-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P4SSwbVE/HBDCCVyM6r7a1AHPDVMdyrDnlgFRH2vZLUKB1TcP4Q03a9kqlFXoaOJ P3cKTIx1IWxWZa6m14Cnyg== 0000912057-01-512872.txt : 20010507 0000912057-01-512872.hdr.sgml : 20010507 ACCESSION NUMBER: 0000912057-01-512872 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010203 FILED AS OF DATE: 20010504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE FOOD CENTERS INC CENTRAL INDEX KEY: 0000030908 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 363548019 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17871 FILM NUMBER: 1622628 BUSINESS ADDRESS: STREET 1: RTE 67 KNOXVILLE RD CITY: MILAN STATE: IL ZIP: 61264 BUSINESS PHONE: 3097877730 MAIL ADDRESS: STREET 1: PO BOX 6700 CITY: ROCK ISLAND STATE: IL ZIP: 61204-6700 10-K 1 a2047564z10-k.txt 10-K [caad 136]n SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal year ended FEBRUARY 3, 2001 or ---------------- |_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . -------- -------- Commission File No. 0-17871 EAGLE FOOD CENTERS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-3548019 ------------------------------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ROUTE 67 & KNOXVILLE ROAD, MILAN, ILLINOIS 61264 (Address of principal executive offices) Registrant's telephone number including area code (309) 787-7700 --------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock 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 whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: Yes 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. [_] The aggregate market value of the voting stock held by non-affiliates of the Registrant was $3,429,280 as of April 25, 2001. The numbers of shares of the Registrant's Common Stock, par value one cent $(0.01) per share, outstanding on April 25, 2001 was 12,791,884. Documents incorporated by reference include: 1) Portions of the definitive Proxy Statement expected to be filed with the Commission on or about May 25, 2001 with respect to the annual meeting of shareholders are incorporated by reference into Part III. 1 of 54 Pages Exhibit Index appears on page 52 . 1 FISCAL YEAR ENDED FEBRUARY 3, 2001 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I Item 1: Business 3 Item 2: Properties 8 Item 3: Legal Proceedings 9 Item 4: Submission of Matters to a Vote of Security Holders 9 Item 4a: Executive Officers of the Registrant 9 PART II Item 5: Market for Registrant's Common Equity and Related Shareholder Matters 11 Item 6: Selected Financial Data 12 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 7a: Quantitative and Qualitative Disclosure About Market Risk 21 Item 8: Financial Statements and Supplementary Data 22 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 48 PART III Item 10: Directors and Executive Officers of the Registrant 49 Item 11: Executive Compensation 49 Item 12: Security Ownership of Certain Beneficial Owners and Management 49 Item 13: Certain Relationships and Related Transactions 49 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 50
2 PART I ITEM 1: BUSINESS GENERAL Eagle Food Centers, Inc. (the "Company" or "Eagle"), is a Delaware Corporation. Eagle is a leading regional supermarket chain operating 64 supermarkets as of the end of fiscal 2000 in northern and central Illinois and eastern Iowa under the trade names "Eagle Country Market(R)" and "BOGO's." Most Eagle supermarkets offer a full line of groceries, meats, fresh produce, dairy products, delicatessen and bakery products, health and beauty aids and other general merchandise, and in certain stores, prescription medicine, video rental, floral service, in-store banks, dry cleaners and coffee shops. The Company's fiscal year ends on the Saturday closest to January 31st. Fiscal 2000 was a 53-week year ending on February 3, 2001 and fiscal 1999 and 1998 were 52-week years ending January 29, 2000 and January 30, 1999, respectively. Talon Insurance Company ("Talon") formed in the State of Vermont to provide insurance for Eagle's workers' compensation and general liability claims, is a wholly owned subsidiary of Eagle Food Centers, Inc. Prior to the formation of Talon, Eagle used paid loss and retro programs through external insurance companies. REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE On February 29, 2000 (the "Petition Date"), the Company filed a voluntary petition under Chapter 11 of Title 11 of the United States Code. The petition was filed in the United States Bankruptcy Court for the District of Delaware under case number 00-01311. The Company continued to manage its affairs and operate its business as a debtor-in-possession while the Bankruptcy Case was pending. The Bankruptcy Case, which proceeded before the United States District Court for the District of Delaware, was commenced in order to implement a financial restructuring of the Company that had been pre-negotiated with holders of approximately 29% of the principal amount of the Company's Senior Notes due April 15, 2000. On March 10, 2000, the Company filed a plan of reorganization to implement the financial restructuring, which plan was subsequently amended on April 17, 2000. The Plan was confirmed on July 7, 2000 and consummated on August 7, 2000. The Company replaced the Senior Notes with new notes (the "New Senior Notes") that have the following material terms and conditions; (i) maturity date of April 15, 2005, (ii) an interest rate of 11%, (iii) a $15 million repayment of outstanding principal by the Company upon the effective date of the Plan, and (iv) the Company may, at its option and with no prepayment penalty, redeem the New Senior Notes at any time at 100% of the principal amount outstanding at the time of redemption. In addition, under the Plan, the Company agreed to issue 15% of fully-diluted common stock of the Company (1,930,420 shares) to the holders of the Senior Notes, of which 10% will be returned to the Company if the Company is sold or the debt is retired prior to October 15, 2001. If the Company is sold or the debt is retired prior to October 15, 2002, 5% of the common stock will be returned to the Company. None of the common stock will be returned to the Company if the Company is not sold or the debt retired prior to October 15, 2002. The shares were recorded at fair value in the amount of $2.1 million with the offsetting amount recorded as a discount against the New Senior Notes. The discount will be amortized over the life of the debt. STORE DEVELOPMENT AND EXPANSION 3 Eagle Country Markets represent the Company's full line supermarket format. Of the 63 Eagle Country Markets, 15 have been opened as new stores and 48 have been remodeled or otherwise converted to the Eagle Country Market format. In the new stores, extra space has been devoted to expanded perishable departments, tying together produce, full-service delicatessen, service bakery, service seafood and meat departments, and, in certain stores, floral service, video rental departments, prescription medicine, dry cleaners, coffee shops and in-store banks. All newly built Eagle Country Markets are designed to encourage shoppers to walk through the higher margin "Power Aisle", which includes extensive perishable offerings. Eagle Country Markets range in size from 16,500 to 67,500 square feet, with the majority of the stores over 30,000 square feet. The pricing strategy in the Eagle Country Markets is to offer overall lower prices than comparable supermarket competition. The Company also operates one BOGO's Food and Deals, which uses a limited assortment format covering approximately 2,000 stock-keeping units of groceries, produce, meat, health and beauty aids, and general merchandise. Management intends to concentrate its future store development strategy around the Eagle supermarket format. As part of its store development program, management continuously reviews the performance of all its stores and expects to implement a variety of strategies, including converting or modifying certain store formats and selling, subleasing or otherwise closing underperforming stores. Management intends to focus the Company's new store development within existing markets or new markets within a 300 mile radius of its headquarters and central distribution facility in Milan, Illinois, where the utilization of existing distribution, marketing and support systems is advantageous to its cost structure. Within these markets, the Company expects to select sites for its stores based on factors such as existing competition, demographic composition and available locations. The Company completed three major remodels in fiscal 2000 and plans to complete three additional major remodels in fiscal 2001. The Company closed 19 stores and sold one store during fiscal 2000. The Company prefers to lease stores from local developers and pursues this strategy wherever appropriate and cost-effective. The Company completed three sale/leaseback transactions in fiscal 1999 and six in fiscal 1998 to reduce the amount of capital committed to real estate. As of year-end, the Company owned eight operating stores and one closed store, with the closed store classified in "Property held for resale." The Company leased 56 operating stores, 14 closed stores and two subleased stores. The Company continues to seek opportunities for growth through the acquisition of other supermarket retail companies or individual stores to achieve economies of scale relating to office and distribution functions. STORE OPERATIONS The Company's geographic market is divided into five districts; each having a District Manager who is responsible for approximately 12 stores. Districts and stores operate with a certain degree of autonomy to take advantage of local market and consumer needs. Districts and stores are responsible for store operations, associate recruitment and development, community affairs and other functions relating to local operations. Store managers and marketing work together in tailoring merchandise and services to the needs of customers in the particular community. Associate involvement and participation has been encouraged through district meetings and a store management incentive bonus program for sales and earnings improvement. COMPUTER AND INFORMATION SYSTEMS 4 The Company signed an Information Systems ("IS") services agreement with EDS on July 1, 2000 with a term of five years. Under the IS services agreement, EDS has assumed complete responsibility for the Company's IS function. In the fourth quarter of fiscal 1998, the Company accrued $2.9 million, which was paid in 12 equal monthly installments in calendar 1999, for costs associated with the migration from mainframe to client/server technology. The charge was primarily for future lease costs relating to the mainframe, and various software, software licenses and contracting costs. Eagle management uses technology as a means of enhancing productivity, controlling costs, providing an easier shopping experience for customers and learning more about shoppers' buying preferences. Eagle has embraced client/server technology and successfully completed the replacement of all mainframe-based legacy systems with new, client/server systems during the 1999 fiscal year. Eagle has been successful in implementing and integrating several new client/server systems that will equip Eagle for processing well into the future. These new systems, which support essential business functions, include: o Warehouse and Distribution o Purchasing and Inventory Control o Pricing and Shelf Label Management o Eagle Savers' Card Promotional Offers o Financial Applications including General Ledger, Accounts Payable, Accounts Receivable, Fixed Assets, Purchasing and Capital Projects o Store Systems Controllers - Operating Systems and Supermarket Applications o Store Applications for Cash Management, DSD Receiving, Time and Attendance and labor scheduling o Payment Processing Systems (including debit, credit and check cashing) Eagle expects to complete the implementation and integration of two additional systems in 2001: o Category Management o Retail Point-of-Sale Data Mining The Company has converted to IBM 4690 generation software for its point-of-sale systems. The Company is continuing to utilize a Unix processor together with database marketing software to store and analyze customer-specific shopping data for targeted marketing. MERCHANDISING STRATEGY Eagle's strategy is to strengthen its perception as a price leader compared to other supermarket competitors and to strengthen its image as a high quality, service-oriented supermarket chain and provider of high quality perishables. The Company strives to offer its customers one-stop shopping convenience and price value for all of their food and general merchandise shopping needs. CUSTOMER SERVICE - Eagle delivers a wide variety of customer services. Most stores provide customer services such as video rental, check cashing, film processing, lottery ticket and money order sales and UPS shipping. All stores provide quick, friendly checkout service. Management intends as part of its current strategy to further enhance customer service through additional training of store associates, as well as incentive programs linked to customer satisfaction ratings. 5 CORPORATE BRANDS (PRIVATE LABEL) - Corporate brand sales are an important element in Eagle's merchandising plan. The Company is a member of the Topco Associates, Inc. ("Topco") buying organization and has engaged Daymon Associates, Inc. as its "corporate brand" broker. Eagle has a strong penetration in many categories with its Lady Lee Food Club, Home Best, Top Care and World Classics brands. Eagle also has the Valu Time label for the low price corporate brand niche. SELECTION - A typical Eagle store carries over 23,000 items, including food, general merchandise and specialty department items. The Company carries nationally advertised brands and an extensive selection of top quality corporate brand products. All stores carry a full line of dairy, frozen food, health and beauty aids and selected general merchandise. In addition, most stores have service delicatessens and bakeries and some stores provide additional specialty departments such as ethnic food items, floral service, seafood service, beer, wine, liquor, prescription medicine, dry cleaners, coffee shops and in-store banking facilities. PROMOTION - The Company's promotion and merchandising strategy focuses on its image as a high-quality, service-oriented supermarket chain while reinforcing its reputation for price leadership and high quality perishables. Eagle has utilized the Eagle Savers' Card for several continuity promotions and for electronic coupon discounts. Through its store personnel, the Company takes an active interest in the communities in which it operates. The Company also contributes funds, products and services to local charities and civic groups. CONSUMER RESEARCH - The Company utilizes consumer research to track customer attitudes and the market shares of the Company and its competitors. The Company also has a continuous program of soliciting customer opinions in all of its market areas through the use of in-store customer comment cards. This data enables management to respond to changing consumer needs, direct advertising to specific customer perceptions and evaluate store services and product offerings. ADVERTISING STRATEGY The Company utilizes a broad range of print and broadcast advertising in the markets it serves. The Company seeks co-op advertising reimbursements from vendors. The co-op advertising has allowed the Company to broaden its exposure in various media. The Company does not have an in-house advertising department, but instead utilizes Adplex, a national advertising firm, for various advertising and promotional services. This allows the Company to take advantage of technological advances in layout, desktop publishing and production more quickly than if the Company had attempted to develop such technology internally. PURCHASING AND DISTRIBUTION The majority of the Company's stores are located within 200 miles from the Company's central distribution facility in Milan, Illinois. This complex includes the Company's executive offices, warehouse, areas used for receiving, shipping and trailer storage and a truck repair facility. The Company supplies approximately 70% of its stores' inventory requirements from its 935,332 square foot central distribution facility (which includes approximately 189,072 square feet of refrigerated and freezer space). The Company discontinued warehousing health and beauty care products during the third quarter of fiscal 1999 and currently purchases these products, representing approximately 6% of the stores' inventory requirements, from a wholesaler. The remaining 24% of the stores' inventory is delivered direct from product vendors to the stores. The Company's purchasing and warehousing functions are managed through its central merchandising system. 6 The Company's purchasing and distribution operations permit rapid turnover at its central distribution facility, allowing its stores to offer consistently fresh, high-quality dairy products, meats, produce, bakery items and frozen foods. Also, centralized purchasing and distribution reduces the Company's cost of merchandise and related transportation costs by allowing the Company to take advantage of volume buying opportunities and manufacturers' promotional discounts and allowances and by minimizing vendor distribution costs. The Company participates in "consortium buys" (consolidated volume buys) involving other regional chains and independent retailers to reduce product cost. The Company engages in forward buying programs to take advantage of temporary price discounts. Due to its proximity to Chicago and other major markets, the Company is able to reduce transportation costs included in cost of goods sold by "backhauling" merchandise to its Milan central distribution facility. COMPETITION The food retailing business is highly competitive. The Company is in direct competition with national, regional and local chains as well as independent supermarkets, warehouse stores, membership warehouse clubs, supercenters, limited assortment stores, discount drug stores and convenience stores. The Company also competes with local food stores, specialty food stores (including bakeries, fish markets and butcher shops), restaurants and fast food chains. The principal competitive factors include store location, price, service, convenience, product quality and variety. The number and type of competitors vary by location, and the Company's competitive position varies according to the individual markets in which the Company does business. The Company's principal competitors operate under the trade names of Hy-Vee, Cub, Dominicks, Jewel Osco, Kmart, Kroger, Meijer, Shop-N-Save, Target and Wal-Mart (Supercenters and Sam's Clubs). Management believes that the Company's principal competitive advantages are its value perception, strength of perishables (especially meat and produce), the attractive Eagle store format, concentration in certain markets and expansion of service and product offerings. The Company is at a competitive disadvantage to some of its competitors due to having unionized associates. Supercenters continue to open in trade areas served by the Company. Wal-Mart Supercenters opened 2 stores in fiscal 2000, three stores in fiscal 1999 and three in fiscal 1998. Meijer opened 3 stores in fiscal 2000 and one store in fiscal 1999. Additional supercenter openings by Kmart, Wal-Mart, Target and Meijer are likely in the next several years. The supercenter format, which adds new grocery square footage to the market, offers traditional grocery products at low prices with the intent to attract customers to the general merchandise side of the store. These new competitors operate at a significant cost advantage to supermarkets by using mostly part-time, non-union employees. TRADEMARKS, TRADE NAMES AND LICENSES The Company uses various trademarks and service marks in its business, the most important of which are the "Eagle Country Market "(TM)"", "5-Star Meats(R)", "Lady Lee(R)", "Eagle Savers' Card "(TM)"" and "Harvest Day(R)" trademarks, and the "Eagle(R)" and "Eagle Country Market(R)" service marks. Each such trademark is federally registered. Pursuant to a trademark license agreement (the "Trademark License Agreement") entered into with the Company's former parent, Lucky Stores, Inc., the Company has been granted the royalty-free use of the "5-Star Meats(R)", "Lady Lee(R)" and "Harvest Day(R)" trademarks until July 2005. The Trademark License Agreement permits the Company to use the licensed trademarks only in the states of Illinois, Indiana, Iowa, Michigan, Ohio, Wisconsin, Kentucky and Minnesota. Lucky Stores, Inc. has agreed not to grant to any other person the right to use such trademarks in the states of Illinois, Indiana and Iowa during the period of the license to the Company. ASSOCIATES AND LABOR RELATIONS 7 At the end of fiscal 2000, the Company had 4,230 associates, 286 of whom were management and administrative associates and 3,944 of whom were hourly associates. Of the Company's hourly associates, substantially all are represented by 15 collective bargaining agreements with seven separate locals that are associated with two international unions. Store associates are represented by several locals of the United Food and Commercial Workers; warehouse associates, warehouse drivers and office and clerical workers are represented by Teamsters Local 371. One contract will expire during fiscal 2001, covering 0.9% of the Company's associates. The Company values its associates and believes that its relationship with them is good. Several associate relations programs have been introduced, including measures that allow associates to participate in store-level decisions, an associate stock purchase program, preferential discounts and a 401(k) savings plan. ITEM 2: PROPERTIES STORES The Company operated 64 stores as of the fiscal year end, ranging in size from 16,500 to 67,500 square feet, with an average size of 39,730 square feet. Nine of the Company's stores, including one closed store, are owned in fee by the Company. The closed store is classified in "Property held for resale." The Company is the lessee for the remaining 56 operating stores, 14 closed stores and two subleased stores. The Company sold and leased back three of its stores in fiscal 1999 and six in fiscal 1998. The leases on three of these stores have been terminated. Selected statistics on Eagle retail food stores are presented below:
FISCAL YEAR ENDED ------------------------------------------------------------------ FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 ------------------- -------------------- ------------------- Average total sq. ft. per store 39,730 39,088 38,942 Average total sq. ft. selling space per store 29,329 28,826 28,694 Stores beginning of year 84 89 90 Opened during year 0 4 3 Expansions/major remodels (1) 3 4 3 Closed during year 19 5 4 Sold during year 1 4 - Stores end of year 64 84 89 Size of stores at end of year: Less than 25,000 sq. ft. 3 4 5 25,000 - 29,999 sq. ft. 12 20 22 30,000 - 34,999 sq. ft. 2 4 4 35,000 - 44,999 sq. ft. 32 36 37 45,000 sq. ft. or greater 15 20 21 Type of stores: Eagle Country Markets 63 83 88 BOGO's Food and Deals 1 1 1
(1) A major remodeling project is one that costs $300,000 or more. 8 Eagle stores contain various specialty departments such as full service delicatessen (63 stores), bakery (59 stores), floral (47 stores), video rentals (35 stores), pharmacy (16 stores), seafood (18 stores), alcoholic beverages (48 stores) and in-store banks (14 stores). Most of the leases for the stores contain renewal options for periods ranging from five to 30 years. The Company is required to pay fixed rent on 56 operating stores and a percentage (ranging from 0.75% to 3.0%) of its gross sales in excess of stated minimum gross sales amounts under 40 of these leases. The Company leased 16 closed stores, including two subleased store locations. For additional information on leased premises, see Notes D and H of the notes to the Consolidated Financial Statements. CENTRAL DISTRIBUTION AND BAKERY FACILITIES The Company leases its central distribution facility under a lease expiring in 2007. The Company's central distribution facility contains a total of 935,332 square feet of space. The Company operated a central bakery in a 49,000 square foot leased facility located in Rock Island, Illinois, three miles from the central distribution facility. The Company sold the bakery operations in fiscal 1998, realizing a gain of $1.0 million on $1.6 million of proceeds. Substantially all store fixtures and equipment, leasehold improvements and transportation and office equipment are owned by the Company. The total cost of the Company's ownership of property and equipment is shown in Note E of the notes to the Consolidated Financial Statements. ITEM 3: LEGAL PROCEEDINGS BANKRUPTCY CASE The Bankruptcy Case was consummated on August 7, 2000. Additional information relating to the Bankruptcy Case is set forth in PART 1, ITEM 1 of this Form 10-K report under the caption "Reorganization Proceedings Under Chapter 11 of the Bankruptcy Code." Such information is incorporated herein by reference. (See Note F of the notes to the Consolidated Financial Statement.) OTHER CASES The Company is subject to various other unresolved legal actions that arise in the normal course of its business. Although it is not possible to predict with certainty and no assurances can be given with respect to such matters, the Company believes the outcome of these unresolved legal actions will not have a materially adverse effect on its results of operations, liquidity or financial position. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2000. ITEM 4A: EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to the persons who are executive officers of the Company:
NAME AGE POSITION(S) HELD ---- --- ---------------- Robert J. Kelly 56 Chairman of the Board of Directors Jeffrey L. Little 50 Chief Executive Officer and President, Director S. Patric Plumley 52 Senior Vice President - Chief Financial Officer and Secretary, Director Stanley W. Stephens 52 Senior Vice President - Retail
9 Byron O. Magafas 44 Vice President - Human Resources Frank Klun 53 Vice President - Support Services
The business experience of each of the executive officers during the past five years is as follows: Mr. Kelly was named Chairman of the Board of Directors for the Company on March 30, 1998. Mr. Kelly also held the titles of Chief Executive Officer and President from May 10, 1995 through January 31, 2000. Prior to May 1995, Mr. Kelly was Executive Vice President, Retailing for The Vons Companies, Inc. and was employed by that Company since 1963. Mr. Kelly has 38 years of experience in the supermarket industry. Mr. Little was named Chief Executive Officer and President on January 31, 2000 and became a director in September 2000. Mr. Little was Vice President, Marketing for Fleming Companies and President of ABCO Foods (a division of Fleming) from January 1998 to January 2000. From August 1989 to December 1997, Mr. Little was with Haggen, Inc. serving in various capacities as Senior Vice President Operations, Vice President Sales/Marketing and Vice President Perishables. Mr. Little has 33 years of experience in the supermarket industry. Mr. Plumley, who was named Director in September 2000, was named Senior Vice President - Chief Financial Officer and Secretary on March 1, 1999, served the Company as Vice President - Chief Financial Officer and Secretary from March 30, 1998 and Vice President and Corporate Controller from September 15, 1997 until his promotions. Prior to September 1997, Mr. Plumley served as Senior Vice President of American Stores' Super Saver Division from 1994 to 1997 and Senior Vice President of Lucky Stores, Inc. from 1990 to 1994. Mr. Plumley has 28 years of experience in the supermarket industry. Mr. Stephens was named Senior Vice President - Retail on May 8, 2000. Mr. Stephens was Vice President of Operations for ABCO Foods (a division of Fleming) from February 1999 to April 2000. From January 1997 to January 1999 Mr. Stephens was Vice president of Marketing for Dillon Stores (a division of Kroger Co.). From January 1991 to December 1996, Mr. Stephens held the positions of Vice President Marketing and Vice President Merchandising and Operations for City Market, Inc. (a division of Kroger Co.). Mr. Stephens has 36 years of experience in the supermarket industry. Mr. Magafas joined the Company as Vice President - Human Resources in November 1997. Mr. Magafas was Director of Human Resources for the St. Louis Division of SuperValu Inc. from 1993 to 1997. For the period from 1986 to 1993, Mr. Magafas had been with Wetterau Incorporated, first as Labor Relations Counsel and then as Director of Labor Relations. Mr. Magafas has 15 years of experience in the supermarket industry. Mr. Magafas resigned from the Company on March 2, 2001. Mr. Klun joined the Company as Vice President - Support Services in February 1998. Prior to February 1998, Mr. Klun was employed by Bruno's, Birmingham, Alabama as Assistant Distribution Manager. For the period from December 1968 to December 1997, Mr. Klun held various positions with Jewel Food Stores, Chicago, Illinois. Mr. Klun has over 33 years of experience in the supermarket industry. The Company's directors are elected annually to serve until the next annual meeting of shareholders and until their successors have been elected and qualified. None of the directors or executive officers listed herein is related to any other director or executive officer of the Company. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports 10 of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the knowledge of the Company, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the three fiscal years ended February 3, 2001, all Section 16(a) filing requirements applicable to its officers, directors, and greater than ten percent beneficial owners were in compliance except for the following, which were inadvertently filed late; Mr. Jeffrey L. Little and Mr. Stanley W. Stephens each with one report disclosing one transaction each; Mr. Byron Magafas and Mr. Frank Klun each with two reports disclosing one transaction each and Mr. S. Patric Plumley with three reports each disclosing one transaction. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock trades on the Nasdaq National Market System under the symbol "EGLE." The stock began trading on July 27, 1989. The following table sets forth, by fiscal quarter, the high and low closing prices reported by the Nasdaq National Market System for the periods indicated. Trading of the Company's common stock was suspended subsequent to the close of business on February 29, 2000 as a result of the Bankruptcy Case. Trading resumed on August 10, 2000. As of April 25, 2001, there were approximately 5,800 beneficial holders of shares. YEAR ENDED FEBRUARY 3, 2001 -------------------------------- High Low First Quarter $ 1 7/16 $ 15/16 Second Quarter N/A N/A Third Quarter 2 7/8 3/4 Fourth Quarter 1 1/4 YEAR ENDED JANUARY 29, 2000 -------------------------------- High Low First Quarter $ 3 7/8 $ 2 5/16 Second Quarter 3 1/4 2 1/32 Third Quarter 2 13/16 1 3/16 Fourth Quarter 1 7/8 1 1/32 There were no dividends paid in fiscal 2000 or 1999. The indenture underlying the Company's New Senior Notes and the Amended and Restated Loan and Security Agreement contain restrictions on the payment of dividends (see Note F of the notes to the Consolidated Financial Statements). The Company does not intend to pay dividends in the foreseeable future. 11 Nasdaq staff informed the Company, by letter dated November 13, 2000, that it had not maintained a minimum market value of public float of $5,000,000 and a minimum bid price of $1.00 over 30 consecutive trading days as required for continued listing on the Nasdaq National Market. Nasdaq staff had determined that the Company's Common Stock would be delisted from quotation on the Nasdaq National Market at the opening of business on February 14, 2001. On February 12, 2001, the Company delivered a request for an appeal to the Nasdaq Listing Qualifications Panel. The delisting process was suspended pending resolution of the appeal. The Company presented a plan to the Nasdaq Listing Qualifications Panel for achieving compliance with the listing requirements of the Nasdaq National Market at a hearing held March 28, 2001. No decision was made at the hearing regarding the continued listing of the Company's shares. Members of the Listing Qualifications Panel suggested that the Company consider a reverse stock split and applying for listing on the Nasdaq SmallCap Market. The Company sent a letter to the panel on April 2nd in which the Company modified its earlier plan by (i) consenting to the possible change from listing on the Nasdaq National Market to listing on the Nasdaq SmallCap Market and (ii) consenting to recommend shareholder approval of a reverse stock split in the event other measures are not sufficient to achieve compliance with the Nasdaq listing requirements for either the Nasdaq National Market or the Nasdaq SmallCap Market. If the Company's common stock is not listed for trading on either the Nasdaq National Market or the Nasdaq SmallCap Market, trading of the common stock would likely be on the OTC Bulletin Board or similar quotation system. Inclusion of the Company's common stock on the OTC Bulletin Board or similar quotation system could adversely affect the liquidity of the Company's common stock and may impact the public's perception of the Company. The Company believes the plan presented to the Nasdaq Listing Qualifications Panel will achieve compliance with listing requirements. However, should delisting occur, the Company does not anticipate significant impact on the Company's liquidity or business operations. ITEM 6: SELECTED FINANCIAL DATA The following table represents selected financial data of the Company on a consolidated basis for the five fiscal years ended February 3, 2001. The selected historical financial data for the five fiscal years ended February 3, 2001 are derived from the audited Consolidated Financial Statements of the Company. The fiscal year ended February 3, 2001 has been audited by KPMG LLP, independent auditors, and the two fiscal years ended January 29, 2000 have been audited by Deloitte & Touche LLP, independent auditors, and are included in this Form 10-K. The selected financial data set forth below should be read in conjunction with the Company's Consolidated Financial Statements and related notes included elsewhere in this document. 12
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY 3, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1, 2001 2000 1999 1998 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (53 weeks) --------------- ------------- ----------- ------------ ------------- CONSOLIDATED OPERATING DATA: Sales $ 776,838 $ 932,789 $ 943,805 $ 967,090 $1,014,889 Gross margin 198,219 242,333 232,975 243,644 256,242 Selling, general and administrative expenses 173,942 205,820 203,220 208,133 218,253 Store closing, asset revaluation and lease termination(1) 821 8,367 2,925 -- 1,700 Reorganization items, net (2) 10,782 -- -- -- -- Depreciation and amortization 18,816 20,781 18,885 19,068 20,494 ---------- ---------- ---------- ---------- ---------- Operating income (loss) (6,142) 7,365 7,945 16,443 15,795 Interest expense 13,430 13,906 11,870 11,751 12,547 ---------- ---------- ---------- ---------- ---------- Earnings (loss) before income taxes & extraordinary item (19,572) (6,541) (3,925) 4,692 3,248 Income taxes (benefit) -- -- -- (400) -- Extraordinary item (3) 5,286 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) $ (14,286) $ (6,541) $ (3,925) $ 5,092 $ 3,248 ========== ========== ========== ========== ========== Earnings (loss) per common share - diluted $ (1.20) $ (.60) $ (.36) $ .45 $ .29 Consolidated Balance Sheet Data (at year-end): Total assets $ 197,265 $ 260,416 $ 283,315 $ 257,619 $ 251,124 Total debt (including capital leases) 109,896 144,735 138,770 116,147 109,297 Total shareholders' equity 9,785 21,978 28,386 32,237 26,688
(1) Represents a charge of $821 thousand for asset revaluation in fiscal 2000. Represents a charge of $1.7 million to provide for costs of closed stores, $4.6 million for asset revaluations, and a $2.1 million goodwill write off in fiscal 1999. Represents a $2.9 million charge related to future lease costs for the mainframe, and various related software, software licenses and contracting costs in connection with the migration from mainframe to client/server technology in fiscal 1998. Represents a charge of $1.7 million to provide for costs of closed stores and asset revaluations in fiscal 1996. (See Notes B, D and H of the notes to the Consolidated Financial Statements.) (2) See Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, "Reorganization Items, Net." (3) Represents gain of $5.3 million related to the buy back of the Senior Notes in fiscal 2000. (See Note F of the notes to the Consolidated Financial Statements.) ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth certain key operating statistics as a percentage of sales for the periods indicated: 13
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY 3, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1, 2001 2000 1999 1998 1997 -------------- -------------- --------------- -------------- -------------- OPERATIONS STATEMENT DATA: Sales 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % Gross margin 25.52 25.98 24.68 25.19 25.25 Selling, general and administrative expenses 22.39 22.07 21.53 21.52 21.51 Store closing, asset revaluation and lease termination 0.11 0.90 0.31 - 0.17 Reorganization items, net 1.39 - - - - Depreciation and amortization expenses 2.42 2.22 2.00 1.97 2.02 -------------- -------------- --------------- -------------- -------------- Operating income (loss) (0.79) 0.79 0.84 1.70 1.56 Interest expense 1.73 1.49 1.26 1.22 1.24 -------------- -------------- --------------- -------------- -------------- Earnings (loss) before income taxes & extraordinary item (2.52) (0.70) (0.42) 0.48 0.32 Income taxes (benefit) - - - (0.04) - Extraordinary item 0.68 - - - - -------------- -------------- --------------- -------------- -------------- Net earnings (loss) (1.84) (0.70) (0.42) 0.52 0.32 ============== ============== =============== ============== ==============
RESULTS OF OPERATIONS SALES
YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 ------------------- ------------------- -------------------- Sales $ 776,838 $ 932,789 $ 943,805 Percent Change (16.7)% (1.2)% (2.4)% Same Store Change 0.1 % (3.3)% (2.3)%
Sales for fiscal 2000 were $776.8 million, a decrease of $156.0 million or 16.7% from fiscal 1999. Same store sales increased 0.1% from fiscal 1999 to fiscal 2000, after adjusting fiscal 1999 to a comparable 53 week year. The Company was operating 64 stores as of the end of fiscal 2000 and 84 stores at the end of fiscal 1999. Sales for fiscal 1999 were $932.8 million, a decrease of $11.0 million or 1.2% from fiscal 1998. Same store sales decreased 3.3% from fiscal 1998 to fiscal 1999. Same store sales decreases were attributed primarily to competitive store openings during the year. The Company was operating 84 stores as of the end of fiscal 1999 and 89 stores at the end of fiscal 1998. GROSS MARGIN Gross margin as a percentage of sales was 25.52% in fiscal 2000 compared to 25.98% in fiscal 1999 and 24.68% in fiscal 1998. Gross margin was $44.1 or 18.20% lower in fiscal 2000 than in fiscal 1999 due primarily to a decrease of $27.8 million relating to a reduction in the number of stores from 84 at the end of fiscal 1999 to 64 at the end of fiscal 2000 and a decrease of $14.2 million relating to other stores closed during fiscal 1999. Gross margin was $9.4 million or 4.02% higher in fiscal 1999 than in fiscal 14 1998 due primarily to a decrease of $7.4 million in promotional costs, an increase of $2.0 million in vendor rebates and allowances, a favorable change in the LIFO reserve of $1.4 million, and better buying practices, including the benefit of new systems installed in fiscal 1997 and fiscal 1998, partially offset by $2.7 million in volume-related decreases. Gross margin included a net benefit for the LIFO reserve of $1.2 million, or 0.15% of sales, in fiscal 2000, a net benefit of $0.7 million or 0.08% of sales, in fiscal 1999 and a charge of $0.7 million, or 0.07% of sales in fiscal 1998. The LIFO reserve reductions in fiscal 2000 and fiscal 1999 primarily reflect the reduction in inventory due to the closure or sale of underperforming stores during the two years. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses as a percentage of sales were 22.39% in fiscal 2000 compared to 22.07% in fiscal 1999 and 21.53% in fiscal 1998. Selling, general and administrative expenses were $31.9 million or 15.50% lower in fiscal 2000 than in fiscal 1999 due primarily to a decrease of $28.7 million relating to a reduction in the number of stores from 84 at the end of fiscal 1999 to 64 at the end of fiscal 2000 and a decrease of $9.9 million relating to other stores closed during fiscal 1999, partially offset by an increase of $2.5 million in associate benefit costs and income of $1.5 million in fiscal 1999 relating to the sale of certain stores. Selling, general and administrative expenses were $2.6 million or 1.3% higher in fiscal 1999 than fiscal 1998 due primarily to $3.8 million in increased occupancy costs relating to newer stores, $2.6 million in contractual wage increases and a $1.3 million increase in insurance expense due to a favorable reduction in reserves in fiscal 1998 not repeated in fiscal 1999, partially offset by a $2.9 million decrease in technology related costs and $1.5 million for the elimination of balances relating to certain stores sold during fiscal 1999, including capital lease assets and related obligations and deferred gains. PROVISION FOR STORE CLOSING, ASSET REVALUATION AND LEASE TERMINATION During fiscal 2000, the Company added 15 stores to the reserve for which $10.4 million was provided for estimated future lease costs. In addition, the Company benefited from net favorable changes in estimates of $3.9 million for both the 18 stores in the reserve at the end of fiscal 1999 and new stores added to the reserve in the first quarter of fiscal 2000. The leases for 16 stores terminated or expired during fiscal 2000. The net cost is included in Reorganization Items, Net as presented below. During fiscal 2000, the Company also recognized a charge of $821 thousand for asset revaluations. The charge represents revaluation of assets for one underperforming store. (See Note B of the notes to the Consolidated Financial Statements.) During fiscal 1999, the Company added three stores to the reserve for which $1.7 million was provided for estimated future costs, including $0.9 million for future lease costs and $0.8 million for asset revaluations. During fiscal 1999, the Company also recognized a charge of $6.7 million for asset revaluations. This charge represents $4.6 million in revaluation of assets for underperforming stores and a $2.1 million write off of the entire unamortized balance of goodwill. (See Note B of the notes to the Consolidated Financial Statements.) During fiscal 1998 the Company benefited $0.6 million from favorable lease terminations and changes in estimates for six stores that were included in the reserve at January 31, 1998, and from $0.2 million in favorable changes in estimates for stores remaining in the reserve at January 30, 1999. Additionally, during fiscal 1998, the Company added two stores to the reserve for which $0.8 million was provided for estimated future costs. (See Note D of the notes to the Consolidated Financial Statements). 15 In the fourth quarter of fiscal 1998, the Company accrued $2.9 million, payable in 12 equal monthly installments in calendar 1999, for costs associated with the migration from mainframe to client/server technology. The charge primarily related to future lease costs relating to the mainframe, and various related software, software licenses and contracting costs. Such charge is included in the caption "Store closing, asset revaluation and lease termination" in the Consolidated Statements of Operations (See Notes B and H of the notes to the Consolidated Financial Statements). The Company closed 19 stores and sold one store during fiscal 2000, closed five stores during fiscal 1999 and closed four stores during fiscal 1998. REORGANIZATION ITEMS, NET A summary of costs recognized during the fiscal year ended February 3, 2001 related to the Company's reorganization is as follows: (DOLLARS IN THOUSANDS) Store closing and asset revaluation $ 6,533 Employee termination benefits 1,361 Professional fees 3,608 Net realized gains on sale/disposal of leases and equipment and release of capital leases (944) Other 224 -------- Total $ 10,782 ======== The net reorganization items are based on information presently available to the Company; however, the actual costs could differ materially from the estimates. Additionally, other costs may be incurred which cannot be presently estimated. EMPLOYEE TERMINATION BENEFITS - In connection with the Bankruptcy Case, the Company recognized $1.4 million in employee termination benefits during fiscal 2000, representing severance costs for 353 employees terminated as a result of the store closings under the provisions of the Plan. PROFESSIONAL FEES - Professional fees relate to legal, accounting, consulting and other professional costs directly attributable to the Bankruptcy Case and are being expensed as incurred. The Company expects to incur an additional $200 thousand for professional fees. NET REALIZED GAINS - During fiscal 2000, the Company had realized gains on the sale/disposal of leases and equipment and release of capital lease obligations of $944 thousand, all related to the 20 closed or sold stores as part of the Plan. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expense as a percentage of sales was 2.42% in fiscal 2000, 2.22% in fiscal 1999 and 2.00% in fiscal 1998. Depreciation and amortization expense was $2.0 million or 9.46% lower in fiscal 2000 than in fiscal 1999 due primarily to a decrease of $2.4 million relating to a reduction in the number of stores from 84 at the end of fiscal 1999 to 64 at the end of fiscal 2000 and a decrease of $2.0 million relating to other stores closed during fiscal 1999, partially offset by an increase in depreciation for 16 continuing operations. Depreciation and amortization expense was $1.9 million or 10.0% higher in fiscal 1999 than fiscal 1998 due to a $1.0 million increase in capital lease depreciation and $0.9 million increase in amortization of software. There were three replacement stores and one new store opened in fiscal 1999 and two replacement stores and one new store opened in fiscal 1998. OPERATING INCOME Operations for fiscal 2000 resulted in an operating loss of $6.1 million or 0.79% of sales compared to operating income of $7.4 million or 0.79% of sales in fiscal 1999 and operating income of $7.9 million or 0.84% of sales during fiscal 1998. The decrease in operating income for fiscal 2000 included reorganization charges of $10.8 million and income of $1.5 million in fiscal 1999 relating to the sale of certain stores, partially offset by a reduction in asset revaluation charges from $8.4 million in fiscal 1999 to $821 thousand in fiscal 2000. The remaining decrease of $8.8 million relates primarily to continuing operations, including an increase of $5.2 million in selling, general and administrative expenses, an increase of $2.4 million in depreciation and a decrease of $2.1 million in gross margin. Operating income decreased in fiscal 1999 primarily due to store closing and asset revaluation charges of $8.4 million and an increase in depreciation of $2.0 million partially offset by gross margin increases of $9.4 million. INTEREST EXPENSE Net interest expense increased to 1.73% of sales in fiscal 2000 compared to 1.49% of sales in fiscal 1999 and 1.26% of sales in fiscal 1998. Interest expense as a percentage of sales increased in fiscal 2000 due to lower sales resulting from the closure or sale of stores. Interest expense as a percentage of sales increased in fiscal 1999 and 1998 due primarily to increased interest on capital lease obligations. EXTRAORDINARY ITEM An extraordinary gain of $5.3 million was recorded in the fourth quarter of fiscal 2000 relating to the repurchase of Senior Notes. Senior Notes with a face value of $13.0 million were repurchased for $7.7 million plus accrued interest. (See Note F of the notes to the Consolidated Financial Statements.) NET EARNINGS (LOSS) The Company recognized a net loss of $14.3 million or $1.20 per share for fiscal 2000 compared to a net loss of $6.5 million or $0.60 per share for fiscal 1999 and a net loss of $3.9 million or $0.36 per share for fiscal 1998. The weighted average common shares outstanding were 11,876,051, 10,935,887 and 10,936,559 for fiscal years 2000, 1999 and 1998, respectively. No tax benefit was recognized in fiscal 2000, 1999 or 1998 as the Company is in a net operating loss carryforward position. Valuation allowances have been established for the entire amount of net deferred tax assets due to the uncertainty of future recoverability (See Note I of the notes to the Consolidated Financial Statements). LIQUIDITY AND CAPITAL RESOURCES 17 As a result of the Company's inability to refinance its Senior Notes, due April 15, 2000, the Company filed the Bankruptcy Case on February 29, 2000. The Company operated its business and managed properties as a debtor-in-possession pursuant to the Bankruptcy Code, through August 7, 2000, the date on which the Plan became effective (See Item 1: Business "Reorganization Proceedings Under Chapter 11 of the Bankruptcy Code"). In connection with the reorganization under the Plan, the Company has expensed and paid $3.6 million in professional fees and $1.4 million in employee severance costs during fiscal 2000. The Company anticipates it will incur an additional $200 thousand in professional fees as a result of the Bankruptcy Case. The Company sold certain assets and terminated leases in fiscal 2000 for net proceeds of $3.7 million. The Plan expenditures discussed in this section and expenditures relating to the reserve for closed stores have been funded primarily from existing cash, loans against an Amended and Restated Loan and Security Agreement ("Revolver") and proceeds from the sale of certain of the Company's assets. The remaining availability under the Revolver, in excess of the loan balance, was $28.2 million on February 3, 2001 and the Company is projecting the availability to remain above $10.0 million after the funding required for the above expenditures. Cash provided by operating activities was $5.3 million for fiscal 2000 compared to cash provided of $3.2 million in fiscal 1999. The net loss and non-cash charges provided $5.3 million of cash. Working capital from operating activities was unchanged primarily due to decreases in receivables and inventories, offset by decreases in accounts payable, accrued liabilities and the reserve for closed stores. Capital expenditures, including property held for resale, were $7.5 million for fiscal 2000 compared to $28.8 million for fiscal 1999. One store was sold and 19 stores were closed during fiscal 2000, three major remodels were completed and one major remodel is in progress. Working capital on February 3, 2001 was $3.3 million and the current ratio was 1.05 to 1 compared to a negative $70.0 million and 0.61 to 1 on January 29, 2000. The Company reclassified its $100 million in Senior Notes, due April 15, 2000, from Long-Term Debt to Current Liabilities, resulting in the negative working capital on January 29, 2000. The Senior Notes were reclassified to Long-Term Debt after $85 million in New Senior Notes were issued in fiscal 2000 with a maturity date of April 15, 2005. The following table summarizes store development and reductions: PLANNED FISCAL FISCAL FISCAL 2001 2000 1999 ------------ --------- --------- New stores 0 0 4 Store closings and sales 0 20 9 Expansions and major remodels 3 3 4 Store count, end of year 64 64 84 The Company is planning capital expenditures of approximately $11.0 million in fiscal 2001, which is expected to be funded primarily from cash flows from operations and loans against the Revolver. The Company may also utilize sale/leaseback transactions to provide additional funding. As of February 3, 2001, the Company owned eight operating stores and one closed store, with the closed store classified in "Property held for resale" and leased 56 operating stores, 14 closed stores and two subleased stores. Three stores were sold and leased back providing $18.5 million of proceeds during 18 fiscal 1999 and six stores were sold and leased back providing $31.0 million of proceeds during fiscal 1998. The Company sold four stores, including property, equipment and inventory, during fiscal 1999 providing $11.9 million of proceeds. State insurance reserve requirements for funds held in escrow by third parties to satisfy claim liabilities recorded for workers' compensation, automobile and general liability costs were reduced by $1.7 million in fiscal 2000 and $3.8 million in fiscal 1998, and increased by $0.7 million in fiscal 1999. The Company entered into the Revolver with Congress Financial Corporation (Central) on August 7, 2000, which amends and restates the original Loan and Security Agreement dated May 25, 1995. The Revolver is a $40 million facility that provides for revolving credit loans and letters of credit. No more than an aggregate of $20 million of the total commitment may be drawn by the Company as letters of credit. Total availability under the Revolver is based on percentages of allowable inventory up to a maximum of $40 million. The terms of the Revolver limit capital expenditures to $75 million per year and purchase money security interests and purchase money mortgage amounts to a combined maximum outstanding amount of $50 million. The Revolver is secured by a first priority security interest in all inventories of the Company located in its stores and distribution center in Milan, Illinois, which first priority lien is contractually subordinated to the lien of SuperValu Holdings, Inc. in the amount of $0.8 million. Loans made pursuant to the Revolver bear interest at a fluctuating interest rate based, at the Company's option, on a margin over the Prime Rate or a margin over the London Interbank Offered Rate. The Revolver has one financial covenant relating to minimum net worth as defined by the Revolver. At February 3, 2001, the defined net worth of the Company exceeded the minimum amount by approximately $10.4 million. The Revolver also has as an event of default the actual or likely occurrence or existence of any event or circumstance which, in the lender's reasonable judgement, has a material adverse effect on the Company or the lender, as defined in the Revolver. At February 3, 2001, the Company had $4.4 million in loans against the Revolver and no letters of credit outstanding, resulting in $28.2 million of availability under the Revolver. The interest rate as of February 3, 2001was 9.50%. At January 29, 2000, the Company had no loans against the Revolver and had no letters of credit outstanding. The interest rate as of January 29, 2000 was 9.00%. The Company repurchased $13.0 million of its 11% Senior Notes during fiscal 2000 at a cost of $7.7 million, recording an extraordinary gain of $5.3 million. The repurchase of the New Senior Notes was primarily funded from cash on hands, cash flows from operations and loans against the Revolver. The Company may periodically purchase shares of its common stock to the extent that the Board of Directors believes that the shares are undervalued and that such purchases are in the best interests of the Company and consistent with its cash requirements. The Company expects to fund any such purchases from cash on hand, cash flows from operations and loans against the Revolver. The market price of the Company's common stock fluctuates and it is likely that the price will change subsequent to any such purchases by the Company. The following table summarizes loans and interest information for the Revolver: 19
FISCAL 2000 FISCAL 1999 FISCAL 1998 FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 ---------------- ---------------- --------------- (DOLLARS IN MILLIONS) Loans as of year-end $ 4.4 $ - $ - Letters of Credit as of year-end $ - $ - $ - Maximum amount outstanding during year $11.1 $ 6.4 $10.3 Average amount outstanding during year $ 2.1 $ 0.2 $ 0.9 Weighted average interest rate 9.8% 9.0% 9.2%
Working capital and the current ratio were as follows:
WORKING CURRENT CAPITAL RATIO ----------------- ----------------- (DOLLARS IN MILLIONS) February 3, 2001 $ 3.3 1.05 to 1 January 29, 2000 $ (70.0) 0.61 to 1 January 30, 1999 $ 17.4 1.18 to 1
The Company was in compliance with all covenants in its debt agreements on February 3, 2001 and expects to be in compliance with all covenants for fiscal 2001 based on management's estimates of fiscal 2001 operating results, cash flows and capital expenditures. Management believes that cash on hand, cash provided by operations, loans against the Revolver and proceeds from the sale of certain of the Company's assets will provide sufficient liquidity for the Company for the forthcoming fiscal year. See Item 5: Market for Registrant's Common Equity and Related Shareholder Matters for a discussion of the Company's common stock listing on the Nasdaq Nation Market. INFLATION Inflation has had only a minor effect on the operations of the Company and its internal and external sources of liquidity and working capital. NEW ACCOUNTING STANDARDS Existing accounting principles generally accepted in the United States of America do not provide specific guidance on the accounting for sales incentives that many companies offer to their customers. The FASB Emerging Issues Task Force (EITF), a group responsible for promulgating changes to accounting policies and procedures, has issued a new accounting pronouncement, EITF Issue Number 00-14, "Accounting for Certain Sales Incentives," which addresses the recognition, measurement and income statement classification for certain sales incentives offered by companies in the form of discounts, coupons or rebates. The implementation of this new accounting pronouncement will require the Company to make certain reclassifications between Total Sales, Cost of Goods Sold and Selling, General and Administrative Expenses in the Company's Consolidated Statements of Operations. The effective date for EITF 00-14 has been delayed until fiscal quarters beginning after December 15, 2001. The Company expects to implement EITF 00-14 no later than the first quarter of fiscal 2002. In accordance with such implementation, the Company expects to reclassify certain prior period financial statements for comparability purposes. Accordingly, while the Company is currently reviewing this pronouncement, the Company believes that 20 the implementation of EITF 00-14 will not have an effect on reported Operating Income (Loss) or Net Earnings (Loss). In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which was later amended by SFAS No. 137, DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, and SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT TO SFAS NO. 133. This statement as amended establishes accounting and reporting standards for derivative instruments and all hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. For derivatives that qualify as effective hedges, the change in fair value will have no impact on earnings until the hedged item affects earnings. For derivatives that are not designated as hedging instruments or for the ineffective portion of a hedging instrument, the change in fair value will affect current period earnings. The Company implemented the statements on February 4, 2001 and there was no material impact on the Company's financial statements as a result of the implementation. SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements under Management's Discussion and Analysis of Financial Condition and Results of Operations and the other statements in this Form 10-K which are not historical facts are forward looking statements. These forward looking statements involve risks and uncertainties that could render them materially different, including, but not limited to, the effect of economic conditions, the impact of competitive stores and pricing, availability and costs of inventory, employee costs and availability, the rate of technology change, the cost and uncertain outcomes of pending and unforeseen litigation, the availability of capital, supply constraints or difficulties, the effect of the Company's accounting policies, the effect of regulatory, legal and other risks detailed in the Company's Securities and Exchange Commission filings. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to certain market risks that are inherent in the Company's financial instruments that arise from transactions entered into in the normal course of business. Although the Company currently utilizes no derivative financial instruments that expose the Company to significant market risk, the Company is exposed to fair value risk due to changes in interest rates with respect to its long-term debt borrowings. The Company is subject to interest rate risk on its long-term fixed interest rate debt borrowings. Loans against the Revolver do not give rise to significant interest rate risk because of the floating interest rate charged on such loans. The Company manages its exposure to interest rate risk by utilizing a combination of fixed and floating rate borrowings. The following describes information relating to the Company's instruments that are subject to interest rate risk at February 3, 2001 (dollars in millions):
DESCRIPTION CONTRACT TERMS INTEREST RATE COST FAIR VALUE - --------------------------------------------------------------------------------------------------- New Senior Notes Due April 15, 2005 11% fixed $72 $40
The Company recorded a discount of $2.1 million in conjunction with the refinancing of its Senior Notes. The discount is being amortized over the term of the New Senior Notes. (See Note F of the notes to the Consolidated Financial Statements.) 21 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Eagle Food Centers, Inc.: We have audited the accompanying consolidated balance sheet of Eagle Food Centers, Inc. and subsidiaries as of February 3, 2001, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eagle Food Centers, Inc. and subsidiaries as of February 3, 2001, and the consolidated results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Des Moines, Iowa April 19, 2001 22 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Eagle Food Centers, Inc.: We have audited the accompanying consolidated balance sheet of Eagle Food Centers, Inc. and subsidiaries as of January 29, 2000, and the related consolidated statements of operations, equity, and cash flows for each of the two years in the period ended January 29, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Eagle Food Centers, Inc. and subsidiaries as of January 29, 2000 and the results of their operations and their cash flows for each of the two years in the period ended January 29, 2000 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements for the year ended January 29, 2000 have been prepared assuming that the Company will continue as a going concern. As discussed in Note M to the consolidated financial statements, the Company filed for Chapter 11 Bankruptcy on February 29, 2000 in order to reorganize the Company's operations and restructure the Company's Senior Notes. The Company is uncertain about if or when it will emerge from Chapter 11 Bankruptcy, which raises substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning this matter are also discussed in Note M. The financial statements do not include adjustments that might result from the outcome of this uncertainty. The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business. As discussed in Note B to the financial statements, the Company changed its method of accounting for goodwill. DELOITTE & TOUCHE LLP Davenport, Iowa April 14, 2000 23
EAGLE FOOD CENTERS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------------------------------ February 3, January 29, ASSETS 2001 2000 ----------------- --------------- Current assets: Cash and cash equivalents $ 263 $ 18,558 Restricted assets 7,271 6,418 Accounts receivable, net of allowance for doubtful accounts of $1.7 million in fiscal 2000 and $1.4 million in fiscal 1999 7,655 15,561 Inventories, net of LIFO reserve of $8.4 million in fiscal 2000 and $9.6 million in fiscal 1999 51,547 66,690 Prepaid expenses and other 2,363 780 ----------------- --------------- Total current assets 69,099 108,007 Property and equipment (net) 113,865 135,210 Other assets: Deferred software costs (net) 10,007 14,253 Property held for resale 3,140 1,777 Other 1,154 1,169 ----------------- --------------- Total other assets 14,301 17,199 ----------------- --------------- Total assets $ 197,265 $ 260,416 ================= =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 25,721 $ 36,365 Payroll and associate benefits 11,800 14,294 Accrued liabilities 14,029 15,026 Reserve for closed stores 5,636 3,088 Accrued taxes 7,624 8,155 Current portion of long term debt 942 101,128 ----------------- --------------- Total current liabilities 65,752 178,056 Long term debt: Senior Notes 70,421 - Capital lease obligations 33,504 42,879 Loan and Security Agreement 4,386 0 Other 643 728 ----------------- --------------- Total long term debt 108,954 43,607 Other liabilities: Reserve for closed stores 3,068 6,898 Other deferred liabilities 9,706 9,877 ----------------- --------------- Total other liabilities 12,774 16,775 ----------------- --------------- Total liabilities 187,480 238,438 ----------------- --------------- Shareholders' equity: Preferred stock, $.01 par value, 100,000 shares authorized - - Common stock, $.01 par value, 18,000,000 shares authorized; 13,429,351 and 11,500,000 issued in fiscal 2000 and 1999, respectively 134 115 Capital in excess of par value 55,464 53,336 Common stock in treasury, at cost, 637,493 and 560,952 shares (2,278) (2,228) Accumulated other comprehensive income 9 13 Accumulated deficit (43,544) (29,258) ----------------- --------------- Total shareholders' equity 9,785 21,978 Commitments and Contingencies ----------------- --------------- Total liabilities and shareholders' equity $ 197,265 $ 260,416 ================= ===============
See notes to the consolidated financial statements. 24
EAGLE FOOD CENTERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 ------------------ ------------------- ------------------- Sales $ 776,838 $ 932,789 $ 943,805 Cost of goods sold 578,619 690,456 710,830 ----------------- ------------------ ------------------ Gross margin 198,219 242,333 232,975 Operating expenses: Selling, general and administrative 173,942 205,820 203,220 Store closing, asset revaluation and lease termination 821 8,367 2,925 Reorganization items, net 10,782 - - Depreciation and amortization 18,816 20,781 18,885 ----------------- ------------------ ------------------ Operating income (loss) (6,142) 7,365 7,945 Interest expense 13,430 13,906 11,870 ----------------- ------------------ ------------------ Loss before extraodinary item (19,572) (6,541) (3,925) Extraordinary item - gain on extinguishment of debt 5,286 - - ----------------- ------------------ ------------------ Net loss $ (14,286) $ (6,541) $ (3,925) ================= ================== ================== Weighted average basic shares outstanding 11,876,051 10,935,887 10,936,559 Basic loss per common share: $ (1.20) $ (0.60) $ (0.36) ================= ================== ==================
See notes to the consolidated financial statements. 25
EAGLE FOOD CENTERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------------ COMMON STOCK ----------------------------------------------------------------------- CAPITAL IN PAR EXCESS OF TREASURY --------------------------- SHARES VALUE PAR VALUE SHARES DOLLARS OTHER ---------------- ---------- ------------- ------------- ------------ ---------- BALANCE, JANUARY 31, 1998 11,500,000 $ 115 $ 53,336 553,127 $ (2,259) $ (281) Comprehensive income/(loss): Net loss Pension liability adjustment (net of tax) Change in unrealized gain/(loss) on marketable securities Total comprehensive income/(loss) Purchase of treasury shares 50,200 (137) Forgiveness of officer stock sale receivable 141 Stock options exercised (22,125) 87 ---------------- ---------- ------------- ------------- ------------ ---------- BALANCE, JANUARY 30, 1999 11,500,000 $ 115 $ 53,336 581,202 $ (2,309) $ (140) Comprehensive income/(loss): Net loss Pension liability adjustment (net of tax) Change in unrealized gain/(loss) on marketable securities Total comprehensive income/(loss) Forgiveness of officer stock sale receivable 140 Stock options exercised (20,250) 81 ---------------- ---------- ------------- ------------- ------------ ---------- BALANCE, JANUARY 29, 2000 11,500,000 $ 115 $ 53,336 560,952 $ (2,228) $ - Comprehensive income/(loss): Net loss Pension liability adjustment (net of tax) Change in unrealized gain/(loss) on marketable securities Total comprehensive income/(loss) Purchase of Treasury Stock 76,541 (50) Issuance of stock in connection with New Senior Notes 1,929,351 19 2,128 ---------------- ---------- ------------- ------------- ------------ ---------- BALANCE, FEBRUARY 3, 2001 13,429,351 $ 134 $ 55,464 637,493 $ (2,278) $ - ================ =========== ============= ============= ============ ========== ACCUMULATED OTHER ACCUMULATED COMPREHENSIVE TOTAL DEFICIT INCOME/(LOSS) EQUITY ----------- ------------- ------ BALANCE, JANUARY 31, 1998 $ (18,756) $ 82 $ 32,237 Comprehensive income/(loss): Net loss (3,925) Pension liability adjustment (net of tax) (141) Change in unrealized gain/(loss) on marketable securities 106 Total comprehensive income/(loss) (3,960) Purchase of treasury shares (137) Forgiveness of officer stock sale receivable 141 Stock options exercised 18 105 ----------- --------- -------- BALANCE, JANUARY 30, 1999 $ (22,663) $ 47 $ 28,386 Comprehensive income/(loss): Net loss (6,541) Pension liability adjustment (net of tax) 176 Change in unrealized gain/(loss) on marketable securities (210) Total comprehensive income/(loss) (6,575) Forgiveness of officer stock sale receivable 140 Stock options exercised (54) 27 ----------- --------- -------- BALANCE, JANUARY 29, 2000 $ (29,258) $ 13 $ 21,978 Comprehensive income/(loss): Net loss (14,286) Pension liability adjustment (net of tax) (129) Change in unrealized gain/(loss) on marketable securities 125 Total comprehensive income/(loss) (14,290) Purchase of Treasury Stock (50) Issuance of stock in connection with New Senior Notes 2,147 ----------- --------- -------- BALANCE, FEBRUARY 3, 2001 $ (43,544) $ 9 $ 9,785 =========== ========= ========
See notes to the consolidated financial statements. 26
EAGLE FOOD CENTERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------- YEARS ENDED ----------------------------------------------- FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 -------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (14,286) $ (6,541) $ (3,925) Adjustments to reconcile net loss to net cash flows from operating activities: Extraordinary gain on extinguishment of debt (5,286) - - Depreciation and amortization 18,816 20,781 18,885 Store closing, asset revaluation and lease termination 7,354 8,367 2,925 LIFO (credit) charge (1,215) (735) 685 Deferred charges and credits 869 707 893 Gain on disposal of assets (987) (1,414) (910) Changes in assets and liabilities: Receivables and other assets 6,626 (3,003) (8,015) Inventories 16,358 8,114 9,087 Accounts payable (10,644) (11,069) 4,356 Accrued and other liabilities (4,552) (10,348) (477) Principal payments on reserve for closed stores (7,787) (1,632) (2,444) ------------- ------------- ------------- Net cash flows from operating activities 5,266 3,227 21,060 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales (purchases) of marketable securities, net (653) 3,218 609 Additions to property and equipment (7,538) (22,710) (20,532) Additions to property held for resale - (6,100) (19,150) Cash proceeds from sale/leasebacks or dispositions of property and equipment 3,974 11,418 14,392 Cash proceeds from sale/leasebacks or dispositions of property held for resale 246 18,903 18,450 ------------- ------------- ------------- Net cash flows from investing activities (3,971) 4,729 (6,231) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Deferred financing costs (337) - (50) Principal payments on capital lease obligations (923) (1,173) (772) Prinicipal payments on senior notes (22,666) - - Net revolving loans (repayments) 4,386 - (7,208) Purchase of treasury stock (50) - (137) ------------- ------------- ------------- Net cash flows from financing activities (19,590) (1,173) (8,167) ------------- ------------- ------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (18,295) 6,783 6,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,558 11,775 5,113 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 263 $ 18,558 $ 11,775 ============= ============= =============
See notes to the consolidated financial statements. 27 EAGLE FOOD CENTERS, INC. - -------------------------------------------------------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000, AND JANUARY 30, 1999 - -------------------------------------------------------------------------------- NOTE A - ORGANIZATION - Eagle Food Centers, Inc. (the "Company"), a Delaware corporation, is engaged in the operation of retail food stores, with 64 stores in northern and central Illinois and eastern Iowa. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES FISCAL YEAR - The Company's fiscal year ends on the Saturday closest to January 31st. Fiscal 2000 was a 53-week year ending on February 3, 2001. Fiscal 1999 and 1998 were 52-week years ending on January 29, 2000 and January 30, 1999, respectively. BASIS OF CONSOLIDATION - The consolidated financial statements include the accounts of Eagle Food Centers, Inc. and all subsidiaries. All significant intercompany transactions have been eliminated. RISKS AND UNCERTAINTIES - The preparation of the Company's Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Nasdaq staff informed the Company, by letter dated November 13, 2000, that it had not maintained a minimum market value of public float of $5,000,000 and a minimum bid price of $1.00 over 30 consecutive trading days as required for continued listing on the Nasdaq National Market. Nasdaq staff had determined that the Company's Common Stock would be delisted from quotation on the Nasdaq National Market at the opening of business on February 14, 2001. On February 12, 2001, the Company delivered a request for an appeal to the Nasdaq Listing Qualifications Panel. The delisting process was suspended pending resolution of the appeal. The Company presented a plan to the Nasdaq Listing Qualifications Panel for achieving compliance with the listing requirements of the Nasdaq National Market at a hearing held March 28, 2001. No decision was made at the hearing regarding the continued listing of our shares. Members of the Listing Qualifications Panel suggested that the Company consider a reverse stock split and applying for listing on the Nasdaq SmallCap Market. The Company sent a letter to the panel on April 2nd in which the Company modified its earlier plan by (i) consenting to the possible change from listing on the Nasdaq National Market to listing on the Nasdaq SmallCap Market and (ii) consenting to recommend shareholder approval of a reverse stock split in the event other measures are not sufficient to achieve compliance with the Nasdaq listing requirements for either the Nasdaq National Market or the Nasdaq SmallCap Market. If the Company's common stock is not listed for trading on either the Nasdaq National Market or the Nasdaq SmallCap Market, trading of the common stock would likely be on the OTC Bulletin Board or similar quotation system. Inclusion of the Company's common stock on the OTC Bulletin Board or similar quotation system could adversely affect the liquidity of the Company's common stock and may impact the public's perception of the Company. The Company believes the plan presented to the Nasdaq Listing Qualifications Panel will achieve compliance with listing requirements. However, should delisting occur, the Company does not anticipate significant impact on the Company's liquidity or business operations. 28 CASH AND CASH EQUIVALENTS-- The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be a cash equivalent. RESTRICTED ASSETS-- Restricted assets are comprised of marketable securities and cash held in escrow by third parties. Marketable securities are restricted to satisfy state insurance reserve requirements related to claim liabilities recorded for workers' compensation and general liability costs; such claim liability reserves are classified as current. The Company has classified its entire holdings of marketable securities as available for sale reflecting management's intention to hold such securities for indefinite periods of time. Such securities are reported at fair value and the difference between cost and fair value is reported as a separate component of shareholders' equity until gains and losses are realized. Such amount is a component in the "Accumulated other comprehensive income" caption of shareholders' equity. ACCOUNTS RECEIVABLE - Accounts receivable is recorded at cost, less the related allowance for doubtful accounts. The allowance is based on management's evaluation of accounts receivable considering current information and events regarding the debtors' ability to repay. The activity in the allowance for doubtful accounts for the years ended February 3, 2001 and January 29, 2000 follows: YEAR ENDING YEAR ENDING (In Thousands) FEBRUARY 3, 2001 JANUARY 29, 2000 ---------------- ---------------- Balance at beginning of year $ (1,388) $ (1,294) Bad Debt Provision (323) (103) Writeoffs 43 9 ---------------- ---------------- Balance at end of year $ (1,668) $ (1,388) ================ ================ INVENTORIES-- Inventories are valued at the lower of cost or market; cost is determined by the last-in, first-out (LIFO) method for substantially all inventories. The current cost of the inventories was greater than the LIFO value by $8.4 million at February 3, 2001 and $9.6 million at January 29, 2000. During fiscal 2000, inventory quantities were reduced, which resulted in a liquidation of certain LIFO layers carried at lower costs that prevailed in prior years. The effect of the layer liquidation for fiscal 2000 and 1999 was to decrease cost of goods sold by $2.1 million and $0.9 million, respectively, below the amounts that would have resulted from liquidating inventory at February 3, 2001 and January 29, 2000. PROPERTY AND EQUIPMENT-- Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed by using the straight-line method over the estimated useful lives of buildings, fixtures and equipment. Leasehold costs and improvements are amortized over their estimated useful lives or the remaining original lease term, whichever is shorter. Leasehold interests are generally amortized over the lease term plus expected renewal periods or 25 years, whichever is shorter. Property acquired under capital lease is amortized on a straight-line basis over the shorter of the estimated useful life of the property or the original lease term. LONG-LIVED ASSETS-- The Company continually monitors under-performing stores and under-utilized facilities for an indication that the carrying amount of assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, including goodwill where applicable, an impairment loss is recognized. 29 Impairment is measured based on the estimated fair value of the asset. Fair value is based on management's estimate of the amount that could be realized from the sale of assets in a current transaction between willing parties based on professional appraisals, offers, actual sale or disposition of assets subsequent to year end and other indications of fair value. In determining whether an asset is impaired, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which, for the Company, is generally on a store by store basis. During fiscal 2000 and fiscal 1999, the Company recognized charges of $821 thousand and $4.6 million, respectively, for asset revaluations on underperforming stores. Impairment charges are included in the caption "Store closing, asset revaluation and lease termination" in the Consolidated Statements of Operations. DEBT ISSUANCE COSTS - Debt issuance costs are amortized over the terms of the related debt agreements using the interest method. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED ("GOODWILL")-- During the fourth quarter of fiscal 1999, the Company changed its method of measuring impairment of enterprise level goodwill from an undiscounted cash flow method to a market value method. A market value method compares the enterprise's net book value to the value indicated by the market price of its equity securities; if net book value exceeds the market capitalization, the excess carrying amount of goodwill is written off. The Company believes that the market value method is preferable since it provides a more current and realistic valuation than the undiscounted cash flows method and more closely matches the Company's fair value. In connection with the change in accounting policy with respect to the measurement of goodwill impairment described above, the entire unamortized goodwill balance of $2.1 million was written off during the fourth quarter of fiscal 1999. Such charge is included in the caption "Store closing, asset revaluation, and lease termination" of the Consolidated Statement of Operations. The Company compared the aggregate value of its outstanding common stock to book value during the period from January 31, 1999 through February 29, 2000; the date trading was suspended, due to the Bankruptcy Case. The market value of the Company's common stock was not less than book value for any significant period prior to September 2, 1999. The market value remained below book value from the period of September 2, 1999 through February 29, 2000. The Company believes the temporary decline in market value below book value was not other than temporary until the fourth quarter of fiscal 1999. As market value was less than book value reduced by goodwill for almost all of the approximately six month period ending February 29, 2000, the entire amount of the unamortized goodwill was considered impaired. PROPERTY HELD FOR RESALE-- Property in this classification includes a closed store and undeveloped lots. DEFERRED SOFTWARE COSTS--Software costs are generally amortized over five years beginning when the software is placed in service. Deferred software balances were $10.0 million and $14.3 million as of February 3, 2001 and January 29, 2000, respectively; net of accumulated amortization of $10.4 million and $6.4 million, respectively. SELF-INSURANCE-- The Company is primarily self-insured, through its captive insurance subsidiary, for workers' compensation and general liability costs. The self-insurance claim liability is determined actuarially based on claims filed and an estimate of claims incurred but not yet reported. Self-insurance claim liabilities of $6.6 million as of February 3, 2001 and $7.0 million as of January 29, 2000 are included in the "Accrued liabilities" caption of the balance sheet. 30 STORE CLOSING, ASSET REVALUATION AND LEASE TERMINATION-- In the event the performance or utilization of underperforming stores and underutilized facilities cannot be improved, management may decide to close, sell or otherwise dispose of such stores or facilities. A charge for store closing and asset revaluation is provided when management has reached the decision to close, sell or otherwise dispose of such stores within one year and the costs can be reasonably estimated. The charge for store closing arises primarily from (a) the discounted value of future lease commitments in excess of the discounted value of estimated sublease revenues, (b) store closing costs, (c) elimination of any goodwill identified with such stores to be closed and (d) revaluing fixed assets to estimated fair values when assets are impaired, or to net realizable value for assets to be disposed of (see Long-Lived Assets above). Discount rates have been determined at the time a store was added to the closed store reserve and have not been changed to reflect subsequent changes in rates. The Company's policy is to use a risk-free rate of return for a duration equal to the remaining lease term at the time the reserve was established. The average discount rate used for reserves established in fiscal 2000, 1999 and 1998 was 6.3%, 5.2% and 4.7%, respectively. The provision for store closing, asset revaluation and lease termination includes the charges discussed in Note D of notes to Consolidated Financial Statements for the year ended January 29, 2000, asset impairment charges for underperforming stores that are not being closed, sold or otherwise disposed of (see LONG-LIVED ASSETS above), goodwill impairment charges (see EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED ("GOODWILL") above) and computer lease termination charges discussed in Note H of notes to Consolidated Financial Statements. The components of the provision for the years ended February 3, 2001, January 29, 2000, and January 30, 1999 were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 --------------- --------------- --------------- (DOLLARS IN THOUSANDS) Provision for store closing and asset revaluation $ - $ 1,664 $ - Asset impairment charges for underperforming stores 821 4,571 - Goodwill impairment charge - 2,132 - Computer lease termination charge - - 2,925 --------------- --------------- --------------- Total $ 821 $ 8,367 $ 2,925 =============== =============== =============== REORGANIZATION ITEMS, NET - A summary of costs recognized during the fiscal year ended February 3, 2001 is as follows: (Dollars in thousands) Store closing and asset revaluation $ 6,533 Employee termination benefits 1,361 Professional fees 3,608 Net realized gains on sale/disposal of leases and equipment and release of capital leases (944) Other 224 -------- Total $ 10,782 ========
The net reorganization items are based on information presently available to the Company; however, the actual costs could differ materially from the estimates. Additionally, other costs may be incurred which cannot be presently estimated. 31 EMPLOYEE TERMINATION BENEFITS - In connection with the Bankruptcy Case, the Company recognized $1.4 million in employee termination benefits during fiscal 2000, representing severance costs for 353 employees terminated as a result of the store closings under the provisions of the Plan. PROFESSIONAL FEES - Professional fees relate to legal, accounting, consulting and other professional costs directly attributable to the Bankruptcy Case and are being expensed as incurred. The Company expects to incur an additional $200 thousand for professional fees. NET REALIZED GAINS - During fiscal 2000, the Company had realized gains on the sale/disposal of leases and equipment and release of capital lease obligations of $944 thousand, all related to the 20 closed or sold stores as part of the Plan. ADVERTISING EXPENSE - The Company's advertising costs, including radio and television production costs, are expensed as incurred and included in the "Selling, general and administrative" caption of the Consolidated Statements of Operations. The components of advertising expense are as follows:
GROSS ADVERTISING CO-OP CREDITS NET ADVERTISING ----------------------- --------------------------- ------------------------- DOLLARS % OF SALES DOLLARS % OF SALES DOLLARS % OF SALES (DOLLARS IN THOUSANDS) Fiscal 2000 $ 11,695 1.5 % $ 10,620 1.4 % $ 1,075 0.1 % Fiscal 1999 $ 14,862 1.6 % $ 14,594 1.6 % $ 268 - Fiscal 1998 $ 17,520 1.8 % $ 15,488 1.6 % $ 2,032 0.2 %
INCOME TAXES -- Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are recorded to reduce deferred taxes when it is more likely than not that a tax benefit will be realized. LOSS PER SHARE - Basic net loss per common share is based on the weighted average number of common shares outstanding in each year. Diluted net loss per common share assumes that outstanding common shares were increased by shares issuable upon exercise of those stock option shares for which market price exceeds exercise price, if any, less shares which could have been purchased by the Company with the related proceeds. Shares resulting in an antidilutive effect are excluded in accordance with SFAS No. 128, EARNINGS PER SHARE. RECLASSIFICATIONS - Certain reclassifications were made to prior years' balances to conform to current year presentation. NEW ACCOUNTING STANDARDS - Existing accounting principles generally accepted in the United States of America do not provide specific guidance on the accounting for sales incentives that many companies offer to their customers. The FASB Emerging Issues Task Force (EITF), a group responsible for promulgating changes to accounting policies and procedures, has issued a new accounting pronouncement, EITF Issue Number 00-14, "Accounting for Certain Sales Incentives," which addresses the recognition, measurement and income statement classification for certain sales incentives offered by companies in the form of discounts, coupons or rebates. The implementation of this new accounting pronouncement will require the Company to make certain reclassifications between Total Sales, Cost of Goods Sold and Selling, General and Administrative Expenses in the Company's Consolidated Statements of Operations. The effective date for EITF 00-14 has been delayed until fiscal quarters beginning after December 15, 2001. The Company expects to implement EITF 00-14 no later than the first quarter of fiscal 2002. In accordance with such implementation, the Company expects to reclassify certain prior period financial statements for comparability purposes. Accordingly, while the Company is currently reviewing this 32 pronouncement, the Company believes that the implementation of EITF 00-14 will not have an effect on reported Operating Income (Loss) or Net Earnings (Loss). In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which was later amended by SFAS No. 137, DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, and SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT TO SFAS NO. 133. This statement as amended establishes accounting and reporting standards for derivative instruments and all hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities at their fair values. Accounting for changes in the fair value of a derivative depends on its designation and effectiveness. For derivatives that qualify as effective hedges, the change in fair value will have no impact on earnings until the hedged item affects earnings. For derivatives that are not designated as hedging instruments or for the ineffective portion of a hedging instrument, the change in fair value will affect current period earnings. The Company implemented the statements on February 4, 2001 and there was no material impact on the Company's financial statements as a result of the implementation. NOTE C - CONSOLIDATED STATEMENTS OF CASH FLOWS For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. SUPPLEMENTAL CASH FLOW INFORMATION
2000 1999 1998 --------------- --------------- --------------- (DOLLARS IN THOUSANDS) Cash paid for interest $ 13,173 $ 13,514 $ 11,717 Non-cash additions to property and equipment - 18,536 30,603 Non-cash additions to the capital lease liability - 18,536 30,603 Non-cash reductions in property and equipment in connection with sale of stores - 11,928 - Non-cash reductions in capital lease liability in connection with sale of stores - 12,524 - Treasury stock issued - 81 87 Non-cash transfer from property held for resale to property and equipment, net 4,163 - - Non-cash transfer from closed store reserve to property and equipment - 763 676 Additions to property and equipment and debt 103 878 - Unrealized gain (loss) on marketable securities 125 (210) 106 Stock issued to New Senior Note holders 2,147 - -
NOTE D - RESERVE FOR CLOSED STORES An analysis of activity in the reserve for closed stores for the years ended February 3, 2001 and January 29, 2000, is as follows: 33
FEBRUARY 3, JANUARY 29, 2001 2000 ---------------- ---------------- (IN THOUSANDS) Balance at beginning of year $ 9,986 $ 10,736 Payments, primarily rental payments, net of sublease rentals of $636 in fiscal 2000 and $1,313 in fiscal 1999 (8,124) (2,303) Amount classified as a direct reduction of fixed assets 0 (763) Interest cost 309 652 Provision for store closing and asset revaluation 6,533 1,664 --------------- --------------- Balance at end of year (including $5.6 million and $3.1 million, respectively, classified as current) $ 8,704 $ 9,986 =============== ===============
The provision for store closing and asset revaluation is classified in the Consolidated Statements of Operations under the caption "Reorganization items, net" for fiscal 2000 and the caption "Store closing and asset revaluation" for fiscal 1999. During fiscal 2000, the Company added 15 stores to the reserve for which $10.4 million was provided for estimated future lease costs. In addition, the Company benefited from net favorable changes in estimates of $3.9 million for both the 18 stores in the reserve at the end of fiscal 1999 and new stores added to the reserve in the first quarter of fiscal 2000. The leases for 16 stores terminated or expired during fiscal 2000. During fiscal 1999, the Company added three stores to the reserve for which $0.9 million was provided for estimated future costs and $0.8 million was provided to write down fixed assets to estimated fair value. In addition, one store was removed from the reserve due to a sale of assets and release of future obligations. During fiscal 1998, the Company benefited $0.6 million from favorable lease terminations and changes in estimates for six stores that were included in the reserve at January 31, 1998, and from $0.2 million in favorable changes in estimates for stores remaining in the reserve at January 30, 1999. Additionally, during fiscal 1998, the Company added two stores to the reserve, for which $0.8 million was provided for estimated future costs and write down of fixed assets to estimated fair value. The reserve at February 3, 2001 represents estimated future cash outflows primarily related to the present value of net future rental payments. It is management's opinion that the reserve will be adequate to cover continuing costs for the existing closed stores. At the end of fiscal year 2000, the reserve included estimated net future costs for 15 closed stores plus sublease subsidies for two other closed stores. At the end of fiscal 1999, the reserve included estimated net future costs for ten closed stores, plus sublease subsidies for eight other closed stores. A rollforward presentation of the number of stores in the closed store reserve for fiscal years 2000 and 1999 is as follows: 34
2000 1999 ------------- ------------- Number of stores in reserve at beginning of year 18 16 Leases terminated or expired (16) (1) Stores added to the closed store reserve 15 3 ------------- ------------- Number of stores in reserve at end of year 17 18 ============= =============
See Note B of the notes to the Consolidated Financial Statements under the captions STORE CLOSING, ASSET REVALUATION AND LEASE TERMINATION, and REORGANIZATION ITEMS, NET. NOTE E - PROPERTY AND EQUIPMENT The investment in property and equipment is as follows:
FEBRUARY 3, JANUARY 29, 2001 2000 ------------------ ------------------ (IN THOUSANDS) Land $ 5,732 $ 6,287 Buildings 25,322 27,374 Leasehold costs and improvements 37,514 41,235 Fixtures and equipment 122,595 139,943 Leasehold interests 16,101 26,033 Property under capital leases 37,435 47,464 ----------------- ----------------- Total 244,699 288,336 Less accumulated depreciation and amortization (130,834) (153,126) ----------------- ----------------- Property and equipment (net) $ 113,865 $ 135,210 ================= =================
As of February 3, 2001, the Company owned eight operating stores and one closed store, with the closed store classified in "Other Assets-Property Held for Resale." The leased stores include 56 open stores, 14 closed stores and two subleased stores. Of these 72 leased stores, ten are capital leases included in Property and Equipment. There were three stores sold and leased back providing $18.5 million of proceeds during fiscal 1999 and six stores were sold and leased back providing $31.0 million of proceeds during fiscal 1998. The leases on three of these stores have been terminated. The remaining six stores are under capital leases which have 22-25 year terms with up to six five-year renewal options. The gains on the sale of these properties have been deferred and are amortized over the life of the original lease term. Property under capital leases represents capital leases for land, buildings and improvements. The Company eliminated four capital leases during fiscal 2000 relating to stores closed or sold under the Plan. Accumulated amortization for property under capital leases as of February 3, 2001 was $6.7 million and as of January 29, 2000 was $7.4 million. Amortization of the capital lease assets are included in the caption "Depreciation and amortization" in the Consolidated Statements of Operations. 35 Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Depreciation expense was $14.8 million, $17.3 million and $16.4 million for fiscal years 2000, 1999 and 1998 respectively. The useful lives of the various classes of assets are as follows: Buildings 10-25 years Fixtures and Equipment 2-12 years Leasehold Costs & Improvements 5-23 years Leasehold interests 12-25 years Property under capital lease Shorter of economic life or lease term
The Company reclassed one store with a book value of $6.7 million from "Property Held for Resale" to "Property and Equipment (Net). NOTE F - LONG-TERM DEBT Long-term debt consists of the following:
FEBRUARY 3, JANUARY 29, 2001 2000 -------------------- -------------------- (IN THOUSANDS) 8 5/8% Senior Notes $ - $ 100,000 11% Senior Notes 70,421 - Capital leases (Note H) 34,281 43,886 Loan and Security Agreement 4,386 - Other 808 849 ------------------- ------------------- 109,896 144,735 Less current maturities 942 101,128 ------------------- ------------------- Total long-term debt $ 108,954 $ 43,607 =================== ===================
The maturities of long-term debt, including capital lease obligations are: fiscal year 2002 - $5.4 million, fiscal year 2003 - $1.1 million, fiscal year 2004 - $1.2 million, fiscal year 2005 - $71.7 million, fiscal year 2006 - $1.2 million and in fiscal years 2007 and thereafter - $28.4 million. The Company's 8 5/8% Senior Notes were due April 15, 2000. The Company replaced the Senior Notes with new notes (the "New Senior Notes") that have the following material terms and conditions; (i) maturity date of April 15, 2005, (ii) an interest rate of 11%, (iii) a $15 million repayment of outstanding principal by the Company on August 7, 2000 (see Note M of the notes to the Consolidated Financial Statements), and (iv) the Company may, at its option and with no prepayment penalty, redeem the New Senior Notes at any time at 100% of the principal amount outstanding at the time of redemption. The Company repurchased $13.0 million of its New Senior Notes during fiscal 2000 at a cost of $7.7 million, recording an extraordinary gain of $5.3 million. The balance of the New Senior Notes on February 3, 2001 was $73.0 million less unamortized discount of $1.6 million. The effective interest rate on the New Senior Notes is 11.5%. The repurchase of the New Senior Notes was primarily funded with cash on hand, cash from Company operations and loans against the Revolver. 36 In addition, under the Plan, the Company agreed to issue 15% of fully-diluted common stock of the Company (1,930,420 shares) to the holders of the New Senior Notes, of which 10% will be returned to the Company if the Company is sold or the debt is retired prior to October 15, 2001. If the Company is sold or the debt is retired prior to October 15, 2002, 5% of the common stock will be returned to the Company. None of the common stock will be returned to the Company if the Company is not sold or the debt retired prior to October 15, 2002. The shares were recorded at fair value in the amount of $2.1 million with the offsetting amount recorded as a discount against the New Senior Notes. The indenture relating to the 11% Senior Notes contains provisions as well as certain restrictions relating to certain asset dispositions, sale/leaseback transactions, payment of dividends, repurchase of equity interests, incurrence of additional indebtedness and liens, and certain other restricted payments (see Note M of the notes to the Consolidated Financial Statements). The Company entered into an Amended and Restated Loan and Security Agreement ("Revolver") with Congress Financial Corporation (Central) on August 7, 2000, which amends and restates the original Loan and Security Agreement dated May 25, 1995. The Revolver is a $40 million facility that provides for revolving credit loans and letters of credit. No more than an aggregate of $20 million of the total commitment may be drawn by the Company as letters of credit. Total availability under the Revolver is based on percentages of allowable inventory up to a maximum of $40 million. The terms of the Revolver provide total availability up to a maximum of $40 million, capital expenditures limited to $75 million per year and purchase money security interests and purchase money mortgage amounts to a combined maximum outstanding amount of $50 million. The Revolver is secured by a first priority security interest in all inventories of the Company located in its stores and distribution center in Milan, Illinois, which first priority lien is contractually subordinated to the lien of SuperValu Holdings, Inc. in the amount of $0.8 million. Loans made pursuant to the Revolver bear interest at a fluctuating interest rate based, at the Company's option, on a margin over the Prime Rate or a margin over the London Interbank Offered Rate. The Revolver has one financial covenant relating to minimum net worth as defined by the Revolver. At February 3, 2001, the defined net worth of the Company exceeded the minimum amount by approximately $10.4 million. The Revolver also has as an event of default the actual or likely occurrence or existence of any event or circumstance which, in the lender's reasonable judgement, has a material adverse effect on the Company or the lender, as defined in the Revolver. At February 3, 2001, the Company had $4.4 million in loans against the Revolver and no letters of credit outstanding, resulting in $28.2 million of availability under the Revolver. The interest rate as of February 3, 2001was 9.50%. At January 29, 2000, the Company had no loans against the Revolver and had no letters of credit outstanding. The interest rate as of January 29, 2000 was 9.00%. The Company was in compliance with all covenants in its debt agreements on February 3, 2001 and expects to be in compliance with all covenants for fiscal 2001 based on management's estimates of fiscal 2001 operating results, cash flows and capital expenditures. During the fiscal year ended January 29, 2000, the Company reclassified its $100 million in Senior Notes, due April 15, 2000, from Long-Term Debt to Current Liabilities. The Senior Notes were reclassified to Long-Term Debt after $85 million in New Senior Notes were issued in fiscal 2000 with a maturity date of April 15, 2005. NOTE G - TREASURY STOCK The following summarizes the treasury stock activity for the three years in the period ended February 3, 2001: 37
SHARES DOLLARS AVERAGE ---------------- --------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION) Balance January 31, 1998 553,127 $ 2,259 $ 4.09 Purchased 50,200 137 $ 2.73 Issued 22,125 87 $ 3.95 --------------- -------------- Balance January 30, 1999 581,202 $ 2,309 $ 3.97 Issued 20,250 81 $ 3.97 --------------- -------------- Balance January 29, 2000 560,952 $ 2,228 $ 3.97 Purchased 76,541 50 $ 0.65 --------------- -------------- Balance February 3, 2001 637,493 $ 2,278 $ 3.57 =============== ==============
During fiscal 1995 the Company sold 125,000 shares of treasury stock to its Chief Executive Officer Robert J. Kelly for $2.25 per share (market value at date of sale) in exchange for a note receivable, which was recorded in the "Other" caption of shareholders' equity and deducted from equity until the remaining balance was forgiven in fiscal 1999. In accordance with Mr. Kelly's employment agreement, $140,625 of the $281,250 note was forgiven in fiscal 1998 and the remainder was forgiven in fiscal 1999. The fiscal 1999 and 1998 forgiveness of the note was recorded as compensation expense and is included in the caption "Selling, general and administrative" in the Company's Consolidated Statements of Operations. The difference between the average share price of treasury stock and exercise of stock options is charged or credited to accumulated deficit. NOTE H - LEASES AND LONG-TERM CONTRACTS Fifty-six operating stores, 14 closed stores and two subleased stores were leased at February 3, 2001, many of which have renewal options for periods ranging from five to 30 years. Some provide the option to acquire the property at certain times during the initial lease term for approximately its estimated fair market value at that time, and some require the Company to pay taxes, common area maintenance and insurance on the leased property. The Company also leases its central distribution facility under a lease expiring in 2007. Rent expense consists of:
YEAR ENDED ----------------------------------------------------- FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 ----------------- --------------- ----------------- (IN THOUSANDS) Minimum rent under operating leases $ 13,531 $ 16,798 $ 16,291 Additional rent based on sales 98 110 109 Less rentals received on noncancelable subleases (251) (372) (337) ----------------- --------------- --------------- $ 13,378 $ 16,536 $ 16,063 ================= =============== ===============
Future minimum lease payments under non-cancelable operating and capital leases as of February 3, 2001 are as follows: 38
OPERATING CAPITAL (IN THOUSANDS) LEASES LEASES ------------------ ----------------- 2001 $ 11,779 $ 4,119 2002 11,552 4,144 2003 11,349 4,179 2004 11,044 4,212 2005 10,756 4,092 Thereafter 72,855 58,121 ----------------- ---------------- Total minimum lease payments $ 129,335 78,867 ================= Less amount representing interest 44,586 ---------------- Present value of minimum capital lease payments, including $777 classified as current portion of long-term debt $ 34,281 ================
The operating and capital lease future minimum lease payments do not include gross minimum commitments of $10.4 million for closed stores, the present value of which (net of estimated sublease payments) is included in the Consolidated Balance Sheet caption "Reserve for closed stores." The Company outsources its Information Systems ("IS") function with EDS to assume complete responsibility for the Company's IS function. The Company signed an IS services agreement with EDS on July 1, 2000 with a term of five years. In the fourth quarter of fiscal 1998, the Company accrued $2.9 million, which was paid in 12 equal monthly installments in calendar 1999, for costs associated with the migration from mainframe to client/server technology. The charge was primarily for future lease costs relating to the mainframe, and various software, software licenses and contracting costs. NOTE I - INCOME TAXES The provision for income taxes for the years ended February 3, 2001, January 29, 2000 and January 30, 1999 were $0. The differences between income tax benefit at the statutory Federal income tax rate and income tax benefit before extraordinary item reported in the Consolidated Statements of Operations are as follows:
YEAR ENDED ------------------------------------------------------ FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 --------------- --------------- --------------- (IN THOUSANDS) Income tax benefit before extraordinary item at statutory Federal tax rate of 35% $ (6,850) $ (2,289) $ (1,374) Surtax exemption 196 65 39 State income taxes, net of Federal benefit (785) (207) (196) Change in valuation allowance 7,064 2,905 1,573 Other 375 (474) (42) -------------- -------------- -------------- Total $ - $ - $ - ============== ============== ==============
Deferred tax assets and liabilities arise because of differences between the financial accounting bases for assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are comprised of the following significant temporary differences: 39
FEBRUARY 3, JANUARY 29, 2001 2000 ----------------- ----------------- (IN THOUSANDS) Deferred Tax Assets: Store closing $ 3,528 $ 4,447 Accrued reserves 2,414 2,330 Deferred revenues 1,607 1,846 Associate benefits 196 966 Tax credit and net operating loss carryforwards 28,110 19,175 Valuation allowance (18,951) (14,001) ---------------- ---------------- Total $ 16,904 $ 14,763 ================ ================ Deferred Tax Liabilities: Property and equipment $ 14,329 $ 11,332 Other, net 2,575 3,431 ---------------- ---------------- Total $ 16,904 $ 14,763 ================ ================ Net deferred tax asset $ - $ - ================ ================
Valuation allowances have been established for the entire amount of the net deferred tax assets as of February 3, 2001 and January 29, 2000, due to the uncertainty of future recoverability. The difference of $2.1 million between the changes in valuation allowance reflected on the statutory tax rate and deferred income tax tables is due to the income tax charge for the extraordinary income item. The tax credit carryforwards of $0.9 million expire at various dates from 2001 through the year 2010; alternative minimum tax credit carryforwards of $5.7 million have no expiration date. Net operating loss carryforwards totaled $53.7 million at February 3, 2001 and expire at various dates from 2009 through the year 2020. NOTE J - ASSOCIATE BENEFIT PLANS RETIREMENT PLANS Substantially all associates of the Company are covered by trusteed, non-contributory retirement plans of the Company or by various multi-employer retirement plans under collective bargaining agreements. The Company's defined benefit plans covering salaried and hourly associates provide benefits that are based on associates' compensation during years of service. The Company's policy is to fund no less than the minimum required under the Employee Retirement Income Security Act of 1974. During the years ended February 3, 2001, January 29, 2000 and January 30, 1999, pension costs under the plans totaled $646,000, $714,000 and $701,000, respectively. Net periodic pension cost under the Milan Office and Non-Foods Warehouse Retirement Plan ("Milan Plan") and the Eagle Food Centers, Inc. Associate Pension Plan ("Eagle Plan") includes the following benefit and cost components for the years ended February 3, 2001, January 29, 2000 and January 30, 1999. 40
YEAR ENDED ------------------------------------------------ FEBRUARY 3, JANUARY 29, JANUARY 30, 2001 2000 1999 -------------- -------------- ------------- (IN THOUSANDS) Service cost $ 607 $ 624 $ 551 Interest cost 926 863 776 Expected return on plan assets (923) (809) (663) Amortization of prior service cost 36 36 37 -------------- -------------- ------------- Net periodic pension cost $ 646 $ 714 $ 701 ============== ============== =============
The amounts included within other comprehensive income arising from a change in the additional minimum pension liability, net of tax, are a loss of $129,000 at February 3, 2001, income of $176,000 at January 29, 2000 and a loss of $141,000 at January 30, 1999. During 2000, the Eagle Plan provided an early retirement window and was frozen as of December 31, 2000. No future benefits will accrue after that date. This action resulted in a curtailment gain of $780 thousand offset by unrecognized prior service costs and unrecognized net loss on plan assets of $387 thousand and additional termination benefits of $89 thousand. The Company also maintains a defined contribution plan for salaried and non-union hourly associates. Effective January 1, 2001, this plan was amended to include a 3% profit sharing contribution to replace the Eagle Plan. The accumulated benefit obligation, changes in projected benefit obligation and plan assets, the funded status and amounts recognized in the Company's Consolidated Balance Sheets for the Milan Plan and Eagle Plan, as of the measurement dates of December 31, 2000 and 1999 and reflected in the financial statements at February 3, 2001 and January 29, 2000, respectively, are as follows: 41
FEBRUARY 3, JANUARY 29, (IN THOUSANDS) 2001 2000 -------------------- -------------------- Accumulated Benefit Obligation $ 12,994 $ 11,836 ==================== ==================== Change in Projected Benefit Obligation Balance at January 1, 2000 and 1999 $ 12,717 $ 12,458 Service cost 607 624 Interest cost 926 863 Curtailment (780) - Special Termination Benefits 88 - Actuarial (gain) loss (53) (766) Benefits paid (511) (462) -------------------- -------------------- Balance at December 31, 2000 and 1999 $ 12,994 $ 12,717 ==================== ==================== Change in Plan Assets at Fair Value Balance at January 1, 2000 and 1999 $ 10,981 $ 9,998 Actual return on plan assets 293 1,083 Company contributions 1,631 362 Benefits paid (511) (462) -------------------- -------------------- Balance at December 31, 2000 and 1999 $ 12,394 $ 10,981 ==================== ==================== Reconciliation of Funded Status to Amounts Recognized in Financial Statements Funded status at December 31, 2000 and 1999 $ (600) $ (1,736) Unrecognized loss 295 87 Unrecognized prior service cost 149 204 Contributions after December 31 and before fiscal year end 307 187 -------------------- -------------------- Recognized prepaid (accrued) pension cost $ 151 $ (1,258) ==================== ==================== Amounts Recognized in the Financial Statements at February 3, 2001 and January 29, 2000 Prepaid benefit cost $ 2 $ 90 Accrued benefit liability (211) (1,348) Intangible asset 149 - Accumulated other comprehensive income before income tax 211 - -------------------- -------------------- Net amount recognized $ 151 $ (1,258) ==================== ====================
Plan assets are held in a trust and include corporate and U.S. government debt securities and common stocks. Actuarial assumptions used to develop net periodic pension cost and related pension obligations for the fiscal years 2000, 1999 and 1998 were as follows:
2000 1999 1998 ------------- ------------- ------------- Discount rate 7.5 % 7.5 % 7.0 % Expected long term rate of return on assets 8.5 % 8.5 % 8.5 % Rate of increase in compensation levels 4.0 % 4.0 % 4.0 %
The Company also participates in various multi-employer plans. The plans provide for defined benefits to substantially all unionized workers. Amounts charged to pension cost and contributed to the plans for the years ended February 3, 2001, January 29, 2000 and January 30, 1999 totaled $5.9 million, $6.6 42 million and $6.8 million, respectively. Under the provisions of the Multi-employer Pension Plan Amendments Act of 1980, the Company would be required to continue contributions to a multi-employer pension fund to the extent of its portion of the plan's unfunded vested liability if it substantially or totally withdraws from such plans. Management does not intend to terminate operations that would subject the Company to such liability. INCENTIVE COMPENSATION PLANS The Company has incentive compensation plans for store management and certain other management personnel. Incentive plans included approximately 150 associates. Provisions for payments to be made under the plans are based primarily on achievement of sales and earnings in excess of specific performance targets. Non-qualified stock option plans were ratified by stockholders and implemented in 2000, 1995 and 1990 for key management associates. Stock options generally have a ten-year life beginning at the grant date. For the options granted under the 2000 and 1995 Stock Option Plans, vesting provisions generally provide for 1/3 of the shares vesting at each of the first three anniversaries following the date of the grant. Options granted under the 1990 plan were generally vested at 12 months following the grant date. All options under the 1990 plan have either been issued or expired. Certain specific employment agreements provide for different vesting schedules. As of February 3, 2001, there were 1,038,013 shares available for future grants under the plans. The Company recognized $60,875 of compensation expense during fiscal year 1998 as the result of an extension of an exercise period that resulted in re-measurement. The Company recognized no compensation expense for fiscal years 2000 or 1999 because the exercise price was at or above the market value at the date of grant. The Company cancelled stock option grants and issued replacement stock option grants for certain individuals during fiscal 2000. The new stock option grants were issued at a price of $1.25, with a market price of $1.03 at the time of issuance. In addition, the term of the new stock option grants was shortened by two years compared with the cancelled grants. Stock option grants for a total of 227,500 shares were cancelled, with the same number of shares issued in replacement grants. As such, these stock option grants are variable. The Company recognized no compensation expense for fiscal 2000 since the market value was below the exercise price on the measurement dates. The following table sets forth the stock option activity for the three years in the period ended February 3, 2001: 43
WEIGHTED OPTION AVERAGE SHARES PRICE EXERCISE SUBJECT RANGE PRICE OF TO OPTION PER SHARE OPTIONS ------------------- --------------------- ------------- Outstanding January 31, 1998 1,367,213 $1.50 - $10.00 $ 3.52 Granted 70,000 $2.25 - $4.0625 $ 3.38 Exercised 22,125 $1.50 - $3.375 $ 1.90 Forfeited 209,238 $1.50 - $10.00 $ 3.73 ------------------ Outstanding January 30, 1999 1,205,850 $1.50 - $10.00 $ 3.50 Granted 115,500 $1.25 - $3.625 $ 2.42 Exercised 20,250 $1.50 $ 1.50 Forfeited 56,400 $1.50 - $10.00 $ 3.55 ------------------ Outstanding January 29, 2000 1,244,700 $1.25 - $10.00 $ 3.43 Granted 1,106,300 $0.281 - $3.259 $ 1.82 Forfeited 372,700 $1.25 - $10.00 $ 3.19 ------------------ Outstanding February 3, 2001 1,978,300 $0.28 - $8.50 $ 2.57 ==================
Stock options exercisable are as follows:
WEIGHTED AVERAGE OPTIONS EXERCISE EXERCISABLE PRICE ------------------- ------------- January 30, 1999 912,684 $ 3.50 January 29, 2000 975,700 $ 3.48 February 3, 2001 1,180,625 $ 2.84
The following table summarizes stock option information on outstanding and exercisable shares as of February 3, 2001:
WEIGHTED AVERAGE WEIGHTED REMAINING WEIGHTED RANGE OF AVERAGE CONTRACTUAL AVERAGE EXERCISE OPTIONS EXERCISE LIFE OPTIONS EXERCISE PRICES OUTSTANDING PRICE (YEARS) EXERCISABLE PRICE - ------------------- ----------------- -------------- ------------------ ----------------- ------------ $0.28 - $1.50 660,175 $ 1.17 6.45 397,250 $ 1.30 $2.00 - $3.50 998,300 $ 2.89 7.22 489,550 $ 3.06 $4.00 - $8.50 319,825 $ 4.51 3.64 293,825 $ 4.55 ----------------- ----------------- Total 1,978,300 1,180,625 ================= =================
NOTE K - STOCK BASED COMPENSATION 44 The Company accounts for stock option grants and awards under its stock based compensation plans in accordance with Accounting Principles Board Opinion No. 25. If compensation cost for stock option grants and awards had been determined based on fair value at the grant dates for fiscal 2000, 1999 and 1998 consistent with the method prescribed by SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net loss and net loss per share would have been adjusted to the pro forma amounts indicated below:
2000 1999 1998 ---------------- ---------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net loss: As reported $ (14,286) $ (6,541) $ (3,925) Pro Forma $ (14,832) $ (6,667) $ (4,029) Basic and Diluted net loss per share: As reported $ (1.20) $ (0.60) $ (0.36) Pro Forma $ (1.25) $ (0.61) $ (0.37)
The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected option life of ten years; stock volatility of 64% to 76% in 2000, 58% to 62% in 1999 and 59% to 60% in 1998; risk-free interest rate of 6.63% to 6.82% in 2000, 6.66% in 1999, and 4.7% in 1998; and no dividends during the expected term. Based on this model, the weighted average fair values of stock options awarded were $0.79, $1.37 and $1.86 for fiscal years 2000, 1999 and 1998, respectively. During the initial phase-in period, as required by SFAS No. 123, the pro forma amounts were determined based on stock option grants and awards in fiscal 2000, 1999 and 1998 only. The full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the preceding pro forma net loss amounts because compensation cost is reflected over the options' expected life and compensation cost for options granted prior to February 1998 is not considered. The pro forma amounts for compensation cost may not be indicative of the effects on net earnings (loss) and net earnings (loss) per share for future years. NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the Company's financial instruments as of February 3, 2001 and January 29, 2000 are as follows:
FEBRUARY 3, 2001 JANUARY 29, 2000 -------------------------------- --------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------------- --------------- --------------- --------------- (IN THOUSANDS) Cash and cash equivalents $ 263 $ 263 $ 18,558 $ 18,558 Marketable securities 7,271 7,271 6,418 6,418 Senior Notes 70,421 39,987 100,000 73,000
The fair value of cash and cash equivalents approximated its carrying value due to the short-term nature of these instruments. The fair value of marketable securities and the Senior Notes is based on quoted market prices. The amortized cost, gross unrealized gains and losses, and estimated fair values of the Company's marketable securities at February 3, 2001 and January 29, 2000, are as follows: 45
FEBRUARY 3, 2001 ----------------------------------------------------------- UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------- ------------- -------------- ------------- (IN THOUSANDS) Money market mutual fund, due within one year $ 1,479 $ - $ - $ 1,479 U.S. Treasury notes 5,043 192 - 5,235 Equity securities 536 30 9 557 ------------- ------------- -------------- ------------- Total marketable securities $ 7,058 $ 222 $ 9 $ 7,271 ============= ============= ============== ============= JANUARY 29, 2000 ----------------------------------------------------------- UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------- ------------- -------------- ------------- (IN THOUSANDS) Money market mutual fund, due within one year $ 582 $ - $ - $ 582 U.S. Treasury notes 5,082 5 86 5,001 Equity securities 740 175 80 835 ------------- ------------- -------------- ------------- Total marketable securities $ 6,404 $ 180 $ 166 $ 6,418 ============= ============= ============== =============
The U.S. Treasury Notes, as of February 3, 2001, mature in one to five years. NOTE M - LITIGATION BANKRUPTCY CASE On February 29, 2000 (the "Petition Date"), the Company filed a voluntary petition under Chapter 11 of Title 11 of the United States Code. The petition was filed in the United States Bankruptcy Court for the District of Delaware under case number 00-01311 (the "Bankruptcy Case"). The Company continued to manage its affairs and operate its business as a debtor-in-possession while the Bankruptcy Case was pending. The Bankruptcy Case, which proceeded before the United States District Court for the District of Delaware, was commenced in order to implement a financial restructuring of the Company that had been pre-negotiated with holders of approximately 29% of the principal amount of the Company's Senior Notes due April 15, 2000. On March 10, 2000, the Company filed a Plan to implement the financial restructuring, which Plan was subsequently amended on April 17, 2000. The Plan was confirmed on July 7, 2000 and consummated on August 7, 2000 as described in Note F of the notes to the Consolidated Financial Statements. OTHER CASES The Company is subject to various other unresolved legal actions that arise in the normal course of its business. Although it is not possible to predict with certainty, and no assurances can be given with respect to such matters, the Company believes the outcome of these unresolved legal actions will not have a materially adverse effect on its results of operations, liquidity or financial position. 46 NOTE N - LOSS PER SHARE Loss per share disclosures for the three years ended February 3, 2001 are as follows:
WTD. AVE. NET LOSS SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------------- ------------------------------------ (IN THOUSANDS EXCEPT PER SHARE DATA) YEAR ENDED FEBRUARY 3, 2001: Basic and diluted net loss per share: Net loss before extraordinary item $ (19,572) 11,876 $ (1.65) Extraordinary item 5,286 11,876 0.45 ---------------- -------------- Net loss $ (14,286) 11,876 $ (1.20) ================= =============== YEAR ENDED JANUARY 29, 2000: Basic and diluted net loss per share: Net loss $ (6,541) 10,936 $ (0.60) ================= =============== YEAR ENDED JANUARY 30, 1999: Basic and diluted net loss per share: Net loss $ (3,925) 10,937 $ (0.36) ================= ===============
NOTE O - QUARTERLY FINANCIAL DATA (UNAUDITED) 47
NET EARNINGS NET (LOSS) GROSS EARNINGS PER SHARE - SALES MARGIN (LOSS) DILUTED ------------------- ----------------- ----------------- -------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 Quarter: First $ 203,037 $ 51,797 $ (16,523)(1) $ (1.51)(1) Second 190,563 49,235 167 .02 Third 180,215 46,623 (932) (.07) Fourth 203,023 50,564 3,002 (2) .23 (2) ------------------ ---------------- ---------------- ------------- Total $ 776,838 $ 198,219 $ (14,286) $ (1.20) ================== ================ ================ ============= 1999 Quarter: First $ 230,744 $ 59,382 $ (1,528)(3) $ (.14)(3) Second 234,434 60,933 684 .06 Third 226,554 58,691 (679) (.06) Fourth 241,057 63,327 (5,018)(3) (.46)(3) ------------------ ---------------- ---------------- ------------- Total $ 932,789 $ 242,333 $ (6,541) $ (.60) ================== ================ ================ ============= 1998 Quarter: First $ 231,568 $ 57,724 $ 124 $ .01 Second 234,530 59,670 914 .08 Third 226,515 58,050 387 .04 Fourth 251,192 57,531 (5,350)(4) (.49)(4) ------------------ ---------------- ---------------- ------------- Total $ 943,805 $ 232,975 $ (3,925) $ (.36) ================== ================ ================ =============
(1) Net loss attributable primarily to reorganization costs of $11.3 million in the first quarter of fiscal 2000. (2) Net earnings include a gain of $5.3 million from the buy back of New Senior Notes and an asset revaluation charge of $821 thousand. (3) Net loss attributable to a $1.7 million store closing and asset revaluation charge in the first quarter of fiscal 1999 and a $6.7 million asset revaluation charge in the fourth quarter of fiscal 1999. (4) Net loss attributable to decreased margins primarily due to increased promotional activity and costs related to the Company's strategic systems initiatives, including costs to migrate from mainframe to client/server technology of $2.9 million. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES There have been no disagreements on accounting principles or practices or financial statement disclosures between the Company and its independent certified public accountants during the two fiscal years ended February 3, 2001. The shareholders, as part of the annual shareholders' meeting, upon recommendation by the Company's Board of Directors, on September 13, 2000, ratified the selection of KPMG LLP as the independent certified public accountants for the 2000 fiscal year. Deloitte & Touche LLP audited the Company's Consolidated Financial Statements prior to the 2000 fiscal year. 48 The report of Deloitte & Touche LLP on the financial statements of the Company for the fiscal years ended January 29, 2000 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to any uncertainty, audit scope or accounting principle, except that the report for the year ended January 29, 2000 indicated that the uncertainty of if or when the Company would emerge from Chapter 11 Bankruptcy raised substantial doubt about the Company's ability to continue as a going concern and that the Company changed its method of accounting for goodwill. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this item concerning directors is set forth under "Election of Directors" in the definitive proxy statement filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K. Certain information concerning the Company's executive officers is included in Item 4(a) of Part I of the report. ITEM 11: EXECUTIVE COMPENSATION The information required by this item is set forth in the section entitled "Executive Compensation" in the definitive proxy statement filed by the Company with Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth in the tabulation of the amount and nature of beneficial ownership of the Company's Common Stock under the heading "Security Ownership of Principal Shareholders and Management" in the definitive proxy statement filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in the section entitled "Certain Transactions" in the definitive proxy statement filed by the Company with the Securities and Exchange Commission and is hereby incorporated by reference into this Form 10-K. 49 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
PAGE (a) The following documents are filed as a part of this report: 1. Financial Statements: - Independent Auditors' Report 22 - Consolidated Balance Sheets as of February 3, 2001 and January 29, 2000 24 - Consolidated Statements of Operations for the years ended February 3, 2001, 25 January 29, 2000 and January 30, 1999 - Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended February 3, 2001, January 29, 2000 and January 30, 1999 26 - Consolidated Statements of Cash Flows for the years ended February 3, 2001, 27 January 29, 2000 and January 30, 1999 - Notes to the Consolidated Financial Statements 28
2. Financial Statement Schedules: All schedules are omitted because they are not applicable or not required, or because the information required therein is included in the Consolidated Financial Statements or the notes thereto. 3. Exhibits - see Exhibit Index on page 52. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of fiscal 2000. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EAGLE FOOD CENTERS, INC. By: /s/ Jeffrey L. Little --------------------- Jeffrey L. Little Chief Executive Officer, President, Director DATED: May 1, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE /s/ Robert J. Kelly Chairman of the Board May 1, 2001 - ------------------- Robert J. Kelly /s/ Jeffrey L. Little Chief Executive Officer and President, May 1, 2001 - --------------------- Jeffrey L. Little Director (Principal Executive Officer) /s/ S. Patric Plumley Senior Vice President-Chief Financial May 1, 2001 - --------------------- S. Patric Plumley Officer and Secretary, Director (Principal Financial and Accounting Officer) /s/ Peter B. Foreman Director May 1, 2001 - -------------------- Peter B. Foreman /s/ Steven M. Friedman Director May 1, 2001 - ---------------------- Steven M. Friedman /s/ Alain M. Oberrotman Director May 1, 2001 - ----------------------- Alain Oberrotman /s/ Jerry I. Reitman Director May 1, 2001 - -------------------- Jerry I. Reitman /s/ William J. Snyder Director May 1, 2001 - --------------------- William J. Snyder
51 EXHIBIT NO. -- DESCRIPTION 2.1-- First Amended Reorganization Plan of Eagle Food Centers, Inc., dated April 17, 2000 (filed as Exhibit 2.1 to Form 8-K dated July 7, 2000 and incorporated herein by reference). 2.2-- Order Pursuant to 11 U.S.C. Sections 105 and 1127 (b) Allowing Non-Material, Technical Modification to First Amended Reorganization Plan of Eagle Food Centers, Inc. (filed as Exhibit 2.1 to Form 8-K dated August 7, 2000 and incorporated herein by reference). 3.1-- Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Form 8-K dated July 7, 2000 and incorporated herein by reference). 3.2-- Restated By-laws of the Company (filed as Exhibit 3.2 to the Form 8-K dated July 7, 2000 and incorporated herein by reference). 4.1-- Form of Note (filed as Exhibit 4.2 to the Form 8-K dated August 7, 2000 and incorporated herein by reference). 4.2-- Form of Indenture, dated as of August 7, 2000, between the Company and U.S. Bank Trust National Association, as trustee (filed as Exhibit 4.1 to the Form 8-K dated August 7, 2000 and incorporated herein by reference). 10.1-- Transaction Agreement, dated as of October 9, 1987, between EFC and Lucky Stores, Inc. (filed as Exhibit 10.8 to the Registration Statement on Form S-1 No. 33-20450 and incorporated herein by reference). 10.2-- Assignment and Assumption Agreement, dated November 10, 1987, among EFC, Lucky Stores, Inc. and Pasquale V. Petitti regarding the Deferred Compensation Agreement (filed as Exhibit 10.11 of the Registration Statement on Form S-1 No. 33-20450 and incorporated herein by reference). 10.3-- Trademark License Agreement, dated November 10, 1987, between Lucky Stores, Inc. and EFC (filed as Exhibit 10.19 to the Registration Statement on Form S-1 No. 33-20450 and incorporated herein by reference). 10.4-- Management Information Services Agreement, dated November 10, 1987, between Lucky Stores, Inc. and the Company's predecessor (filed as Exhibit 10.20 to the Registration Statement on Form S-1 No. 33-20450 and incorporated herein by reference). 10.5-- Non-Competition Agreement, dated November 10, 1987, between the Company's predecessor and Lucky Stores, Inc. (filed as Exhibit 10.21 to the Registration Statement on Form S-1 No. 33-20450 and incorporated herein by reference). 10.6-- Letter Agreement, dated April 28, 1988, among American Stores Company, the Company's predecessor and Odyssey Partners (filed as Exhibit 10.29 to the Registration Statement on Form S-1 No. 33-20450 and incorporated herein by reference). 10.7-- Letter Agreement, dated June 10, 1988, between the Company's predecessor and Lucky Stores, Inc. amending the Trademark License Agreement (filed as Exhibit 10.20 to the Company's 52 Annual Report on Form 10-K for the year ended January 28, 1989 (the "1988 10-K") and incorporated herein by reference). 10.8-- Letter Agreement, dated June 10, 1988, between the Company's predecessor and Lucky Stores, Inc. amending the Management Information Services Agreement (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended January 28, 1989 and incorporated herein by reference). 10.9-- Eagle Food Centers, Inc. Stock Incentive Plan, adopted in June 1990 (filed as Exhibit 19 to the Company's Annual Report on Form 10-K for the year ended February 1, 1992 and incorporated herein by reference). 10.10-- Employment agreement dated May 10, 1995 between the Company and Robert J. Kelly, its President and Chief Executive Officer (filed as Exhibit 19 to the Company's Form 10-Q for the quarter ended July 29, 1995 and incorporated herein by reference). 10.11-- 1995 Stock Incentive Plan as approved on June 21, 1995 (filed as Exhibit 18 to the Company's Form 10-Q for the quarter ended July 29, 1995 and incorporated herein by reference). 10.12-- Agreement between the Company, Lucky Stores, Inc., The Midland Grocery Company and Roundy's Inc. to terminate the Westville warehouse lease (filed as Exhibit 22 to the Company's Annual Report on Form 10-K for the year ended February 3, 1996 and incorporated herein by reference). 10.13--* Amended Employment Agreement dated December 15, 1999 between the Company and Robert J. Kelly, Chairman of the Board, President and Chief Executive Officer 10.14-- Employment Contract dated December 13, 1999 between the Company and Jeff Little, its Chief Executive Officer and President effective January 31, 2000 (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended January 29, 2000 and incorporated herein by reference). 10.15-- Form of Noteholder agreements to vote for Plan of Reorganization (filed as Exhibit 99.2 to the Form 8-K dated February 29, 2000 and incorporated herein by reference). 10.16-- Escrow Agreement between Eagle Food Centers, Inc. and U.S. Bank Trust National Association (filed as Exhibit 10.1 to Form 8-K dated August 7, 2000 and incorporated herein by reference). 10.17-- Amended Loan and Security Agreement, dated as of August 7, 2000, among the Company, as borrower, and the lender party thereto, Congress Financial Corporation (Central) (filed as Exhibit 10.2 to the Form 8-K dated August 7, 2000 and incorporated herein by reference). 10.18--* Employment Contract dated May 8, 2000 between the Company and Stanley W. Stephens, its Senior Vice President, Retail effective May 8, 2000. 10.19--* Eagle Food Centers, Inc. 2000 Stock Incentive Plan, dated and approved September 13, 2000. 10.20--* Employment Contract correction for contract dated December 13, 1999 between the Company and Jeff Little, its Chief Executive Officer and President effective January 31, 2000. 16.1-- Letter from Deloitte & Touche LLP on change of certifying accountant (filed as Exhibit 16 to Form 8-K dated July 28, 2000 and incorporated herein by reference). 53 18.1-- Preferability Letter from Deloitte and Touche dated April 14, 2000 (filed as Exhibit 18.1 to the Form 10-K dated April 28, 2000 and incorporated herein by reference). 21--* Subsidiaries of the Registrant. 99.1-- Congress Financial Debtor-in-Possession Credit Facility dated March 1, 2000 (filed as Exhibit 99.1 to Form 8-K dated February 29, 2000 and incorporated herein by reference). 99.2-- Form of Noteholder agreements to vote for Plan of Reorganization (filed as Exhibit 99.2 to Form 8-K dated February 29, 2000 and incorporated herein by reference). 99.3-- Disclosure Statement with Respect to First Amended Reorganization Plan of Eagle Food Centers, Inc. dated April 17, 2000 (filed as Exhibit 99.1 to Form 8-K dated July 7, 2000 and incorporated herein by reference). 99.4-- Findings of Fact, Conclusion of Law, and Order Under 11 U.S.C.ss.ss.1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming First Amended Reorganization Plan of Eagle Food Centers, Inc. (filed as Exhibit 99.2 to Form 8-K dated July 7, 2000 and incorporated herein by reference). *Filed herewith. 54 EX-10.13 2 a2047564zex-10_13.txt EXHIBIT 10.13 EXHIBIT 10.13 December 15, 1999 Mr. Robert J. Kelly Chairman & Chief Executive Officer Eagle Food Centers, Inc. Route 67 and Knoxville Road Milan, Illinois 61264 Dear Mr. Kelly: Reference is made herein to the Employment Agreement, dated as of May 10, 1995 between yourself (the "Executive") and Eagle Food Centers, Inc. (the "Company") (the "Employment Agreement") and the Letter of Agreement between the Executive and the Company dated May 10, 1998 (the "Extension Agreement"). Capitalized terms used herein shall have the meaning set forth in the Employment Agreement, unless otherwise defined herein. The Executive has served as Chief Executive Officer and President of the Company since May 10, 1995 and the term of employment of the Executive pursuant to the Employment Agreement was originally scheduled to expire on May 22, 1998. The Company, desiring to continue to retain the services of the Executive for an additional term and to amend certain terms of the Employment Agreement in light of significant contributions made by the Executive to the business and affairs of the Company, entered into the Extension Agreement, which, INTER ALIA, extended the Executive's term of employment to December 31, 1999 and caused the Executive to be elected as a Director and Chairman of the Board of Directors. The Company now desires to further continue to retain the services of the Executive for an additional term, as a Director and Chairman of the Board of Directors only, and to amend certain terms of the Extension Agreement in light of the continuing significant contributions made by the Executive to the affairs of the Company. In furtherance of the foregoing, the parties agree to the following: 1. EXTENDED TERM/CHAIRMANSHIP. Paragraph (1) of the Extension Agreement shall be amended to extend the Executive's term of employment to December 31, 2001. During the extended term, and for so long as the Executive remains employed, the Company shall cause the Executive to be elected as a Director and Chairman of the Board of Directors. The Executive's assignment as Chief Executive Officer of the Company shall expire on the latter of December 31, 1999 or the starting date of employment for the Company's new Chief Executive Officer, plus a reasonable transition time, not to exceed 90 days past the start date of the new Chief Executive. 2. COMPENSATION. The Executive shall receive an annual salary of $190,000.00 in each of the two years of this Agreement, paid on a weekly basis. Such salary rate shall be predicated on the Executive performing work at the Milan headquarters or at the retail store sites of the Company for a time period of one week per month, and additional availability for telephone calls relating to Company business, on an as-needed basis. Any period of time spent by the Executive working at the Milan headquarters or at the retail store sites of the Company over and above one week per month shall be compensated at the annual salary of $350,000.00 per year, paid on a weekly basis. It is agreed and understood that the Executive shall be compensated at the rate of $350,000.00 per year during any period of transition of duties to the new Chief Executive Officer, as referred to in Paragraph 1 herein. The executive's rate of pay shall revert to $190,000.00 per year upon the completion of said transition period, not to exceed 90 days past the start date of the new Chief Executive. The Executive shall be reimbursed by the Company for out of pocket expenses incurred by him during the course of his duties throughout the term of this Agreement. 3. INCENTIVE COMPENSATION AND INSURANCE MATTERS. For each full calendar year the Executive remains employed by the Company, commencing on December 31, 1997 and continuing on each December 31 thereafter (the one year period from December 31, 1997 through December 31, 1998, and each year ending on December 31 thereafter, are referred to herein as a "Service Year" or "Service Years," as the case may be), the Company shall ensure that: (a) EXTENDED OPTION EXERCISE PERIOD. In the event of a Change of Control of the Company occurring within two years of the date of termination of the Executive's employment for any reason other than cause (the "Termination Date"), the exercise period for each tranche of then vested and unexercised Option as provided for in Section (5)(b) of the Employment Agreement shall be extended by one year for each completed Service Year, up to the maximum ten-year expiration period provided for under the Company's stock incentive plans; IT BEING UNDERSTOOD that (i) there shall be no extended option exercise period attributable in any respect to any portion of the Option exercised by the Executive for any reason prior to he occurrence of a Change in Control and (ii) there shall be no extended option period with respect to any unexercised portion of the Option in the event that a Change in Control fails to occur within two years of the Termination Date. (b) EXTENDED TERM LIFE INSURANCE COVERAGE. Upon the Executive's termination of employment for any reason other than cause, the Company shall continue to pay all premiums associated with the Executive's term life insurance policy as in effect at the time of such termination, for a period of 2 years following such termination. (c) EXTENDED HEALTH INSURANCE COVERAGE. Upon the Executive's termination of employment for any reason other than cause, the Company shall pay all COBRA premiums associated with the Executive's health insurance program as in effect at the time of such termination, for a period of 2 years following such termination. 4. MISCELLANEOUS. Paragraphs 2. (Executive Payment) and 4. (Moving Costs) of the Extension Agreement are hereby deleted. 5. SURVIVAL. Except as otherwise provided for herein, the Employment Agreement and Extension Agreement shall remain in full force and effect. 6. COUNTERPARTS. This Letter Agreement may be executed in counterparts which, taken together, shall be deemed to be a fully executed original hereof. 7. GOVERNING LAW. This Letter Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. Please acknowledge your agreement to the foregoing by signing where indicated below. Very truly yours, EAGLE FOOD CENTERS, INC. By: /s/ Steven M. Friedman ------------------------- Title: Board Member Chairman, Compensation Committee ACCEPTED AND AGREED TO THIS 15th DAY OF December, 1999: /s/ Robert J. Kelly - -------------------------- Robert J. Kelly EX-10.18 3 a2047564zex-10_18.txt EXHIBIT 10.18 EXHIBIT 10.18 EMPLOYMENT CONTRACT AGREEMENT made as of the 8th day of May, 2000 between EAGLE FOOD CENTERS, INC., a Delaware corporation with principal offices presently located at Route 67 and Knoxville Road, Milan, Illinois 61264 (hereinafter referred to as the "Corporation"), and STAN STEPHENS, presently residing at 14061 East Becker Lane, Scottsdale, Arizona (hereinafter referred to as "Employee"). W I T N E S S E T H : ------------------- WHEREAS, the Corporation desires that Employee shall be employed by the Corporation as its Senior Vice President, Retail, and Employee is desirous of such employment, upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereto hereby agree as follows: 1. EMPLOYMENT. The Corporation shall employ Employee, and Employee shall serve the Corporation, as its Senior Vice President, Retail, upon the terms and conditions hereinafter set forth. 2. TERM. The employment of Employee by the Corporation hereunder shall commence as of the date hereof and, unless sooner terminated pursuant to Paragraphs 9 through 11 hereof, shall continue for a period of three years (the "Term"); PROVIDED, HOWEVER, that if Employee does not arrive at the Corporation's offices and commence his employment hereunder on or before June 1, 2000, this Agreement shall be null and void. 3. OFFICE; DUTIES; EXTENT OF SERVICES. (a) During the Term, Employee shall serve as Senior Vice President, Retail, faithfully and to the best of his ability, under the direction and supervision of the President and Chief Executive Officer of the Corporation (the "CEO"). Employee shall transmit or shall cause to be transmitted necessary instructions and advice to all subordinate employees of the Corporation and all other proper persons. Employee also shall perform such other duties and services and shall exercise such other powers for the Corporation and for any of its subsidiary companies, including, but not limited to, acting as an officer and/or director of any such subsidiary companies, as from time to time may be assigned to him by the CEO, and shall enter into such supplemental agreement or agreements with any such subsidiary company or subsidiary companies with respect thereto (containing terms which are not inconsistent with the provisions hereof) as may be requested by the CEO, all without further compensation other than that for which provision is made in this Agreement. b) Employee agrees that he shall devote his best efforts, energies and skills to the discharge of his duties and responsibilities hereunder. To this end, Employee agrees that he shall devote his full business time and attention to the business and affairs of the Corporation and he shall not, without the prior written approval of the CEO, directly or indirectly, engage or participate in, or become an officer or director of, or become employed by, or render advisory or other services in connection with, any other business enterprise. 4. SALARY AND BONUS ARRANGEMENTS. (a) During the Term, the Corporation shall pay to Employee a salary for his services at the rate of $170,000 per annum (the "Base Salary"), payable in accordance with the normal payroll practices and procedures of the Corporation. Annual salary adjustments (cost of living adjustments or otherwise) shall be in accordance with the terms and conditions of the Corporation's compensation plan. The Employee shall, upon reporting to work to commence his work duties, receive a signing bonus in the amount of $30,000.00 provided, however, that if Employee's employment hereunder is terminated within six (6) months after the date hereof by the Corporation for "cause" (as hereinafter defined) or by Employee for any reason other than "Good Reason" (as hereinafter defined), such $30,000.00 bonus payment shall be returned to the Corporation. (b) During the Term, Employee shall be eligible to receive bonus compensation at the end of each fiscal year of the Corporation in an amount to be determined by the Board of Directors in its sole discretion. The Corporation and Employee shall use reasonable efforts to agree on mutually acceptable performance targets for such bonus compensation. Bonus compensation shall be at a targeted rate of 50% of the Base Salary during any year of Employee's employment hereunder and may be up to 100% of the Base Salary. Payout of the bonus compensation shall be in accordance with the terms and conditions of the Corporation's compensation plan. (c) In the event the Corporation shall terminate Employee's employment hereunder other than for "cause" pursuant to paragraph 11(a) herein, Employee shall receive payment in a lump sum equal to eighteen (18) months of compensation based upon Employee's base salary upon the date of termination of his employment, regardless of term. Normal deductions and withholdings shall be deducted from such payment. In addition, Employee shall receive: (i) Continued health and dental insurance coverage at the same benefit levels as at the time of termination of employment, for a period of eighteen (18) months or until Employee is gainfully employed by a new employer offering such benefits. (ii) Any accrued but unused vacation pay. (iii) Professional outplacement services and assistance to provided and paid for by the Corporation up to the sum of $20,000. To the extent such assistance is not utilized, Employee shall be entitled to a lump sum payment of the unused portion of such sum. 5. STOCK OPTION. (a) The Corporation hereby grants Employee an option (the "Option") to purchase up to 75,000 shares of Common Stock. The Option will be a stock option that does not qualify as an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended (i.e., a non-qualified stock option). (b) Except as otherwise provided in this Agreement, the Option shall be exercisable, on a cumulative basis, at the times and prices as follows: (i) up to 25,000 of the total shares subject to the Option may be purchased by Employee on or after the first anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) herein; (ii) up to an additional 25,000 shares of the total shares subject to the Option may be purchased by Employee on or after the second anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) herein plus one dollar; and (iii) the balance of the total number of shares subject to the Option may be purchased by Employee on or after the third anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) plus two dollars. (iv) Option price shall be defined as the lowest closing price within a twenty (20) day period after the Corporation's stock begins trading again after the current suspension of trading ends. However, the option price pursuant to this subparagraph (iv) shall not exceed one dollar and fifty cents. Subject to earlier termination as described below, the Option shall expire at the end of the Term. Except as provided in the immediately following sentence, if the employment of the Employee with the Corporation shall terminate by reason of Employee's death, permanent disability (as defined herein), by the Corporation for any other reason than for "cause" (as defined herein), the Option shall immediately become exercisable by Employee (or Employee's legal representative, beneficiary or estate, as the case may be), for any and all of such number of shares subject to the Option, at any time up to and including six (6) months after the effective date of such termination of employment. If the employment of Employee with Corporation shall terminate for any reason other than that provided in the immediately preceding sentence, including, without limitation, termination by the Corporation for "cause" (as described herein) or termination by Employee for any reason other than Good Reason, the Option shall terminate and become null and void, as of the effective date of such termination. In the event of a Change in Control (as defined below), the Option shall immediately become exercisable for any or all of such number of shares subject to the Option. For purposes of this Agreement, a "Change in Control" means the occurrence of any of the following events: (i) any person or entity (with the exception of Odyssey Partners, LP, or any successors, subsidiary or affiliate thereof) acquires 50% or more of the voting securities of the Corporation; (ii) the shareholders approve a plan of complete liquidation, an agreement for sale or disposition of substantially all of the Corporation's assets (other than to Odyssey Partners, LP, or any successors, subsidiary or affiliate thereof), or materially dilutive merger or consolidation of the Corporation; or (iii) the Board of Directors agrees by a two-thirds vote that Change in Control has occurred or is about to occur and within six months actually does occur. However, for purposes hereof, no Change in Control would be deemed to occur with respect to any employee who is a material equity participant of the purchasing group that consummates a Change in Control. (c) Subject to the limitations on exercise provided in the Agreement, the Option shall be exercised by Employee as to all or part of the shares covered thereby by giving written notice of exercise to the Corporation, specifying the number of shares to be purchased (unless the number purchased is the total balance for which the Option is then exercisable; provided, however, that in no event shall the Option be exercised for a fraction of a share or for less than 100 shares) and specifying a business day not more than 10 days from the date such notice is given for the payment of the purchase price against delivery of the shares being purchased. On the date specified in the notice of exercise the Corporation shall deliver such shares to Employee and Employee shall deliver to the Corporation immediately available funds in an amount equal to the aggregate purchase price for such shares. (d) If the Corporation (1) pays a stock dividend on its Common Stock, (2) subdivides its outstanding shares of Common Stock into a greater number of shares, (3) combines its outstanding shares into a smaller number of shares, or (4) issues by reclassification of its Common Stock any shares of its capital stock, then the number and kind of shares into which the Option granted to Employee under Paragraph 5(a) hereof is exercisable shall be adjusted so that Employee upon exercise of the Option shall be entitled to receive the kind and number of shares of the Corporation that Employee would have owned or have been entitled to receive after the happening of any of the events described above had the Option been exercised immediately prior to the happening of such event or any record date with respect hereto. The exercise price for the Option shall be adjusted by the inverse of any such adjustment to the number of shares into which the Option is exercisable. An adjustment made pursuant to this paragraph (d) shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. The adjustment to the number of shares into which the Option is exercisable described in this paragraph (d) shall be made each time any event listed in clauses (1) through (4) of this paragraph (d) occurs. 6. EXPENSES OTHER THAN RELOCATION EXPENSES. It is contemplated that, in connection with his employment hereunder, Employee may be required to incur reasonable and necessary travel, business entertainment and other business expenses. The Corporation agrees to pay, or reimburse Employee for, all reasonable and necessary travel, business entertainment and other business expenses incurred or expended by him incident to the performance of his duties and responsibilities hereunder, upon submission by Employee to the CEO (or his designee or designees) of vouchers or expense statements satisfactorily evidencing such expenses. 7. RELOCATION AND RELOCATION EXPENSES. (a) Employee agrees to move to a new residence within one hour commuting distance of Milan, Illinois (the "Principal Office City"), not later than October 31, 2000 in accordance with the provisions of this Paragraph 7. Employee agrees to place his Arizona residence for sale on the housing market with a registered broker on or before May 31, 2000. If the Corporation changes the location of its Principal Office City during the Term, then concurrently with such change Employee agrees to move to a new residence within one hour commuting distance of such new Principal Office City. Such a concurrent move will be expensed in accordance with paragraphs 7(b), (c), and (d) herein. (b) The Corporation agrees to pay, or reimburse Employee for all reasonable and necessary moving expenses incurred by Employee in moving (including any such expenses incurred in connection with moving his immediate family) from Employee's present residence to a new residence within one hour commuting distance of the Principal Office City not later than six (6) months from Employee's date of hire, including, but not limited to, real estate selling fees, closing costs, purchase fees up to two percent (2%) of purchase price, bills of any movers, telephone, television, electrician, plumber, locksmith charges, and tips and gratuities, upon submission by Employee to the CEO (or his designee or designees) of vouchers or expense statements satisfactorily evidencing such expenses. The reimbursement payment provided for in this Section (4) shall be made to the Executive within 30 days of the presentation of satisfactory documentation. (c) The Corporation shall reimburse Employee for reasonable temporary living expenses incurred by Employee for a period not to exceed six (6) months from date of hire, upon submission by Employee to the CEO (or his designee or designees) of vouchers or expense statements satisfactorily evidencing such expenses. (d) The Corporation shall reimburse Employee for the reasonable costs of one househunting trip for Employee and his spouse upon submission by Employee to the CEO (or his designee or designees) of vouchers or expense statements satisfactorily evidencing such expenses. 8. EMPLOYEE BENEFITS; VACATIONS. Employee shall be entitled to participate in any and all life insurance, medical insurance, disability insurance, directors' and officers' liability insurance and any other employee benefit plan or plans which may be generally made available during the Term to senior level executives of the Corporation to the extent that Employee qualifies under the eligibility provisions of any such plan or plans and as such plans may be amended. Employee shall be entitled to vacations (taken consecutively or in segments), aggregating four (4) weeks in each twelve month period of the Term, in accordance with the Corporation's vacation policy, to be taken at times consistent with the effective discharge of Employee's duties. 9. DEATH. In the event of the death of Employee during the Term, the salary to which Employee would be otherwise entitled pursuant to Paragraph 4(a) hereof shall continue to be paid through the end of the month in which death occurs to the last beneficiary designated by Employee by written notice to the Corporation, or, failing such designation, to his estate and such beneficiary or estate shall also be entitled to all accrued and unpaid bonus compensation owing to Employee under Paragraph 4(b) hereof and to exercise the Option to the extent not then exercised in accordance with Paragraphs 5(b) and 5(c) hereof; provided, however, that notwithstanding any termination of Employee's employment hereunder due to Employee's death, such beneficiary or estate shall be entitled to receive the Base Salary through the date which is eighteen months after the date of such termination. Employee shall have the right to name, from time to time, any one person as beneficiary hereunder or, with the consent of the CEO, he may make other forms of designation of beneficiary or beneficiaries. Employee's designated beneficiary or beneficiaries or personal representative, as the case may be, shall accept the payments provided for in this Paragraph 10 in full discharge and release of the Corporation of and from any further obligations under this Agreement. 10. TERMINATION. (a) Employee's employment hereunder may be terminated by the Corporation for "cause" at any time if Employee shall commit any of the following "Acts of Default": (i) Employee shall have refused to perform any of his obligations set forth herein in any material respect or Employee shall have taken any action which causes material harm to the Corporation or its operations, and Employee shall have failed to cure such failure or action within five (5) days after receiving written notice thereof from the CEO; (ii) Employee shall have committed an act of fraud, theft or dishonesty against, or shall breach fiduciary obligation to, the Corporation and/or any of its subsidiary companies; or (iii) Employee shall be convicted of (or plead NOLO CONTENDERE to) any felony or any misdemeanor (whether or not involving the Corporation and/or any of its subsidiary companies) involving moral turpitude or which might, in the opinion of the Board of Directors, cause embarrassment to the Corporation and/or any of its subsidiary companies. In the event the Corporation elects to terminate the employment of Employee for "cause" pursuant to this Paragraph 11(a), the CEO shall send written notice to Employee terminating such employment and describing the action of Employee constituting the Act of Default, and thereupon the Corporation shall have no further obligations under this Agreement, with the exception of the obligation to pay Employee, promptly after such termination, any accrued or unpaid salary earned by Employee through and including the effective date of such termination and any accrued and unpaid bonus compensation owing to Employee pursuant to Paragraph 4(b) hereof, but Employee shall continue to have the obligations provided for in Paragraph 12 hereof. Nothing contained in this Paragraph 11 shall constitute a waiver or release by the Corporation of any rights or claims it may have against Employee for actions or omissions which may give rise to an event causing termination of this Agreement pursuant to this Paragraph 11(a). (b) Employee may terminate his employment hereunder for Good Reason. For purposes of this Agreement "Good Reason" shall mean any assignment to Employee of any material duties other than those contemplated by Paragraph 3 hereof; provided, however, that Employee first delivers written notice thereof to the CEO and the Corporation shall have failed to cure such non-permitted assignment or limitation within thirty (30) days after receipt of such written notice. Any termination by Employee pursuant to this Paragraph 11(b) shall be communicated by written Notice of Termination to the CEO. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. In the event of any termination of Employee's employment hereunder pursuant to this Paragraph 11(b), Employee shall be entitled to the Base Salary through the date which is eighteen months after the date of such termination, and Employee shall also be entitled to all bonus awarded to him under Paragraph 4(b) hereof, but remaining unpaid as of the date of such termination. Executive shall also be entitled to exercise the Option to the extent not then exercised in accordance with Paragraphs 5(b) and 5 (c) hereof. In the event of any termination of employment by Employee for Good Reason, Employee shall have no further obligations under this Agreement other than the obligations provided for in Section 12 hereof. 11. RESTRICTIVE COVENANTS AND CONFIDENTIALITY INJUNCTIVE RELIEF. (a) Employee agrees, as a condition to the performance by the Corporation of its obligations hereunder, particularly its obligations under Paragraph 4 hereof, that during the Term and during the further period of one (1) year after the termination of such employment, for any reason, Employee shall not, without prior written approval of the CEO, directly or indirectly through any other individual or entity: (i) solicit, raid, entice or induce any individual or entity that presently is or at any time during the Term shall be, or who has indicated an interest in becoming, a supplier of the Corporation, and/or any of its subsidiary companies, to become a supplier of any other individual or entity, and Employee shall not approach any such individual or entity for such purpose or authorize or knowingly approve the taking of such actions by any other individual or entity; or (ii) solicit, raid, entice or induce an individual who presently is or at any time during the Term shall be an employee of or consultant to the Corporation and/or any of its subsidiary companies, to leave such employment or consulting position or positions or to become employed by or become a consultant to any other individual or entity, and Employee shall not approach any such employee or consultant for such purpose or authorize or knowingly approve the taking of such actions by any other individual or entity. (b) Recognizing and acknowledging that confidential information may exist, from time to time, with respect to the business and/or activities of the Corporation and/or its subsidiary companies, and that the knowledge, information and relationships with suppliers and agents, including, but not limited to, supplier lists and/or other such lists, and that the knowledge of the Corporation's and/or its subsidiary companies' business methods, systems, plans and policies and other confidential information which he has heretofore and shall hereafter establish, receive or obtain as an employee of the Corporation and/or its subsidiary companies or otherwise, are valuable and unique assets of the respective businesses of the Corporation and its subsidiary companies, Employee agrees that during and at all times after the Term he shall not (otherwise than pursuant to his duties hereunder), without the prior written approval of the CEO, disclose any such knowledge or information pertaining to the Corporation and/or any of its subsidiary companies, their business, activities, personnel or policies, to any individual or entity, for any reason or purpose whatsoever, or use for his own benefit or for the benefit of any other individual or entity, any such knowledge or information. The provisions of this Paragraph 12(b) shall not apply to information which is or shall become generally known to the public or the trade (except by reason of Employee's breach of his obligations hereunder), information which is or shall become available in trade or other publications and information which Employee is required to disclose by order of, or subpoena issued by, a court of competent jurisdiction or other governmental authority (but only to the extent specifically ordered by such court or other governmental authority); provided, however, that promptly upon receipt of such subpoena or order requiring disclosure Employee shall give the Corporation written notice of the circumstances under which Employee is so required to make disclosure of such information, as well as the intended disclosure of such information, so that the Corporation has the opportunity to seek a protective order or follow such other course or courses of action as the Corporation, in its sole discretion, may deem appropriate. (c) The provisions of this Paragraph 12 shall survive the termination of Employee's employment hereunder, irrespective of the reason thereof. (d) Employee recognizes and acknowledges that the services to be rendered by him are of a special, unique and extraordinary character and, in connection with such services, he will have access to confidential information vital to the Corporation's and/or it subsidiary companies' businesses. By reason of this, Employee consents and agrees that if he violates any of the provisions of this Agreement with respect to diversion of the Corporation's and/or its subsidiary companies' suppliers or employees, or confidentiality, the Corporation and its subsidiary companies would sustain irreparable harm, and, therefore, in addition to any other remedies which the Corporation may have under this Agreement or otherwise, the Corporation and/or its subsidiary companies shall be entitled to apply to any court of competent jurisdiction for an injunction restraining Employee from committing or continuing any such violation or violations of this Agreement, and Employee shall not object to any such application or applications made in good faith. Nothing in this Agreement shall be construed as prohibiting the Corporation and/or its subsidiary companies from pursuing any other remedy or remedies, including, without limitation, recovery of damages. 12. TRANSACTIONS OFFERED TO THE CORPORATION; PROPRIETARY MATERIALS. During the term of his employment hereunder, Employee agrees to bring to the attention of the CEO, all proposals, business opportunities or investments of whatever nature, in areas in which the Corporation and/or any of its subsidiary companies is active or may be interested in becoming active, which are created or devised by Employee or come to the attention of Employee and which might reasonably be expected to be of interest to the Corporation and/or any of its subsidiary companies. Without limiting the generality of the foregoing, Employee acknowledges and agrees that memoranda, notes, records and other documents made or compiled by Employee or made available to Employee during the term of this Agreement concerning the business and/or activities of the Corporation and/or any of its subsidiary companies shall be the Corporation's property and shall be delivered by Employee to the CEO upon termination of this Agreement or at any other time at the request of the CEO. 13. DEDUCTIONS AND WITHHOLDING. Employee agrees that the Corporation shall withhold from any and all payments paid or payable to Employee, or on Employee's behalf, pursuant to this Agreement, an amount equal to any taxes required by any governmental regulatory authority to be withheld or otherwise deducted and paid by the Corporation in respect of such payments. In connection with the exercise of the Option, the Corporation may require the Employee to reimburse the Corporation for any such withholding tax liability in respect of the issuance of shares upon such exercise. In lieu thereof, the Corporation shall have the right to withhold the amount of such taxes from any other sums due or to become due from the exercise of any such option. The Corporation may, in its discretion, hold the stock certificate to which Employee is entitled upon exercise of the Option as security for the payment of such withholding tax liability, until cash sufficient to pay that liability has been accumulated. In addition, the Corporation shall be authorized, without the prior written consent of Employee, to effect any such withholding upon exercise of the Option by retention of shares issuable upon such exercise having a fair market value at the date of exercise which is equal to the amount to be withheld; provided, however, that the Corporation shall not be authorized to effect such withholding without the prior written consent of Employee if such withholding would subject Employee to liability under Section 16(b) of the Securities Exchange Act of 1934, as amended. 14. PRIOR AGREEMENTS. This Agreement cancels and supersedes any and all prior agreements and understandings between the parties hereto respecting the employment of Employee by the Corporation. 15. REPRESENTATIONS AND WARRANTIES OF THE PARTIES. (a) Employee (x) represents and warrants to the Corporation that (i) he is not under any obligation, restriction or limitation, contractual or otherwise, to any other individual or entity which would prohibit or impede him from performing his duties and responsibilities hereunder, and that he is free to enter into and perform the terms and provisions of this Agreement, (ii) he does not have any impairment which would interfere with his ability to perform the essential functions of his job, and (iii) Common Stock purchased or acquired hereunder will be purchased or acquired for his own account, for investment only and not with a view to the resale or distribution thereof in violation of any federal or state securities laws, and (y) agrees that any subsequent resale or distribution of any such Common Stock shall be made only pursuant to either (A) an effective registration statement under the Securities Act of 1933, as amended, covering such Common Stock and under applicable state securities laws or (B) specific exemptions from the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws. In the event that Employee exercises the Option, in connection therewith Employee shall deliver to the Corporation a written statement to the effect set forth in clauses (x) (iii) and (y) above. (b) This Agreement has been duly authorized by all necessary corporate action on the part of the Corporation and has been duly executed and delivered on behalf and in the name of the Corporation by the CEO. 16. EFFECTIVENESS. This Agreement shall become effective when, and only when, the Corporation shall have received (i) counterparts of this Agreement signed by the Corporation and Employee, and (ii) a copy of a physician's report, dated a recent date, as to the health of Employee, in form and substance satisfactory to the Corporation. 17. WAIVER. Waiver by either party hereto of any breach or default by the other party of any of the terms and provisions of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. 18. NOTICES. All notices required to be given under this Agreement shall be in writing and sent by registered mail or certified mail, postage prepaid, return receipt requested. Such notices shall be deemed to have been validly served, given or delivered three (3) business days after deposit in the United States mail addressed to the party or parties to be notified at the following addresses: If to the Corporation: Jeff Little President and Chief Executive Officer Eagle Food Centers, Inc. Route 67 and Knoxville Road Milan, Illinois 61264 with a copy to: Byron O. Magafas Vice President, Human Resources Eagle Food Centers, Inc. Route 67 and Knoxville Road Milan, Illinois 61264 If to Employee: Stan Stephens 14061 East Becker Lane Scottsdale, Arizona 74148 Either party may change the address to which notices, requests, demands and other communications hereunder shall be sent by sending written notice of such change of address to the other party in the manner above stated. 19. ASSIGNABILITY AND BINDING EFFECT. This Agreement shall inure the benefit of and shall be binding upon the heirs, executors, administrators, successors and legal representatives of Employee, and shall inure to the benefit of and be binding upon the Corporation and its successors and assigns. The obligations of Employee may not be delegated and, except as expressly provided in Paragraph 9 above relating to the designation of beneficiaries, Employee may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement, or any of his rights hereunder, without the prior written consent of the Corporation, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void without effect. This Agreement may be assigned by the Corporation, in its sole discretion, to any one or more of its subsidiary companies or to another individual or entity in connection with the merger or consolidation of the Corporation with another corporation, partnership or other business enterprise or the sale of all or substantially all of the assets and business of the Corporation to another individual or entity. 20. COMPLETE UNDERSTANDING; AMENDMENTS, ETC. This Agreement constitutes the complete understanding and entire agreement between the parties hereto with respect to the employment of Employee hereunder, and no statement, representation, warranty or covenant has been made by either party with respect thereto except as expressly set forth herein. This Agreement shall not be altered, modified, amended or terminated (other than in accordance with the provisions hereof) except by written instrument signed by the party against whom enforcement may be sought. 21. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois. 22. PARAGRAPH HEADINGS. The paragraph headings contained in this Agreement are for reference purposes only and shall not limit, define or affect in any way the meaning or interpretation of this Agreement or any portion or portions thereof. 23. SEPARABILITY. In case any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected thereby. 24. ATTORNEYS' FEES. Each party hereto agrees that if the other party shall prevail in any action or proceeding arising hereunder or in connection herewith, such other party shall be entitled to reimbursement of reasonable attorneys' fees and disbursements related to such action or proceeding. 25. This Employment Contract supercedes the Employment Contract between the parties hereto dated April 11, 1999 (2000). IN WITNESS WHEREOF, the parties hereto have entered in to this Agreement and duly set their hands on the day and year first above written. EAGLE FOOD CENTERS, INC. By: /s/ Jeffrey Little /s/ Stanley W. Stephens ------------------ ------------------------- Jeffrey Little Stan Stephens President and Chief Executive Officer CORRECTION TO EMPLOYMENT CONTRACT OF STAN STEPHENS Mr. Jeffrey Little and Mr. Stan Stephens hereby acknowledge that Paragraph 5 of the Employment Contract signed on the 8th day of May, 2001, was incorrect, and both parties agree that paragraph 5 should read as follows: 5. STOCK OPTION. (a) The Corporation hereby grants Employee an option (the "Option") to purchase up to 75,000 shares of Common Stock. The Option will be a stock option that does not qualify as an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended (i.e., a non-qualified stock option). (b) Except as otherwise provided in this Agreement, the Option shall be exercisable, on a cumulative basis, at the times and prices as follows: (i) up to 25,000 of the total shares subject to the Option may be purchased by Employee on or after the first anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) herein; (ii) up to an additional 25,000 shares of the total shares subject to the Option may be purchased by Employee on or after the second anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) herein plus one dollar; and (iii) the balance of the total number of shares subject to the Option may be purchased by Employee on or after the third anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) plus two dollars. (iv) Option price shall be defined as the lowest closing price within a twenty (20) day period after the Corporation's stock begins trading again after the current suspension of trading ends. However, the option price pursuant to this subparagraph (iv) shall not exceed one dollar and fifty cents. Subject to earlier termination as described below, the Option shall expire ten years from the effective date of this contract. Except as provided in the immediately following sentence, if the employment of the Employee with the Corporation shall terminate by reason of Employee's death, permanent disability (as defined herein), by the Corporation for any other reason than for "cause" (as defined herein), the Option shall immediately become exercisable by Employee (or Employee's legal representative, beneficiary or estate, as the case may be), for any and all of such number of shares subject to the Option, at any time up to and including six (6) months after the effective date of such termination of employment. If the employment of Employee with Corporation shall terminate for any reason other than that provided in the immediately preceding sentence, including, without limitation, termination by the Corporation for "cause" (as described herein) or termination by Employee for any reason other than Good Reason, the Option shall terminate and become null and void, as of the effective date of such termination. In the event of a Change in Control (as defined below), the Option shall immediately become exercisable for any or all of such number of shares subject to the Option. For purposes of this Agreement, a "Change in Control" means the occurrence of any of the following events: (i) any person or entity (with the exception of Odyssey Partners, L.P., or any successors, subsidiary or affiliate thereof) acquires 50% or more of the voting securities of the Corporation; (ii) the shareholders approve a plan of complete liquidation, an agreement for sale or disposition of substantially all of the Corporation's assets (other than to Odyssey Partners, L.P., or any successors, subsidiary or affiliate thereof), or materially dilutive merger or consolidation of the Corporation; or (iii) the Board of Directors agrees by a two-thirds vote that Change in Control has occurred or is about to occur and within six months actually does occur. However, for purposes hereof, no Change in Control would be deemed to occur with respect to any employee who is a material equity participant of the purchasing group that consummates a Change in Control. (c) Subject to the limitations on exercise provided in the Agreement, the Option shall be exercised by Employee as to all or part of the shares covered thereby by giving written notice of exercise to the Corporation, specifying the number of shares to be purchased (unless the number purchased is the total balance for which the Option is then exercisable; provided, however, that in no event shall the Option be exercised for a fraction of a share or for less than 100 shares) and specifying a business day not more than 10 days from the date such notice is given for the payment of the purchase price against delivery of the shares being purchased. On the date specified in the notice of exercise the Corporation shall deliver such shares to Employee and Employee shall deliver to the Corporation immediately available funds in an amount equal to the aggregate purchase price for such shares. (d) If the Corporation (1) pays a stock dividend on its Common Stock, (2) subdivides its outstanding shares of Common Stock into a greater number of shares, (3) combines its outstanding shares into a smaller number of shares, or (4) issues by reclassification of its Common Stock any shares of its capital stock, then the number and kind of shares into which the Option granted to Employee under Paragraph 5(a) hereof is exercisable shall be adjusted so that Employee upon exercise of the Option shall be entitled to receive the kind and number of shares of the Corporation that Employee would have owned or have been entitled to receive after the happening of any of the events described above had the Option been exercised immediately prior to the happening of such event or any record date with respect hereto. The exercise price for the Option shall be adjusted by the inverse of any such adjustment to the number of shares into which the Option is exercisable. An adjustment made pursuant to this paragraph (d) shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. The adjustment to the number of shares into which the Option is exercisable described in this paragraph (d) shall be made each time any event listed in clauses (1) through (4) of this paragraph (d) occurs. Eagle Food Centers, Inc. /s/ Jeffrey Little /s/ Stan Stephens ------------------ ------------------------- Jeff Little Stan Stephens President and CEO May 3, 2001 May 3, 2001 ----------------- ------------------------- Date Date EX-10.19 4 a2047564zex-10_19.txt EXHIBIT 10.19 EXHIBIT 10.19 EAGLE FOOD CENTERS, INC. 2000 STOCK INCENTIVE PLAN 1. PURPOSE. The purpose of the Plan is to provide additional incentive to those officers, employees, advisors, consultants and nonemployee members of the Board of Directors of the Company and its Subsidiaries whose substantial contributions are essential to the continued growth and success of the Company's business in order to strengthen their commitment to the Company and its Subsidiaries, to motivate such officers and employees to faithfully and diligently perform their assigned responsibilities and to attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company. An additional purpose of the Plan is to build a proprietary interest among the Company's Non-Employee Directors and thereby secure for the Company's stockholders the benefits associated with common stock ownership by those who will oversee the Company's future growth and success. To accomplish such purposes, the Plan provides that the Company may grant Incentive Stock Options, Nonqualified Stock Options, Non-Employee Director Options, Restricted Stock, Stock Bonuses or Stock Appreciation Rights. The provisions of the Plan are intended to satisfy the requirements of Section 16(b) of the Exchange Act. 2. DEFINITIONS. For purposes of this Plan: (a) "Advisor" or "Consultant" means an advisor or consultant who is an independent contractor with respect to the Company, and who provides bona fide services (other than in connection with the offer or sale of securities in a capital raising transaction) to the executive officers or Board of Directors with regarding to major functions, positions or operations of the Company's business; who is not an employee, officer, director or holder of more than 10% of the outstanding voting securities of the Company; and whose services the Committee determines is of vital importance to the overall success of the Company. (b) "Agreement" means the written agreement evidencing the grant of an Award and setting forth the terms and conditions thereof. (c) "Award" means, individually or collectively, a grant under this Plan of Options, Stock Appreciation Rights, Restricted Stock or Stock Bonuses. (d) "Board" means the Board of Directors of the Company. (e) "Change in Capitalization" means any increase, reduction, or change or exchange of Shares for a different number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of Shares, repurchase of Shares, change in corporate structure or otherwise. (f) "Change in Control" shall be deemed to have occurred if the conditions set forth in any one or more of the following paragraphs shall have been satisfied: 1 (i) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act) (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of Shares of the Company), is or becomes the Beneficial Owners, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; or (ii) the stockholders of the Company approve (a) a plan of complete liquidation of the Company; or (b) an agreement for the sale or disposition of all or substantially all the Company's assets; or (c) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), at least 50% of the combined voting securities of the Company (or such surviving entity) outstanding immediately after such merger or consolidation; or (iii) the Board of Directors agrees by a two-third (2/3) vote, that a Change in Control of the Company has occurred, or is about to occur and, within six (6) months, actually does occur. However, in no event shall a Change in Control be deemed to have occurred, with respect to a Participant, if that Participant is a material equity participant of a purchasing group which consummates the Change in Control transaction. A Participant shall be deemed "a material equity participant" for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (i) passive ownership of less than 3% of the Shares of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors). (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" means a committee appointed by the Board to administer the Plan and to perform the functions set forth herein. Unless otherwise determined by the Board, the Committee shall be the Compensation Committee of the Board. (i) "Company" means Eagle Food Centers, Inc., a Delaware corporation, or any successor thereto. (j) "Disability" means the inability, due to illness or injury, to engage in any gainful occupation for which the individual is suited by education, training or experience, which condition continues for at least six (6) months. 2 (k) "Eligible Employee" means any officer, employee, advisor or consultant, of the Company or a Subsidiary or Parent of the Company designated by the Committee as eligible to receive Awards subject to the conditions set forth herein. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Executive Officer" shall mean an officer of the Company named by the Board of Directors as an executive officer for purposes of required reporting under Section 16 of the Exchange Act. (n) "Fair Market Value" means the fair market value of the Shares as determined by the Committee in its sole discretion; provided, however, that (A) if the Shares are the admitted to trading on a national securities exchange, the Fair Market Value on any date shall be the last sale price reported for the Shares on such exchange on such date or on the last date preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, the Fair Market Value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported or (C) if the Shares are admitted to quotation on NASDAQ and have not been designated an NMS security, or the Shares are traded in the non-NASDAQ "over the counter" market, the Fair Market Value on any date shall be the average of the highest bid and lowest asked prices of the shares on such system or market on such date. (o) "Incentive Stock Option" means an Option within the meaning of Section 422 of the Code. (p) "Non-Employee Director" means a member of the Board who is not an employee of the Company or a Subsidiary. (q) "Non-Employee Director Option" means an Option granted under Section 11 hereof. (r) "Nonqualified Stock Option" means an Option, including a Non-Employee Director Option, that is not an Incentive Stock Option. (s) "Option" means an Incentive Stock Option, a Nonqualified Stock Option, or either or both of them, as the context requires. (t) "Participant" means a person to whom an Award has been granted under the Plan. (u) "Parent" means any corporation in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock of one of the other corporations in such chain. (v) "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is restricted in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as 3 determined by the Committee, at its discretion), and is subject to a substantial risk of forfeiture, as provided in Section 10 below. (w) "Plan" means the Eagle Food Centers, Inc. 2000 Stock Incentive Plan, as amended from time to time. (x) "Restricted Stock" means a Stock Award granted to a Participant pursuant to Section 10 below which the Committee has determined should be subject to one or more restrictions on transfer for a specified Period of Restriction. (y) "Securities Act" means the Securities Act of 1933, as amended. (z) "Shares" means shares of the common stock, $.01 par value per share, of the Company (including any new, additional or different stock or securities resulting from a Change in Capitalization), as the case may be. (aa) "Stock Appreciation Right" means a right to receive all or some portion of the increase in the value of Shares as provided in Section 7 hereof. (bb) "Stock Bonus" shall mean a grant of Shares to an Employee, Advisor or Consultant pursuant to Section 10 below. (cc) "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (dd) "Ten-Percent Stockholder" means an Eligible Employee, who, at the time an Incentive Stock Option is to be granted to such Eligible Employee, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, a Parent or a Subsidiary within the meaning of Sections 424(e) and 424(f), respectively, of the Code. 3. ADMINISTRATION. (a) The Plan shall be administered by the Committee, which Committee shall at all times satisfy the provisions of Rule 16b-3 under the Exchange Act. The Committee shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A majority of the Committee shall constitute a quorum and a majority of a quorum may authorize any action. Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made at a meeting duly held. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, Options, or Stock Appreciation Rights, and all members of the Committee shall be fully indemnified by the Company with respect to any such action, determination or interpretation. The Company shall pay all expenses incurred in the administration of the Plan. (b) Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time: 4 (i) to determine those Eligible Employees to whom Awards shall be granted under the Plan and the number of Shares subject to such Awards to be granted to each Eligible Employee and to prescribe the terms and conditions (which need not be identical) of each Award , including the purchase price per share of each Award ; (ii) to construe and interpret the Plan, the Awards granted hereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, and (subject to the provisions of Section 13 below) to amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company or a Subsidiary or Parent, and the Participants, as the case may be; (iii) to reduce the exercise price of any Option or Stock Appreciation Right, or institute a program whereby outstanding Options or Stock Appreciation Rights are surrendered in exchange for new Options or Stock Appreciation Rights with a lower exercise price; (iv) to determine the duration and purposes for leaves of absence which may be granted to a Participant without constituting a termination of employment or service for purposes of the Plan; and (v) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. STOCK SUBJECT TO PLAN. (a) The maximum number of Shares that may be issued or transferred pursuant to Awards granted under this Plan is 1,000,000 (or the number and kind of shares of stock or other securities that are substituted for those Shares or to which those Shares are adjusted upon a Change in Capitalization), and the Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. (b) Whenever any outstanding Award or portion thereof expires, is canceled or is otherwise terminated (other than by exercise of the Award ), the Shares allocable to the unexercised portion of such Award may again be the subject of Awards hereunder, to the extent permitted by Rule 16b-3 under the Exchange Act. 5. ELIGIBILITY. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Employees who will receive Awards. 6. OPTIONS. The Committee may grant Options in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. Each Option and Agreement shall be subject to the following conditions: 5 (a) PURCHASE PRICE. The purchase price or the manner in which the purchase price is to be determined for Shares under each Option shall be set forth in the Agreement; provided, however, that the purchase price per Share under each Nonqualified Stock Option shall not be less than 50% of the Fair Market Value of a Share at the time the Option is granted, 100% in the case of an Incentive Stock Option generally and 110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder. (b) DURATION. Options granted hereunder shall be for such term as the Committee shall determine; provided, however, that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). The Committee may, subsequent to the granting of any Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. (c) NON-TRANSFERABILITY. No Option granted hereunder shall be transferable by the Participant to whom such Option is granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Participant only by the Participant or such Participant's guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of the Participant. (d) VESTING. Subject to subsection 6(e) below, unless otherwise provided herein or set forth in the Agreement, each Option shall become exercisable as to 33 1/3 percent of the Shares covered by the Option on the first anniversary of the date the Option was granted and as to an additional 33 1/3 percent of the Shares covered by the Option on each of the following two (2) anniversaries of such date of grant. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. (e) ACCELERATED VESTING. Notwithstanding the provisions of subsection 6(d) above, each Option granted to a Participant shall become immediately exercisable in full upon the occurrence of a Change in Control. (f) TERMINATION OF EMPLOYMENT. In the event that a Participant ceases to be employed by the Company or any Subsidiary, any outstanding Options held by such Participant shall, unless the Agreement evidencing such Option provides otherwise, terminate as follows: (i) If the Participant's termination of employment is due to his death or Disability, the Option (to the extent exercisable at the time of the Participant's termination of employment) shall be exercisable for a period of one (1) year following such termination of employment, and shall thereafter terminate; and (ii) If the Participant's termination of employment is for any other reason (including a Participant's ceasing to be employed by a subsidiary as a result of the sale of such Subsidiary or an interest in such Subsidiary), the Option (to the extent exercisable at the time of the Participant's termination of employment) shall be exercisable for a period of thirty 6 (30) days following such termination of employment, and shall thereafter terminate. Notwithstanding the foregoing, the Committee may provide, either at the time an Option is granted or thereafter, that the Option may be exercised after the periods provided for in this Section 6(f), but in no event beyond the term of the Option. (g) METHOD OF EXERCISE. The exercise of an Option shall be made only by a written notice delivered to the Secretary of the Company at the Company's principal executive office, specifying the number of shares to be purchased and accompanied by payment therefore and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise in cash, by check, or, at the discretion of the Committee and upon such terms and conditions as the Committee shall approve, by transferring Shares to the Company or by such other method as the Committee may determine. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Participant shall deliver the Agreement evidencing the Option or the Agreement evidencing any Stock Appreciation Right to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Participant. Not less than 100 Shares may be purchased at any time upon the exercise of an Option unless the number of Shares so purchased constitutes the total number of Shares then purchasable under the Option. (h) RIGHTS OF PARTICIPANTS. No Participant shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Participant, and (iii) the Participant's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Participant shall have full voting, dividend and other ownership rights with respect to such Shares. 7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant a Stock Appreciation Right alone (a "Free Standing Stock Appreciation Right") or in conjunction with the grant of an Option (a "Related Stock Appreciation Right"), in either case, in accordance with the Plan, and the terms and conditions of such Stock Appreciation Right shall be set forth in an Agreement. A Related Stock Appreciation Right shall cover the same Shares covered by the related Option (or such lesser number of Shares as the Committee may determine) and shall, except as provided in this Section 7 be subject to the same terms and conditions as the related Option. (a) GRANT OF STOCK APPRECIATION RIGHTS. (i) TIME OF GRANT OF RELATED STOCK APPRECIATION RIGHT. A Related Stock Appreciation Right may be granted either at the time of grant, or at any time thereafter during the term of the Option; PROVIDED, HOWEVER, that Related Stock Appreciation Rights related to Incentive Stock Options may only be granted at the time of grant of the Option. (ii) PURCHASE PRICE. The purchase price or the manner in which the purchase price is to be determined for Shares covered by each Free Standing Stock Appreciation Right shall be set forth in the Agreement; PROVIDED, HOWEVER, that the purchase price per Share under each Free Standing 7 Stock Appreciation Right shall not be less than 50% of the Fair Market Value of a Share at the time the Free Standing Stock Appreciation Right is granted. The purchase price or the manner in which the purchase price is to be determined for Shares covered by each Related Stock Appreciation Right shall be set forth in the Agreement for the related Option. (iii) PAYMENT. A Stock Appreciation Right shall entitle the holder thereof, upon exercise of the Stock Appreciation Right or any portion thereof, to receive payment of an amount computed pursuant to Section 7 (a) (vi) below. (iv) EXERCISE. Free Standing Stock Appreciation Rights generally will be exercisable at such time or times, and may be subject to such other terms and conditions, as shall be determined by the Committee, in its discretion, and such terms and conditions shall be set forth in the Agreement; PROVIDED, HOWEVER, that no Free Standing Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date it is granted. No Free Standing Stock Appreciation Right granted hereunder shall be transferable by the Participant to whom such right is granted otherwise than by will or the laws of descent and distribution, and a Free Standing Stock Appreciation Right may be exercised during the lifetime of such Participant only by the Participant or such Participant's guardian or legal representative. The terms of such Free Standing Stock Appreciation Right shall be binding upon the beneficiaries, executors, administrators, heirs and successors of the Participant. Subject to subsection 7(a)(v) below, a Related Stock Appreciation Right shall be exercisable at such time or times and only to the extent that the related Option is exercisable, and will not be transferable except to the extent the related Option may be transferable. A Related Stock Appreciation Right granted in conjunction with an Incentive Stock Option shall be exercisable only if the Fair Market Value of a Share on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option. (v) ACCELERATED VESTING. Notwithstanding the provisions of subsection 7(a)(iv) above, each Stock Appreciation Right granted to a Participant shall become immediately exercisable in full upon the occurrence of a Change in Control. (vi) AMOUNT PAYABLE. Upon the exercise of a Stock Appreciation Right, the Participant shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over (i) with respect to a Related Stock Appreciation Right, the per Share purchase price under the related Option, and (ii) with respect to a Free Standing Stock Appreciation Right, the per Share purchase price set forth in the Agreement, by (B) the number of Shares as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit at the time it is granted. 8 (vii) TREATMENT OF RELATED OPTIONS AND RELATED STOCK APPRECIATION RIGHTS UPON EXERCISE. Upon the exercise of a Related Stock Appreciation Right, the related Option shall be canceled to the extent of the number of Shares as to which the Related Stock Appreciation Right is exercised and upon the exercise of an Option granted in conjunction with a Related Stock Appreciation Right, the Related Stock Appreciation Right shall be canceled to the extent of the number of Shares as to which the related Option is exercised or surrendered. (b) METHOD OF EXERCISE. Stock Appreciation Rights shall be exercised by a Participant only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Participant shall deliver the Agreement evidencing the Stock Appreciation Right being exercised and with respect to a Related Stock Appreciation Right, the Agreement evidencing any related Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement or Agreements to the Participant. (c) FORM OF PAYMENT. Payment of the amount determined under Sections 7(a)(vi) above, may be made solely in whole Shares in a number determined based upon their Fair Market Value on the date of exercise of the Stock Appreciation Right or, alternatively, at the sole discretion of the Committee, solely in cash, or in a combination of cash and Shares as the Committee deems advisable. In the event that a Stock Appreciation Right is exercised within the sixty-day period following a Change in Control, any amount payable shall be solely in cash. If the Committee decides to make full payment in Shares, and the amount payable results in a fractional Share, payment for the fractional Share will be made in cash. Notwithstanding the foregoing, to the extent required by Rule l6b-3 under the Exchange Act, no payment in the form of cash may be made upon the exercise of a Stock Appreciation Right pursuant to Section 7(a)(vi) above, to an officer of the Company or a Subsidiary who is subject to Section 16(b) of the Exchange Act, unless the exercise of such Stock Appreciation Right is made during the period beginning on the third business day and ending on the twelfth business day following the date of release for publication of the Company's quarterly or annual statements of earnings. 8. LOANS. (a) The Company or any Parent or Subsidiary may make loans to a Participant in connection with the exercise of an Option, subject to the following terms and conditions and such other terms and conditions not inconsistent with the Plan including the rate of interest, if any, as the Committee shall impose from time to time. (b) No loan made under the Plan shall exceed the sum of (i) the aggregate purchase price payable pursuant to the Option with respect to which the loan is made, plus (ii) the amount of the reasonably estimated income taxes payable by the Participant with respect to the exercise of the Option reduced by (iii) the aggregate par value of the Shares being acquired pursuant to exercise of the Option. In no event may any such loan exceed the Fair Market Value, at the date of exercise, of the Shares received pursuant to such exercise. (c) No loan shall have an initial term exceeding ten (l0) years; provided, however, that loans under the Plan shall be renewable at the discretion of the 9 Committee; and provided, however, that the indebtedness under each loan shall become due and payable, as the case may be, on a date no later than (i) one (1) year after termination of the Participant's employment due to death or disability, or (ii) the date of termination of the Participant's employment for any reason other than death or disability. (d) Loans under the Plan may be satisfied by a Participant, as determined by the Committee, in cash or, with the consent of the Committee, in whole or in part by the transfer to the Company of Shares whose Fair Market Value on the date of such payment is equal to part or all of the outstanding balance of such loan. (e) A loan shall be secured by a pledge of Shares with a Fair Market Value of not less than the principal amount of the loan. After any repayment of a loan, pledged Shares no longer required as security may be released to the Participant. (f) Every loan shall meet all applicable laws, regulations and rules of the Federal Reserve Board and any other governmental agency having jurisdiction. 9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. (a) In the event of a Change of Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the maximum number and class of shares of stock with respect to which Awards may be granted under the Plan, and to the number and class of shares of stock as to which Awards have been granted under the Plan, and the purchase price therefor, if applicable. (b) Any such adjustment in the Shares or other securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. 10. STOCK BONUSES. (a) GRANT OF STOCK BONUSES. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares to Employees, Advisors and Consultants either outright or subject to such restrictions as the Committee shall determine pursuant to this Section 10, and in such amounts as the Committee shall determine. (b) RESTRICTED STOCK AGREEMENT. If the Committee grants Shares subject to restrictions, each such grant shall be evidenced by a Restricted Stock Agreement that shall specify the Period of Restriction, or Periods, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine. (c) TRANSFERABILITY. Except as provided in this Section 10, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. However, in no event may any Restricted Stock granted under this Plan to an Executive Officer or Director become vested in a Participant prior to twelve (12) months following the date of its grant. All 10 rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only by such Participant. (d) OTHER RESTRICTIONS. The Committee shall impose such other restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions based upon the achievement of specific (Company-wide, divisional, and/or individual) performance goals, and/or restrictions under applicable Federal or state securities laws; and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. (e) CERTIFICATE LEGEND. In addition to any legends placed on certificates pursuant to subsection 10(d), each certificate representing Shares of Restricted Stock granted pursuant to the Plan shall bear the following legend: "The sale or other transfer of the Shares of Stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the Eagle Food Centers, Inc. 2000 Stock Incentive Plan and in a Restricted Stock Agreement dated ____________. A copy of the Plan and such Restricted Stock Agreement may be obtained from the Secretary of Eagle Food Centers, Inc." (f) REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Section, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. Once the Shares are released from the restrictions, the Participant shall be entitled to have the legend required by subsection 10(e) removed from his Stock certificate. (g) VOTING RIGHTS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares. (h) DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those Shares while they are so held. If any such dividends or distributions are paid in Shares of Stock, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. (i) TERMINATION OF EMPLOYMENT. In the event that a Participant experiences a termination of employment with the Company for any reason, including death, Disability, or retirement, (as defined under the then-established rules of the Company), any and all of the Participant's Shares of Restricted Stock still subject to restrictions as of the date of termination shall automatically be forfeited and returned to the Company; provided, however, that the Committee, in its sole discretion, may waive the restrictions remaining on any or all Shares of Restricted Stock, pursuant to this Section 10, and add such new restrictions to those Shares of Restricted Stock as it deems appropriate. 11. NON-EMPLOYEE DIRECTOR OPTIONS. Notwithstanding any of the other provisions of the Plan to the contrary, the provisions of this Section 11 shall apply to grants of Options to Non-Employee Directors. Except as set forth in this Section 11, the other provisions of the Plan shall apply to Non-Employee Director Options to the extent not inconsistent with this Section. 11 (a) GENERAL. Non-Employee Directors may elect annually to receive payment of all or any portion of the fees for their services as Directors in the form of options ("Non-Employee Director Options") to acquire Company Common Stock in accordance with this Section 11 and may not be granted Stock Appreciation Rights or Incentive Stock Options under this Plan. Non-Employee Directors may elect annually to receive the compensation for services as a Director for the following year (not including reimbursement of expenses) in the form of Non-Employee Director Options. The Non-Employee Director Options will be granted at the commencement of the 12-month period for which the election has been made. The number of Non-Employee Director Options granted to an electing non-employee Director in any year shall be an amount whose value, as determined by an independent valuation expert retained by the employee members of the Board of Directors, is equivalent on the date of grant to the cash compensation which the Director would otherwise have been entitled to receive for the year. No Agreement with any Non-Employee Director may alter the provisions of this Section and no Non-Employee Director Option may be subject to a discretionary acceleration of exercisability. (b) INITIAL ELECTION. On the effective date of this Plan, each Non-Employee Director may elect as of such date to receive Non-Employee Director Options for the year period commencing on that date. (c) ELECTION BY NEW NON-EMPLOYEE DIRECTORS. Each Non-Employee Director who, after the effective Date of this Plan, is elected or appointed to the Board for the first time will, at the time such director is elected or appointed, be able to elect to receive Non-Employee Director Options for the year period commencing on the date of election. (d) VESTING. Non-Employee Director Options shall become exercisable one year after the date of grant (or such longer period as the employee members of the Board of Directors may set) and shall be exercisable at a price equal to the market price of the Company's Common Stock at the close of business on the day prior to the date of grant. Non-Employee Director Options shall become immediately exercisable upon a Director's death, disability or upon a Change in Control. If a Director's tenure ends for a reason other than death, disability or Change in Control, then the number of Non-Employee Director Options granted for the year in which the tenure ends shall be reduced to reflect the amount of compensation actually earned by the Director in that year and the remaining Non-Employee Director Options granted in that year shall be immediately exercisable. (e) DURATION. Except as otherwise provided in this Section, each Non-Employee Director Option shall be for a term of 10 years. The Committee may not provide for an extended exercise period beyond the periods set forth in this Section. 12. RELEASE OF FINANCIAL INFORMATION. A copy of the Company's annual report to stockholders shall be delivered to each Participant if and at the time any such report is distributed to the Company's stockholders. Upon request, by any Participant, the Company shall furnish to such Participant a copy of its most recent annual report and each quarterly report and current report filed under the Exchange Act since the end of the Company's prior fiscal year. 13. TERMINATION AND AMENDMENT OF THE PLAN. The Plan shall terminate on the day preceding the tenth anniversary of its effective date, except with respect to Awards outstanding on such date, and no Awards may be granted thereafter. The Board may sooner 12 terminate or amend the Plan at any time, and from time to time; provided, however, that, except as provided in Section 9 hereof, no amendment shall be effective unless approved by the stockholders of the Company where stockholder approval of such amendment is required (a) to comply with Rule 16b-3 under the Exchange Act or (b) to comply with any other law, regulation or stock exchange rule. Except as provided in Section 9 hereof, rights and obligations under any Award granted before any amendment of the Plan shall not be adversely altered or impaired by such amendment, except with the consent of the Participant. 14. NON-EXCLUSIVITY OF THE PLAN. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 15. LIMITATION OF LIABILITY. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (a) give any employee any right to be granted an Award other than at the sole discretion of the Committee; (b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (c) limit in any way the right of the Company or its Parent or Subsidiaries to terminate the employment of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company, its Parent or Subsidiaries, will employ any person in any particular position, at any particular rate of compensation or for any particular period of time. 16. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW. (a) This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware. (b) The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (c) Any provisions of the Plan inconsistent with Rule l6b-3 under Exchange Act shall be inoperative and shall not affect the validity of the Plan. (d) Except as otherwise provided in Section 13, the Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain for Participants granted Incentive Stock Options, the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. 13 (e) Each Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Shares, no Awards shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. (f) In the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act or regulations thereunder, and the Committee may require a Participant receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares, to represent to the Company in writing that the Shares acquired by such Participant are acquired for investment only and not with a view to distribution. 17. MISCELLANEOUS. (a) MULTIPLE AGREEMENTS. The terms of each Award may differ from, other Awards granted under the Plan at the same time, or at any other time. The Committee may also grant more than one Award to a given Participant during the term of the Plan, either in addition to, or in substitution for, one or more Awards previously granted to that Participant. The grant of multiple Awards may be evidenced by a single Agreement or multiple Agreements, as determined by the Committee. (b) WITHHOLDING OF TAXES. The Company shall have the right to deduct from any payment of cash to any an amount equal to the federal, state and local income taxes and other amounts required by law to be withheld with respect to any Award. Notwithstanding anything to the contrary contained herein, if a Participant is entitled to receive Shares upon exercise of an Option or Stock Appreciation Right, the Company shall have the right to require such Participant, prior to the delivery of such Shares, to pay to the Company the amount of any federal, state or local income taxes and other amounts that the Company is required by law to withhold. Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value, on the date the tax is to be determined, equal to the amount required to be withheld. All elections shall be irrevocable, and be made in writing, signed by the Participant in advance of the day that the transaction becomes taxable. The Agreement evidencing any Incentive Stock Options granted under this Plan shall provide that if the Participant makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Participant pursuant to such Participant's exercise of the Incentive Stock Option, and such disposition occurs within the two-year period commencing on the day after the date of grant of such Option or within the one-year period commencing on the-day after the date of transfer of the Share or Shares to the Participant pursuant to the exercise of such Option, such Participant shall, within ten (10) days of such disposition, notify the Company thereof and thereafter immediately deliver to the Company any amount of federal, state or local income taxes and other amounts that the Company informs the Participant the Company is required to withhold. 14 (c) DESIGNATION OF BENEFICIARY. Each Participant may, with the consent of the Committee, designate a person or persons to receive in the event of such Participant's death, any Award or any amount of Shares payable pursuant thereto, to which such Participant would then be entitled. Such designation shall be made upon forms supplied by and delivered to the Company and may be revoked or changed in writing. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such Options, Stock Appreciation Rights, Restricted Stock and/or amounts payable to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Options, Stock Appreciation Rights, Restricted Stock and/or amounts payable to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. (d) GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. (e) SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. (f) SUCCESSORS. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 18. EFFECTIVE DATE. The effective date of the Plan is September 13, 2000. 15 EX-10.20 5 a2047564zex-10_20.txt EXHIBIT 10.20 EXHIBIT 10.20 CORRECTION TO EMPLOYMENT CONTRACT OF JEFFREY LITTLE Mr. Robert Kelly and Mr. Jeffrey Little hereby acknowledge that Paragraph 5 of the Employment Contract signed on the 13th day of December, 1999, was incorrect, and both parties agree that paragraph 5 should read as follows: 5. STOCK OPTION. (a) The Corporation hereby grants Employee an option (the "Option") to purchase up to 600,000 shares of Common Stock. The Option will be a stock option that does not qualify as an "incentive stock option" under Section 422(b) of the Internal Revenue Code of 1986, as amended (i.e., a non-qualified stock option). (b) Except as otherwise provided in this Agreement, the Option shall be exercisable, on a cumulative basis, at the times and prices as follows: (i) up to 200,000 of the total shares subject to the Option may be purchased by Employee on or after the first anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) herein; (ii) up to an additional 200,000 shares of the total shares subject to the Option may be purchased by Employee on or after the second anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) herein plus one dollar; and (iii) the balance of the total number of shares subject to the Option may be purchased by Employee on or after the third anniversary of Employee's start date at the price defined in paragraph 5(b)(iv) plus two dollars. (iv) Option price shall be defined as the calculated average closing price for the last thirty (30) days of trading prior to Employee's start date. Subject to earlier termination as described below, the Option shall expire ten years from the effective date of this contract. Except as provided in the immediately following sentence, if the employment of the Employee with the Corporation shall terminate by reason of Employee's death, permanent disability (as defined herein), by the Corporation for any other reason than for "cause" (as defined herein), the Option shall immediately become exercisable by Employee (or Employee's legal representative, beneficiary or estate, as the case may be), for any and all of such number of shares subject to the Option, at any time up to and including six (6) months after the effective date of such termination of employment. If the employment of Employee with Corporation shall terminate for any reason other than that provided in the immediately preceding sentence, including, without limitation, termination by the Corporation for "cause" (as described herein) or termination by Employee for any reason other than Good Reason, the Option shall terminate and become null and void, as of the effective date of such termination. In the event of a Change in Control (as defined below), the Option shall immediately become exercisable for any or all of such number of shares subject to the Option. For purposes of this Agreement, a "Change in Control" means the occurrence of any of the following events: (i) any person or entity (with the exception of Odyssey Partners, L.P., or any successors, subsidiary or affiliate thereof) acquires 50% or more of the voting securities of the Corporation; (ii) the shareholders approve a plan of complete liquidation, an agreement for sale or disposition of substantially all of the Corporation's assets (other than to Odyssey Partners, L.P., or any successors, subsidiary or affiliate thereof), or materially dilutive merger or consolidation of the Corporation; or (iii) the Board of Directors agrees by a two-thirds vote that Change in Control has occurred or is about to occur and within six months actually does occur. However, for purposes hereof, no Change in Control would be deemed to occur with respect to any employee who is a material equity participant of the purchasing group that consummates a Change in Control. (c) Subject to the limitations on exercise provided in the Agreement, the Option shall be exercised by Employee as to all or part of the shares covered thereby by giving written notice of exercise to the Corporation, specifying the number of shares to be purchased (unless the number purchased is the total balance for which the Option is then exercisable; provided, however, that in no event shall the Option be exercised for a fraction of a share or for less than 100 shares) and specifying a business day not more than 10 days from the date such notice is given for the payment of the purchase price against delivery of the shares being purchased. On the date specified in the notice of exercise the Corporation shall deliver such shares to Employee and Employee shall deliver to the Corporation immediately available funds in an amount equal to the aggregate purchase price for such shares. (d) If the Corporation (1) pays a stock dividend on its Common Stock, (2) subdivides its outstanding shares of Common Stock into a greater number of shares, (3) combines its outstanding shares into a smaller number of shares, or (4) issues by reclassification of its Common Stock any shares of its capital stock, then the number and kind of shares into which the Option granted to Employee under Paragraph 5(a) hereof is exercisable shall be adjusted so that Employee upon exercise of the Option shall be entitled to receive the kind and number of shares of the Corporation that Employee would have owned or have been entitled to receive after the happening of any of the events described above had the Option been exercised immediately prior to the happening of such event or any record date with respect hereto. The exercise price for the Option shall be adjusted by the inverse of any such adjustment to the number of shares into which the Option is exercisable. An adjustment made pursuant to this paragraph (d) shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. The adjustment to the number of shares into which the Option is exercisable described in this paragraph (d) shall be made each time any event listed in clauses (1) through (4) of this paragraph (d) occurs. Eagle Food Centers, Inc. /s/ Robert Kelly /s/ Jeffrey L. Little - ----------------- ---------------------- Robert Kelly, Chairman Jeffrey Little May 3, 2001 May 3, 2001 - ----------- ----------- Date Date EX-21 6 a2047564zex-21.txt EXHIBIT 21 EXHIBIT 21 EAGLE FOOD CENTERS, INC. SUBSIDIARIES Eagle Pharmacy Co. Milan Distributing Co. Eagle Country Markets, Inc. BOGO'S, Inc. Talon Insurance Company, Inc. -----END PRIVACY-ENHANCED MESSAGE-----