments or distributions by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise ("Payments")) trigger application of the excise tax imposed by Section 4999 of the Code, or any successor Code provision (such excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), or any interest or penalties are incurred by Executive with respect to Excise Tax on such amount, then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments, it being the intent of this section that the Executive
shall be held harmless from all Excise Tax and interest and penalties on Excise Tax.
  (b)   Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, 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 the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company or Executive (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity, or group affecting the Change in Control, Executive shall appoint another nationally recogniz ed public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive within five (5) days of the receipt of the Determination. If the Accounting Firm determines that no Excise Taxes are payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive; however, as a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been mad e ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make payment of any Excise Tax that qualifies for a Gross-Up Payment in accordance with this Section 6, 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 Executive.
  (c)   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 a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after 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. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on
which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:
  (i)   give the Company any information reasonably requested by the Company relating to such claim,
  (ii)   take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
  (iii)   cooperate with the Company in good faith in order effectively to contest such claim, and
  (iv)   permit the Company to participate in any proceeding 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 Executive harmless, on an after-tax basis, for any Excise Tax or income or employment 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 6(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 Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initi al jurisdiction and in one or more appellate courts, as the Company shall determine; provided further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income or employment 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 provided further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of 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 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 Executive of an amount advanced by the Company pursuant to Section 6, Executive becomes entitled to receive, and receives, any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 6) 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 Executive of an amount advanced by the Company pursuant to Section 6, a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amoun t of Gross-Up Payment required to be paid.
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Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local, or other law, the Company is required to withhold therefrom. |
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Reimbursement of Expenses. If any contest or dispute shall arise under or related to this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute regardless of the result thereof. |
9. |
Successors; Binding Agreement. |
  (a)   This Agreement shall not be terminated by any merger or consolidation of Spartan Stores whereby Spartan Stores is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of Spartan Stores. In the event of any such merger, consolidation, or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred.
  (b)   Spartan Stores agrees that concurrently with any merger, consolidation or transfer of assets referred to in this Section 9, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company
hereunder. Failure of Spartan Stores to obtain such assumption prior to the effectiveness of any such merger, consolidation, or transfer of assets shall be a breach of this Agreement and shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation, or transfer becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive.
  (c)   This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate.
10. |
Notice. For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or received by facsimile transmission or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: |
  If to the Executive:
Dennis Eidson |
|
________________________ |
|
________________________ |
  If to Spartan Stores:
Spartan Stores, Inc. |
Attention: Secretary |
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
11. |
Full Settlement; Resolution of Disputes. |
  (a)   The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment.
  (b)   If there shall be any dispute between the Company and Executive in the event of any termination of Executive's employment then, until there is a final, nonappealable, determination pursuant to arbitration declaring that such termination was for Cause, that the determination by Executive of the existence of Good Reason was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to Executive and his dependents or other beneficiaries, as the case may be, under Sections 3 and 4, the Company shall pay all amounts, and provide all benefits, to Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Sections 3 and 4 as though such termination were by the Company without Cause or by Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts purs uant to this Section 11 except upon receipt of an undertaking by or on behalf of Executive to repay all such amounts to which Executive is ultimately determined by the arbitrator not to be entitled.
  (c)   Arbitration. Any dispute or controversy under this Agreement shall be settled exclusively by arbitration in Grand Rapids, Michigan, in accordance with the rules of the American Arbitration Association then in effect; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid pursuant to Section 11(b) during a dispute. Judgment may be entered on the arbitration award in any court having jurisdiction. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 11(c).
12. |
Inability to Perform, Risk of Liability. If Executive's Employment is terminated pursuant to Section 5(v) of the Employment Agreement between Executive and the Company dated March 17, 2003, this Agreement shall terminate immediately and the Company shall not be obligated to perform under it. |
13. |
Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Michigan without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. |
14. |
Establishment of Trust. Immediately prior to a Change in Control, the Company shall establish and maintain a Trust in the form attached as Exhibit A. Upon the occurrence of a Change in Control the Company shall pay into the Trust the amounts called for under Exhibit A, and shall thereafter make such additional payments as called for under Exhibit A. No payment to the Trust by the Company shall reduce the Company's obligations to make payments to Executive under this Agreement. |
15. |
Counterparts. This Agreement may be executed in original or by fax in counterparts, each of which shall be deemed to be an original and together the counterparts shall constitute one and the same instrument. |
16. |
Miscellaneous. No provision of this Agreement may be modified or waived unless such modification is agreed to in writing and signed by Executive and by a duly authorized officer of the Company, or such waiver is signed by the waiving party. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including without limitation, the right of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. The rights of, and benefits payable to, Executive, his estate, or his bene ficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate, or his beneficiaries under any other employee benefit plan or compensation program of the Company, except that no benefits pursuant to any other employee plan or compensation program that become payable or are paid in accordance with this Agreement shall be duplicated by operation of this Agreement. No agreements or representations, oral or |
|
otherwise, express or implied, with regard to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. |
* * *
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of Spartan Stores. Executive has executed this Agreement as of the day and year written below.
SPARTAN STORES, INC. |
||
By: |
/s/ Mark C. Eriks |
|
Mark C. Eriks |
AGREED TO THIS 3RD DAY OF MARCH, 2003 | ||
/s/ Craig Sturken |
||
CRAIG STURKEN "Executive" |
EXHIBIT 10.17
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of the 17th day of March, 2003 (the "Effective Date"), by and between SPARTAN STORES, INC. a Michigan corporation ("Spartan Stores"), and DENNIS EIDSON ("Executive").
W I T N E S S E T H:
WHEREAS, Executive currently serves as a key employee of Spartan Stores and/or its subsidiaries (the "Company") and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company's principal operating facilities, divisions, or subsidiaries; and
WHEREAS, Spartan Stores considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders; and
WHEREAS, the Board has determined that it is in the best interests of Spartan Stores and its shareholders to secure Executive's continued services and to ensure Executive's continued dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as hereafter defined) of Spartan Stores, without concern as to whether Executive might be hindered or distracted by personal uncertainties and risks created by any such possible Change in Control, and to encourage Executive's full attention and dedication to Spartan Stores and/or its subsidiaries, the Board has authorized Spartan Stores to enter into this Agreement.
NOW, THEREFORE, COMPANY AND EXECUTIVE AGREE AS FOLLOWS:
1. |
Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below: |
  (a)   "Board" means the Board of Directors of Spartan Stores.
  (b)   "Cause" means (1) the willful and continued failure by Executive to substantially perform his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental injury or illness, or any such actual or anticipated failure resulting from Executive's termination for Good Reason) after a demand for substantial performance is delivered to Executive by the Board (which demand shall specifically identify the manner in which the Board believes that Executive has not substantially performed his or her duties); or (2) the willful engaging by Executive in gross misconduct materially
and demonstrably injurious to the Company. For purposes of this Section, no act or failure to act on the part of Executive shall be considered "willful" unless done or omitted to be done by Executive not in good faith and without reasonable belief that his action(s) or omission(s) was in the best interests of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until the Company provides Executive with a copy of a resolution adopted by an affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to Executive and an opportunity for Executive, with counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive has been guilty of conduct set forth in subsections (1) or (2) above, setting forth the particulars in detail. A determination for Cause by the Board shall not be binding upo n or entitled to deference by any finder of fact in the event of a dispute, it being the intent of the parties that such finder of fact shall make an independent determination of whether the termination was for "Cause" as defined in (1) or (2) above.
  (c)   "Change in Control" means:
  (1)   the acquisition by any individual, entity, or group (a "Person"), including any "person" within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or more of either (i) the then outstanding shares of common stock of Spartan Stores (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of Spartan Stores entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any Person co ntrolled by the Company, (C) any acquisition by any corporation pursuant to a reorganization, merger, or consolidation involving the Company, if, immediately after such reorganization, merger, or consolidation, each of the conditions described in clauses (i), (ii), and (iii) of subsection (c)(3) shall be satisfied, or (D) any acquisition by the Executive or any group of persons including the Executive; and provided further that, for purposes of clause (A), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 20% or more of the Outstanding Company Common Stock or 20% or more of the Outstanding Company Voting Securities by reason of
an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Voting Securities, such additional beneficial ownership shall constitute a Change in Control;
  (2)   individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of Spartan Stores subsequent to the date hereof whose election, or nomination for election by the shareholders of Spartan Stores, was approved by the vote of at least two-thirds of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of Spartan Stores in which such person is named as a nominee for director, without objection to such nomination) shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of Spartan Stores as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board, shall be deemed to have been a member of the Incumbent Board;
  (3)   approval by the shareholders of Spartan Stores of a reorganization, merger, or consolidation unless, in any such case, immediately after such reorganization, merger, or consolidation, (i) more than 50% of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger, or consolidation and more than 50% of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger, or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger, or consolidat ion, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than (A) the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or the corporation resulting from such reorganization, merger, or consolidation (or any corporation controlled by the Company), or (B) any Person which beneficially owned, immediately prior to such
reorganization, merger, or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of such corporation or 20% or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger, or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger, or consolidation; or
  (4)   approval by the shareholders of Spartan Stores of (i) a plan of complete liquidation or dissolution of Spartan Stores or (ii) the sale or other disposition of all or substantially all of the assets of Spartan Stores other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 50% of the then outstanding shares of common stock thereof and more than 50% of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or such corporation (or any corporation controlled by the Company), or any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of Common stock thereof or 20% or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board pr oviding for such sale or other disposition.
  Notwithstanding anything contained in this Agreement to the contrary, if Executive's employment is terminated prior to a Change in Control and Executive reasonably demonstrates that such termination was at the request of or in response to a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party"), and who subsequently effectuates a Change in Control, then for all purposes of this Agreement, the date of a Change in Control shall mean the date immediately prior to the date of such termination of Executive's employment.
  (d)   "Code" means the Internal Revenue Code of 1986, as amended.
  (e)   "Common Stock" means the common stock of Spartan Stores, no par value per share.
  (f)   "Company" means Spartan Stores, Inc., a Michigan corporation, and any corporation or other entity in which Spartan Stores, Inc. has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors.
  (g)   "Date of Termination" means the effective date on which Executive's employment by the Company terminates as specified in a Notice of Termination by the Company or Executive, as the case may be. Notwithstanding the previous sentence, (i) if the Executive's employment is terminated for Disability, as defined in Section 1(h), then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received, and (ii) if the Executive's employment is terminated by the Company other than for Cause, then such Date of Termination shall be no earlier than thirty (30) days following the date on which a Notice of Termination is received.
  (h)   "Disability" means Executive's failure to be available to substantially perform his duties with the Company on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive's incapacity due to mental or physical illness.
  (i)   "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after or in connection with a Change in Control:
  (1)   (i) the assignment to Executive of any duties inconsistent in any material adverse respect with Executive's position(s), duties, responsibilities, or status with the Company immediately prior to such Change in Control, (ii) a material adverse change in Executive's positions,
reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control, (iii) any removal or involuntary termination of Executive by the Company otherwise than as expressly permitted by this Agreement (including any purported termination of employment which is not effected by a Notice of Termination), or (iv) any failure to re-elect Executive to any position with the Company held by Executive immediately prior to such Change in Control;
  (2)   a reduction by the Company in Executive's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter;
  (3)   any requirement of the Company that Executive (i) be based anywhere other than the facility where Executive is located at the time of the Change in Control or reasonably equivalent facilities within Kent County, Michigan or (ii) engage in business travel to an extent substantially more burdensome than the travel obligations of Executive immediately prior to such Change in Control;
  (4)   the failure of the Company to continue the Company's executive incentive plans or bonus plans in which Executive is participating immediately prior to such Change in Control or a reduction of the Executive's target incentive award opportunity under any such bonus plan, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits or receives compensation as a substitute for such plans providing Executive with a substantially equivalent economic benefit;
  (5)   the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which Executive is participating immediately prior to such Change in Control, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits or receives compensation as a substitute for such plans providing Executive with a substantially equivalent after-tax economic benefit, or the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan, (ii) provide Executive and Executive's dependents with welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs, and policies of the Company in effect for
Executive immediately prior to such Change in Control, (iii) provide other fringe benefits in accordance with the most favorable plans, practices, programs, and policies of the Company in effect for Executive immediately prior to such Change in Control, or (iv) provide Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company as in effect for Executive immediately prior to such Change in Control;
  (6)   the failure of the Company to pay any amounts owed Executive as salary, bonus, deferred compensation or other compensation;
  (7)   the failure of Spartan Stores to obtain any assumption agreement contemplated in Section 9(b);
  (8)   any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination which satisfies the requirements of a Notice of Termination; or
  (9)   any other material breach by Spartan Stores of its obligations under this Agreement.
  For purposes of this Agreement, any good faith determination of Good Reason made by Executive shall be conclusive on the parties; provided, however, that an isolated and insubstantial action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Any event or condition described in this Section 1(i) which occurs prior to a Change in Control, but which Executive reasonably demonstrates was at the request of or in response to a Third Party who effectuates a Change in Control or who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control.
  Executive may not terminate the employment for "Good Reason" unless:
  (i)   Executive notifies the Board of Directors in writing, within 60 days after Executive becomes aware of the act or omission constituting Good Reason that the act or omission in question constitutes Good Reason and explaining why the Executive considers it to constitute Good Reason;
  (ii)   the Company fails, within 10 days after notice from Executive under (i) above, to revoke the action or correct the omission and make the Executive whole; and
(iii)   Executive gives notice of termination within 30 days after expiration of the 10-day period under (ii) above.
  Executive's failure to give notice as provided in (i) above will not waive Executive's right to resign with Good Reason, provided that he follows the above procedure, with regard to any subsequent act or omission constituting Good Reason.
  Executive need not fulfill the above conditions a second time if the Company repeats the act or omission constituting Good Reason.
  (j)   "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than for Good Reason with Notice of Termination, (3) as a result of Executive's death, (4) by the Company due to Executive's Disability, unless within thirty (30) days after Notice of Termination is provided to Executive, Executive shall have returned (or offered to return, if not permitted by the Company to do so) to substantial performance of Executive's duties on a full-time basis, or (5) as a result of Executive's Retirement.
  (k)   "Notice of Termination" means a written notice by the Company or Executive, as the case may be, to the other, which (1) indicates the specific reason for Executive's termination, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment, and (3) specifies the termination date. The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder.
  (l)   "Retirement" means termination of employment by either the Executive or the Company on or after the Executive's normal retirement date under the terms of retirement plans of the Company, but not earlier than the age of 65.
  (m)   "SERP" means the Spartan Stores, Inc. Supplemental Executive Retirement Plan, as amended from time to time.
  (n)   "Termination Period" means the period of time beginning with a Change in Control and ending two (2) years following such Change in Control.
2. |
Term of Agreement. This Agreement shall commence on the Effective Date and shall continue in effect until Spartan Stores has fulfilled all of its obligations under this Agreement following any termination of Executive's employment with the Company. |
3. |
Severance Benefits. If the employment of Executive with the Company shall terminate during the Termination Period, other than by reason of a Nonqualifying Termination, then Executive shall receive the following severance benefits as compensation for services rendered: |
  (a)   Lump Sum Cash Payment.   Within five (5) days after the Date of Termination, Executive shall receive a lump sum cash payment in an amount equal to the sum of the following:
  (1)   Executive's unpaid base salary from the Company through the Date of Termination at the rate in effect (without taking into account any reduction of base salary constituting Good Reason), just prior to the time a Notice of Termination is given plus any benefit awards (including both the cash and stock components) and bonus payments which pursuant to the terms of any plans have been earned or become payable, to the extent not theretofore paid;
  (2)   A bonus will be paid under the Company's Annual Incentive Plan or any successor plan ("Annual Plan") for the time Executive was employed by the Company in the fiscal year of termination, in an amount equal to the product of (i) the number of days Executive was employed by the Company prior to the Date of Termination in the year of termination divided by the number of days in the year, multiplied by (ii) 100% of the Executive's current year target bonus (with such calculations to be made as though the target level has been achieved for each Performance Goal (as defined in the Annual Plan)).
  (3)   An amount equal to two (2) times the sum of (i) the higher of the Executive's annual rate of base salary from the Company in effect on the Date of Termination or in effect on the day before the Change in Control; and (ii) the higher of the (A) Executive's current year target bonus under the Annual Plan (with such calculations to be made as though the target level has been achieved for each performance goal (as defined in the Annual Plan)), or (B) the bonus awarded to the Executive under the Annual Plan for the fiscal year immediately preceding the Change in Control.
  (b)   Benefits. The Company shall maintain in full force and effect for the benefit of Executive and his spouse and covered dependents those employee benefit plans, programs and arrangements listed in subparagraphs 3(b)(i), (ii) and (iii) below in which the Executive and his spouse and covered dependents were entitled to participate in immediately prior to the Date of Termination until the earlier of the end of the twenty-fourth (24th) month following the month in which the Date of Termination occurs, or (as to any particular benefit) the date upon which the Executive receives a substantially equal benefit from a new employer. If the participation of the Executive and his spouse and covered dependents in any such plans or programs is not permitted by the terms of any such plans or programs, or would cause the Executive to experience adverse tax consequences, the Company shall provide comparable benefits eliminating the adve rse tax consequences but providing substantially the same after-tax benefit levels as the Executive, spouse and covered dependents previously received under such plans and programs. The covered benefits are:
(i)   all health, dental and prescription drug benefits,
(ii)   the Executive's tax and financial planning benefit, and
(iii)   all Company funded life insurance coverage.
  (c)   Outplacement Services. The Company will provide the Executive with outplacement services through an outplacement services firm selected by the Company with the Executive's approval, which shall not be withheld if the firm selected is reputable, at a cost not to exceed an amount equal to 15 percent of the Executive's annual base salary at the time of the termination.
  (d)   Certain Reductions Disregarded. In computing the payments under subsections (a) through (d) above, any reduction in Executive's base salary, bonus or fringe benefits shall be disregarded if such reduction constituted "Good Reason" as defined in this Agreement.
4. |
Retirement Benefits. |
  (a)   The Executive is a Participant in the SERP. If the employment of Executive with the Company shall terminate during the Termination Period other than by reason of a Nonqualifying Termination, then Executive shall receive (as a lump sum, to be paid within five (5) days after the Date of Termination) an amount equal to the difference between (i) the total amounts the Executive is eligible to receive as of the Date of Termination under the Spartan Stores, Inc. Cash Balance Pension Plan and any successor plan ("Pension Plan") and the SERP (assuming election by Executive of the lump sum payment options under
the Pension Plan and SERP); and (ii) the total amounts the Executive would have been eligible to receive under the Pension Plan and SERP if the Executive were fully vested under the pension plan and the Executive's employment had continued until the end of the twenty-fourth (24th) month following the month in which the Date of Termination occurs.
  (b)   The payments to Executive under this Section 4 shall be in addition to any payments under Section 3 of this Agreement and any payments under the Pension Plan and SERP.
  (c)   In computing the payment under subsection (a) above, any change to the SERP shall be disregarded if such change constituted "Good Reason" as defined in this Agreement.
5. |
Acceleration of Vesting Upon Change in Control. Effective at the time of a Change in Control, all unvested stock options and stock previously issued to Executive as to which rights of ownership are subject to forfeiture shall immediately vest; all risk of forfeiture of the ownership of stock or stock options and restrictions on the exercise of options shall lapse; and, Executive shall be entitled to exercise any or all options, such that the underlying shares will be considered outstanding at the time of the Change in Control. |
6. |
Certain Additional Payments by the Company. |
  (a)   Anything in this Agreement to the contrary notwithstanding, if any payments or distributions by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise ("Payments")) trigger application of the excise tax imposed by Section 4999 of the Code, or any successor Code provision (such excise tax, together with any interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), or any interest or penalties are incurred by Executive with respect to Excise Tax on such amount, then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and any Excise Tax, imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments, it being the intent of this section that the Executive shall be held harmless from all Excise Tax and interest and penalties on Excise Tax.
  (b)   Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, 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 the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company or Executive (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity, or group affecting the Change in Control, Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solel y by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to Executive within five (5) days of the receipt of the Determination. If the Accounting Firm determines that no Excise Taxes are payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive; however, as a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(c) and Executive thereafter is required to make payment of any Excise Tax that qualifies for a Gross-Up Payment in accordance with this Section 6, 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 Executive.
  (c)   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 a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after 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. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:
  (i)   give the Company any information reasonably requested by the Company relating to such claim,
  (ii)   take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
  (iii)   cooperate with the Company in good faith in order effectively to contest such claim, and
  (iv)   permit the Company to participate in any proceeding 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 Executive harmless, on an after-tax basis, for any Excise Tax or income or employment 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 6(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 Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initi al jurisdiction and in one or more appellate courts, as the Company shall determine; provided further, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income or employment 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 provided further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of 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 Executive shall be entitled to settle or contest, as the case may be, any oth er issue raised by the Internal Revenue Service or any other taxing authority.
  (d)   If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 6, Executive becomes entitled to receive, and receives, any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 6) 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 Executive of an amount advanced by the Company pursuant to Section 6, a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amoun t of Gross-Up Payment required to be paid.
7. |
Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local, or other law, the Company is required to withhold therefrom. |
8. |
Reimbursement of Expenses. If any contest or dispute shall arise under or related to this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute regardless of the result thereof. |
9. |
Successors; Binding Agreement. |
  (a)   This Agreement shall not be terminated by any merger or consolidation of Spartan Stores whereby Spartan Stores is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of Spartan Stores. In the event of any such merger, consolidation, or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred.
  (b)   Spartan Stores agrees that concurrently with any merger, consolidation or transfer of assets referred to in this Section 9, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of Spartan Stores to obtain such assumption prior to the effectiveness of any such merger, consolidation, or transfer of assets shall be a breach of this Agreement and shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation, or transfer becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive.
  (c)   This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate.
10. |
Notice. For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or received by facsimile transmission or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: |
  If to the Executive:
Dennis Eidson |
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________________________ |
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________________________ |
  If to Spartan Stores:
Spartan Stores, Inc. |
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
11. |
Full Settlement; Resolution of Disputes. |
  (a)   The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment.
  (b)   If there shall be any dispute between the Company and Executive in the event of any termination of Executive's employment then, until there is a final, nonappealable, determination pursuant to arbitration declaring that such termination was for Cause, that the determination by Executive of the existence of Good Reason was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to Executive and his dependents or other beneficiaries, as the case may be, under Sections 3 and 4, the Company shall pay all amounts, and provide all benefits, to Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Sections 3 and 4 as though such termination were by the Company without Cause or by Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts purs uant to this Section 11 except upon receipt of an undertaking by or on behalf of Executive to repay all such amounts to which Executive is ultimately determined by the arbitrator not to be entitled.
  (c)   Arbitration. Any dispute or controversy under this Agreement shall be settled exclusively by arbitration in Grand Rapids, Michigan, in accordance with the rules of the American Arbitration Association then in effect; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid pursuant to Section 11(b) during a dispute. Judgment may be entered on the arbitration award in any court having jurisdiction. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 11(c).
12. |
Inability to Perform, Risk of Liability. If Executive's Employment is terminated pursuant to Section 5(v) of the Employment Agreement between Executive and the Company dated March 17, 2003, this Agreement shall terminate immediately and the Company shall not be obligated to perform under it. |
13. |
Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the |
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internal laws of the State of Michigan without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. |
14. |
Establishment of Trust. Immediately prior to a Change in Control, the Company shall establish and maintain a Trust in the form attached as Exhibit A. Upon the occurrence of a Change in Control the Company shall pay into the Trust the amounts called for under Exhibit A, and shall thereafter make such additional payments as called for under Exhibit A. No payment to the Trust by the Company shall reduce the Company's obligations to make payments to Executive under this Agreement. |
15. |
Counterparts. This Agreement may be executed in original or by fax in counterparts, each of which shall be deemed to be an original and together the counterparts shall constitute one and the same instrument. |
16. |
Miscellaneous. No provision of this Agreement may be modified or waived unless such modification is agreed to in writing and signed by Executive and by a duly authorized officer of the Company, or such waiver is signed by the waiving party. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including without limitation, the right of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. The rights of, and benefits payable to, Executive, his estate, or his bene ficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate, or his beneficiaries under any other employee benefit plan or compensation program of the Company, except that no benefits pursuant to any other employee plan or compensation program that become payable or are paid in accordance with this Agreement shall be duplicated by operation of this Agreement. No agreements or representations, oral or otherwise, express or implied, with regard to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. |
  IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of Spartan Stores. Executive has executed this Agreement as of the day and year written below.
SPARTAN STORES, INC. |
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By: |
/s/ Mark C. Eriks |
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Mark C. Eriks |
AGREED TO THIS 3RD DAY OF MARCH, 2003 | ||
/s/ Dennis Eidson |
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DENNIS EIDSON "Executive" |
EXHIBIT 21
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1. |
SPARTAN STORES DISTRIBUTION, LLC |
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2. |
JFW DISTRIBUTING COMPANY |
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3. |
LLJ DISTRIBUTING COMPANY |
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4. |
UNITED WHOLESALE GROCERY COMPANY |
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5. |
MARKET DEVELOPMENT CORPORATION |
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6. |
SPARTAN STORES HOLDING, INC. |
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SPARTAN STORES HOLDING, INC. subsidiaries include: |
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8. |
FAMILY FARE, LLC |
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FAMILY FARE, LLC subsidiaries include: |
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10. |
SPARTAN STORES ASSOCIATES, LLC |
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11. |
MSFC, LLC |
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12. |
MDP, L.L.C. |
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13. |
SEAWAY FOOD TOWN, INC. |
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SEAWAY FOOD TOWN, INC. subsidiaries include: |
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15. |
BUCKEYE REAL ESTATE MANAGEMENT CO. |
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16. |
VALLEY FARM DISTRIBUTING CO. |
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17. |
PORT CLINTON REALTY COMPANY |
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18. |
GRUBER'S FOOD TOWN, INC. |
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19. |
GRUBER'S REAL ESTATE, LLC |
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20. |
CUSTER PHARMACY, INC. |
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21. |
SI INSURANCE AGENCY, INC. |
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22. |
SPARTAN INSURANCE COMPANY LTD. |
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EXHIBIT 23
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT AND
REPORT ON SCHEDULE
Board of Directors of Spartan Stores, Inc.
Grand Rapids, Michigan
We consent to the incorporation by reference in Registration Statement No. 33-110952 of Spartan Stores, Inc. Supplemental Savings Plan for Directors, Registration Statement No. 333-110593 of Spartan Stores, Inc. 2001 Associate Stock Purchase Plan, Registration Statement No. 33-47443 of Spartan Stores, Inc. 1991 Stock Option Plan, Registration Statement No. 33-65802 of Spartan Stores, Inc. 2001 Stock Incentive Plan, Registration Statement No. 333-66430 of Spartan Stores, Inc. Savings Plus Plan, Spartan Stores, Inc. Savings Plus Plan for Union Associates, Spartan Retail Savings Plus Plan, Spartan Stores, Inc. Savings Plus Plan for J.F. Walker Company Associates, and the Post Effective Amendment No. 1 thereto, Registration Statement No. 333-71774 of Spartan Stores, Inc. 2001 Stock Bonus Plan, Registration Statement No. 333-72010 of Spartan Stores, Inc. 2001 Associates Stock Purchase Plan, Registration Statement No. 333-75810 of Spartan Stores, Inc. Supplemental Executive Savings Plan, Registration Statement No. 333-100794 of Spartan Stores, Inc. Savings Plus Plan, Spartan Stores, Inc. Savings Plus Plan for Union Associates, Spartan Retail Savings Plus Plan, and Spartan Stores, Inc. Savings Plus Plan for J.F. Walker Company Associates on Form S-8, and Registration Statement No. 333-53672 of Spartan Stores, Inc. Prospectus on Form S-3 and Amendments No. 1 and No. 2 thereto of our report dated April 30, 2004, (which report expresses an unqualified opinion and includes an explanatory paragraph related to a change in the method of accounting for goodwill and discontinued operations to conform to Statements of Financial Accounting Standards Nos 142 and 144) appearing in this Annual Report on Form 10-K of Spartan Stores, Inc. and subsidiaries for the year ended March 27, 2004.
Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of Spartan Stores, Inc. and subsidiaries (the "Company"), listed in Item 15(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
May 26, 2004
EXHIBIT 24
POWER OF ATTORNEY
  The undersigned in his or her capacity as a director or officer, or both, of Spartan Stores, Inc., does hereby appoint CRAIG C. STURKEN and DAVID M. STAPLES or either of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of Spartan Stores, Inc. on Form 10-K for its fiscal year ended March 27, 2004, and any amendments to that report, and to file it with the Securities and Exchange Commission or other regulatory authority. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
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Signature: |
/s/ M. Shân Atkins |
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Print Name: |
M. Shân Atkins |
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Title: |
Director |
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Date: |
April 27, 2004 |
POWER OF ATTORNEY
  The undersigned in his or her capacity as a director or officer, or both, of Spartan Stores, Inc., does hereby appoint CRAIG C. STURKEN and DAVID M. STAPLES or either of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of Spartan Stores, Inc. on Form 10-K for its fiscal year ended March 27, 2004, and any amendments to that report, and to file it with the Securities and Exchange Commission or other regulatory authority. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
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Signature: |
/s/ Kenneth T. Stevens |
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Print Name: |
Kenneth T. Stevens |
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Title: |
Director |
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Date: |
May 3, 2004 |
POWER OF ATTORNEY
  The undersigned in his or her capacity as a director or officer, or both, of Spartan Stores, Inc., does hereby appoint CRAIG C. STURKEN and DAVID M. STAPLES or either of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of Spartan Stores, Inc. on Form 10-K for its fiscal year ended March 27, 2004, and any amendments to that report, and to file it with the Securities and Exchange Commission or other regulatory authority. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
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Signature: |
/s/ Frank M. Gambino |
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Print Name: |
Frank M. Gambino |
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Title: |
Director |
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Date: |
May 10, 2004 |
POWER OF ATTORNEY
  The undersigned in his or her capacity as a director or officer, or both, of Spartan Stores, Inc., does hereby appoint CRAIG C. STURKEN and DAVID M. STAPLES or either of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of Spartan Stores, Inc. on Form 10-K for its fiscal year ended March 27, 2004, and any amendments to that report, and to file it with the Securities and Exchange Commission or other regulatory authority. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
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Signature: |
/s/ Gregory P. Josefowicz |
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Print Name: |
Gregory P. Josefowicz |
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Title: |
Director |
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Date: |
April 26, 2004 |
POWER OF ATTORNEY
  The undersigned in his or her capacity as a director or officer, or both, of Spartan Stores, Inc., does hereby appoint CRAIG C. STURKEN and DAVID M. STAPLES or either of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of Spartan Stores, Inc. on Form 10-K for its fiscal year ended March 27, 2004, and any amendments to that report, and to file it with the Securities and Exchange Commission or other regulatory authority. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
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Signature: |
/s/ Timothy J. O'Donovan |
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Print Name: |
Timothy J. O'Donovan |
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Title: |
Director |
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Date: |
May 12, 2004 |
POWER OF ATTORNEY
  The undersigned in his or her capacity as a director or officer, or both, of Spartan Stores, Inc., does hereby appoint CRAIG C. STURKEN and DAVID M. STAPLES or either of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of Spartan Stores, Inc. on Form 10-K for its fiscal year ended March 27, 2004, and any amendments to that report, and to file it with the Securities and Exchange Commission or other regulatory authority. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
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Signature: |
/s/ Elizabeth A. Nickels |
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Print Name: |
Elizabeth A. Nickels |
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Title: |
Director |
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Date: |
April 29, 2004 |
POWER OF ATTORNEY
  The undersigned in his or her capacity as a director or officer, or both, of Spartan Stores, Inc., does hereby appoint CRAIG C. STURKEN and DAVID M. STAPLES or either of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of Spartan Stores, Inc. on Form 10-K for its fiscal year ended March 27, 2004, and any amendments to that report, and to file it with the Securities and Exchange Commission or other regulatory authority. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
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Signature: |
/s/ James F. Wright |
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Print Name: |
James F. Wright |
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Title: |
Director |
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Date: |
April 27, 2004 |
EXHIBIT 31.1
CERTIFICATIONS
I, Craig C. Sturken, certify that:
  1.   I have reviewed this annual report on Form 10-K of Spartan Stores, Inc.;
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  4.   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
    a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    b)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
    c)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
  5.   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
    a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
    b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: May 26, 2004 |
/s/ Craig C. Sturken |
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Craig C. Sturken |
EXHIBIT 31.2
CERTIFICATIONS
I, David M. Staples, certify that:
  1.   I have reviewed this annual report on Form 10-K of Spartan Stores, Inc.;
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  4.   The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
    a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    b)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
    c)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
  5.   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
    a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
    b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: May 26, 2004 |
/s/ David M. Staples |
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David M. Staples |
EXHIBIT 32
CERTIFICATION
Solely for the purpose of complying with 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of Spartan Stores, Inc. (the "Company") that the Annual Report of the Company on Form 10-K for the year ended March 27, 2004 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.
/s/ Craig C. Sturken |
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Craig C. Sturken Chairman, President and Chief Executive Officer |
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/s/ David M. Staples |
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David M. Staples |