-----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, QmYujE3OqFJHcJP3nSsVFL09nkNoDfOV3Y79+Cy7KYbLftdndnuBOfl94WFaDEkG rXeVlSEhVplJa058iZRwSw== 0000897069-01-000260.txt : 20010402 0000897069-01-000260.hdr.sgml : 20010402 ACCESSION NUMBER: 0000897069-01-000260 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHULTZ SAV O STORES INC CENTRAL INDEX KEY: 0000087588 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 390600405 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-27171 FILM NUMBER: 1585109 BUSINESS ADDRESS: STREET 1: 2215 UNION AVE CITY: SHEBOYGAN STATE: WI ZIP: 53081 BUSINESS PHONE: 4144574433 MAIL ADDRESS: STREET 1: 2215 UNION AVE CITY: SHEBOYGAN STATE: WI ZIP: 53081 10-K405 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2000. OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-549 SCHULTZ SAV-O STORES, INC. (Exact name of registrant as specified in its charter) Wisconsin 39-0600405 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2215 Union Avenue Sheboygan, Wisconsin 53081 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (920) 457-4433 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, $0.05 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No ___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of voting stock held by non-affiliates of the registrant as of March 20, 2001: $56,642,294. Only excludes shares beneficially owned by directors and officers of the registrant. Number of shares outstanding of the registrant's Common Stock as of March 20, 2001: 5,478,216. PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE: 2000 Annual Report to Shareholders (incorporated by reference into Parts II and IV to the extent indicated therein). Definitive Proxy Statement for 2001 annual meeting of shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year and, upon such filing, to be incorporated by reference into Part III to the extent indicated therein). PART I Special Note Regarding Forward-Looking Statements We make certain "forward-looking statements" in this Form 10-K, such as statements about our future plans, goals and other events that have not yet occurred. We intend that these statements will qualify for the safe harbors from liability provided by the Private Securities Litigation Reform Act of 1995. You can generally identify these forward-looking statements because we use words such as we "believe," "anticipate," "expect," "project" or similar words when we make them. Whether or not these forward-looking statements will be accurate in the future will depend on certain risks, including risks associated with: o the presence of intense competition in our marketplace; o our ability to identify and develop new market locations for expansion purposes; o our ability to obtain reasonable vendor marketing funds for promotional purposes; o our business systems requirements, which could involve substantial cash capital expenditures and income statement expense over a period of several years; o the continued absence of food price inflation; o our ability to continue to recruit, train and retain quality franchise and corporate retail store operators; and o the potential recognition of repositioning charges resulting from potential closures, conversions or consolidations of our franchised and corporate stores, whether due to the competitive nature of our industry, the quality of our franchised and corporate retail store operators or other factors. You should consider these risks and factors and the impact they may have when you evaluate our forward-looking statements. We make these statements based only on our knowledge and expectations on the date of this report. We will not necessarily update these statements or other information in this report based on future events or circumstances. Please read this entire report to better understand our business and the risks associated with our operations. Item 1. Business. General Schultz Sav-O Stores, Inc. is engaged in distributing food and related products at wholesale and retail. As of December 30, 2000, we franchised 71 and owned 19 retail supermarkets under the Piggly Wiggly(R) name. While we have a presence in some larger metropolitan areas, we have attempted to develop a niche for serving the food shopping needs of customers in smaller and suburban communities within our market areas. We are the primary supplier to our 90 franchised and corporate-owned Piggly Wiggly(R) supermarkets. We also serve as a wholesaler to a number of smaller, independently operated retail supermarkets and convenience stores in our market areas. We believe that we have established ourselves as a niche food marketer in small to mid-size markets by delivering the product variety, quality of perishable products, pricing and promotional programs traditionally found only in large metropolitan markets. As a hybrid retailer and wholesaler, we have created a "virtual chain" of retail stores served by a vertically-integrated wholesaler. In 2000, our virtual chain had approximately $800 million in retail sales. The virtual chain encompasses all Piggly Wiggly(R) supermarkets, both franchised and corporate, in a single, coordinated merchandising and advertising program which typically includes: o a weekly newspaper ad insert; 2 o outdoor boards; o television and radio spots; o sponsorship of entertainment and charitable events; and o our Piggly Wiggly Preferred Club(R)Card and E-Savings programs. We believe that this coordinated program allows us to leverage the combined buying power of all our franchised and corporate stores and deliver a powerful and effective promotional vehicle for our participating vendor partners. Additionally, we believe that we provide our franchised stores with cost-effective administrative support services and financial resources that enable the operation of efficient, contemporary supermarkets, while the independent retail ownership of our franchisees provides the entrepreneurial spirit and community involvement that we believe is an integral part of marketing in smaller markets. The successful combination of these elements creates the partnership between us and our franchisee retailers that results in a virtual chain of coordinated and integrated retail food distribution. By operating as a virtual chain, we are able to achieve superior performance compared to traditional wholesalers, yet avoid significant direct capital investments at the retail level to grow our business. Our franchisee retailer, as part of the virtual chain, benefits from lower cost of products and the coordinated promotional activity normally associated only with larger retail grocery chains. We believe that this structure enables us to leverage the favorable elements of both a wholesaler and a retailer, giving us and our franchisees a unique advantage in our marketplace. We believe that this advantage has been a key component in our success over the past few years as the virtual chain concept has evolved. We supply a variety of products to our franchised and corporate supermarkets and other wholesale customers, primarily from our warehouse and distribution center in Sheboygan, Wisconsin. We also provide our franchised and corporate supermarkets and other customers with fresh, frozen and processed meat, eggs and deli products from a third-party distribution facility in Milwaukee, Wisconsin. Additionally, through arrangements with several vendors, we also offer a line of carbonated soft drinks, fruit drinks and drinking and distilled water under our Springtime(TM) label. In the absence of acquisition or consolidation activity, we expect the near-term prognosis for the industry and our company to be continued moderate growth. As a result, we continue to evaluate acquisition opportunities, particularly any that might allow us to expand our core competencies and meet our return on investment and profitability requirements. As part of implementing our corporate strategy to improve the profitability of our corporate retail operations, we continue to seek opportunities to expand and acquire corporate and franchise stores, to convert or close underperforming stores and to enter new markets. We will focus primarily on: o growth initiatives that leverage our core competencies in marketing and merchandising food products and services to our franchise, corporate, and retail customers; o profitability initiatives that drive EBITDA as a rate to sales; and o development of new business systems to support and facilitate our strategic initiatives. Some of our significant accomplishments in 2000 included: o converted a formerly independent operator into a franchisee in Markesan, Wisconsin in January 2000; o closed older franchise stores and replaced them with a more competitive and larger facilities in Pardeeville and New Holstein, Wisconsin in April and September 2000, respectively; o closed an older corporate store and replaced it with a more competitive and larger facility in Racine, Wisconsin in May 2000; and o opened a new market franchise store in Kewaskum, Wisconsin in June 2000. The following projects are scheduled for completion in 2001: o replacement of existing franchise supermarkets in Slinger and Campbellsport, Wisconsin; 3 o replacement of existing corporate supermarkets in Sheboygan, Wisconsin and Zion, Illinois; and o expansion, by approximately 10%, of the square footage of selling space of our Mequon, Wisconsin store. We are a Wisconsin corporation organized in 1912 and maintain our corporate headquarters at 2215 Union Avenue, Sheboygan, Wisconsin 53081. You can visit our internet website at http://www.shopthepig.com. Wholesale Operations For several years, we have emphasized our wholesale distribution business and the associated refinement of our franchise store base which, combined with our unique marketing and merchandising program, has created an effective and efficient virtual chain. We believe that one of the competitive advantages we provide to our franchised supermarkets through our virtual chain strategy is our value-oriented customer merchandising and community-specific marketing support program, pursuant to which franchisees participate with corporate stores in systemwide promotions and other merchandising events. Through a variety of partnering, merchandising and marketing programs, we benefit our franchisees through additional sales resulting from heightened consumer name recognition and in-store merchandising programs, combined with special promotional pricing. Additional services that we provide to our franchisees include: o retail performance counseling and supervision; o retail financial accounting; o preparation of store payrolls; o preparation of print, electronic and outdoor media advertising (including various point-of-sale materials); o assistance in the selection and analysis of store locations; o financing and lease negotiations; o merchandise planning; o equipment selection and sourcing; o engineering services, including store design, floor layout and facility project management; o retail technology implementation and support; o labor planning and scheduling; and o product category supervision. We provide some of these services as part of the franchise relationship, while other services are provided under a separate fee arrangement intended to cover our costs. We are the primary supplier to all of our franchised and corporate supermarkets. We also serve as a wholesaler to other smaller independent retail stores in our market area, accounting for approximately 2% of our 2000 net sales. Franchisees pay us fees determined by the retail sales of their supermarkets. We do not charge an initial fee to franchisees for granting a franchise. Consistent with industry practice, in certain situations, we provide credit enhancements to certain qualified franchisees by (i) leasing the franchisee's supermarket premises and, in turn, subleasing the premises to the franchisee and/or (ii) guaranteeing a portion of the franchisee's bank borrowings. 4 Under our Piggly Wiggly(R) Master Franchise Agreement, our franchise territory includes all of Wisconsin, the upper peninsula of Michigan and designated counties in northern Illinois, southeastern Minnesota and eastern Iowa. Our franchise rights are of unlimited duration and are not subject to any specific termination provision. We are required to pay franchise fees to the current franchisor in parts of our market areas. The only other material obligation imposed on us in our franchise territory is that the supermarkets operated under the Piggly Wiggly(R) name must comply with the standards imposed on supermarkets in the Piggly Wiggly(R) system. We believe that our own franchised and corporate store standards exceed the Piggly Wiggly(R) system standards. Retail Operations Our franchised and corporate supermarkets stock a comprehensive selection of groceries, frozen foods, prepared foods, fresh produce, meat, poultry, eggs and dairy products. Our franchised and corporate supermarkets also allocate display space to non-food items, such as health and beauty aids, housewares, magazines and periodicals, video cassette rentals, flowers and plants, greeting cards and general merchandise. Our franchised and corporate supermarkets carry a broad range of branded merchandise and private-label store branded product alternatives. In general, the private-label products carried by our franchised and corporate supermarkets have lower selling prices, but higher gross profit margins, than branded merchandise. Consistent with trends generally within the industry, we continue to experience increases in retail customer demand for store brands and believe that our Topco-procured line of branded products is satisfying this consumer trend. See "Purchasing and Distribution." Based on our internal wholesale price index, inflation did not have a significant effect on sales between 2000 and 1999, except with regard fuel costs incurred transporting products to our franchised and corporate stores. Although inflation had a significant effect on our fuel costs, we were able to recover some of this increase by imposing a fuel surcharge on our franchised stores. The Piggly Wiggly Preferred Club(R) Card marketing program, a customer-friendly, card-based system, is in place in all of our corporate and franchised supermarkets. We designed the Piggly Wiggly Preferred Club(R) Card to reward current customers and attract new customers by offering "clipless coupons" on weekly advertised specials and "automatic" savings on monthly store specials. The card, processed by a standardized front-end point-of-sale system, allows us to maintain a valuable, integrated database that we use to identify our best customers and their preferences so that the virtual chain of stores can better serve its customers. We will never sell customer-specific information in our data base for use by third parties. The card also doubles as a check-cashing and video rental identification card. Additionally, the Piggly Wiggly Preferred Club(R) Card program affords the ability to issue point-of-sale coupons redeemable on future purchases. In December 2000, we partnered with ValuPage(R) to launch Piggly Wiggly E-Savings,(R) the industry's first and most personalized online and in-store grocery savings program. Customers register for the Piggly Wiggly E-Savings(R) program by providing their e-mail addresses and Piggly Wiggly Preferred Club(R) Card numbers. After registering, customers receive a weekly e-mail with store specials and coupons customized for their shopping preferences as well as special savings and sweepstakes. We believe that the Piggly Wiggly Preferred Club(R) Card and E-Savings program and the coordinated marketing and merchandising program they support will be key components to our future growth. Our franchised supermarkets range in size from 10,400 square feet to 54,400 square feet, with an average of 25,770 square feet. Our corporate supermarkets range in size from 19,980 square feet to 54,850 square feet, with an average of 34,990 square feet. All of our franchised and corporate supermarkets contain several perishable or specialty service departments, including: o fresh and processed meat; o take-home entrees and snacks; o fresh fruits and vegetables; o fresh seafood; o delicatessen; 5 o flowers and plants; and o baked goods. Several supermarkets also contain or provide one or more of the following: o wine and spirit sales; o video rentals; o lottery sales; o photo processing services; o TicketMaster(R) ticket centers; o in-house banking services; o in-house dry cleaning stores; o automated teller machines; and o on-line debit and credit card check-out services. Certain franchised and corporate stores continue to fail to meet certain financial performance goals. In order to further improve results of operations, we continue to evaluate various business alternatives relating to underperforming operations, including the sale or conversion of these stores, closing stores and implementing other operational changes. Summary of Our Stores The following table shows our development of, and changes in, our franchised and corporate retail supermarkets for the periods presented: Franchise Supermarkets Corporate Supermarkets ------------------------------------------- -------------------------------------------- Number of Supermarkets 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Beginning of Year 66 68 68 68 69 19 16 18 18 19 New Market Supermarkets(a) 1 1 1 1 1 -- 1 -- -- -- Replacement Supermarkets(b) 2 1 1 1 2 -- -- 1 -- 1 Converted to/from 1 (1) -- (1) -- (1) 1 -- 1 -- Franchise(c) Terminated Operations(d) (2) (2) (2) (2) (2) (2) -- (1) -- (1) New Franchises(e) -- 1 -- 2 1 -- -- -- -- -- End of Year 68 68 68 69 71 16 18 18 19 19 Remodeled Supermarkets(f) 1 3 2 4 2 -- -- -- -- -- - --------------- (a) New market supermarkets are newly constructed supermarkets in market areas not recently served by us. (b) Replacement supermarkets are newly constructed supermarkets whose opening corresponds with the closure of a nearby franchised or corporate supermarket. (c) Supermarkets that are converted from corporate to franchise units, or vice versa, are included as reductions to supermarket totals in one category and corresponding additions to totals in the other category. (d) Terminated operations represent supermarkets that are no longer going concerns, including replaced supermarkets. (e) New franchises are additions to our franchise group other than through conversion from corporate supermarkets. (f) Remodeled supermarkets represent supermarkets that have undergone substantial expansion and/or remodeling totaling at least $300,000.
6 Purchasing and Distribution We purchase groceries in sufficient volume to qualify for favorable price brackets for most items. We purchase brand name grocery merchandise directly from the manufacturers or processors and purchase produce, meat and seafood from a variety of sources. We purchase substantially all of our private label items and fresh meats through Topco Associates, Inc. Topco is a national purchasing cooperative whose member-owners consist of more than 25 regional supermarket chains and food services organizations who collectively operate more than 2,600 stores. According to Topco data, its member-owners accounted for approximately 10% of United States grocery store sales volume in 2000. In 2000, purchases through Topco accounted for approximately 13% of our total inventory purchases. We also purchase store and warehouse equipment and supplies, primarily bags and packaging material, through Topco. Topco's size and purchasing power enable it to employ large-volume, low-cost purchasing techniques on behalf of its member-owners. In January 2000, we became a member of "World Brands," a Topco division dedicated to using the combined purchasing power and marketing strength of its members to obtain favorable treatment from national brand manufacturers. To attain this goal, World Brands, together with its members, negotiates with each vendor for the benefit of all of its members in a manner similar to the way that a retailer would do on behalf of its entire organization. There are currently sixteen members of World Brands, all of which are also members of Topco. According to World Brands data, the combined retail sales of its members surpasses that of all but four of the grocery retailers in the United States. The World Brands programs in which we have participated lead us to believe that World Brands presents us with an opportunity to qualify for more favorable prices and promotions than we could attain on our own. We and our direct-contract, third-party distribution center supplied more than 70% of the products supplied to our franchised and corporate stores in 2000. The remainder were supplied by direct store delivery vendors. We own our 364,000 square-foot distribution center in Sheboygan, Wisconsin. With the exception of fresh, frozen and processed meat, eggs and deli products, we distribute all products that we supply from our Sheboygan facility. While we perform the buying function, a third-party contractor in Milwaukee, Wisconsin performs the distribution services for our meat operations. We believe that this arrangement provides us with operating cost efficiencies and the ability to expand our wholesale product offerings and better satisfy wholesale customer delivery schedules through improved capacity. As described above under "Wholesale Operations," we believe that one of our competitive advantages is the community-oriented marketing programs that we provide to franchisees as part of our virtual chain strategy. Coordinated weekly newspaper ad inserts, high-visibility outdoor billboard advertising and television and radio advertising stress the value and customer service provided by our local Piggly Wiggly(R) supermarkets. We also sponsor local events and festivals throughout the marketing area to improve our Piggly Wiggly(R) name recognition, such as the Midwest's largest fireworks display at Milwaukee's Summerfest lakefront music festival. We operate a leased, full-service trucking fleet, which consists of 22 tractors and 44 refrigerated trailers. We augment our transportation requirements with temporary leasing arrangements as conditions warrant. PW Trucking, Inc., our wholly-owned subsidiary, provides contract and common carrier services throughout our operating territory. Revenues from unrelated parties generated by this business were nominal in 2000 and are expected to be nominal in 2001. Competition The wholesale and retail food industry is highly competitive. At the wholesale level, we compete with regional and national wholesalers, such as Fleming Companies, Inc., SUPERVALU Inc., Roundy's, Inc. and Nash Finch Co. We believe that key competitive factors include the provision of the following services to franchise customers: o credit enhancements and working capital support; 7 o advertising; o retail performance and supervision counseling; o accounting and financial services; o merchandising; o facilities engineering; o design and project management; and o retail technology support. We believe that our distribution facilities and the wide range of support and marketing services provided to our franchised and corporate retail supermarkets allow us to provide prompt and efficient, low-priced, high-quality products and important supplemental services to our franchised and corporate supermarkets and other customers. The degree of competition at the retail level varies with store location. In most of our franchised and corporate supermarket locations, we compete primarily with local retail operators, virtually all of whom are affiliated with competing wholesalers through arrangements similar to those we have with our franchisees. In some of our supermarket locations, however, we also compete with national and regional retail chain stores, such as Sentry Food Stores, Pick `N Save, Cub Foods, Jewel Food Stores, Dominicks Finer Foods, Copps Supermarkets and Kohl's Food Stores. Other competitors include the general merchandise, wholesale club and supercenter format stores, such as Wal-Mart Stores, Inc., K-Mart Corp., ShopKo Stores, Inc. and others. We believe that the principal retail competitive factors include: o product quality and variety; o the quality of a store's perishable product and service departments; o price; and o store location and appearance. We believe our supermarkets' emphasis on low-cost, high-quality products, community-based multi-media marketing and merchandising programs and a high degree of in-store customer service and friendliness provide our franchised and corporate supermarkets with a competitive advantage in many retail market areas. Certain of our competitors at both the wholesale and retail level may have a competitive advantage resulting from utilizing lower-cost, non-union workforces. Certain of our competitors have greater financial resources and marketing budgets than we do. Also, certain competitors using the general merchandise, wholesale club format or supercenter format may choose to carry and market a less extensive variety of products, which may allow them to sell such items at a lower per unit cost than we do. Employees As of December 30, 2000, we employed approximately 1,750 persons, including approximately 1,300 in the operation of our corporate retail supermarkets. A majority of our corporate retail employees are employed on a part-time basis. Of our remaining employees, approximately 200 are engaged in warehousing and trucking activities and approximately 250 are corporate and administrative personnel. Three retail collective bargaining agreements, covering a total of approximately 250 employees expire in 2001. We do not currently anticipate any strikes, work stoppages or slowdowns in connection with renewing such agreements. 8 Item 1A. Executive Officers. Name and Age Positions and Offices with the Company ------------ -------------------------------------- Walter G. Winding, 59.......... Chairman of the Board Elwood F. Winn, 50............. President and Chief Executive Officer Michael R. Houser, 49.......... Vice Chairman of the Board, Executive Vice President - Marketing and Merchandising William K. Jacobson, 50........ Senior Vice President - Retail Operations and Development and Assistant Secretary Armand C. Go, 39............... Vice President, Chief Financial Officer, Treasurer and Secretary Thomas J. Timler, 43........... Vice President and Chief Information Officer Larry D. Hayes, 58............. Vice President - Meat, Bakery and Deli Operations Messrs. Winding, Winn, Houser and Jacobson are also members of our Board of Directors. Mr. Winding is not an employee of the company. Executive officers are generally elected annually at the annual meeting of our Board of Directors held on the date of our annual meeting of shareholders. Each executive officer holds office until his successor has been elected or until his prior death, resignation or removal. All of our executive officers have served in the positions indicated or in other management positions with Schultz for more than five years, except that: o Mr. Winn was President and Chief Executive Officer of Certified Grocers Midwest Inc. ("CGM") prior to October 1998, a consultant to CGM from October 1998 until September 1999, our Senior Vice President-Strategic Planning from September 1999 to May 2000 and our Executive Vice President, Chief Financial Officer and Secretary from May 2000 until December 2000 when Mr. Winn was elected to his current position; and o Mr. Winding serves as our independent director Chairman of the Board; he has served as an independent director since 1999 and was elected Chairman of the Board effective as of December 8, 2000. Mr. Winding is, and has been for the past five years, the owner and Chief Executive Officer of Winding and Company, a business consulting firm based in Hartland, Wisconsin. Item 2. Properties. As is typical in our industry, a substantial portion of our retail store facilities are leased. As of December 30, 2000, we leased 18 corporate supermarkets and owned one supermarket. The leased supermarkets range in size from 19,980 to 54,850 square feet, with an average of 34,360 square feet. We generally lease our supermarkets from nonaffiliated real estate developers under long-term leases. Such leases generally contain initial terms of 15 to 20 years, with several five-year renewal options. None of such existing lease arrangements contain repurchase options; nor do we own the land underlying any of such supermarkets. As of December 30, 2000, we subleased 56 of our leased supermarkets and leased one owned supermarket to independent operators who are our wholesale customers and franchisees. 9 We own our distribution center and headquarters complex in Sheboygan, Wisconsin which occupies approximately nine acres of a 16-acre site that we own. The facility provides approximately 30,500 square feet of space for offices and related activities and approximately 364,000 square feet of warehouse space. We also lease approximately 14,500 square feet of office space in Sheboygan under a lease expiring in August 2003, which is used for customer support services. Item 3. Legal Proceedings. There are no material legal proceedings to which we are a party or to which any of our property is subject, other than routine litigation incidental to our business. No material legal proceedings were terminated during the fourth quarter of 2000. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of our shareholders during the fourth quarter of 2000. PART II Item 5. Market for Our Common Stock and Related Shareholder Matters. Pursuant to our program for compensation of independent directors, on February 14, 2001 we issued 573 shares of our common stock to each of our directors who were not employed by us on that date. Such issuances were exempt from registration under the Securities Act of 1933 in accordance with Section 4(2) of that act. Pursuant to General Instruction G to Form 10-K ("Instruction G"), the other information required by this Item is incorporated herein by reference from information included under the caption entitled "Common Stock Information" set forth in our 2000 Annual Report to Shareholders (the "Annual Report"). Item 6. Selected Financial Data. Pursuant to Instruction G, the information required by this Item is incorporated herein by reference from information included under the caption entitled "Five-Year Financial Highlights" set forth in the Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Pursuant to Instruction G, the information required by this Item is incorporated herein by reference from information included under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Annual Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We believe that our exposure to market risk related to changes in foreign currency exchange rates, interest rate fluctuations and trade accounts receivable is immaterial. Item 8. Financial Statements and Supplementary Data. Pursuant to Instruction G, the Consolidated Balance Sheets of the company as of December 30, 2000 and January 1, 2000, the Consolidated Statements of Earnings, Cash Flows and Shareholders' Investment for each of the three fiscal years in the period ended December 30, 2000, together with the related Notes to Consolidated Financial Statements (including supplementary financial data), are incorporated herein by reference from information included under the captions having substantially the same titles as set forth in the Annual Report. 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Company. Pursuant to Instruction G, the information required by this Item (other than such information regarding executive officers which appears in Item 1A hereof and information required by Item 405 of Regulation S-K, which is inapplicable) is incorporated by reference from information included under the caption entitled "Election of Directors" set forth in our definitive Proxy Statement for our 2001 annual meeting of shareholders (the "Proxy Statement").* * The Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of our fiscal year. Item 11. Executive Compensation. Pursuant to Instruction G, the information required by this Item is incorporated by reference from information included under the caption entitled "Executive Compensation" set forth in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. Pursuant to Instruction G, the information required by this Item is incorporated by reference from information included under the captions entitled "Stock Ownership of Management and Others" and "Election of Directors" set forth in the Proxy Statement. Item 13. Certain Relationships and Related Transactions. Pursuant to Instruction G, information required by this Item is incorporated by reference from information under the caption entitled "Compensation Committee and Stock Option Committee Interlocks and Insider Participation" set forth in the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as a part of this Form 10-K: 1. Financial Statements. Consolidated Balance Sheets as of December 30, 2000 and January 1, 2000 Consolidated Statements of Earnings, Cash Flows and Shareholders' Investment for the fiscal years 2000, 1999 and 1998 Notes to Consolidated Financial Statements Report of Independent Public Accountants The foregoing Financial Statements are incorporated by reference to the pocket part included in the Company's Annual Report to Shareholders for the fiscal year ended December 30, 2000. 11 The additional information referred to under "Financial Statement Schedules" below is filed as part of this Form 10-K and should be read in conjunction with the financial statements referred to above. Page Reference: Form 10-K 2. Financial Statement Schedules. Report of Independent Public Accountants F-1 Schedule VIII - Valuation and Qualifying Accounts and Reserves F-2 All other schedules have been omitted as not required or not applicable, or the information required to be shown thereon is included in the financial statements and related notes. 3. Exhibits and Reports on Form 8-K. (a) The exhibits filed or incorporated by reference herewith are as specified in the Exhibit Index included herein. (b) On October 30, 2000, we furnished (but did not "file") a report on Form 8-K regarding the results of our third quarter of fiscal year 2000. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCHULTZ SAV-O STORES, INC. Date: March 23, 2001 By /s/ Armand C. Go ---------------- Armand C. Go Vice President, Chief Financial Officer, Treasurer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed as of the date above by the following persons on behalf of the company in the capacities indicated. /s/ Walter G. Winding /s/ Steven R. Barth - -------------------------------------------- ------------------- Walter G. Winding, Chairman of Steven R. Barth, Director Board /s/ Elwood F. Winn /s/ William K. Jacobson - -------------------------------------------- ----------------------- Elwood F. Winn, President, Chief Executive William K. Jacobson, Director Officer and Director (Principal Executive Officer) /s/ Michael R. Houser /s/ Martin Crneckiy, Jr. - -------------------------------------------- ------------------------ Michael R. Houser, Vice Chairman of the Martin Crneckiy, Jr., Director Board, Executive Vice President and Director /s/ Armand C. Go /s/ James H. Dickelman - -------------------------------------------- ---------------------- Armand C. Go James H. Dickelman, Director Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) /s/ Bruce J. Olson /s/ R. Bruce Grover - -------------------------------------------- ------------------- Bruce J. Olson, Director R. Bruce Grover, Director 13 Report of Independent Public Accountants We have audited in accordance with auditing standards generally accepted in the United States the financial statements included in Schultz Sav-O Stores, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 8, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 8, 2001 F-1 SCHULTZ SAV-O STORES, INC. SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE FISCAL YEARS 2000, 1999 AND 1998 Allowance for Doubtful Accounts-- Changes in the allowance for doubtful accounts are summarized as follows: 2000 1999 1998 ----------- ----------- ----------- Balance, beginning of year $4,300,000 $4,300,000 $3,950,000 Provision charged to earnings 166,000 820,000 350,000 (Writeoffs) (616,000) (820,000) -- ---------- ---------- ---------- Balance, end of year $3,850,000 $4,300,000 $4,300,000 ========== ========== ========== F-2 EXHIBIT INDEX SCHULTZ SAV-O STORES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000 Exhibit No. Description 3.1 Restated Articles of Incorporated, as amended. Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 1988. 3.2 By-Laws, as amended and restated as of November 29, 2000. 4.1 Restated Articles of Incorporation, as amended (included as Exhibit 3.1). As summarized in Notes (3) and (7) of the Notes to Financial Statements incorporated by reference from our 2000 Annual Report to Shareholders, as part of Parts II and IV of this Form 10-K, we have various outstanding long-term debt and capital lease obligations. None of such obligations individually exceeds 10% of our total assets. We hereby agree to furnish to the Commission, upon its request, a copy of each instrument with respect to such obligations. 10.1 Master Franchise Agreement, dated April 23, 1982, between Commodores Point Terminal Corporation and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-K for the year ended January 1, 1982. 10.2 Agreement, dated August 1, 1982, between Schultz Sav-O Stores and Commodores Point Terminal Corporation. Incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for the year ended January 1, 1982. 10.3 Amendment to Master Franchise Agreement, dated October 15, 1982, between Schultz Sav-O Stores and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K for the year ended January 1, 1982. 10.4 Amendment No. 2 to Piggly Wiggly Master Franchise Agreement, dated June 3, 1998, between Schultz Sav-O Stores and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended April 25, 1998. 10.5 Form of Director/Officer Indemnity Agreement. Incorporated by reference to Exhibit 10.4 to our Annual Report on Form 10-K for the year ended January 2, 1988. This Agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. E-1 10.6 Form of Key Executive Employment and Severance Agreement, dated as of October 19, 1990, between Schultz Sav-O Stores and Michael R. Houser and dated as of January 31, 1997, between Schultz Sav-O Stores and William K. Jacobson. Incorporated by reference to Exhibit 10.5 to our Annual Report on Form 10-K for the year ended December 29, 1990. This agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.7 Form of amendment to Key Executive Employment and Severance Agreement between Schultz Sav-O Stores and each of Michael R. Houser and William K. Jacobson. Incorporated by reference to Exhibit 10.13 to our Quarterly Report on Form 10-Q for the period ended July 18, 1998. This agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.8 Form of Key Executive Employment and Severance Agreement, dated as of May 10, 2000 between Schultz Sav-O Stores and Elwood F. Winn and dated as of February 23, 2001 between Schultz Sav-O Stores and each of Armand C. Go and Thomas J. Timler. The only substantive differences between the Key Executive Employment and Severance Agreements between Messrs. Winn, Go and Timler is that Mr. Winn's agreement provides that, following a "change of control" of the company (as defined in the severance agreements), Mr. Winn will be employed in the same position for three years (or, if his services are not retained, he will continue to receive the salary and certain other benefits he received immediately prior to the change of control for a period of three years) and the agreements signed by Messrs. Go and Timler contain similar provisions covering a two-year period after a change of control. This agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.9 Membership and Licensing Agreement dated August 1, 1973 by and between Topco Associates, Inc. (Cooperative) and Schultz Sav-O Stores. Incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K for the year ended December 30, 1996. 10.10 Articles of Incorporation of Topco Associates, Inc. (Cooperative). Incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K for the year ended December 31, 1988. 10.11 Bylaws of Topco Associates, Inc. (Cooperative), as amended through June 7, 1996. Incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K for the year ended December 30, 1996. 10.12 1990 Stock Option Plan, as amended and restated as of October 15, 1998. Incorporated by reference to Exhibit 10.16 to our Quarterly Report on Form 10-Q for the period ended October 10, 1998. This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.13 1995 Equity Incentive Plan, as amended and restated as of December 14, 2000 (subject to shareholder approval). This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. E-2 10.14 Form of Nonqualified Stock Option Agreement under 1995 Equity Incentive Plan. Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K for the year ended January 2, 1999. This form of agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.15 Schultz Sav-O Stores, Inc. Executive Benefit Restoration Plan. Incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 1994. This Plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.16 Schultz Sav-O Stores, Inc. Officer Annual Incentive Plan, as amended and restated as of February 12, 2001. This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.17 Loan Agreement, dated as of December 3, 1992, among Schultz Sav-O Stores, M&I Marshall & Ilsley Bank and Firstar Bank (Milwaukee), as amended as of December 31, 1998. Incorporated by reference to Exhibit 10.16 to our Annual Report on Form 10-K for the year ended January 2, 1999. 10.18 Fifth Amendment (dated as of May 31, 2000) to Loan Agreement, dated as of December 3, 1992, among Schultz Sav-O Stores, M&I Marshall & Ilsley Bank and Firstar Bank (Milwaukee). 10.19 2001 Nonemployee Director Stock Option Plan, as adopted by the Board of Directors (subject to shareholder approval) as of December 14, 2000. This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.20 Form of Nonqualified Stock Option Agreement under 2001 Nonemployee Director Stock Option Plan. This form of agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 13 Portions of the 2000 Annual Report to Shareholders expressly incorporated by reference into this Form 10-K. 21 Subsidiaries of Registrant. 23 Consent of Independent Public Accountants. 99 Definitive Proxy Statement for the 2001 Annual Meeting of Shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of our fiscal year and, upon such filing, incorporated by reference herein to the extent indicated in this Form 10-K). E-3 EX-3.2 2 0002.txt AMENDED BYLAWS EXHIBIT 3.2 --------------------------- AMENDED AND RESTATED AS OF 11/29/00 --------------------------- BYLAWS OF SCHULTZ SAV-O STORES, INC. (a Wisconsin corporation) Article I. OFFICES 1.01. Principal and Business Offices. The corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. 1.02. Registered Office. The registered office of the corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the corporation shall be identical to such registered office. Article II. SHAREHOLDERS 2.01. Place of Meetings. Meetings of the shareholders of the corporation shall be held at such place as may be designated from time to time by resolution of the Board of Directors of the corporation. If no such place is designated, then the meeting shall be held at the general office of the corporation in Sheboygan County, Wisconsin. 2.02. Annual Meeting. The annual meeting of the shareholders shall be held on the second Wednesday of May of each year commencing with the year 1956. If such day is a legal holiday then the meeting shall be held on the next secular day. 2.03. Special Meetings. Special meetings of the shareholders may be called by any officer of the corporation, the Board of Directors, or by the holders of not less than one tenth of all the shares entitled to vote at the meeting. 2.04. Notice of Shareholders' Meetings. Written notice stating the place, day and hour of the meeting, and in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the president, the secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock record books or similar records of the corporation, with postage thereon prepaid. 2.05. Meetings Without Notice. Any meeting of the shareholders of the corporation at which all of the shareholders entitled to vote are present, either in person or by proxy, shall be a legal meeting of the shareholders without notice. The shareholders may transact any business at such meeting which may lawfully be transacted at any meeting of the shareholders regularly called and notified. 2.06. Voting of Shares. Each outstanding share, entitled to vote, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. A shareholder may vote either in person or by proxy appointed in writing by the shareholder, or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. 2.07. Quorum. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at the meeting of shareholders. If a quorum be not present at a meeting, the majority present in person or by proxy may adjourn from time to time, without notice other than by announcement at the meeting, until the holders of the amount of shares requisite to constitute a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. 2.08. Conduct of Meetings. The Chairman of the Board, and in his absence, the Vice Chairman of the Board, and in his absence, the President, and in his absence, a Vice President in the order provided under Section 4.09, and in their absence, any director chosen by the directors present, in their absence, any shareholder entitled to vote chosen by the shareholders present shall call the meeting of the shareholders to order and shall act as chairman of the meeting, and the Secretary of the corporation shall act as secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding officer may appoint any shareholder entitled to vote to act as secretary of the meeting. 2.09. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or shareholders entitled to receive payment of a dividend, the close of business on the date on which notice of the meeting is mailed or on the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting has been made as provided in this section, such determination shall be applied to any adjournment thereof. Article III. BOARD OF DIRECTORS 3.01. General Powers and Number. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, the Board of Directors. The number of directors of the corporation shall be determined from time to time by the Board of Directors and shall be divided into three classes designated as Class I, Class II and Class III, respectively. At the 1989 annual meeting of shareholders, the directors of Class I shall be elected for a term to expire at the first annual meeting of shareholders after their election, and until their successors are elected and qualify, the directors of Class II shall be elected for a term to expire at the second annual meeting of shareholders after their election, and until their successors are elected and qualify, and the directors of Class III shall be elected for a term to expire at the third annual meeting of shareholders after their election, and until their successors are elected and qualify. At each annual meeting of shareholders after the 1989 annual meeting of shareholders the successors to the class of directors whose terms shall expire at the time of such annual meeting shall be elected to hold office until the third succeeding annual meeting of shareholders, and until their successors are elected and qualify. A director may be removed by the shareholders only at a meeting called for the purpose of removing the director, and the meeting notice shall state that the purpose, or one of the purposes, of the meeting is removal of the director. A director may be removed from office with or without cause if the votes cast to remove the director exceeds the number of votes cast not to remove such director. A director may resign at any time by delivering written notice which complies with the Wisconsin Business Corporation Law to the Board of Directors, to the Chairman of the Board of Directors or to the corporation. A director's resignation is effective when the notice is delivered unless the notice specifies a later effective date. From time to time, the Board of Directors may elect one or more former or retiring directors as Directors Emeritus of the corporation. Directors Emeritus shall be invited to attend and participate in all meetings of the Board of Directors (and shall be provided with all information and documents provided to directors generally) but shall not have a vote on any matter before the Board of Directors and shall not be counted in determining the presence of a quorum at any meeting of the Board of Directors. Each Director Emeritus of the corporation shall be deemed a "Director" for purposes of Article VIII of these bylaws and shall be entitled to such compensation as may be determined by the Board of Directors. 3.02. Qualifications. Directors need not be residents of the State of Wisconsin or shareholders of the corporation. No other restrictions, limitations or qualifications may be imposed on individuals for service as a director. 2 3.03. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after the annual meeting of shareholders and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be communicated to the directors at or prior to such meeting of shareholders. To the extent practicable, the date, time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings of the Board of Directors shall be communicated amongst and generally agreed upon by the directors at any meeting of the Board of Directors. 3.04. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any two directors. The President or Secretary may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors, and if no other place is fixed the place of the meeting shall be the principal business office of the corporation in the State of Wisconsin. 3.05. Notice; Waiver. Notice of each special meeting of the Board of Directors shall be given by written notice delivered or communicated in person, by telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier, to each director at his business address or at such other address as such director shall have designated in writing filed with the Secretary, in each case not less than twenty-four hours prior to the meeting. The notice need not prescribe the purpose of the special meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be effective when deposited in the United States mail so addressed, with postage thereon prepaid. If notice is given by telegram, such notice shall be deemed to be effective when the telegram is delivered to the telegraph company. If notice is given by private carrier, such notice shall be deemed to be effective when delivered to the private carrier. Whenever any notice whatever is required to be given to any director of the corporation under the articles of incorporation or these bylaws or any provision of the Wisconsin Business Corporation Law, a waiver thereof in writing, signed at any time, whether before or after the date and time of meeting, by the director entitled to such notice shall be deemed equivalent to the giving of such notice. The corporation shall retain any such waiver as part of the permanent corporate records. A director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 3.06. Quorum. Except as otherwise provided by the Wisconsin Business Corporation Law or by the articles of incorporation or these bylaws, a majority of the number of directors specified in Section 3.01 of these bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. Except as otherwise provided by the Wisconsin Business Corporation Law or by the articles of incorporation or by these bylaws, a quorum of any committee of the Board of Directors created pursuant to Section 3.12 hereof shall consist of a majority of the number of directors appointed to serve on the committee. A majority of the directors present (though less than such quorum) may adjourn any meeting of the Board of Directors or any committee thereof, as the case may be, from time to time without further notice. 3.07. Manner of Acting. The affirmative vote of a majority of the directors present at a meeting of the Board of Directors or a committee thereof at which a quorum is present shall be the act of the Board of Directors or such committee, as the case may be, unless the Wisconsin Business Corporation Law, the articles of incorporation or these bylaws require the vote of a greater number of directors. 3.08. Conduct of Meetings. The Chairman of the Board, and in his absence, the Vice Chairman of the Board, and in his absence, the President, and in his absence, a Vice President in the order provided under Section 4.09, and in their absence, any director chosen by the directors present, shall call meetings of the Board of Directors to order and shall act as chairman of the meeting. The Secretary of the corporation shall act as secretary of all meetings of the Board of Directors but in the absence of the Secretary, the presiding officer may appoint any other person present to act as secretary of the meeting. Minutes of any regular or special meeting of the Board of Directors shall be prepared and distributed to each director. 3 3.09. Vacancies. Except as provided below, any vacancy occurring in the Board of Directors, including a vacancy resulting from an increase in the number of directors, may be filled by any of the following: (a) the shareholders; (b) the Board of Directors; or (c) if the directors remaining in office constitute fewer than a quorum of the Board of Directors, the directors, by the affirmative vote of a majority of all directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group may vote to fill the vacancy if it is filled by the shareholders, and only the remaining directors elected by that voting group may vote to fill the vacancy if it is filled by the directors. A vacancy that will occur at a specific later date, because of a resignation effective at a later date or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. Any vacancy resulting from a director's death, resignation, removal, disqualification or otherwise shall be filled for the unexpired portion of such director's term. 3.10. Compensation. The Board of Directors, irrespective of any personal interest of any of its members, may establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such directors, officers and employees to the corporation. 3.11. Presumption of Assent. A director who is present and is announced as present at a meeting of the Board of Directors or any committee thereof created in accordance with Section 3.12 hereof, when corporate action is taken, assents to the action taken unless any of the following occurs: (a) the director objects at the beginning of the meeting or promptly upon his or her arrival to holding the meeting or transacting business at the meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice that complies with the Wisconsin Business Corporation Law of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. Such right of dissent or abstention shall not apply to a director who votes in favor of the action taken. 3.12. Committees. The Board of Directors, by resolution adopted by the affirmative vote of a majority of all of the directors then in office, may create one or more committees, appoint members of the Board of Directors to serve on the committees and designate other members of the Board of Directors to serve as alternates. Each committee shall have two or more members who shall, unless otherwise provided by the Board of Directors, serve at the pleasure of the Board of Directors. A committee may be authorized to exercise the authority of the Board of Directors, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires to be approved by shareholders; (c) fill vacancies on the Board of Directors or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the corporation's articles of incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Unless otherwise provided by the Board of Directors in creating the committee, a committee may employ counsel, accountants and other consultants to assist it in the exercise of its authority. 3.13. Telephonic Meetings. Except as herein provided and notwithstanding any place set forth in the notice of the meeting or these bylaws, members of the Board of Directors (and any committees thereof created pursuant to Section 3.12 hereof) may participate in regular or special meetings by, or through the use of, any means of communication by which all participants may simultaneously hear each other, such as by conference telephone. If a meeting is conducted by such means, then at the commencement of such meeting the presiding officer shall inform the participating directors that a meeting is taking place at which official business may be transacted. Any 4 participant in a meeting by such means shall be deemed present in person at such meeting. If action is to be taken at any meeting held by such means on any of the following: (a) a plan of merger or share exchange; (b) a sale, lease, exchange or other disposition of substantial property or assets of the corporation; (c) a voluntary dissolution or the revocation of voluntary dissolution proceedings; or (d) a filing for bankruptcy, then the identity of each director participating in such meeting must be verified by the disclosure at such meeting by each such director of each such director's social security number to the secretary of the meeting before a vote may be taken on any of the foregoing matters. For purposes of the preceding clause (b), the phrase "sale, lease, exchange or other disposition of substantial property or assets" shall mean any sale, lease, exchange or other disposition of property or assets of the corporation having a net book value equal to 20% or more of the net book value of the total assets of the corporation on and as of the close of the fiscal year last ended prior to the date of such meeting and as to which financial statements of the corporation have been prepared. Notwithstanding the foregoing, no action may be taken at any meeting held by such means on any particular matter which the presiding officer determines, in his or her sole discretion, to be inappropriate under the circumstances for action at a meeting held by such means. Such determination shall be made and announced in advance of such meeting. 3.14. Action without Meeting. Any action required or permitted by the Wisconsin Business Corporation Law to be taken at a meeting of the Board of Directors or a committee thereof created pursuant to Section 3.12 hereof may be taken without a meeting if the action is taken by all members of the Board or of the committee. The action shall be evidenced by one or more written consents describing the action taken, signed by each director or committee member and retained by the corporation. Such action shall be effective when the last director or committee member signs the consent, unless the consent specifies a different effective date. Article IV. OFFICERS 4.01. Number. The principal officers of the corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a President, the number of Vice Presidents as authorized from time to time by the Board of Directors, a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. The Board of Directors may also authorize any duly authorized officer to appoint one or more officers or assistant officers. Any two or more offices may be held by the same person. 4.02. Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as is practicable. Each officer shall hold office until his or her successor shall have been duly elected or until his or her prior death, resignation or removal. 4.03. Removal. The Board of Directors may remove any officer and, unless restricted by the Board of Directors or these bylaws, an officer may remove any officer or assistant officer appointed by that officer, at any time, with or without cause and notwithstanding the contract rights, if any, of the officer removed. The election or appointment of an officer does not of itself create contract rights. 4.04. Resignation. An officer may resign at any time by delivering notice to the corporation that complies with the Wisconsin Business Corporation Law. The resignation shall be effective when the notice is delivered, unless the notice specifies a later effective date and the corporation accepts the later effective date. 4.05. Vacancies. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. If a resignation of an officer is effective at a later date as contemplated by Section 4.04 hereof, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor may not take office until the effective date. 4.06. Chairman of the Board. The Chairman of the Board shall preside when present at all meetings of directors and shareholders. He shall also perform all such other functions and duties as may be assigned to him by 5 the Board of Directors. He shall also have authority to sign documents and instruments in the absence of the President. 4.07. Vice Chairman of the Board. The Vice Chairman of the Board shall, when present and when the Chairman of the Board is not present, preside at all meetings of the directors and shareholders. The Vice Chairman shall also perform all other functions and duties as may be assigned to him by the Board of Directors or the Chairman of the Board. 4.08. President. The President shall be the principal executive officer of the corporation and, subject to the direction of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. In the absence of the Chairman and the Vice Chairman, the President shall, when present, preside at all meetings of the directors and shareholders. He shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the corporation as he shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the President. He shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he may authorize any Vice President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. 4.09. The Vice Presidents. In the absence of the President or in the event of the President's death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, the Vice President (or, in the event there be more than one Vice President, the Executive Vice President, or in his absence the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. The execution of any instrument of the corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the President. 4.10. The Secretary. The Secretary shall: (a) keep minutes of the meetings of the shareholders and of the Board of Directors (and of committees thereof) in one or more books provided for that purpose (including records of actions taken by the shareholders or the Board of Directors (or committees thereof) without a meeting); (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by the Wisconsin Business Corporation Law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) maintain a record of the shareholders of the corporation, in a form that permits preparation of a list of the names and addresses of all shareholders, by class or series of shares and showing the number and class or series of shares held by each shareholder; (e) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned by the President or by the Board of Directors. 4.11. The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) maintain appropriate accounting records; (c) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Section 5.04; and (d) in general perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned by the 6 President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine. 4.12. Assistant Secretaries and Assistant Treasurers. There shall be such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors or the President may from time to time authorize. The Assistant Secretaries may sign with the President or a Vice President certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 4.13. Other Assistants and Acting Officers. The Board of Directors and the President shall have the power to appoint, or to authorize any duly appointed officer of the corporation to appoint, any person to act as assistant to any officer, or as agent for the corporation in his or her stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer or other agent so appointed by the Board of Directors or an authorized officer shall have the power to perform all the duties of the office to which he or she is so appointed to be an assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors, the President or the appointing officer. Article V. CONTRACTS, LOANS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS 5.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. In the absence of other designation, all deeds, mortgages and instruments of assignment or pledge made by the corporation shall be executed in the name of the corporation by the President or one of the Vice Presidents and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary, when necessary or required, shall affix the corporate seal, if any, thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers. 5.02. Loans. No indebtedness for borrowed money shall be contracted on behalf of the corporation and no evidences of such indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 5.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 5.04. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as may be selected by or under the authority of a resolution of the Board of Directors. 5.05. Voting of Securities Owned by this Corporation. Subject always to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other corporation and owned or controlled by this corporation may be voted at any meeting of security holders of such other corporation by the President of this corporation if he be present, or in his absence by any Vice President of this corporation who may be present, and (b) whenever, in the judgment of the President, or in his absence, of any Vice President, it is desirable for this corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other 7 corporation and owned by this corporation, such proxy or consent shall be executed in the name of this corporation by the President or one of the Vice Presidents of this corporation, without necessity of any authorization by the Board of Directors, affixation of corporate seal, if any, or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of this corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this corporation the same as such shares or other securities might be voted by this corporation. Article VI. CERTIFICATES FOR SHARES; TRANSFER OF SHARES 6.01. Certificates for Shares. Certificates representing shares of the corporation shall be in such form, consistent with the Wisconsin Business Corporation Law, as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except as provided in Section 6.06. 6.02. Facsimile Signatures and Seal. The seal of the corporation, if any, on any certificates for shares may be a facsimile. The signature of the President or Vice President and the Secretary or Assistant Secretary upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the corporation itself or an employee of the corporation. 6.03. Signature by Former Officers. The validity of a share certificate is not affected if a person who signed the certificate (either manually or in facsimile) no longer holds office when the certificate is issued. 6.04. Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer the corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and power of an owner. Where a certificate for shares is presented to the corporation with a request to register for transfer, the corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (a) there were on or with the certificate the necessary endorsements, and (b) the corporation had no duty to inquire into adverse claims or has discharged any such duty. The corporation may require reasonable assurance that such endorsements are genuine and effective and compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors. 6.05. Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the corporation upon the transfer of such shares. 6.06. Lost, Destroyed or Stolen Certificates. Where the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the corporation a sufficient indemnity bond if required by the Board of Directors or any principal officer, and (c) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 6.07. Consideration for Shares. The Board of Directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the corporation. Before the corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for the shares to be issued is adequate. The determination of the Board of Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. The corporation may place in escrow shares issued in whole or in part for a contract for future services or benefits, a promissory note, or otherwise for property to be issued in the future, or make other 8 arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits or property are received or the promissory note is paid. If the services are not performed, the benefits or property are not received or the promissory note is not paid, the corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited. 6.08. Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the corporation. Article VII. SEAL 7.01. The Board of Directors may provide for a corporate seal for the corporation. Article VIII. INDEMNIFICATION 8.01. Provision of Indemnification. The corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors and Officers against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director or Officer is a Party because he or she is or was a Director or Officer of the corporation. The corporation shall also indemnify an employee who is not a Director or Officer, to the extent that the employee has been successful on the merits or otherwise in defense of a Proceeding, for all Expenses incurred in the Proceeding if the employee was a Party because he or she is or was an employee of the corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer or employee may be entitled under any written agreement, Board resolution, vote of shareholders, the Wisconsin Business Corporation Law or otherwise. The corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.01 by the purchase of insurance on behalf of any one or more of such Directors, Officers or employees, whether or not the corporation would be obligated to indemnify or advance Expenses to such Director, Officer or employee under this Section 8.01. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. Article IX. AMENDMENTS 9.01. By Shareholders. These bylaws may be amended or repealed and new bylaws may be adopted by the shareholders at any annual or special meeting of the shareholders at which a quorum is in attendance. 9.02. By Directors. Except as otherwise provided by the Wisconsin Business Corporation Law, the articles of incorporation or these bylaws, these bylaws may also be amended or repealed and new bylaws may be adopted by the Board of Directors provided, however, that the shareholders in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw and provided, further, that the Board of Directors shall have no power to amend or repeal any provisions of Article II. 9.03. Implied Amendments. Any action taken or authorized by the shareholders or by the Board of Directors which would be inconsistent with the bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the bylaws so that the bylaws would be consistent with such action shall be given the same effect as though the bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. 9 Article X. SHAREHOLDER PROPOSALS 10.01. Annual Meetings. (a) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders by any shareholder of the corporation who (i) is a shareholder of record at the time of giving of notice provided for in this Section 10.01, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in this Section 10.01. (b) For nominations or other business to be properly brought before an annual meeting of shareholders by a shareholder, such shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice shall be received by the Secretary of the corporation at the principal offices of the corporation not later than the earlier of (i) the date 45 days prior to the first anniversary (the "Anniversary Date") of the date set forth, in the corporation's proxy statement for the last annual meeting of shareholders held by the corporation, as the date on which the corporation first mailed definitive proxy materials for such annual meeting of shareholders and (ii) the later of (x) the date 70 days prior to the annual meeting of shareholders before which the shareholder providing notice desires to bring the business set forth in the notice and (y) the date 10 days following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall be signed by the shareholder of record who intends to make the nomination or introduce the other business (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination or other proposal is made; (B) the class and number of shares of the corporation that are beneficially owned by such shareholder or beneficial owner or owners; (C) a representation that such shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; (D) in the case of any proposed nomination for election or re-election as a director, (i) the name and residential address of the person or persons to be nominated, (ii) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder, (iii) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange Act"), including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (iv) the written consent of each nominee to be named in a proxy statement and to serve as a director of the corporation if so elected; and (E) in the case of any other business that such shareholder proposes to bring before the meeting, (i) a brief description of the business desired to be brought before the meeting and, if such business includes a proposal to amend these bylaws, the language of the proposed amendment, (ii) such shareholder's and beneficial owner's or owners' reasons for conducting such business at the meeting and (iii) any material interest in such business of such shareholder and beneficial owner or owners. (c) Notwithstanding the foregoing provisions of this Section 10.01 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least 45 days prior to the Anniversary Date, a shareholder's notice required by this Section 10.01 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. 10 10.02. Special Meetings. (a) Only such business shall be conducted at a special meeting of the shareholders of the corporation as is described in the notice of such meeting sent to shareholders in accordance with Section 2.04 of these bylaws. (b) Nominations of persons for election to the Board of Directors at a special meeting of shareholders at which directors are to be elected may be made a shareholder only if such shareholder (i) is a shareholder of record at the time of giving of notice of such meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in this Section 10.02. (c) Any shareholder desiring to nominate persons for election to the Board of Directors at such a special meeting shall cause a written notice to be received by the Secretary of the corporation at the principal offices of the corporation not earlier than ninety days prior to such special meeting and not later than the close of business on the later of (x) the date 60 days prior to such special meeting and (y) the date 10 days following the day on which public announcement is first made of the date of such special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the shareholder of record who intends to make the nomination (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (i) the name and address, as they appear on the corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination is made; (ii) the class and number of shares of the corporation which are beneficially owned by such shareholder or beneficial owner or owners; (iii) a representation that such shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination specified in the notice; (iv) the name and residence address of the person or persons to be nominated; (v) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder; (vi) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (vii) the written consent of each nominee to be named in a proxy statement and to serve as a director of the corporation if so elected. 10.03. General. (a) Only persons who are nominated by or at the direction of the Board of Directors or nominated by shareholders of the corporation in compliance with the procedures set forth in this Article X shall be eligible to serve as directors. Only such business shall be conducted at an annual meeting or special meeting of shareholders as shall have been brought before such meeting by or at the direction of the Board of Directors or by a shareholder in compliance with the procedures set forth in this Article X. The chairman of any meeting of shareholders shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Article X and, if any proposed nomination or business is not in compliance with this Article X, to declare that such defective proposal shall be disregarded. (b) For purposes of this Article X, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (c) In addition to complying with the foregoing provisions of this Article X, a shareholder shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article X. Nothing in this Article X shall be deemed to limit the corporation's obligation to include shareholder proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the Exchange Act. 11 EX-10.8 3 0003.txt KEESA EXHIBIT 10.8 KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT THIS AGREEMENT, made and entered into as of the 10th day of May, 2000, by and between SCHULTZ SAV-O STORES, INC., a Wisconsin corporation (the "Company"), and ELWOOD F. WINN (the "Executive"). W I T N E S S E T H : WHEREAS, the Executive is employed by the Company in a key executive capacity and the Executive's services are valuable to the conduct of the business of the Company; WHEREAS, the Company recognizes that circumstances in which a change in control of the Company occurs, through acquisition or otherwise, are highly disruptive and will cause uncertainty about the Executive's future employment with the Company without regard to the Executive's competence or past contributions and that such uncertainty may adversely affect the Company; and WHEREAS, the Company and the Executive are desirous that any proposal for a change in control or acquisition of the Company will be considered by the Executive objectively, with reference only to the best interests of the Company and its shareholders and without undue regard for the Executive's personal interests. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. (a) Act. For purposes of this Agreement, the term "Act" means the Securities Exchange Act of 1934, as amended. (b) Affiliate and Associate. For purposes of this Agreement, the terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations of the Act. (c) Beneficial Owner. For purposes of this Agreement, a Person shall be deemed to be the "Beneficial Owner" of any securities: (i) which such Person or any of such Person's Affiliates or Associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Act), including pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if the agreement, arrangement or understanding: (A) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Act and (B) is not also then reportable on a Schedule 13D under the Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in Subsection l(c)(ii) above) or disposing of any voting securities of the Company. (d) Cause. "Cause" for termination by the Company of the Executive's employment after a Change of Control of the Company shall, for purposes of this Agreement, be limited to (i) the engaging by the Executive in intentional conduct not taken in good faith which has caused demonstrable and serious financial injury to the Company, as evidenced by a determination in a binding and final judgment, order or decree of a court or administrative agency of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an action, suit or proceeding, whether civil, criminal, administrative or investigative; (ii) conviction of a felony (as evidenced by binding and final judgment, order, or decree of a court of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal) which substantially impairs the Executive's ability to perform his duties or responsibilities; and (iii) continuing willful and unreasonable refusal by the Executive to perform the Executive's duties or responsibilities (unless significantly changed without the Executive's consent). (e) Change in Control of the Company. For purposes of this Agreement, a "Change in Control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act. Without limiting the inclusiveness of the definition in the preceding sentence, a Change in Control of the Company shall be deemed to have occurred if: (i) any Person (other than any employee benefit plan of the Company, including the Retirement Savings Plan, or of any subsidiary of the Company or any Person organized, appointed or established pursuant to the terms of any such benefit plan) is or becomes the Beneficial Owner of securities of the Company representing at least 20% of the combined voting power of the Company's then outstanding securities; (ii) two or more of the members of the Board are not Continuing Directors; (iii) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (iv) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company. (f) Continuing Director. For purposes of this Agreement, the term "Continuing Director" means any member of the Board of Directors of the Company who was a member of such Board on the date hereof and any successor of a Continuing Director who is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on such Board. (g) Code. For purposes of this Agreement, the term "Code" means the Internal Revenue Code of 1986, including any amendments thereto or successor tax codes thereof. (h) Covered Termination. For purposes of this Agreement, the term "Covered Termination" means any termination of the Executive's employment where the Termination Date is any date on or prior to the end of the Employment Period. 2 (i) Employment Period. For purposes of this Agreement, the term "Employment Period" means a period commencing on the date of a Change in Control of the Company, and ending at 11:59 p.m. Milwaukee time on the third anniversary of such date. (j) Good Reason. For purposes of this Agreement, the Executive shall have a "Good Reason" for termination of employment after a Change in Control of the Company in the event of: (i) any breach of this Agreement by the Company, including specifically any breach by the Company of its agreements contained in Sections 4, 5 or 6 hereof; (ii) the removal of the Executive from, or any failure to reelect the Executive to, any of the positions held with the Company on the date of the Change in Control of the Company or any other positions with the Company to which the Executive shall thereafter be elected or assigned, except in the event that such removal or failure to reelect relates to the termination by the Company of the Executive's employment for Cause or by reason of disability pursuant to Section 12 hereof; (iii) a good faith determination by the Executive that there has been a significant adverse change, without the Executive's written consent, in the Executive's working conditions or status with the Company from such working conditions or status in effect immediately prior to the Change in Control of the Company, including but not limited to (A) a significant change in the nature or scope of the Executive's authority, powers, functions, duties or responsibilities, or (B) a reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements; or (iv) failure by the Company to obtain the Agreement referred to in Section 17(a) hereof as provided therein. (k) Person. For purposes of this Agreement, the term "Person" shall mean any individual, firm, partnership, corporation or other entity and shall include any successor (by merger or otherwise) of such entity. (l) Retirement Savings Plan. For purposes of this Agreement, the term "Retirement Savings Plan" means the Schultz Sav-O Stores, Inc. Retirement Savings Plan as in effect immediately prior to The Change in Control of the Company. (m) Termination Date. For purposes of this Agreement, except as otherwise provided in Section 10(b) and Section 17(a) hereof, the term "Termination Date" means (i) if the Executive's employment is terminated by the Executive's death, the date of death; (ii) if the Executive's Employment is terminated by reason of voluntary early retirement, as agreed in writing by the Company and the Executive, the date of such early retirement which is set forth in such written agreement; (iii) if the Executive's employment is terminated by reason of disability pursuant to Section 12 hereof, the earlier of thirty (30) days after the Notice of Termination is given or one day prior to the end of the Employment Period; (iv) if the Executive's employment is terminated by the Executive voluntarily (other than for Good Reason), the date the Notice of Termination is given; and (v) if the Executive's employment is terminated by the Company (other than by reason of disability pursuant to Section 12 hereof) or by the Executive for Good Reason, the earlier of thirty (30) days after the Notice of Termination is given or one day prior to the end of the Employment Period. Notwithstanding the foregoing, (A) If termination is by the Company for Cause pursuant to Section l(d)(iii) of this Agreement and if the Executive has cured the conduct constituting such Cause as described by the Company in its Notice of Termination within such thirty (30) day or shorter period, then the Executive's employment hereunder shall continue as if the Company had not delivered its Notice of Termination. (B) If the Company shall give a Notice of Termination for Cause or by reason of disability and the Executive in good faith notifies the Company that a dispute exists concerning the termination within the fifteen (15) day period following receipt thereof, then the Executive may elect to 3 continue his employment during such dispute and the Termination Date shall be determined under this paragraph. If the Executive so elects and it is thereafter determined that Cause or disability (as the case may be) did exist, the Termination Date shall be the earlier of (1) the date on which the dispute is finally determined, either (x) by mutual written agreement of the parties or (y) in accordance with Section 22 hereof, (2) the date of the Executive's death, or (3) one day prior to the end of the Employment Period. If the Executive so elects and it is thereafter determined that Cause or disability (as The case may be) did not exist, then the employment of the Executive hereunder shall continue after such determination as if the Company had not delivered its Notice of Termination and there shall be no Termination Date arising out of such Notice. In either case, this Agreement continues, until the Termination Date, if any, as if the Company had not delivered the Notice of Termination except that, if it is finally determined that the Company properly terminated the Executive for the reason asserted in the Notice of Termination, the Executive shall in no case be entitled to a Termination Payment (as hereinafter defined) arising out of events occurring after the Company delivered its Notice of Termination. (C) If the Executive shall, in good faith, give a Notice of Termination for Good Reason and the Company notifies the Executive that a dispute exists concerning the termination within the fifteen (15) day period following receipt thereof, then the Executive may elect to continue his employment during such dispute and the Termination Date shall be determined under this paragraph. If the Executive so elects and it is thereafter determined that Good Reason did exist, the Termination Date shall be the earlier of (1) the date on which the dispute is finally determined, either (x) by mutual written agreement of the parties or (y) in accordance with Section 22 hereof, (2) the date of the Executive's death or (3) one day prior to the end of the Employment Period. If the Executive so elects and it is thereafter determined that Good Reason did not exist, then the employment of the Executive hereunder shall continue after such determination as if the Executive had not delivered the Notice of Termination asserting Good Reason and there shall be no Termination Date arising out of such Notice. In either case, this Agreement continues, until the Termination Date, if any, as if the Executive had not delivered the Notice of Termination except that, if it is finally determined that Good Reason did exist, the Executive shall in no case be denied the benefits described in Sections 8(b) and 9 hereof (including a Termination Payment) based on events occurring after the Executive delivered his Notice of Termination. (D) If an opinion is required to be delivered pursuant to Section 9(b) hereof and such opinion shall not have been delivered, the Termination Date shall be the earlier of the date on which such opinion is delivered or one day prior to the end of the Employment Period. (E) Except as provided in Paragraphs (B) and (C) above, if the party receiving the Notice of Termination notifies the other party that a dispute exists concerning the termination within the fifteen (15) day period following receipt thereof and it is finally determined that the reason asserted in such Notice of Termination did not exist, then (1) if such Notice was delivered by the Executive, the Executive will be deemed to have voluntarily terminated his employment and (2) if delivered by the Company, the Company will be deemed to have terminated the Executive other than by reason of death, disability or Cause. 2. Termination or Cancellation Prior to Change in Control. The Company and the Executive shall each retain the right to terminate the employment of the Executive at any time prior to a Change in Control of the Company. In the event the Executive's employment is terminated prior to a Change in Control of the Company, this Agreement shall be terminated and cancelled and of no further force and effect and any and all rights and obligations of the parties hereunder shall cease. 3. Employment Period. If a Change in Control of the Company occurs when the Executive is employed by the Company, the Company will continue thereafter to employ the Executive during the Employment Period, and the Executive will remain in the employ of the Company, in accordance with and subject to the terms and provisions of this Agreement. 4 4. Duties. During the Employment Period, the Executive shall, in the same capacities and positions held by the Executive at the time of the Change in Control of the Company or in such other capacities and positions as may be agreed to by the Company and the Executive in writing, devote the Executives's best efforts and all of the Executive's business time, attention and skill to the business and affairs of the Company, as such business and affairs now exist and as they may hereafter be conducted. The services which are to be performed by the Executive hereunder are to be rendered in the same metropolitan area in which the Executive was employed at the time of such Change in Control of the Company, or in such other place or places as shall be mutually agreed upon in writing by the Executive and the Company from time to time. Without the Executive's consent the Executive shall not be required to be absent from such metropolitan area more than forty-five (45) days in any twelve (12) month period. 5. Compensation. During the Employment Period, the Executive shall be compensated as follows: (a) The Executive shall receive, at such intervals and in accordance with such standard policies of the Company as may be in effect immediately prior to the Change in Control of the Company, an annual base salary in cash equivalent of not less than the Executive's annual base salary as in effect immediately prior to the Change in Control of the Company (which base salary shall, unless otherwise agreed in writing by the Executive, include the current receipt by the Executive of any amounts which, prior to the Change in Control of the Company, the Executive had elected to defer, whether such compensation is deferred under Section 401(k) of the Code or otherwise), subject to adjustment as hereinafter provided. (b) The Executive shall, at such intervals and in accordance with such standard policies as may be in effect immediately prior to the Change in Control of the Company, be reimbursed for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company, including travel expenses. (c) The Executive shall be included, to the extent eligible thereunder (which eligibility shall not be conditioned on the Executive's salary grade or on any other requirement which excludes persons of comparable status to the Executive unless such exclusion was in effect for such plan or an equivalent plan immediately prior to the Change in Control of the Company), in any and all plans providing benefits for the Company's salaried employees in general, including but not limited to group life insurance, hospitalization, medical, dental, profit sharing (including the Retirement Savings Plan) and stock bonus plans; provided, that, in no event shall the aggregate level of benefits under such plans in which the Executive is included be less than the aggregate level of benefits under plans of the Company of the type referred to in this Section 5(c) in which the Executive was participating immediately prior to the Change in Control of the Company. (d) The Executive shall annually be entitled to not less than the amount of paid vacation and not fewer than the number of paid holidays to which the Executive was entitled annually immediately prior to the Change in Control of the Company or such greater amount of paid vacation and number of paid holidays as may be made available annually to other executives of the Company of comparable status and position to the Executive. (e) The Executive shall be included in all plans providing additional benefits to executives of the Company of comparable status and position to the Executive, including but not limited to deferred compensation, split-dollar life insurance, supplemental retirement, stock option, stock appreciation, stock bonus and similar or comparable plans; provided, that, in no event shall the aggregate level of benefits under such plans be less than the aggregate level of benefits under plans of the Company of the type referred to in this Section 5(e) in which the Executive was participating immediately prior to the Change in Control of the Company. 6. Annual Compensation Adjustments. During the Employment Period, the Board of Directors of the Company (or an appropriate committee thereof) will consider and appraise, at least annually, 5 the contributions of the Executive to the Company's operating efficiency, growth, cash flow from operations and operating profits, and, in accordance with the Company's practice prior to the Change in Control of the Company, due consideration shall be given to the upward adjustment of the Executive's base compensation rate, at least annually, commensurate with (i) increases generally given to other executives of the Company of comparable status and position to the Executive, and (ii) as the scope of the Company's operations or the Executive's duties expand. 7. Termination For Cause or Without Good Reason. If there is a Covered Termination for Cause or due to the Executive's voluntarily terminating his employment other than for Good Reason (any such terminations to be subject to the procedures set forth in Section 13 hereof), then the Executive shall be entitled to receive only Accrued Benefits pursuant to Section 9(a) hereof. 8. Termination Giving Rise to a Termination Payment. (a) If there is a Covered Termination by the Executive for Good Reason, or by the Company other than by reason of (i) death, (ii) disability pursuant to Section 12 hereof, or (iii) Cause, then the Executive shall be entitled to receive, and the Company shall promptly pay, Accrued Benefits pursuant to Section 9(a) hereof and, in lieu of further base salary for periods following the Termination Date, as liquidated damages and severance pay, the Termination Payment pursuant to Section 9(b) hereof. (b) If there is a Covered Termination and the Executive is entitled to Accrued Benefits and the Termination Payment, then the Executive shall be entitled to the following additional benefits: (i) The Executive shall receive, at the expense of the Company, outplacement services on an individualized basis provided by a nationally recognized executive placement firm selected by the Company. (ii) Until the earlier of the third anniversary of the Termination Date or such time as the Executive has obtained new employment and is covered by benefits which in the aggregate are at least equal in value to the following benefits the Executive shall continue to be covered, at the expense of the Company, by the same or equivalent life insurance, hospitalization, medical and dental coverage as was required hereunder with respect to the Executive immediately prior to the date the Notice of Termination is given. 9. Payments Upon Termination. (a) Accrued Benefits. For purposes of this Agreement, the Executive's "Accrued Benefits" shall include the following amounts, payable as described herein: (i) all base salary for the time period ending with the Termination Date; (ii) reimbursement for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company for the time period ending with the Termination Date; (iii) any and all other cash earned through the Termination Date and deferred at the election of the Executive or pursuant to any deferred compensation plan then in effect; (iv) a lump sum payment of the bonus or incentive compensation otherwise payable to the Executive with respect to the year in which termination occurs under all bonus or incentive compensation plan or plans of the Company in which the Executive is a participant; and (v) all other payments and benefits to which the Executive may be entitled as compensatory fringe benefits or under the terms of any benefit plan of the Company, including severance payments under the Company's severance policies and practices as in effect immediately prior to the Change in Control of the Company. Payment of Accrued Benefits shall be made promptly in accordance with the Company's prevailing practice with respect to Subsections (i) and (ii) or, with respect to Subsections (iii), (iv) and (v), pursuant to the terms of the benefit plan or practice establishing such benefits. (b) Termination Payment. The Termination Payment shall be an amount equal to the Executive's monthly base salary, as in effect immediately prior to the Change in Control of the Company, as adjusted upward from time to time pursuant to Section 6 hereof, multiplied by the greater of the number of months (which shall include fractions of months rounded up to the next highest whole number) remaining in the Employment Period or twelve (12). The Termination Payment shall be paid to the Executive in cash no later than ten (10) business days after the Termination Date. The Executive shall not be required to mitigate the amount of 6 the Termination Payment by securing other employment or otherwise, nor will such Payment be reduced by reason of the Executive securing other employment or for any other reason. It is the intention of the Company and the Executive that no portion of the Termination Payment, Accrued Benefits or any other payment or benefit under this Agreement, or payments to or for the benefit of the Executive under any other agreement or plan of the Company, regardless of whether such payment or benefit was paid or provided for prior to the Covered Termination (herein all collectively referred to as the "Total Payments"), be deemed to be an "excess parachute payment" as defined in Section 280G of the Code. It is agreed that the present value of the Total Payments and any other payments to or for the benefit of the Executive in the nature of compensation, receipt of which are contingent on the change of control of the Company and to which Section 280G of the Code or any successor provision thereto applies (in the aggregate "Total Benefits") shall not exceed an amount equal to one dollar less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code or any successor provision (the "Excise Tax") or which the Company may pay without loss of deduction under Section 280G(a) of the Code or any successor provision thereto. Present value for purposes of this Agreement shall be calculated in accordance with Section 280G(d)(4) of the Code or any successor provision thereto. Within forty-five (45) days following a Covered Termination or notice by either party to the other of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment, the Executive and the Company, at the Company's expense, shall obtain the opinion of such legal counsel (the opinion of legal counsel need not be unqualified), and certified public accountants as the Executive may choose, which sets forth (a) the amount of the Base Period Income of the Executive, (b) the present value of Total Benefits, and (c) the amount and present value of any excess parachute payments. In the event that such opinions determine that there would be an excess parachute payment, the Termination Payment or any other payment determined by such counsel to be includible in Total Benefits, shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his receipt of such opinions or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculation set forth in such opinions the Total Benefits paid to the Executive shall be an amount equal to one dollar less than the maximum amount which the Executive may receive without becoming subject to the Excise Tax (the "Reduced Amount"). For purposes of this Agreement, the term "Base Period Income" shall be an amount equal to the Executive's "annualized includible compensation" from the Company for the "base period" as defined in Sections 280G(d)(l) and (2) of the Code or any successor provisions thereto. In the event that the provisions of Sections 280G and 4999 of the Code or any successor provision are repealed without succession this provision shall be of no further force or effect. As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by legal counsel and accountants as provided in this provision, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement which should not have been so paid or distributed ("Over-payment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that such legal counsel, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive which such legal counsel believes has a high probability of success or other controlling precedent or substantial authority, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive to the Company if and to the extent such payment would not reduce the amount which is subject to the excise tax under Section 4999 of the Code. In the event that such legal counsel, based upon controlling precedent or other substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. 7 10. Death. (a) Except as provided in Section 10(b) hereof, in the event of a Covered Termination due to the Executive's death, the Executive's estate, heirs and beneficiaries shall receive all the Executive's Accrued Benefits through the Termination Date. (b) In the event the Executive dies after a Notice of Termination is given (i) by the Company, other than by reason of disability, or (ii) by the Executive for Good Reason, the Executive's estate, heirs and beneficiaries shall be entitled to the benefits described in Section 10(a) hereof and, subject to the provisions of this Agreement, to such Termination Payment as the Executive would have been entitled to had the Executive lived. For purposes of this Subsection 10(b), the Termination Date shall be the earlier of thirty (30) days following the giving of the Notice of Termination or one day prior to the end of the Employment Period, subject to delay pursuant to Section 1(m) hereof. 11. Retirement. If, during the Employment Period, the Executive and the Company shall execute an agreement providing for the early retirement of the Executive from the Company, or the Executive shall otherwise give notice that he is voluntarily choosing to retire early from the Company, the Executive shall receive Accrued Benefits through the Termination Date; provided, that if the Executive's employment is terminated by the Executive for Good Reason or by the Company other than by reason of death, disability or Cause and the Executive also, in connection with such termination, elects voluntary early retirement, the Executive shall also be entitled to receive a Termination Payment pursuant to Section 9(b) hereof. 12. Termination for Disability. If, during the Employment Period, as a result of the Executive's disability due to physical or mental illness or injury (regardless of whether such illness or injury is job-related), the Executive shall have been absent from the Executive's duties hereunder on a full-time basis for six (6) consecutive months and, within thirty (30) days after the Company notifies the Executive in writing that it intends to terminate the Executive's employment (which notice shall not constitute the Notice of Termination contemplated below), the Executive shall not have returned to the performance of the Executives s duties hereunder on a full-time basis, the Company may terminate the Executive's employment pursuant to a Notice of Termination given in accordance with Section 13 hereof. In the event the Executive's employment is terminated on account of the Executive's disability in accordance with this Section, the Executive shall receive Accrued Benefits in accordance with Section 9(a) hereof and shall remain eligible for all benefits provided by any long term disability programs of the Company in effect at the time of such termination. 13. Termination Notice and Procedure. Any Covered Termination by the Company or the Executive shall be communicated by written Notice of Termination to the Executive, if such Notice is given by the Company, and to the Company, if such Notice is given by the Executive, all in accordance with the following procedures and those set forth in Section 23 hereof: (a) If such termination is for disability, Cause or Good Reason, the Notice of Termination shall indicate in reasonable detail the facts and circumstances alleged to provide a basis for such termination. (b) Any Notice of Termination by the Company shall have been approved, prior to the giving thereof to the Executive, by a resolution duly adopted by a majority of the directors of the Company (or any successor corporation) then in office. (c) The Executive shall have thirty (30) days, or such longer period as the Company may determine to be appropriate, to cure any conduct or act, if curable, alleged to provide grounds for termination of the Executive's employment for Cause under this Agreement. (d) The recipient of the Notice of Termination shall personally deliver or mail in accordance with Section 23 hereof written notice of any dispute relating to such Notice of Termination to the party giving such Notice within fifteen (15) days after receipt thereof. After the expiration of such fifteen (15) days, the contents of the Notice of Termination shall become final and not subject to dispute. 8 14. Confidentiality Obligations of the Executive; Noncompetition. (a) During and following the Executive's employment by the Company, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of the Company, except to the extent authorized in writing by the Board of Directors of the Company or required by any court or administrative agency, other than to an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of duties as an executive of the Company. Confidential information shall not include any information known generally to the public or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that of the Company. All records, files, documents and materials, or copies thereof, relating to the business of the Company which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company and shall be promptly returned to the Company upon termination of employment with the Company. (b) The Executive agrees that, in the event of a Covered Termination in which the Executive has or will receive a Termination Payment, for a period of one year after the Termination Date or until the end of the Employment Period, whichever is shorter, the Employee shall not, within the State of Wisconsin, except as permitted by the Company's prior written consent (which shall not be unreasonably withheld), participate in the management of any business which is a direct and substantial competitor of the Company. The ownership of less than five percent of any class of securities of any corporation listed on a national securities exchange or regularly traded over the counter even though such corporation may be a competitor of the Company as specified above, shall not be deemed as constituting a financial interest in such competitor. 15. Expenses and Interest. If, after a Change in Control of the Company, a good faith dispute arises with respect to the enforcement of the Executive's rights under this Agreement or if any legal or arbitration proceeding shall be brought in good faith to enforce or interpret any provision contained herein, or to recover damages for breach hereof, the Executive shall recover from the Company any reasonable attorneys' fees and necessary costs and disbursements incurred as a result of such dispute, legal or arbitration proceeding ("Expenses"), and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by First Bank, N.A. from time to time as its prime or base lending rate from the date that payments to him should have been made under this Agreement. Within ten (10) days after the Executive's written request therefor, the Company shall pay to the Executive, or such other person or entity as the Executive may designate in writing to the Company, the Executive's reasonable Expenses in advance of the final disposition or conclusion of any such dispute, legal or arbitration proceeding. 16. Payment Obligations Absolute. The Company's obligation during and after the Employment Period to pay the Executive the amounts and to make the benefit and other arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. Except as provided in Section 15 of this Agreement, all amounts payable by the Company hereunder shall be paid without notice or demand. Except as provided in Subsection 9(b) of this Agreement, each and every payment made hereunder by the Company shall be final, and the Company will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 17. Successors. (a) If the Company sells, assigns or transfers all or substantially all of its business and assets to any Person, or if the Company merges into or consolidates or otherwise combines with any Person, then the Company shall assign all of its right, title and interest in this Agreement as of the date of such event to such Person, and the Company shall cause such Person, by written agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform from and after the date of such assignment all of the terms, conditions and provisions imposed by this Agreement upon the Company. Failure of the Company to obtain such agreement shall be a breach of this Agreement constituting "Good Reason" hereunder, except that for purposes of implementing the foregoing, the date upon which such transfer or other succession 9 becomes effective shall be deemed the Termination Date. In case of such assignment by the Company and of assumption and agreement by such Person, as used in this Agreement, "Company" shall thereafter mean such Person which executes and delivers the agreement provided for in this Section 17 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law, and this Agreement shall inure to the benefit of and be enforceable by such Person. The Executive shall, in his discretion, be entitled to proceed against any or all of such Persons, any Person which theretofore was such a successor to the Company (as defined in the first paragraph of this Agreement) and the Company (as so defined) in any action to enforce any rights of the Executive hereunder. Except as provided in this Subsection, this Agreement shall not be assignable by the Company. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company. (b) This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive under Sections 7, 8, 9, 10, 11 and 12 hereof if the Executive had lived shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives. 18. Severability. The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby. 19. Amendment. This Agreement may not be amended or modified at any time except by written instrument executed by the Company and the Executive. 20. Withholding. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withheld shall not exceed the minimum amount required to be withheld by law. The Company shall be entitled to rely on an opinion of nationally recognized tax counsel if any question as to the amount or requirement of any such withholding shall arise. 21. Certain Rules of Construction. No party shall be considered as being responsible for the drafting of this Agreement for the purpose of applying any rule construing ambiguities against the drafter or otherwise. No draft of this Agreement shall be taken into account in construing this Agreement. Any provision of this Agreement which requires an agreement in writing shall be deemed to require that the writing in question be signed by the Executive and an authorized representative of the Company. 22. Governing Law; Resolution of Disputes. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Wisconsin. Any dispute arising out of this Agreement shall, at the Executive's election, be determined by arbitration under the rules of the American Arbitration Association then in effect or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be Sheboygan, Wisconsin or, at the Executive's election, if the Executive is no longer residing or working in the Sheboygan, Wisconsin metropolitan area, in the judicial district encompassing the city in which the Executive resides. The parties consent to personal jurisdiction in each trial court in the selected venue having subject matter jurisdiction notwithstanding their residence or situs, and each party irrevocably consents to service of process in the manner provided hereunder for the giving of notices. 23. Notice. Notices given pursuant to this Agreement shall be in writing and, except as otherwise provided by Section 13(d) hereof, shall be deemed given when actually received by the Executive or actually received by the Company's Secretary or any officer of the Company other than the Executive. If mailed, such notices shall be mailed by United States registered or certified mail, return receipt requested, addressee only, postage prepaid, if to the Company, to Schultz Sav-O Stores, Inc., Attention: Secretary, 2215 Union Avenue, Sheboygan, Wisconsin 53081, or if to the Executive, at the address set forth below the Executives s signature to this Agreement, or to such other address as the party to be notified shall have theretofore given to the other party in writing. 10 24. No Waiver. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time. 25. Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement. 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. SCHULTZ SAV-O STORES, INC. By /s/ James H. Dickelman -------------------------------------- James H. Dickelman Chairman, Chief Executive Officer and President EXECUTIVE /s/ Elwood F. Winn ------------------------------------------- Elwood F. Winn 1317 N. 49th Street ------------------------------------------- Sheboygan, WI 53081 ------------------------------------------- [Residential Address to be added above] 12 EX-10.13 4 0004.txt 1995 EQUITY INCENTIVE PLAN EXHIBIT 10.13 ------------------------------------ Adopted 12/20/94 ------------------------------------ Effective 1/30/95 As Amended Through 12/14/00 ------------------------------------ SCHULTZ SAV-O STORES, INC. 1995 EQUITY INCENTIVE PLAN 1. Purpose The purpose of Schultz Sav-O Stores, Inc. 1995 Equity Incentive Plan (the "Plan") is to promote the best interests of Schultz Sav-O Stores, Inc. (the "Company") and its shareholders by providing key employees of the Company and its Affiliates (as defined below) with an opportunity to acquire a, or increase their, proprietary interest in the Company. It is intended that the Plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company by those key employees who are primarily responsible for shaping and carrying out the long-range plans of the Company and securing the Company's continued growth and financial success. 2. Definitions (a) As used in the Plan, the following terms shall have the respective meanings set forth below: (b) "Affiliate" shall mean any entity that, directly or through one or more intermediaries, is controlled by, controls, or is under common control with, the Company. (c) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock or Performance Share granted under the Plan. (d) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (f) "Commission" shall mean the Securities and Exchange Commission. (g) "Committee" shall mean the Stock Option Committee of the Board of Directors of the Company (or any other committee thereof designated by such Board to administer the Plan); provided, however, that the Committee is composed of not less than two directors, each of whom is a "disinterested person" within the meaning of Rule 16b-3. (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (i) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. (j) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code (or any successor provision thereto). (k) "Key Employee" shall mean any officer or other key employee of the Company or of any Affiliate who is responsible for or contributes to the management, growth or profitability of the business of the Company or any Affiliate as determined by the Committee in its discretion. (l) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option. (m) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (n) "Participating Key Employee" shall mean a Key Employee designated to be granted an Award under the Plan. (o) "Performance Period" shall mean, in relation to Performance Shares, any period for which a performance goal or goals have been established. (p) "Performance Share" shall mean any right granted under Section 6(d) of the Plan that will be paid out as a Share (which, in specified circumstances, may be a Share of Restricted Stock). (q) "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof. (r) "Released Securities" shall mean Shares of Restricted Stock with respect to which all applicable restrictions have expired, lapsed or been waived. (s) "Restricted Securities" shall mean Awards of Restricted Stock or other Awards under which issued and outstanding Shares are held subject to certain restrictions. (t) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan or, in specified circumstances, a Share paid in connection with a Performance Share under Section 6(e) of the Plan. (u) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission under the Exchange Act, or any successor rule or regulation thereto. (v) "Shares" shall mean shares of common stock of the Company, $0.05 par value (including the associated Common Stock Purchase Rights), and such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(b) of the Plan. (w) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan. 3. Administration The Plan shall be administered by the Committee; provided, however, that if at any time the Committee shall not be in existence, the functions of the Committee as specified in the Plan shall be exercised by those members of the Board of Directors of the Company who qualify as "disinterested persons" under Rule 16b-3. Subject to the terms of the Plan and applicable laws and without limitation by reason of enumeration, the Committee shall have full discretionary power and authority to: (i) designate Participating Key Employees; (ii) determine the type or types of Awards to be granted to each Participating Key Employee under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) Awards granted to Participating Key Employees; (iv) determine the terms and conditions of any Award granted to a Participating Key Employee; (v) determine whether, to what extent and under what circumstances Awards granted to Participating Key Employees may be settled or exercised in cash, Shares, other securities, other Awards or other property, and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended; (vi) determine whether, to what extent and under what circumstances cash, Shares, other Awards and other amounts payable with respect to an Award granted to Participating Key Employees under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan (including, without limitation, any Award Agreement); (viii) establish, amend, 2 suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time or from time to time, and shall be final, conclusive and binding upon all Persons, including the Company, any Affiliate, any Participating Key Employee, any holder or beneficiary of any Award, any shareholder and any employee of the Company or of any Affiliate. 4. Shares Available for Award (a) Shares Available. Subject to adjustment as provided in Section 4(b): (i) Number of Shares Available. The number of Shares with respect to which Awards may be granted under the Plan shall be 1,750,000, subject to the limitations set forth in Section 6(c)(i). (ii) Accounting for Awards. The number of Shares covered by an Award under the Plan, or to which such Award relates, shall be counted on the date of grant of such Award against the number of Shares available for granting Awards under the Plan. (iii) Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. (b) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares subject to the Plan and which thereafter may be made the subject of Awards under the Plan; (ii) the number and type of Shares subject to outstanding Awards; and (iii) the grant, purchase or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, however, in each case, that with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b) of the Code (or any successor provision thereto); and provided further that the number of Shares subject to any Award payable or denominated in Shares shall always be a whole number. 5. Eligibility Any Key Employee, including any executive officer or employee-director of the Company or of any Affiliate, who is not a member of the Committee shall be eligible to be designated a Participating Key Employee. 6. Awards (a) Option Awards. The Committee is hereby authorized to grant Options to Key Employees with the terms and conditions as set forth below and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine in its discretion. 3 (i) Exercise Price. The exercise price per Share of an Option granted pursuant to this Section 6(a) shall be determined by the Committee; provided, however, that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. (ii) Option Term. The term of each Option shall be fixed by the Committee; provided, however, that in no event shall the term of any Option exceed a period of ten years from the date of its grant. (iii) Exercisability and Method of Exercise. An Option shall become exercisable in such manner and within such period or periods and in such installments or otherwise as shall be determined by the Committee. The Committee also shall determine the method or methods by which, and the form or forms, including, without limitation, cash, Shares, other securities, other Awards, other property or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, in which payment of the exercise price with respect to any Option may be made or deemed to have been made. (iv) Incentive Stock Options. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code (or any successor provision thereto) and any regulations promulgated thereunder. Notwithstanding any provision in the Plan to the contrary, no Incentive Stock Option may be granted hereunder after the tenth anniversary of the adoption of the Plan by the Board of Directors of the Company. (b) Stock Appreciation Right Awards. The Committee is hereby authorized to grant Stock Appreciation Rights to Key Employees. Subject to the terms of the Plan and any applicable Award Agreement, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan, the grant price, term, methods of exercise, methods of settlement (including whether the Participating Key Employee will be paid in cash, Shares, other securities, other Awards, or other property or any combination thereof), and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee in its discretion. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate, including, without limitation, restricting the time of exercise of the Stock Appreciation Right to specified periods as may be necessary to satisfy the requirements of Rule 16b-3. (c) Restricted Stock Awards (i) Issuance. The Committee is hereby authorized to grant Awards of Restricted Stock to Key Employees; provided, however, that the aggregate number of Shares of Restricted Stock granted under the Plan to all Participating Key Employees as a group shall not exceed 75,000 Shares (such number of Shares subject to adjustment in accordance with the terms of Section 4(b) hereof) of the total number of Shares available for Awards under Section 4(a)(i). (ii) Restrictions. Shares of Restricted Stock granted to Participating Key Employees shall be subject to such restrictions as the Committee may impose in its discretion (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate in its discretion. (iii) Registration. Any Restricted Stock granted under the Plan to a Participating Key Employee may be evidenced in such manner as the Committee may deem appropriate in its discretion, including, without limitation, book-entry registration or issuance of a stock certificate or 4 certificates. In the event any stock certificate is issued in respect of Shares of Restricted Stock granted under the Plan to a Participating Key Employee, such certificate shall be registered in the name of the Participating Key Employee and shall bear an appropriate legend (as determined by the Committee) referring to the terms, conditions and restrictions applicable to such Restricted Stock. (iv) Payment of Restricted Stock. At the end of the applicable restriction period relating to Restricted Stock granted to a Participating Key Employee, one or more stock certificates for the appropriate number of Shares, free of restrictions imposed under the Plan, shall be delivered to the Participating Key Employee or, if the Participating Key Employee received stock certificates representing the Restricted Stock at the time of grant, the legends placed on such certificates shall be removed. (v) Forfeiture. Except as otherwise determined by the Committee in its discretion, upon termination of employment of a Participating Key Employee (as determined under criteria established by the Committee in its discretion) for any reason during the applicable restriction period, all Shares of Restricted Stock still subject to restriction shall be forfeited by the Participating Key Employee; provided, however, that the Committee may, when it finds that a waiver would be in the best interests of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock held by a Participating Key Employee. (d) Performance Share Awards (i) Issuance. The Committee is hereby authorized to grant Awards of Performance Shares to Key Employees. (ii) Performance Goals and Other Terms. The Committee shall determine in its discretion the Performance Period, the performance goal or goals to be achieved during any Performance Period, the proportion of payments, if any, to be made for performance between the minimum and full performance levels, the restrictions applicable to Shares of Restricted Stock received upon payment of Performance Shares if Performance Shares are paid in such manner, and any other terms, conditions and rights relating to a grant of Performance Shares. Performance goals established by the Committee may be based on one or more measures such as return on shareholders' equity, earnings or any other standard or standards deemed relevant by the Committee, measured internally or relative to other organizations and before or after extraordinary items. (iii) Rights and Benefits During the Performance Period. The Committee may provide that, during a Performance Period, a Participating Key Employee shall be paid cash amounts, with respect to each Performance Share held by such Participating Key Employee, in the same manner, at the same time, and in the same amount paid, as a cash dividend on a Share. Participating Key Employees shall have no voting rights with respect to Performance Shares held by them. (iv) Adjustments with Respect to Performance Shares. Any other provision of the Plan to the contrary notwithstanding, the Committee may in its discretion at any time or from time to time adjust performance goals (up or down) and minimum or full performance levels (and any intermediate levels and proportion of payments related thereto), adjust the manner in which performance goals are measured, or shorten any Performance Period or waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock issued in payment of Performance Shares, if the Committee determines that conditions, including but not limited to, changes in the economy, changes in competitive conditions, changes in laws or governmental regulations, changes in generally accepted accounting principles, changes in the Company's accounting policies, acquisitions or dispositions by the Company or its Affiliates, or the occurrence of other unusual, unforeseen or extraordinary events, so warrant. (v) Payment of Performance Shares. As soon as is reasonably practicable following the end of the applicable Performance Period, one or more certificates representing the number 5 of Shares equal to the number of Performance Shares payable shall be registered in the name of and delivered to the Participating Key Employee; provided, however, that any Shares of Restricted Stock payable in connection with Performance Shares shall, pending the expiration, lapse, or waiver of the applicable restrictions, be evidenced in the manner as set forth in Section 6(c)(iii) hereof. (e) General (i) No Consideration for Awards. Awards shall be granted to Participating Key Employees for no cash consideration unless otherwise determined by the Committee. (ii) Award Agreements. Each Award granted under the Plan shall be evidenced by an Award Agreement in such form (consistent with the terms of the Plan) as shall have been approved by the Committee. (iii) Awards May Be Granted Separately or Together. Awards to Participating Key Employees under the Plan may be granted either alone or in addition to, in tandem with, or in substitution for, any other Award or any award granted under any other plan of the Company or any Affiliate. Awards granted in addition to, or in tandem with, other Awards, or in addition to, or in tandem with, awards granted under any other plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iv) Forms of Payment Under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award to a Participating Key Employee may be made in such form or forms as the Committee shall determine, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee in its discretion. Such rules and procedures may include, without limitation, provisions for the payment or crediting of interest on installment or deferred payments. (v) Limits on Transfer of Options. Except as otherwise provided by the Board of Directors of the Company or the Committee, Awards granted under the Plan shall not be transferable other than as designated by the Participating Key Employee by will, or by the laws of descent and distribution. In the event that the Board of Directors of the Company or the Committee shall permit a transfer of an Award, any permitted transferee shall have all of the rights of the Participating Key Employee under the Plan, as if the Participating Key Employee had retained such Award. (vi) Term of Awards. Except as otherwise provided in the Plan, the term of each Award shall be for such period as may be determined by the Committee. (vii) Rule 16b-3 Six-Month Limitations. To the extent required in order to comply with Rule 16b-3 only, any equity security offered pursuant to the Plan may not be sold for at least six months after acquisition, except in the case of death or disability, and any derivative security issued pursuant to the Plan shall not be exercisable for at least six months, except in case of death or disability of the holder thereof. Terms used in the preceding sentence shall, for the purposes of such sentence only, have the meanings, if any, assigned or attributed to them under Rule 16b-3. (viii) Share Certificates; Representation. In addition to the restrictions imposed pursuant to Section 6(c) and Section 6(d) hereof, all certificates for Shares delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Commission, Nasdaq Stock Market or any stock exchange or other market upon which such Shares are then listed or traded, and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Committee may require each Participating Key Employee, or other 6 Person who acquires Shares under the Plan by means of an Award originally made to a Participating Key Employee to represent to the Company in writing that such Participating Key Employee, or other Person is acquiring the Shares without a view to the distribution thereof. 7. Amendment and Termination of the Plan; Correction of Defects and Omissions (a) Amendments to and Termination of the Plan. The Board of Directors of the Company may at any time amend, alter, suspend, discontinue or terminate the Plan; provided, however, that shareholder approval of any amendment of the Plan shall also be obtained if otherwise required by: (i) the rules and/or regulations promulgated under Section 16 of the Exchange Act (in order for the Plan to remain qualified under Rule 16b-3); (ii) the Code or any rules promulgated thereunder (in order to allow for Incentive Stock Options to be granted under the Plan); or (iii) the quotation or listing requirements of the Nasdaq National Market or any principal securities exchange or market on which the Shares are then traded (in order to maintain the quotation or listing of the Shares thereon). Termination of the Plan shall not affect the rights of Participating Key Employees with respect to Awards previously granted to them, and all unexpired Awards shall continue in force and effect after termination of the Plan except as they may lapse or be terminated by their own terms and conditions. (b) Correction of Defects, Omissions and Inconsistencies. The Committee may in its discretion correct any defect, supply any omission or reconcile any inconsistency in any Award or Award Agreement in the manner and to the extent it shall deem desirable to carry the Plan into effect. 8. General Provisions (a) No Rights to Awards. No Key Employee, Participating Key Employee or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Key Employees, Participating Key Employees or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each Participating Key Employee. (b) Withholding. No later than the date as of which an amount first becomes includible in the gross income of a Participating Key Employee for federal income tax purposes with respect to any Award under the Plan, the Participating Key Employee shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, withholding obligations arising with respect to Awards to Participating Key Employees under the Plan may be settled with Shares previously owned by the Participating Key Employee; provided, however, that the Participating Key Employee may not settle such obligations with Shares that are part of, or are received upon exercise of, the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and any Affiliate shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participating Key Employee. The Committee may establish such procedures as it deems appropriate for the settling of withholding obligations with Shares, including, without limitation, the establishment of such procedures as may be necessary to satisfy the requirements of Rule 16b-3. (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (d) Rights and Status of Recipients of Awards. The grant of an Award shall not be construed as giving a Participating Key Employee the right to be retained in the employ of the Company or any Affiliate. Further, the Company or any Affiliate may at any time dismiss a Participating Key Employee from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. Except for rights accorded under the Plan and under any applicable Award 7 Agreement, Participating Key Employees shall have no rights as holders of Shares as a result of the granting of Awards hereunder. (e) Unfunded Status of the Plan. Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company or the Committee and any Participating Key Employee or other Person. To the extent any Person holds any right by virtue of a grant under the Plan, such right (unless otherwise determined by the Committee) shall be no greater than the right of an unsecured general creditor of the Company. (f) Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the internal laws of the State of Wisconsin and applicable federal law. (g) Severability. If any provision of the Plan or any Award Agreement or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan, any Award Agreement or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan, any Award Agreement or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan, any such Award Agreement and any such Award shall remain in full force and effect. (h) No Fractional Shares. No fractional Shares or other securities shall be issued or delivered pursuant to the Plan, any Award Agreement or any Award, and the Committee shall determine (except as otherwise provided in the Plan) whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights thereto shall be canceled, terminated or otherwise eliminated. (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. 9. Effective Date of the Plan The Plan shall be effective as of January 30, 1995 subject to shareholder approval of the Plan within 12 months following the date of adoption of the Plan by the Board of Directors, and all Awards granted under the Plan prior to the date of shareholder approval shall be subject to such approval and the effective date of such Award grants shall be deemed to be the date of such shareholder approval. 10. Term of the Plan No Award shall be granted under the Plan following the tenth anniversary of its effective date. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date and, to the extent set forth in the Plan, the authority of the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award, or to waive any conditions or restrictions with respect to any such Award, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond such date. 8 EX-10.16 5 0005.txt OFFICER ANNUAL INCENTIVE PLAN EXHIBIT 10.16 ------------------------ As Amended Through February 12, 2001 ------------------------ SCHULTZ SAV-O STORES, INC. OFFICER ANNUAL INCENTIVE PLAN 1. Purpose The purpose of the Schultz Sav-O Stores, Inc. Officer Annual Incentive Plan ("Plan") is to (a) reward Participants on an individual and team basis for the achievement of corporate financial goals and objectives which increase the economic value of the Company for the benefit of all shareholders; (b) provide competitive levels of compensation to its executive officers to enable the Company to attract and retain highly qualified and talented individuals who are able to exert a significant impact on the economic value of the Company for the benefit of all shareholders; (c) encourage teamwork and cooperation in the achievement of corporate financial goals and objectives; and (d) recognize differences in the performance of individual Participants. 2. Plan Administration The Compensation Committee of the Board of Directors (the "Committee") shall have full power, authority and responsibility for the design, construction, administration and interpretation of the Plan. The Committee may from time to time or at any time make such decisions and adopt such rules and regulations for the design, construction, administration and interpretation of the Plan as it deems appropriate. Any such decision made by the Committee shall be final, conclusive and binding upon all Participants and any person claiming under or through them. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by at least a majority of a quorum. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made by a unanimous vote at a meeting of the Committee duly called and held. 3. Definitions 3.1. "Base Salary" means the dollar amount of a Participant's annual base salary actually earned during the Plan Year, without adjustment for bonuses (hereunder or otherwise), salary deferrals, value of benefits, stock option or other equity-based incentive award grants or exercises, imputed income, special payments, amounts contributed to or earned under the Company's Retirement Savings Plan or its Executive Benefits Restoration Plan or similar existing or future plans. 3.2. "Base Salary Percentage" means the percentage arrived at by dividing a Participant's Base Salary for a specified Plan Year by the aggregate Base Salaries of all Participants for the same Plan Year. 3.3. "Bonus Amount" means a Participant's annual aggregate bonus amount which is calculated in the manner set forth in Section 5.1. 3.4. "Bonus Pool" means the dollar amount of the cash award pool established for the specified Plan Year for the distribution of Bonus Awards to Participants for such Plan Year, calculated as follows: Bonus Pool = (i) 10% of the dollar amount of the Current Year EVA plus (ii) 5% of the dollar amount of the Incremental EVA plus (iii) $25,000 for each percentage point increase, if any, in net sales of the Company for the specified Plan Year over net sales of the Company in the preceding Plan Year excluding increases in net sales due to the acquisition of other supermarkets or businesses (each as reflected in the Company's audited financial statements for such Plan Years, subject to adjustment as determined by the Board to take into account extraordinary, unusual or nonrecurring events or circumstances). 3.5. "Company Performance Bonus Pool" shall be equal to twenty-five percent (25%) of the Bonus Pool for the specified Plan Year. 3.6. "Current Year EVA" means the EVA as calculated for the specified Plan Year. 3.7. "Discretionary Bonus" means, with respect to each Participant, an amount determined by the Committee based upon the Company's and/or the Participant's performance during the Plan Year. The Committee, in its sole discretion, shall determine the factors used to establish the Discretionary Bonus at the end of each Plan Year. Such factors will generally include (i) appreciation in price of the Company's common stock, (ii) increases in net sales due to multi-store acquisitions, (iii) the occurrence of extraordinary events that affect the Bonus Pool that would otherwise be available for the Plan Year, (iv) any expansion or increase in the Participant's then current duties and responsibilities, (v) any increases in the cost of living, (vi) the past performance by the Participant, and (vi) any other pertinent factors identified by the other factors that the Committee determines to be relevant to the financial performance and growth of the Company. 3.8. "Economic Value Added" or "EVA" means the NOPAT that remains after subtracting the product of the Threshold Rate of Return multiplied by the Investment Amount, expressed as follows: EVA = NOPAT - [Threshold Rate of Return x Investment Amount] EVA may be positive or negative. 3.9. "Incremental EVA" means the Current Year EVA minus the EVA for the prior Plan Year. For purposes of calculating Incremental EVA for the 1995 Plan Year, the EVA for 1994 was $1,128,000. Incremental EVA may not be negative. 3.10. "Individual Performance Bonus" shall have the meaning set forth in Section 5.1. 3.11. "Individual Performance Bonus Pool" shall be equal to seventy-five percent (75%) of the Bonus Pool for the specified Plan Year. 3.12. "Individual Performance Factor" shall have the meaning set forth in Section 5.2. 3.13. "Investment Amount" means the dollar amount of the Company's average investment for the Plan Year, calculated by adding the investment reflected on the Company's financial statements as of the end of each fiscal quarter, and then dividing by four, where investment is determined as follows: Investment = indebtedness for borrowed money + shareholders' investment + obligations under capital leases 3.14. "NOPAT" means the Company's net earnings after tax (without reduction for any Bonus Amounts or Bonus Pool accrued, paid or payable under the Plan), plus interest expense after tax for the Plan Year, all as reflected in the Company's audited financial statements for the Plan Year. 2 3.15. "Participant" means an eligible executive officer of the Company under Section 4.1 who has been selected to participate in the Plan for the Plan Year pursuant to Section 4.2. 3.16. "Plan Year" means the one-year period coincident with the Company's applicable fiscal year. 3.17. "Threshold Rate of Return" shall be the target percentage rate of return on the Investment Amount for the specified Plan Year established by the Committee at the beginning of each Plan Year based on the Company's weighted average cost of capital. For the 1995 Plan Year, the Threshold Rate of Return has been established by the Committee as 9.1%. 4. Eligibility 4.1. Eligible Executive Officers. In general, all executive officers who are also employees of the Company (which generally shall include those Company officers listed as such in the Company's annual report to shareholders) at the beginning of a Plan Year will be eligible for participation in the Plan. However, nomination of an executive officer by the Chief Executive Officer and approval by the Committee will be required for actual participation. 4.2. Nomination and Approval. Each Plan Year, the Company's Chief Executive Officer will nominate eligible executive officers to participate in the Plan for the specified Plan Year. The Committee will have the final authority to select the Participants for such Plan Year from among the eligible executive officers nominated by the Company's Chief Executive Officer. Selection normally will take place, and will be communicated to each Participant, prior to or shortly after the beginning of the specified Plan Year. 5. Bonus Amounts; Individual Performance Factors; Discretionary Bonus 5.1. Calculation of Bonus Amounts. Each Participant's Bonus Amount for a specified Plan Year will be equal to his or her pro-rata portion of the Company Performance Bonus Pool plus his or her Individual Performance Bonus plus his or her Discretionary Bonus. For any specified Plan Year, a Participant's pro-rata portion of the Company Performance Bonus Pool shall be equal to the product of the Participant's Base Salary Percentage multiplied by the Company Performance Bonus Pool. The Participant's Individual Performance Bonus shall be equal to the product of the Participant's Base Salary Percentage multiplied by the Individual Performance Bonus Pool multiplied by his or her Individual Performance Factor; provided, however, that the aggregate Individual Performance Bonuses for all Participants for a specified Plan Year may not exceed the Individual Performance Bonus Pool for such Plan Year. If the aggregate Individual Performance Bonuses for all Participants for a specified Plan Year would exceed the Individual Performance Bonus Pool for such Plan Year, then the Committee in its discretion shall adjust the Participants' Individual Performance Bonuses so that such aggregate Individual Performance Bonuses will not exceed the Individual Performance Bonus Pool for such Plan Year. 5.2. Individual Performance Factor Calculation. Each Participant's Individual Performance Factor for a Plan Year will be based on the Participant's accomplishment of individual and/or group financial and/or other goals or objectives established by the Company's Chief Executive Officer, with the approval and ratification of the Committee (or as determined solely by the Committee in the case of the Company's Chief Executive Officer), as of the beginning of the specified Plan Year. Whenever possible, individual performance will be evaluated according to quantifiable or objective benchmarks of success and the level of the Participant's relative achievement of such quantifiable benchmarks. An achievement percentage continuum that ranges from achieving 0% to 150% of the quantifiable benchmark opportunity will be established and the Participant's relative level of achievement of such quantifiable benchmarks will be enumerated accordingly from 0 to 1.5 based on such continuum. After the end of a Plan Year, the Company's Chief Executive Officer, with the approval and ratification of the Committee (or solely by the 3 Committee in the case of the Company's Chief Executive Officer), will evaluate and rate the Participant's performance over the Plan Year and the relative contribution of the Participant to the achievement of the previously established individual or group financial or other performance goals and objectives, and this evaluation will result in the Participant's Individual Performance Factor being determined according to the following schedule: Performance Individual Individual Rating Performance Factor Very Good 1.5 Good 1.0 Satisfactory 0.5 Marginal 0.0 6. Change in Status During the Plan Year 6.1. New Hire or Promotion. An executive officer who is newly hired or promoted during a specified Plan Year to an executive officer position which, if held by the Participant at the beginning of the Plan Year, would have otherwise allowed the Participant to be eligible for participation in the Plan will generally not be eligible to receive a Bonus Amount for such Plan Year; provided, however, that the Company's Chief Executive Officer, with the approval and ratification of the Committee (or solely by the Committee in the case of the Company's Chief Executive Officer) may waive this policy and allow such executive officer to receive a pro rata Bonus Amount for such Plan Year based on the percentage of the Plan Year the executive officer was employed in such eligible executive officer position (determined based on the actual number of full months of employment in such executive officer position during the Plan Year divided by 12). Any such waiver of this policy will take into account such factors as the executive officer's contributions to the Company's achievement of corporate financial goals and objectives in such executive officer position and the portion of the Plan Year the individual actually spent in such executive officer position. 6.2. Death, Disability or Retirement. If a Participant's employment as an executive officer is terminated during a Plan Year by reason of death, disability or normal or early retirement, the Participant (or his or her heirs or personal representatives in the case of death) will receive a pro rata Bonus Amount for such Plan Year based on the percentage of the Plan Year the Participant was employed in such position (determined based on the actual number of full months of employment of such Participant during the Plan Year divided by 12); provided, however, that the Company's Chief Executive Officer, with the approval and ratification of the Committee (or solely by the Committee in the case of the Company's Chief Executive Officer) may waive this policy and allow such executive officer to receive the Bonus Amount for the Plan Year that the executive officer would have been entitled to if he or she had been an executive officer for the entire Plan Year. Any such waiver of this policy will take into account such factors as the executive officer's contributions to the Company's achievement of corporate financial goals and objectives in such executive officer position and the portion of the Plan Year the individual actually spent in such executive officer position. 6.3. Termination for any Other Reason. If a Participant's employment is terminated during a Plan Year for any reason other than death, disability or retirement, such Participant will generally not be eligible to receive a Bonus Amount for such Plan Year; provided, however, that the Company's Chief Executive Officer, with the approval and ratification of the Committee (or solely the Committee in the case of the Company's Chief Executive Officer) may waive this policy and allow such Participant to receive a pro-rata Bonus Amount for such Plan Year based on the percentage of the Plan Year the executive officer was employed in such eligible executive officer position (determined based on the actual number of full months of employment in such executive officer position during the Plan Year divided by 12). 4 7. Administrative Provisions 7.1. Amendments and Terminations. The Company's Board of Directors shall have the right to modify or amend this Plan in whole or in part from time to time or at any time, or suspend it or terminate it entirely; provided, however, that no such modification, amendment, suspension or termination may, without the consent of any affected Participants (or beneficiaries of such Participants in the event of death), reduce the rights of any such Participants (or beneficiaries, as applicable) to a payment or distribution of a Bonus Amount already determined and earned under Plan terms in effect prior to such change. A Participant shall not be deemed to have earned or have any right to any Bonus Amount for a Plan Year until completion of that Plan Year and the determination of Bonus Amounts for such Plan Year by the Company's Chief Executive Officer and/or the Committee. 7.2. Effect of Award on Other Employee Benefits. By acceptance of a Bonus Amount, each Participant agrees that such Bonus Amount is special additional compensation and that it will not affect adversely any other employee benefit (e.g., Retirement Savings Plan, Executive Benefits Restoration Plan, life insurance, etc.), in which the Participant participates or to which he is entitled, except as provided in Section 7.4 below. The existence of the Plan or the grant of any Bonus Amounts hereunder shall not restrict the ability of the Committee or the Board to grant any other discretionary bonuses to any executive officers, employees or others outside of the Plan. 7.3. Retirement Programs; Severance Agreements. Bonus Amounts paid under this Plan shall be included in the Participant's compensation for purposes of the Company's Retirement Savings Plan, Executive Benefits Restoration Plan, any other qualified employee benefit plan and any applicable key executive employment and severance agreement with the Company. 7.4. No Right to Continued Employment or Additional Bonus Amounts. A Participant's eligibility for or actual receipt of a Bonus Amount in any specified Plan Year shall not give the Participant any right to continued employment with the Company, and the right and power to dismiss or terminate the employment of the Participant for any reason whatsoever (other than as otherwise specified in any applicable contract of employment between the Participant and the Company) is specifically reserved to the Company. In addition, the selection of an eligible executive officer as a Participant in the Plan for any Plan Year shall not require or infer the inclusion or selection of such person as a Participant for any subsequent Plan Year or, if such person is subsequently so included or selected, shall not require that the same Bonus Amount provided to the Participant under the Plan for an earlier Plan Year be provided to such Participant for the subsequent Plan Year. 7.5. Adjustments to Performance Goals. When a performance goal or objective is based on Economic Value Added or other quantifiable financial or accounting measures, it may be appropriate to exclude certain items in order to properly measure performance. The Committee in its discretion will decide those items that shall be considered in adjusting actual results. For example, some types of items that may be considered for exclusion are: a. Extraordinary Items. Any gains or losses which will be treated as extraordinary in the Company's financial statements under generally accepted accounting principles. b. Unanticipated Nonrecurring Non-Ordinary Course Items. Unanticipated, nonrecurring, nonordinary course items such as: (i) Gains or losses from the sale or disposal of real estate or property. 5 (ii) Gains resulting from insurance recoveries when such gains relate to claims filed in prior years. (iii) Losses resulting from natural catastrophes, when the cause of the catastrophe is beyond the control of the Company and did not result from any failure or negligence on the Company's part. (iv) Changes in accounting policies or practices. 7.6. Payment of Bonus Amounts. The Bonus Amounts payable for a Plan Year as determined by the Chief Executive Officer and/or Committee shall be distributed by the Company as soon as practicable after the date of the first public release of the Company's complete audited financial statements for such Plan Year. 8. Miscellaneous 8.1. Indemnification. Each person who is or who shall have been a member of the Committee or of the Company's Board of Directors, shall not be liable for, and shall be indemnified and held harmless by the Company against and from, any and all loss, cost, liability or expense (including attorneys' fees and disbursements) that may be imposed upon or incurred by him or her in connection with any claim, action, suit or proceeding to which he or she may be a party by reason of any action taken or failure to act under or pursuant to the Plan. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification, advancement of expenses or reimbursement to which such persons may be entitled under the Company's Articles of Incorporation, By-Laws, Indemnity Agreements, as a matter of law under the Wisconsin Business Corporation Law, under applicable insurance policies or otherwise, or any other power or authority that the Company may have to indemnify or reimburse them or hold them harmless. 8.2. Expenses of the Plan. The expenses of administering this Plan shall be borne by the Company. 8.3. Withholding Taxes. The Company shall deduct from all Bonus Amounts paid or payable under the Plan any federal or state taxes required by law to be withheld with respect to such payments. 8.4. Non-Transferable Benefits. Bonus Amounts (or any interests therein) paid or payable under the Plan are personal to Participants and are non-transferable and non-assignable during the life of a Participant. 8.5. Unsecured Rights. The right of any Participant to receive a Bonus Amount under the Plan when determined and earned shall be an unsecured claim against the general assets of the Company and the Participant shall have no rights in or against any specific assets of the Company as a result of participation hereunder. 8.6. Powers of Company Not Affected. The existence of the Plan shall not affect in any way the right or power of the Company, the Board of Directors or its shareholders to make or authorize any or all adjustments, recapitalization, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise. 8.7. Governing Law. This Plan shall be construed in accordance with and governed by the laws of the State of Wisconsin. 8.8. Effective Date. The effective date of the Plan is January 1, 1995. 6 EX-10.18 6 0006.txt FIFTH AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.18 FIFTH AMENDMENT TO LOAN AGREEMENT THIS FIFTH AMENDMENT TO LOAN AGREEMENT, made as of this 31 day of May, 2000, by and among SCHULTZ SAV-O STORES, INC. ("Borrower"), M&I MARSHALL & ILSLEY BANK, a Wisconsin banking corporation ("M&I"), and FIRSTAR BANK MILWAUKEE, N.A., a national banking association ("Firstar" and, together with M&I, the "Banks"). Unless otherwise indicated, capitalized terms used herein and not defined shall have the meanings assigned thereto in the Loan Agreement described below. WITNESSETH: WHEREAS, Borrower, M&I and Firstar are parties to that certain Loan Agreement dated as of December 3, 1992, as amended by that certain First Amendment to Loan Agreement dated September 23, 1994, that certain Second Amendment to Loan Agreement dated December 17, 1996, that certain Third Amendment to Loan Agreement dated May 14, 1997, and that certain Fourth Amendment to Loan Agreement dated December 31, 1998 (as so amended, the "Loan Agreement"); and WHEREAS, Borrower has available a $9,000,000 revolving line of credit facility with M&I and a $7,000,000 revolving line of credit facility with Firstar (collectively, the "Lines of Credit") pursuant to the Loan Agreement; and WHEREAS, Borrower and the Banks desire to amend the Loan Agreement to amend the definitions of Maturity Date and Net Earnings Available For Restricted Payments. NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment to Section 1 (b) (Master Notes). The definition of Maturity Date is amended be deleting "April 30, 2001" and inserting in lieu thereof "April 30, 2003". 2. Amendment to Section 9 (l) (Net Earnings Available For Restricted Payments). The definition of Net Earnings Available For Restricted Payments is amended by restating the definition in its entirety as follows: (l) "Net Earnings Available For Restricted Payments" shall mean an amount equal to (i) the sum of (A) $23,263,000, (B) 50% (or minus 100% in the case of a deficit) of Net Earnings for the period (taken as one accounting period) commencing December 29, 1991, and terminating at the end of the last fiscal quarter preceding the date of any proposed Restricted Payment, (C) 100% of the tax benefit realized by the Borrower as a result of the exercise by employees of stock options of the Borrower (reflected in the Borrower's Consolidated Statement of Shareholders' Investment as "Exercise of Stock Options" under the heading "Additional Paid-in Capital"), and (D) 100% of the net cash proceeds received by the Company from the issuance or sale of authorized but unissued shares of its Common Stock, but only to the extent of the number of such shares previously acquired in transactions which constituted the making of Restricted Payments, less (ii) the sum of all Restricted Payments made on or after December 29, 1991. 3. Effective Date. This Amendment shall be effective upon the execution and delivery by Borrower to the Banks of the following: (a) This Amendment duly executed by the President and Secretary of Borrower; and (b) A copy of the resolution or resolutions, in form satisfactory to the Banks and their legal counsel, duly adopted by the Board of Directors of Borrower approving this Amendment, certified to be true and correct by the Secretary of Borrower. 4. Miscellaneous. (a) Continuance of Loan Documents. Except as specifically amended by this Amendment, the Loan Agreement and all other instruments, documents and agreements executed and delivered in connection with the Loan Agreement collectively, the "Loan Documents") remain in full force and effect. This Amendment is an amendment and not a novation. (b) Representations and Warranties. Customer represents and warrants that the execution, delivery and performance of this Amendment are within the corporate powers of Borrower, have been duly authorized by all necessary corporate action, and do not and will not (a) require any consent or approval of the shareholders of Borrower; (b) violate any provision of the Articles of Incorporation or By-laws of Borrower or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Borrower; (c) require the consent or approval of, or filing of a registration with, any government body, agency or authority; or (d) result in any breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of Borrower pursuant to any indenture or other agreement or instrument under which Borrower is a party or by which it or its properties may be bound or affected. Borrower further represents and warrants that this Amendment constitutes the legal, valid and binding obligation of Borrower enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy or similar laws affecting the enforceability of creditors' rights generally. In addition, each of the representations and warranties made by Borrower in the Loan Agreement are true and correct as of the date of this Amendment except for matters permitted or contemplated by the Loan Agreement. (c) References. When any Loan Document is referred to in any other Loan Document or any of the other documents, instruments or materials executed and delivered heretofore or hereafter pursuant to the Loan Agreement, it shall be deemed to refer to such Loan Document as amended by this Amendment. (d) Expenses and Attorneys' Fees. In accordance with Section 10(f) of the Loan Agreement, Borrower shall pay all fees and expenses incurred by the Banks, including the reasonable fees of counsel, in connection with the preparation of this Amendment, the consummation of the transactions contemplated by this Amendment and the protection or enforcement of the rights of the Banks under the Loan Agreement. (e) Survival. All agreements, representations and warranties made in this Amendment or in any documents delivered pursuant to this Amendment shall survive the execution of this Amendment and the delivery of any such document. (f) Governing Law. This Amendment and the other documents issued pursuant to this Amendment are governed by the laws of the State of Wisconsin without reference to the conflict of law principles of such state. (g) Counterparts; Headings. This Amendment may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute one and the same agreement. Article and Section headings in this Amendment are inserted for convenience of reference only and shall not constitute a part hereof. (h) Severability. Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or affecting the validity or enforceability of such provision in any other jurisdiction. 2 IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment to Loan Agreement as of the day, month and year first above-written. (Signatures continue on the following page) 3 SCHULTZ SAV-O STORES, INC. By: /s/ James H. Dickelman ------------------------------------ James H. Dickelman, Chairman, President and Chief Executive Officer Attest: /s/ Armand C. Go --------------------------------- Armand C. Go, Treasurer and Chief Accounting Officer M&I MARSHALL & ILSLEY BANK By: /s/ Thomas F. Bickelhaupt ------------------------------------ Thomas F. Bickelhaupt, Vice President FIRSTAR BANK MILWAUKEE, N.A. By /s/ Caroline Krider, VP ------------------------------------- Caroline Krider, Vice President 4 EX-10.19 7 0007.txt 2001 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN EXHIBIT 10.19 -------------------------- AS ADOPTED 12/14/00 -------------------------- SCHULTZ SAV-O STORES, INC. 2001 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN Article I. ESTABLISHMENT, PURPOSE AND DURATION. Section 1.1. Establishment of the Plan. Schultz Sav-O Stores, Inc. hereby establishes an incentive compensation plan to be known as "Schultz Sav-O Stores, Inc. 2001 Nonemployee Director Stock Option Plan" (the "Plan"), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options to Nonemployee Directors, subject to the terms and provisions set forth herein. The Plan shall be effective upon the date that the Company's shareholders approve the Plan so long as such approval occurs on or before December 14, 2001 (the "Effective Date") and no Grants shall be made prior to the Effective Date. Section 1.2. Purpose of the Plan. The purpose of the Plan is to promote the best interests of the Company and its shareholders by providing Nonemployee Directors (as defined below) with an opportunity to acquire a, or increase their, proprietary interest in the Company. It is intended that the Plan will enhance the incentives and personal interests in the welfare of the Company by the Nonemployee Directors who are responsible for shaping the long-range plans of the Company and securing the Company's continued growth and financial success. Section 1.3. Duration of the Plan. The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Item 14(a)8.8.Article VII herein, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Option be granted under the Plan on or after the tenth anniversary of the Effective Date. Article II. DEFINITIONS. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word or words is capitalized: (a) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (b) "Board" or "Board or Directors" means the Board of Directors of the Company, and includes any committee of the Board of Directors designated by the Board to administer part or all of the Plan consistent with the terms of the Plan. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (d) "Committee" shall mean the Stock Option Committee of the Board of Directors of the Company (or any other committee or committees thereof designated by such Board to administer the Plan); provided, however, that the Committee is composed of not less than two directors, each of whom is a "disinterested person" within the meaning of Rule 16b-3. (e) "Company" means Schultz Sav-O Stores, Inc., a Wisconsin corporation, or any successor thereto as provided in 0 herein. (f) "Director" means any individual who is a member of the Board of Directors. (g) "Employee" means any full-time or part-time employee of the Company or any of its subsidiaries. For purposes of the Plan, an individual whose only employment relationship with the Company or its subsidiaries is as a Director or a consultant shall not be deemed to be an Employee. (h) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. (i) "Fair Market Value" means, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. (j) "Grant" means a grant of Nonqualified Stock Options under the Plan. (k) "Nonemployee Director" means any Director who is not otherwise an Employee. (l) "Nonqualified Stock Option" means an Option to purchase Shares granted under Item 14(a)8.8.Article VI herein. (m) "Option" means a Nonqualified Stock Option granted under the Plan. (n) "Option Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Grant granted under the Plan. (o) "Option Price" means the exercise price at which a Share may be purchased under an Option. (p) "Participant" means a Nonemployee Director of the Company who has outstanding a viable Grant under the Plan. (q) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (r) "Shares" shall mean shares of common stock of the Company, $0.05 par value, and such other securities or property as may become subject to Grants pursuant to an adjustment made under Item 14(a)8.8.Article IV of the Plan. Article III. ADMINISTRATION. Section 3.1. The Committee. The Plan shall be administered by the Committee; provided, however, that if at any time the Committee shall not be in existence, the functions of the Committee as specified in the Plan shall be exercised by those members of the Board of Directors of the Company who qualify as "disinterested persons" under Rule 16b-3. Section 3.2. Administration by the Committee. The Committee shall have the full power, discretion and authority to interpret and administer the Plan in a manner which is consistent with the Plan's provisions. However, in no event shall the Committee have the power to determine eligibility to participate in the Plan, or to determine the number, the value, the vesting or exercise period or the timing of Grants to be made under the Plan (all such determinations are automatic pursuant to the provisions of the Plan). Any action taken by the Committee with respect to the administration of the Plan which would violate Rule 16b-3(c)(2) under the Exchange Act (or any successor provision) shall be null and void. Section 3.3. Decisions Binding. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Grant 2 shall be within the sole discretion of the Committee, may be made at any time or from time to time, and shall be final, conclusive and binding upon all Persons, including the Company, any affiliate, any Nonemployee Director, any holder or beneficiary of any Grant, any shareholder and any employee of the Company or of any Affiliate. Article IV. SHARES SUBJECT TO THE PLAN. Section 4.1. Number of Shares. Subject to adjustment as provided in Item 14(a)8.8.Article IV(e): (a) Number of Shares Available. The number of Shares with respect to which Grants may be granted under the Plan shall be 200,000. (b) Accounting for Grants. The number of Shares covered by a Grant under the Plan, or to which such Grant relates, shall be counted on the date of grant of such Grant against the number of Shares available for granting Grants under the Plan. (c) Sources of Shares Deliverable Under Grants. Any Shares delivered pursuant to a Grant may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. (d) Lapsed Grants. If any Share under an Option granted under the Plan terminates, expires or lapses for any reason, such Share again shall become automatically available for issuance pursuant to other Grants under the Plan. However, in the event that prior to the Option's termination, expiration or lapse, the holder of the Options at any time received one or more "benefits of ownership" pursuant to such Options (as defined by the Securities and Exchange Commission, pursuant to any rule or interpretation promulgated under Section 16 of the Exchange Act), the Shares subject to such Options shall not be made available for regrant under the Plan. (e) Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares (excluding cash dividends), the Committee may make such adjustments to outstanding Options (including, without limitation, the number of Shares subject to the Options and the Option Price) as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or diminishment of a Grant and to otherwise appropriately adjust the remaining number of Shares reserved and available for Grants under 0 of the Plan; provided, however, that no such adjustment shall be made if the adjustment may cause the Plan to fail to comply with the "formula award" exception, as set forth in Rule 16b-3(c)(2)(ii)(A) under the Exchange Act (or any successor provision). Article V. ELIGIBILITY AND PARTICIPATION. Section 5.1. Eligibility. Persons eligible to participate in the Plan are limited to Nonemployee Directors. Section 5.2. Actual Participation. Each Nonemployee Director during the term of this Plan shall receive a Grant pursuant to the terms and provisions set forth in Item 14(a)8.8.Article VI herein. Article VI. NONQUALIFIED STOCK OPTIONS. Section 6.1. Automatic Grants. Subject to adjustment as provided in Item 14(a)8.8.Article IV(e), on the date of initial election or appointment of a Nonemployee Director during the term of the Plan or, on the Effective Date in the case of each Nonemployee Director who is serving as such on the Effective Date, each such Nonemployee Director shall be automatically granted an Option to purchase 5,000 Shares. Subject to 3 adjustment as provided in Item 14(a)8.8.Article IV(e), thereafter, on the final day of each fiscal year of the Company during the term of the Plan, each then serving Nonemployee Director shall be automatically granted an Option to purchase 5,000 Shares. The specific terms and provisions of such Grants shall be consistent with the terms of the Plan and incorporated into Option Agreements, executed pursuant to 0 of the Plan. Section 6.2. Limitation on Grants. Other than the automatic Grants provided in 0 herein, no additional Options shall be granted under the Plan. Section 6.3. Option Agreements. Each Grant shall be evidenced by an Option Agreement that shall specify the Option Price, the duration of the Option, the number of Shares available for purchase under the Option Agreement, and such other provisions as the Committee shall determine appropriate, consistent with the terms of the Plan. Section 6.4. Option Price. The exercise price per Share of an Option granted pursuant to this 0 shall be determined by the Committee; provided, however, that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. Section 6.5. Option Term. The term of each Option shall be fixed by the Committee; provided, however, that in no event shall the term of any Option exceed a period of ten years from the date of its grant. Section 6.6. Exercisability of Shares Subject to Option. Subject to 0, an Option shall become exercisable in such manner and within such period or periods and in such installments or otherwise as shall be determined by the Committee. The Committee also shall determine the method or methods by which, and the form or forms, including, without limitation, cash, Shares, other securities, other Grants, other property or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, in which payment of the exercise price with respect to any Option may be made or deemed to have been made. Section 6.7. Termination of Directorship. If a Participant ceases to be a Director for any reason, including death, disability or retirement, all Options granted to such Participant which remain outstanding shall remain exercisable for six months following the date the Nonemployee Director's service on the Board terminates, or until the respective Options' expiration date, whichever period is shorter. Section 6.8. Restrictions on Share Transferability. Shares acquired pursuant to the exercise of an Option under the Plan shall be subject to applicable restrictions under applicable federal securities laws, under the requirements of any national securities exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. Section 6.9. Nontransferability of Options. Except as otherwise provided by the Board of Directors of the Company or the Committee, Grants granted under the Plan shall not be transferable other than as designated by the Nonemployee Director by will or by the laws of descent and distribution. In the event that the Board of Directors of the Company or the Committee shall permit a transfer of a Grant, any permitted transferee shall have all of the rights of the Nonemployee Director under the Plan, as if the Nonemployee Director had retained such Grant. Article VII. AMENDMENT, MODIFICATION AND TERMINATION. Section 7.1. Amendments to and Termination of the Plan. The Board of Directors of the Company may at any time amend, alter, suspend, discontinue or terminate the Plan; provided, however, that shareholder approval of any amendment of the Plan shall also be obtained if otherwise required by: (i) the rules and/or regulations promulgated under Section 16 of the Exchange Act (in order for the Plan to remain qualified under Rule 16b-3); (ii) the Code or any rules promulgated thereunder (in order to allow for Incentive Stock Options to be granted under the Plan); or (iii) the quotation or listing requirements of the Nasdaq National Market 4 or any principal securities exchange or market on which the Shares are then traded (in order to maintain the quotation or listing of the Shares thereon). Termination of the Plan shall not affect the rights of Nonemployee Directors with respect to Grants previously granted to them, and all unexpired Grants shall continue in force and effect after termination of the Plan except as they may lapse or be terminated by their own terms and conditions. Section 7.2. Correction of Defects, Omissions and Inconsistencies. The Committee may in its discretion correct any defect, supply any omission or reconcile any inconsistency in any Grant or Option Agreement in the manner and to the extent it shall deem desirable to carry the Plan into effect. Article VIII. MISCELLANEOUS. Section 8.1. 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. Section 8.2. 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. Section 8.3. No Right of Nomination or Directorship. Nothing in the Plan or any Option Agreement shall be deemed to create any obligation on the part of the Board to appoint or nominate any Director or other Person for election or appointment to the Board or any right of any Person to serve as a Director. Nothing herein or in any Option Agreement shall interfere in any way with the right of the Company, its Board or its shareholders to terminate a Participant's status as a Director at any time consistent with the Company's Articles of Incorporation and Bylaws. Section 8.4. Shares Available. The Shares made available pursuant to Grants under the Plan may be either authorized but unissued Shares, or Shares which have been or may be reacquired by the Company, as determined from time to time by the Board. Section 8.5. Additional Compensation. Options granted under the Plan shall be in addition to any annual retainer, attendance fees, expense reimbursements or other compensation or benefits payable to each Participant as a result of his or her service on the Board or otherwise. Section 8.6. Successors. All obligations of the Company under the Plan, with respect to Grants 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, stock and/or assets of the Company or its subsidiaries. Section 8.7. Requirements of Law. Grants under the Plan shall be subject to all applicable laws rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. Section 8.8. Governing Law. The Plan and all Option Agreements hereunder shall be construed in accordance with and governed by the internal laws of the State of Wisconsin. 5 EX-10.20 8 0008.txt NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT EXHIBIT 10.20 Optionee Name: ------------------------- Option Price: $ ------------------------- Grant Date: ---------------------------- SCHULTZ SAV-O STORES, INC. NON-EMPLOYEE DIRECTOR NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made and entered into as of the grant date set forth above (the "Grant Date"), by and between SCHULTZ SAV-O STORES, INC., a Wisconsin corporation (the "Company"), and the optionee named above (the "Optionee"). W I T N E S S E T H : WHEREAS, the terms of the Schultz Sav-O Stores, Inc. 2001 Nonemployee Director Stock Option Plan (the "Plan"), to the extent not stated herein, are specifically incorporated by reference in this Agreement and defined terms used herein which are not otherwise defined shall have the meaning set forth in the Plan; WHEREAS, the purpose of the Plan is to provide for the automatic grant of options to purchase shares of the Company's Common Stock, $.05 par value ("Common Stock"), to the Company's Nonemployee Directors on an annual basis; WHEREAS, the grant of this Option complies with the terms of the Plan; and WHEREAS, the Optionee is a Nonemployee Director of the Company. NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein set forth, the parties hereby mutually covenant and agree as follows: 1. Grant of Options. Subject to the terms and conditions of the Plan and this Agreement, the Company grants to the Optionee this option (the "Option") to purchase from the Company all or any part of the aggregate number of 5,000 shares of Common Stock (the "Optioned Shares"), subject to adjustment as provided in Paragraph 6. This Option is intended to constitute a nonqualified stock option and shall not be treated as an incentive stock option within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended. 2. Option Price. The option price to be paid for the Optioned Shares shall be the price per share set forth above, subject to adjustment as provided in Paragraph 6. The per share option price has been determined by the Stock Option Committee (the "Committee") of the Board of Directors of the Company (the "Board") to be not less than 100% of the fair market value of the Common Stock on the Grant Date. 3. Exercise of Option. (a) All rights under this Option are fully vested on the Grant Date. Subject to the terms and conditions of the Plan and except as otherwise provided in this Agreement, this Option may be exercised by the Optionee in whole or in part, from time to time or at any time, beginning on the Grant Date and ending on the tenth anniversary of the Grant Date (the "Termination Date"). (b) If the Optionee ceases to be a Director of the Company for any reason (other than for "cause," the death or disability of the Optionee or the retirement of the Optionee), prior to the Termination Date, this Option, to the extent not theretofore exercised but then permitted to be exercised under the percentage limitations of Paragraph (a), may be exercised by the Optionee or by his legal representative at any time within six months after the date the Optionee ceases to be a Nonemployee Director upon the tender to the Company in cash or its equivalent of the full purchase price (and not by the tender of previously acquired Common Stock), but in no event later than the Termination Date. (c) If the Optionee dies while he is a Nonemployee Director of the Company or is terminated by reason of his retirement or his disability prior to the Termination Date, this Option, to the extent not theretofore exercised, may be exercised in whole or in part as follows: (i) by the legal representative of the Optionee at any time within twelve months after the date of the Optionee's death or (ii) by the Optionee or his legal representative at any time within six months after the termination of the Optionee's status as a Nonemployee Director of the Company by reason of retirement or disability, but in no event later than the Termination Date in either case. (d) If the Optionee is terminated as a Nonemployee Director "for cause," this Option, to the extent not theretofore exercised, shall terminate immediately and shall not be exercisable following such termination. For purposes of this Paragraph 3, termination "for cause" shall mean any termination of the Optionee by reason of any action or omission on the part of the Optionee which is deemed contrary to the interests of the Company or not in the interests of the Company, as determined by the Board or the Company's shareholders in their sole discretion. (e) This Option may be exercised during the life of the Optionee only by the Optionee (or his legal representative as provided in this Paragraph 3). 4. Manner of Exercise and Payment. This Option may be exercised only by written notice to the Company by the Optionee (or his legal representative as provided in Paragraph 3) of the Optionee's (or such legal representative's) intent to exercise all or part of this Option, served upon the Secretary of the Company at its office at Sheboygan, Wisconsin, specifying the number of Optioned Shares in respect to which this Option is being exercised, accompanied by payment of the aggregate option price for such Optioned Shares, at the Optionee's (or such legal representative's) election (except as limited in Paragraph 3): (a) in cash or by certified check or bank draft to the order of the Company; (b) by delivering previously acquired shares of Common Stock, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, valued at their fair market value at the time of exercise as determined by the Committee; or (c) by any combination of (a) and (b). For purposes of (b) and (c) above, the term "previously acquired shares of Common Stock" shall only include Common Stock owned by the Optionee prior to the exercise of this Option and shall not include shares of Common Stock which are being acquired pursuant to the exercise of this Option. Upon receipt of the payment of the aggregate option price for all of the Optioned Shares so purchased, certificates for such Optioned Shares shall be issued by or on behalf of the Company to the Optionee. The Optioned Shares so acquired, upon payment in full of the aggregate option price, shall be fully paid and nonassessable, except as provided by Section 180.0622(2)(b) of the Wisconsin Statutes. 5. Transferability; Limitations. Subject to the limitations of this Paragraph 5, this Option shall be transferable, in whole or in part, upon the surrender of this Option by the Optionee to the Company for one or more new Options of like tenor representing, in the aggregate, the right to purchase the number of shares of Common Stock purchasable hereunder, each of such new Options to represent the right to purchase such number of shares of Common Stock as shall be designated by the Optionee at the time of such surrender, subject to the terms and conditions of the Plan and this Option. This Option may only be transferred by will or by the laws of descent or distribution, or to any member of the Optionee's "immediate family," as such term is defined in Rule 16a-1(e) under the Securities Exchange Act of 1934 (the "Exchange Act") or to trusts, partnerships or other entities established solely for the benefit of members of the Optionee's immediate family; provided, however, that (x) there may be no consideration for any such transfer, (y) subsequent transfers of any portion of this Option must also be in compliance with this Paragraph 5 and (z) promptly after making any such transfer, the Optionee shall provide to the Company the Notice of Transfer of Option attached as Exhibit 1 hereto. In the event of such a permitted transfer of this Option, the transferee shall have all of the rights of the Optionee under the Plan and this Option, as if the Optionee had retained this Option. The terms of this Option shall be binding upon the permitted transferees, executors, administrators, heirs and successors of the Optionee. 6. Adjustment to Optioned Shares and Option Price. In the event of a capital adjustment resulting from a stock dividend (other than a stock dividend in lieu of an ordinary cash dividend), stock split, reorganization, recapitalization, separation, liquidation, Common Stock combination, spin-off, split-up or distribution of assets to shareholders, recapitalization, merger, consolidation, combination or exchange of shares or other like change in the corporate structure of the Company, the Optioned Shares and the per share option price (but not the aggregate option price for all Optioned Shares, as adjusted) shall be adjusted in a manner consistent with such capital adjustment and in accordance with the Plan; provided, however, that no such adjustment shall require the Company to issue any fractional shares and the adjustment shall be limited accordingly as determined by the Committee. The determination of the Committee as to any adjustment shall be final. 2 7. Transfer Restrictions. The Optioned Shares to be acquired upon exercise of this Option may not be sold or offered for sale except pursuant to an effective registration statement under the Securities Act of 1933, as amended ("Act"), or in a transaction which, in the opinion of legal counsel for the Company, is exempt from the registration provisions of the Act. 8. Status of Optionee. The Optionee shall not be deemed for any purposes to be a shareholder of the Company with respect to any of the Optioned Shares except to the extent that this Option shall have been exercised, the aggregate option price for the Optioned Shares purchased shall have been fully paid and a stock certificate shall have been issued by or on behalf of the Company therefor. 9. Status as a Director. It is fully understood that nothing contained in this Agreement or the Plan shall be deemed to confer upon the Optionee any right to continue as a Director of the Company, nor to interfere in any way with the right of the Company to terminate the Optionee at any time. 10. Interpretation by Committee. As a condition of the granting of this Option, the Optionee agrees, for himself and his legal representatives, that the Plan and this Agreement shall be subject to discretionary interpretation by the Committee and that any interpretation by the Committee of the terms of the Plan and this Agreement shall be final, binding and conclusive on the Optionee and his legal representatives in all respects and shall not subject to challenge or dispute by the Optionee or his legal representatives. 11. Change in Control. (a) Notwithstanding any other provision of this Agreement upon the occurrence of a Change in Control (as hereinafter defined) this Option, to the extent then outstanding and unexercised, prior to the Termination Date, the Optionee shall have the right for a period of 30 days following the Change in Control to require the Company to purchase this Option for cash at the aggregate Acceleration Price (as hereinafter defined) for all Optioned Shares then subject to issuance upon exercise of this Option; provided, however, that, if then required by the rules under Section 16 of the Securities Exchange Act of 1934, as amended ("Section 16 Rules"), the Optionee shall have the right to exercise this Option or require the Company to purchase this Option only if at least six months has elapsed between the Grant Date and the Change in Control date. (b) The "Acceleration Price" shall be the excess of the highest of the following over the per share option price set forth above (as the same may be adjusted from time to time pursuant to Paragraph 6) on the Change in Control date: (i) the highest reported ask price of the Common Stock, as reported on NASDAQ or the principal securities exchange or market upon which the Common Stock is then listed or traded, on or within the 60 days prior to and including the Change in Control date; (ii) the highest purchase or sale price of the Common Stock reported in a Schedule 13D or an amendment thereto as paid or received on or within the 60 days prior to and including the Change in Control date; (iii) the highest tender offer price paid or offered for the Common Stock on or within the 60 days prior to and including the Change in Control date; and (iv) the highest cash merger or similar price paid or offered for the Common Stock on or within the 60 days prior to and including the Change of Control date. (c) A "Change in Control" (and the Change in Control date) shall be the occurrence of any one of the following events (certain defined terms used in this Paragraph (c) are defined in Paragraph (d)): (i) the first day of receipt by the Company of a Schedule 13D, any amendment thereto or notice of a public announcement confirming that any Person (other than any employee benefit plan of the Company or of any subsidiary of the Company or any Person organized, appointed or established pursuant to the terms of any such benefit plan or any Person who is a key employee of the Company), together with his 3 Affiliates or Associates, is or becomes the Beneficial Owner of securities representing at least 20% of the combined voting power of the Company; (ii) the first day on which two or more of the members of the Board are not Continuing Directors; (iii) the day on which the shareholders of the Company approve (A) any business combination, consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (iv) the day on which the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company. (d) For purposes of this Paragraph 11: (i) a "Person" shall mean any individual, firm, corporation, partnership, trust or other entity. (ii) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (iii) a Person shall be a "Beneficial Owner" of securities (A) which such Person beneficially owns, directly or indirectly, or (B) which such Person has the right to acquire (whether such right is exercisable immediately or only with the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants, options or otherwise, other than if such Person acquires or has the right to acquire such securities as an underwriter, broker, dealer or selling group member in connection with the public or private distribution of such securities pursuant to an underwriting or similar agreement with the Company. (iv) "Continuing Directors" means any member of the Board who was a member of the Board on December 14, 2000, and any successor of a Continuing Director who is recommended or elected to succeed the Continuing Director by a majority of the remaining Continuing Directors. 12. Modification. At any time and from time to time the Committee may direct execution of an instrument providing for the modification, extension or renewal of this Option; provided, however, that no such modification, extension or renewal shall (a) confer on the Optionee any right or benefit which could not be conferred on him by the grant of a new option under the Plan at such time or (b) alter, impair or adversely affect this Option or Agreement without the written consent of the Optionee. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Optionee has hereunto affixed his signature as of the day and year first above written. SCHULTZ SAV-O STORES, INC. By: --------------------------------------- Elwood F. Winn President and Chief Executive Officer __________________________________________ __________, Optionee 4 Exhibit 1 SCHULTZ SAV-O STORES, INC. NOTICE OF TRANSFER OF STOCK OPTION This Notice is intended to (i) inform Schultz Sav-O Stores, Inc. (the "Company"), that ________ ( the "Optionee") has transferred and assigned to the transferee named below (the "Transferee"), a member of the Optionee's "immediate family," as such term is defined in Rule 16a-1(e) of the Securities Exchange Act of 1934, or a trust, partnership or other entity established solely for the benefit of members of the Optionee's immediate family, all of the Optionee's right, title and interest in and to a nonqualified stock option (or portion thereof described below) to purchase ___________ shares of common stock of the Company at a price of $________ per share, originally granted to the Optionee pursuant to the Nonqualified Stock Option Agreement, dated _______, 200_, issued by the Company to the undersigned (the "Option") and (ii) request the Company to issue a new Option in the name of the Transferee. No consideration has been or will be received by the Optionee in connection with this transfer. The Option has been validly transferred and assigned by the Optionee to the following: - ----------------------------------- ------------------------------------- Name of Transferee Street Address, City, State, Zip Code - ---------------------------------- If entire Option has not been transferred, number of shares underlying the portion transferred - ---------------------------------- ------------------------------------- Signature of Optionee Date of Transfer - ---------------------------------- ------------------------------------- Signature of Transferee Name By executing this Notice, the Transferee hereby agrees to comply with and be subject to the terms and conditions of the Option. Receipt of this Notice is hereby acknowledged this ___ day of ________, 200_. SCHULTZ SAV-O STORES, INC. By: --------------------------------- Name: -------------------------- Title: ------------------------- EX-13 9 0009.txt PORTIONS OF ANNUAL REPORT EXHIBIT 13
Five-Year Financial Highlights ========================================= ============================================================================ (dollars in thousands, except per share Fiscal Year (a) (b) data) - ----------------------------------------- --------------- -------------- --------------- -------------- -------------- 2000 1999 1998 1997 1996 - ----------------------------------------- --------------- -------------- --------------- -------------- -------------- Consolidated statements of earnings data: Net sales $ 502,056 $ 496,959 $ 484,885 $ 473,006 $ 453,921 Gross profit 82,753 80,350 78,070 73,907 72,429 Earnings before income taxes 12,762 13,656 13,916 12,418 10,512 Provision for income taxes 4,849 5,298 5,398 4,781 4,047 Net earnings 7,913 8,358 8,518 7,637 6,465 Earnings per share - basic 1.33 1.32 1.26 1.11 0.93 Earnings per share - diluted 1.33 1.30 1.23 1.06 0.90 Cash dividends per share 0.36 0.34 0.30 0.27 0.24 Weighted average shares and equivalents outstanding (c) 5,951 6,438 6,923 7,148 7,187 Net earnings-to-sales ratio 1.58% 1.68% 1.76% 1.61% 1.42% Consolidated balance sheet data (at fiscal year-end): Working capital $ 30,721 $ 29,797 $ 32,884 $ 29,217 $ 28,579 Total assets 104,899 93,627 104,316 98,866 98,204 Current obligations under capital leases and current maturities of long-term debt 954 842 792 866 1,047 Long-term debt 2,685 2,865 3,021 3,165 3,375 Long-term obligations under capital leases 8,284 9,069 9,764 11,177 12,368 Total shareholders' investment 49,513 47,969 53,085 50,384 47,035 Other data: Capital additions $ 5,278 $ 3,209 $ 3,847 $ 4,868 $ 3,420 Depreciation and amortization 5,215 4,959 5,075 4,517 4,451 NOTES: (a) The Company's fiscal year ends on the Saturday closest to December 31. The 1997 fiscal year was a 53-week period. All other fiscal years presented were 52-week periods. (b) All data should be read in conjunction with the Company's audited consolidated financial statements and "Management's discussion and analysis of financial condition and results of operations" as set forth in this Annual Report. (c) The weighted average shares and equivalents outstanding for 1997 and 1996 have been retroactively restated to account for the three-for-two stock split on September 5, 1997.
MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING The management of Schultz Sav-O Stores, Inc. is responsible for the preparation, objectivity and integrity of the Company's consolidated financial statements contained in the Company's 2000 Annual Report to Shareholders. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best estimates and informed judgments. To help assure that financial information is reliable and assets are safeguarded, management maintains a system of internal controls and procedures which it believes is effective in accomplishing these objectives. These controls and procedures are designed to provide reasonable assurance, at appropriate costs, that transactions are executed and recorded in accordance with management's authorization. The Company's consolidated financial statements have been audited by its independent public accountants, Arthur Andersen LLP, whose report was based on audits conducted in accordance with generally accepted auditing standards and is presented below. As part of its audit, it performs a review of the Company's system of internal controls for the purpose of determining the amount of reliance to place on those controls relative to the audit tests it performs. The Audit Committee of the Board of Directors, composed of directors who are not officers or employees of the Company, meets periodically with Arthur Andersen LLP and management to satisfy itself that each is properly discharging its responsibilities. The independent public accountants have direct access to the Audit Committee. Elwood F. Winn Armand C. Go President and Vice President, Chief Financial Chief Executive Officer Officer, Treasurer and Secretary 2 Report of Independent Public Accountants To the Board of Directors and Shareholders of Schultz Sav-O Stores, Inc.: We have audited the accompanying consolidated balance sheets of Schultz Sav-O Stores, Inc. (a Wisconsin Corporation) and its subsidiary as of December 30, 2000 and January 1, 2000 and the related consolidated statements of earnings, cash flows and shareholders' investment for each of the three fiscal years in the period ended December 30, 2000. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Schultz Sav-O Stores, Inc. and its subsidiary as of December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 8, 2001 3 CONSOLIDATED BALANCE SHEETS As of December 30, 2000 and January 1, 2000
- ----------------------------------------------------------------------------- --------------------- -------------------- Assets 2000 1999 - ----------------------------------------------------------------------------- --------------------- -------------------- Current assets: Cash and equivalents $ 31,309,000 $ 22,433,000 Receivables 11,691,000 6,629,000 Inventories 24,259,000 26,313,000 Other current assets 2,916,000 3,410,000 Deferred income taxes 4,102,000 3,900,000 - ----------------------------------------------------------------------------- --------------------- -------------------- Total current assets 74,277,000 62,685,000 - ----------------------------------------------------------------------------- --------------------- -------------------- Noncurrent receivable under capital subleases 4,163,000 4,531,000 Property under capital leases, net 3,051,000 3,462,000 Other noncurrent assets 1,995,000 2,664,000 Property and equipment, net 21,413,000 20,285,000 - ----------------------------------------------------------------------------- --------------------- -------------------- Total assets $ 104,899,000 $ 93,627,000 ============================================================================= ===================== ==================== Liabilities and Shareholders' Investment - ----------------------------------------------------------------------------- --------------------- -------------------- Current liabilities: Accounts payable $ 27,700,000 $ 19,545,000 Accrued salaries and benefits 5,673,000 5,284,000 Accrued insurance 3,032,000 3,002,000 Retail repositioning reserve 495,000 450,000 Other accrued liabilities 5,702,000 3,765,000 Current obligations under capital leases 785,000 696,000 Current maturities of long-term debt 169,000 146,000 - ----------------------------------------------------------------------------- --------------------- -------------------- Total current liabilities 43,556,000 32,888,000 - ----------------------------------------------------------------------------- --------------------- -------------------- Long-term obligations under capital leases 8,284,000 9,069,000 Long-term debt 2,685,000 2,865,000 Deferred income taxes 861,000 836,000 Shareholders' investment: Common stock, $0.05 par value, authorized 20,000,000 shares, issued 8,750,342 in 2000 and 1999 438,000 438,000 Additional paid-in capital 15,174,000 14,961,000 Retained earnings 69,767,000 63,995,000 Treasury stock at cost, 3,165,213 shares in 2000 and 2,808,997 shares in 1999 (35,866,000) (31,425,000) - ----------------------------------------------------------------------------- --------------------- -------------------- Total shareholders' investment 49,513,000 47,969,000 - ----------------------------------------------------------------------------- --------------------- -------------------- Total liabilities and shareholders' investment $ 104,899,000 $ 93,627,000 ============================================================================= ===================== ====================
See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF EARNINGS For fiscal years 2000, 1999 and 1998
- ----------------------------------------------------------- ------------------- ------------------- -------------------- 2000 1999 1998 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Net sales $ 502,056,000 $ 496,959,000 $ 484,885,000 Cost of products sold 419,303,000 416,609,000 406,815,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Gross profit 82,753,000 80,350,000 78,070,000 Operating and administrative expenses 70,488,000 67,108,000 64,580,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Operating income 12,265,000 13,242,000 13,490,000 Interest income 1,349,000 1,175,000 1,242,000 Interest expense (852,000) (761,000) (816,000) - ----------------------------------------------------------- ------------------- ------------------- -------------------- Earnings before income taxes 12,762,000 13,656,000 13,916,000 Provision for income taxes 4,849,000 5,298,000 5,398,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Net earnings $ 7,913,000 $ 8,358,000 $ 8,518,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Earnings per share - basic $1.33 $1.32 $1.26 =========================================================== =================== =================== ==================== Earnings per share - diluted $1.33 $1.30 $1.23 =========================================================== =================== =================== ====================
See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS For fiscal years 2000, 1999 and 1998
- ----------------------------------------------------------- ------------------- ------------------- -------------------- 2000 1999 1998 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Cash flows from operating activities: Net earnings $ 7,913,000 $ 8,358,000 $ 8,518,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,215,000 4,959,000 5,075,000 Deferred income taxes (177,000) 481,000 (422,000) Changes in current assets and liabilities: Receivables (5,062,000) (1,176,000) 4,265,000 Inventories 2,054,000 (2,362,000) (2,210,000) Other current assets 544,000 (630,000) 1,222,000 Accounts payable 8,155,000 (4,473,000) 2,713,000 Accrued liabilities 2,612,000 310,000 2,264,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Net cash flows from operating activities 21,254,000 5,467,000 21,425,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Cash flows from investing activities: Capital expenditures (5,278,000) (3,209,000) (3,847,000) Receipt of principal amounts under capital subleases 326,000 407,000 443,000 Other investing activities 8,000 311,000 300,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Net cash flows from investing activities (4,944,000) (2,491,000) (3,104,000) - ----------------------------------------------------------- ------------------- ------------------- -------------------- Cash flows from financing activities: Payment for acquisition of treasury stock (6,067,000) (12,864,000) (5,031,000) Payment of cash dividends (2,141,000) (2,155,000) (2,025,000) Exercise of stock options 1,602,000 924,000 806,000 Principal payments on capital lease obligations (696,000) (655,000) (665,000) Principal payments on long-term debt (156,000) (146,000) (210,000) Other financing activities 24,000 19,000 14,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Net cash flows from financing activities (7,434,000) (14,877,000) (7,111,000) - ----------------------------------------------------------- ------------------- ------------------- -------------------- Cash and equivalents: Net change 8,876,000 (11,901,000) 11,210,000 Balance, beginning of year 22,433,000 34,334,000 23,124,000 - ----------------------------------------------------------- ------------------- ------------------- -------------------- Balance, end of year $ 31,309,000 $ 22,433,000 $ 34,334,000 =========================================================== =================== =================== ====================
See notes to consolidated financial statements. 6 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT For fiscal years 2000, 1999 and 1998
- ---------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount - ---------------------------------------------------------------------------------------------------------------------- Common Stock, $0.05 par Beginning of year 8,750,342 $438,000 8,750,342 $438,000 8,750,342 $438,000 - ---------------------------------------------------------------------------------------------------------------------- End of year 8,750,342 438,000 8,750,342 438,000 8,750,342 438,000 ====================================================================================================================== Additional Paid-in Capital Beginning of year 14,961,000 14,359,000 13,940,000 Tax benefits from exercise of stock options 213,000 602,000 419,000 - ---------------------------------------------------------------------------------------------------------------------- End of year 15,174,000 14,961,000 14,359,000 ====================================================================================================================== Retained Earnings Beginning of year 63,995,000 57,792,000 51,299,000 Net earnings 7,913,000 8,358,000 8,518,000 Cash dividends Common stock ($0.36 per share in 2000, $0.34 per share in 1999 and $0.30 per share in 1998) (2,141,000) (2,155,000) (2,025,000) - ---------------------------------------------------------------------------------------------------------------------- End of year 69,767,000 63,995,000 57,792,000 ====================================================================================================================== Treasury Stock Beginning of year (2,808,997) (31,425,000) (2,155,463) (19,504,000) (1,938,463) (15,293,000) Acquisition of treasury stock (558,540) (6,067,000) (821,600) (12,864,000) (335,950) (5,031,000) Exercise of stock options 200,100 1,602,000 166,750 924,000 118,050 806,000 Other 2,224 24,000 1,316 19,000 900 14,000 - ---------------------------------------------------------------------------------------------------------------------- End of year (3,165,213) (35,866,000) (2,808,997) (31,425,000) (2,155,463) (19,504,000) ====================================================================================================================== Shareholders' investment, end of year $49,513,000 $47,969,000 $53,085,000 ======================================================================================================================
See notes to consolidated financial statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For fiscal years 2000, 1999 and 1998 (1) Description of Business The Company is engaged in the food distribution business through franchised and corporate retail supermarkets and as a supplier to independent food stores. The franchised and corporate retail Piggly Wiggly(R) supermarkets and independent food stores supplied by the Company are located in eastern Wisconsin and northeastern Illinois. In an agreement with the owner of the Piggly Wiggly franchise in 1998, the Company expanded its geographic marketing area to include all of Wisconsin, Michigan's Upper Peninsula, portions of Minnesota and Iowa, and additional counties in Illinois. (2) Summary of Significant Accounting Policies Fiscal year The Company's fiscal year ends on the Saturday closest to December 31. The 2000, 1999 and 1998 fiscal years were 52-week periods ended December 30, 2000, January 1, 2000, and January 2, 1999, respectively. Revenue recognition Wholesale revenue is recognized at the time products are shipped, as shipments are F.O.B. shipping point. Retail revenue is recognized at the point of sale. Principles of consolidation The consolidated financial statements include the accounts of Schultz Sav-O Stores, Inc. and its wholly-owned subsidiary, PW Trucking, Inc. Intercompany accounts and transactions have been eliminated. Cash and equivalents Cash and equivalents consist of demand deposits at commercial banks and highly liquid investments with a maturity of three months or less when purchased. Cash equivalents are stated at cost which approximate market value. Receivables Receivables are shown net of allowance for doubtful accounts of $3,850,000 and $4,300,000 at December 30, 2000 and January 1, 2000, respectively. Inventories Inventories, substantially all of which consist of food, groceries and related products for resale, are stated at the lower of cost or market value. Cost is determined primarily on the last-in, first-out (LIFO) method. For meat and produce, cost is determined on the first-in, first-out (FIFO) method. At December 30, 2000 and January 1, 2000, 79% and 81%, respectively, of all inventories were accounted for under the LIFO method. The excess of current cost over the stated LIFO cost of inventory was $10,284,000 and $9,872,000 at December 30, 2000 and January 1, 2000, respectively. 8 Other current assets Other current assets at December 30, 2000 and January 1, 2000 consisted of the following: ---------------------------------------- -------------- ---------------- 2000 1999 ---------------------------------------- -------------- ---------------- Prepaid expenses $1,417,000 $1,500,000 Property held for resale 647,000 1,088,000 Retail systems and supplies for resale 484,000 496,000 Receivable under capital subleases 368,000 326,000 ---------------------------------------- -------------- ---------------- Other current assets $2,916,000 $3,410,000 ======================================== ============== ================ Property and equipment, net Property and equipment are stated at cost. Depreciation is amortized on the straight-line method over the estimated useful lives of the assets. Equipment generally has a useful life of 4 to 7 years; computer hardware and software have a useful life of 3 to 5 years; buildings and land improvements have a useful life of 10 to 35 years; and leasehold improvements generally have a useful life of 10 to 20 years. Facility remodeling and upgrade costs on leased stores are capitalized as leasehold improvements and are amortized over the shorter of the remaining lease term or the useful life of the asset. Upon disposal, the appropriate asset cost and accumulated depreciation are retired. Gains and losses on disposition are included in earnings. Property and equipment, net, at December 30, 2000 and January 1, 2000 consisted of the following: - ----------------------------------------------- --------------- --------------- 2000 1999 - ----------------------------------------------- --------------- --------------- Land and buildings $18,939,000 $18,842,000 Leasehold improvements 5,609,000 5,772,000 Equipment and fixtures 39,032,000 35,375,000 - ----------------------------------------------- --------------- --------------- 63,580,000 59,989,000 Less accumulated depreciation and amortization (42,167,000) (39,704,000) - ----------------------------------------------- --------------- --------------- Property and equipment, net $21,413,000 $20,285,000 =============================================== =============== =============== Other noncurrent assets Other noncurrent assets, net of accumulated amortization of $3,385,000 and $2,716,000, at December 30, 2000 and January 1, 2000 consisted of the following: -------------------------------- ---------------- ------------------ 2000 1999 -------------------------------- ---------------- ------------------ Capitalized software, net $963,000 $1,475,000 Goodwill, net 717,000 777,000 Other intangibles, net 136,000 227,000 Other 179,000 185,000 -------------------------------- ---------------- ------------------ Total $1,995,000 $2,664,000 ================================ ================ ================== The Company regularly reviews the carrying value of capitalized software cost. A loss may be recognized when the value of estimated undiscounted cash flow benefit related to the asset falls below the unamortized cost. Accounts payable Accounts payable includes $11,537,000 and $6,277,000 at December 30, 2000 and January 1, 2000, respectively, of issued checks that have not cleared the Company's disbursing bank accounts. 9 Retail repositioning reserve Estimated repositioning and termination expenses associated with the closure, replacement or disposal of stores, consisting primarily of lease payments, charges to reduce assets to net realizable value and severance payments, are charged to operating and administrative expenses upon the decision to close, replace or dispose of a store as soon as the amounts are reasonably estimated. Due to inherent uncertainties in estimating these repositioning and termination costs, it is at least reasonably possible that the Company's estimates may change in the near term. Supplementary disclosure of cash flow information Interest and taxes paid included in the Company's cash flow from operations were as follows: -------------------- ---------------- ---------------- ----------------- 2000 1999 1998 -------------------- ---------------- ---------------- ----------------- Interest paid $851,000 $760,000 $822,000 Taxes paid 4,873,000 4,649,000 4,956,000 -------------------- ---------------- ---------------- ----------------- Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 periods. Actual results could differ from those estimates. Advertising costs Costs incurred for producing and communicating advertising are generally expensed when incurred. Reclassifications Certain 1999 and 1998 amounts previously reported have been reclassified to conform to the 2000 presentation. New accounting pronouncements In September 2000, the Financial Accounting Standards Board issued its final consensus on Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs". The Company has historically presented shipping revenues as a component of net sales and the related costs of getting goods to the warehouse as part of cost of goods sold and the costs of shipping goods to customers as part of operating and administrative expenses. Shipping and handling costs included in operating and administrative expenses were $5,567,000, $5,355,000 and $5,201,000, in 2000, 1999, and 1998, respectively. In May 2000, the EITF also issued No. 00-14, "Accounting for Certain Sales Incentives". Issue 00-14 addresses the recognition, measurement, and income statement classification for sales incentives offered voluntarily by a vendor without charge to customers that can be used in, or that are exercisable by a customer as a result of, a single exchange transaction. This pronouncement will be adopted during fiscal 2001. Management is in the process of quantifying the potential impact of this change. (3) Long-Term Debt The Company has a loan agreement providing unsecured revolving credit facilities totaling $16,000,000 through April 30, 2003. This arrangement provides for borrowings at rates not to exceed the bank's 10 prime rate. There are no compensating balance requirements. There were no borrowings under this agreement during 2000 or 1999. Long-term debt at December 30, 2000 and January 1, 2000 consisted of the following: ------------------------------------------------------------------------------- 2000 1999 ------------------------------------------------------------------------------- Mortgage note, 9.675%, due in monthly $2,754,000 $2,878,000 installments of $33,026 including interest due through June 2012 Land contract, 10.0%, due in annual installments of $33,333 through March 2003 100,000 133,000 ------------------------------------------------------------------------------- 2,854,000 3,011,000 Less current maturities (169,000) (146,000) ------------------------------------------------------------------------------- Long-term debt $2,685,000 $2,865,000 =============================================================================== At December 30, 2000, the fair value of the long-term debt was not materially different from the carrying value. The revolving credit and term note agreements contain various covenants including, among others, the maintenance of defined working capital, net worth requirements, certain debt-equity ratios, restrictions against pledging of or liens upon certain assets, mergers, significant changes in ownership and limitations on restricted payments. The total amount of long-term debt due in each of the fiscal years 2001 through 2005 will be $169,000, $182,000, $196,000, $180,000 and $198,000, respectively, and $1,929,000 from 2006 to 2012. Interest expense consisted of the following: --------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------- Interest on long-term debt $287,000 $302,000 $315,000 Imputed interest-capital leases 565,000 445,000 473,000 Other - 14,000 28,000 --------------------------------------------------------------------------- Interest expense $852,000 $761,000 $816,000 =========================================================================== (4) Income Taxes The difference between the statutory federal income tax rate and the effective rate is summarized as follows: -------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------------- Federal income tax 34.0% 34.0% 34.2% State income taxes, net of federal income tax benefit 4.8 4.5 4.7 Other, net (0.8) 0.3 (0.1) -------------------------------------------------------------------- Effective income tax rate 38.0% 38.8% 38.8% ==================================================================== Components of provision for income taxes consisted of the following: ------------------------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------------------------- Currently payable Federal $4,076,000 $3,934,000 $4,779,000 State 950,000 883,000 1,041,000 Deferred (177,000) 481,000 (422,000) ------------------------------------------------------------------------- Provision for income taxes $4,849,000 $5,298,000 $5,398,000 ========================================================================= 11 The components of deferred income tax assets and liabilities at December 30, 2000 and January 1, 2000 were as follows: ----------------------------------------------------------------------- 2000 1999 ----------------------------------------------------------------------- Deferred income tax assets: Bad debt reserve $1,502,000 $1,677,000 Accrued insurance 1,195,000 1,182,000 Capital lease accounting 743,000 727,000 Vacation pay 718,000 652,000 Retail repositioning reserve 193,000 176,000 Other 585,000 747,000 ----------------------------------------------------------------------- Total deferred income tax assets 4,936,000 5,161,000 ----------------------------------------------------------------------- Deferred income tax liabilities: Property and equipment (1,618,000) (2,025,000) Pension (77,000) (72,000) ----------------------------------------------------------------------- Total deferred income tax liabilities (1,695,000) (2,097,000) ----------------------------------------------------------------------- Net deferred income tax assets $3,241,000 $3,064,000 ======================================================================= The Company currently has no requirements for a valuation allowance for its deferred income tax assets. The net deferred income tax assets as of December 30, 2000 and January 1, 2000 were classified in the balance sheet as follows: ------------------------------------------ ---------------- ---------------- 2000 1999 ------------------------------------------ ---------------- ---------------- Current deferred income tax asset $4,102,000 $3,900,000 Noncurrent deferred income tax liability (861,000) (836,000) ------------------------------------------ ---------------- ---------------- Net deferred income tax assets $3,241,000 $3,064,000 ========================================== ================ ================ (5) Commitments and Contingent Liabilities As of December 30, 2000, the Company was contingently liable under guarantees of bank note agreements of wholesale customers totaling $17,985,000. All of the loan guarantees are substantially collateralized, principally with equipment and inventory, and to a lesser extent, with building facilities. Capital expenditure commintments made by the Company as of December 30, 2000 were approximately $4,150,000. (6) Retirement Plans The Company has a trusteed retirement savings defined contribution plan, which includes provisions of Section 401(k) of the Internal Revenue Code, for the benefit of its non-union eligible employees. Annual provisions are based on a mandatory 5% of eligible participant compensation and additional amounts at the sole discretion of the Board of Directors. Provisions for the three fiscal years ended 2000, 1999 and 1998 were $975,000, $930,000 and $890,000, respectively. The plan allows participants to make pretax contributions. The Company then matches certain percentages of employee contributions. The Company's matching contributions for 2000, 1999 and 1998 were $95,000, $90,000 and $82,000, respectively. The Company has union-administered multi-employer pension plans covering all hourly paid employees represented by collective bargaining agreements. Total pension expense was $1,814,000, $1,696,000 and $1,616,000 in fiscal years 2000, 1999 and 1998, respectively. 12 (7) Leases The Company leases most of its retail stores under lease agreements with original lease periods of 15 to 20 years and typically with five-year renewal options. Exercise of such options is dependent on, among others, the level of business conducted at the location. Executory costs, such as maintenance and real estate taxes, are generally the Company's responsibility. In a majority of situations, the Company will enter into a lease for a store and sublease the store to a wholesale customer. Additionally, the Company leases transportation equipment, principally tractors and trailers, corporate office space and certain office equipment. Some leases contain contingent rental provisions based on sales volume at retail stores or miles traveled for tractors and trailers. Contingent rental expense associated with the Company's capital leases and sublease income was not material to the Company's financial statements. Capitalized leases were calculated using interest rates appropriate at the inception of each lease. A summary of real property utilized by the Company under capital leases at December 30, 2000 and January 1, 2000 was as follows: ----------------------------------------------------------------------- 2000 1999 ----------------------------------------------------------------------- Investments in leased property under capital leases $6,514,000 $6,514,000 Less accumulated amortization (3,463,000) (3,052,000) ----------------------------------------------------------------------- Property under capital leases, net $3,051,000 $3,462,000 ======================================================================= Amortization of leased property under capital leases, included in operating and administrative expenses, amounted to $411,000, $287,000 and $287,000 in fiscal years 2000, 1999, 1998, respectively. The following is a schedule of future minimum lease payments under capital leases and subleases and the present value of such payments as of December 30, 2000: - -------------------------------------------------------------------------------- Capital lease Capital sublease obligations receivables - -------------------------------------------------------------------------------- 2001 $1,841,000 $907,000 2002 1,841,000 907,000 2003 1,852,000 918,000 2004 1,656,000 923,000 2005 1,698,000 932,000 2006-2009 5,391,000 2,567,000 - -------------------------------------------------------------------------------- Total minimum lease payments 14,279,000 7,154,000 Less interest (5,210,000) (2,623,000) - -------------------------------------------------------------------------------- Present value of minimum lease payments and amounts receivable 9,069,000 4,531,000 Less current portion (785,000) (368,000) - -------------------------------------------------------------------------------- Long-term obligations and receivable $8,284,000 $4,163,000 ================================================================================ 13 The following is a schedule of future minimum lease payments required under operating leases for retail stores, transportation equipment, corporate office space and office equipment that have noncancelable lease terms in excess of one year as of December 30, 2000: ------------------------------------------------------ ------------------ 2001 $11,641,000 2002 11,523,000 2003 11,309,000 2004 10,860,000 2005 10,437,000 2006-2020 87,468,000 ------------------------------------------------------ ------------------ Total minimum lease payments 143,238,000 Less minimum amounts receivable under noncancelable subleases (106,787,000) ------------------------------------------------------ ------------------ Net minimum lease payments $36,451,000 ------------------------------------------------------ ------------------ Rental expenses, net of rental income from subleases, for all operating leases amounted to $5,260,000, $5,010,000 and $4,589,000 in fiscal years 2000, 1999 and 1998, respectively. These amounts include $1,035,000, $1,054,000 and $957,000, respectively, for contingent rentals. (8) Stock Option Plans The Company has stock option plans which provide for the grant of either incentive or nonqualified stock options to key employees. The exercise price of each option is equal to the market price of the Company's stock on the date of grant. Prior to year 2000, options granted are exercisable for seven years from the date of grant. Beginning in January 2000, options granted are now exercisable for ten years from the date of grant. The options continue to vest ratably over the first three years. Such vesting may be accelerated by the Stock Option Committee of the Board of Directors or upon a change in control of the Company, as defined by the plans. In fiscal 1996, the Company adopted the disclosure requirements of FAS No. 123. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under FAS No. 123, the Company's net earnings would have been reduced to the following pro forma amounts below: ----------------------------- --------------- --------------- --------------- 2000 1999 1998 ----------------------------- --------------- --------------- --------------- Net earnings As reported $7,913,000 $8,358,000 $8,518,000 Pro forma 7,577,000 8,012,000 8,181,000 ----------------------------- --------------- --------------- --------------- Earnings per share-diluted As reported $1.33 $1.30 $1.23 Pro forma 1.27 1.24 1.18 ============================= =============== =============== =============== The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998: ----------------------------- ---------------- --------------- -------------- 2000 1999 1998 ----------------------------- ---------------- --------------- -------------- Dividend yield 2.00% 2.00% 2.00% Expected volatility 25.01% 25.91% 26.81% Risk-free interest rate 6.57% 4.75% 5.49% Expected term of grant 5.5 years 5.5 years 5.5 years ============================= ================ =============== ============== The fair values of each option granted in 2000, 1999 and 1998 were $3.48, $4.27 and $4.28, respectively. 14 As of December 30, 2000, no incentive stock options have been granted. Following is a summary of the status of nonqualified stock options for the fiscal years 2000, 1999 and 1998: ----------------------------------- ------------------ -------------------- Weighted average Number of shares exercise prices ----------------------------------- ------------------ -------------------- Shares under option at January 3, 1998 639,300 $7.40 Granted 151,500 15.00 Exercised (118,050) 6.83 ----------------------------------- ------------------ -------------------- Shares under option at January 2, 1999 672,750 9.21 Granted 165,700 16.13 Exercised (166,750) 5.54 Forfeited (27,500) 14.81 ----------------------------------- ------------------ -------------------- Shares under option at January 1, 2000 644,200 11.70 Granted 187,200 11.84 Exercised (200,100) 8.01 Forfeited (28,600) 14.38 ----------------------------------- ------------------ -------------------- Shares under option at December 30, 2000 602,700 12.85 =================================== ================== ==================== Shares reserved for grant at December 30, 2000 424,600 =================================== ================== ==================== Options granted in February 2001 252,000 $11.63 =================================== ================== ==================== When options were exercised, the Company realized certain income tax benefits. These benefits resulted in a decrease in current income taxes payable and a corresponding increase in additional paid-in capital. Exercise prices for options outstanding as of December 30, 2000 ranged from $6.50 to $16.13. The weighted average remaining contractual life of these options is approximately 4 years. Nonqualified stock options outstanding at December 30, 2000, January 1, 2000 and January 2, 1999 were exercisable for 289,500, 363,900 and 402,750 shares. These shares were exercisable at the weighted average prices of $12.09, $9.29 and $6.96 at December 30, 2000, January 2, 1999 and January 3, 1998, respectively. (9) Common Stock Prior to January 6, 1999, common shares issued and issuable included one associated common stock purchase right which entitled shareholders to purchase one share of common stock from the Company at an exercise price equivalent to $14 per share. The rights became exercisable after a person acquired beneficial ownership of 20% or more of the Company's common stock. The rights did not have any voting rights and would have been redeemed at a price of $0.0067 per right. On January 6, 1999, these rights expired pursuant to their terms. (10) Earnings Per Share Basic earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding and common stock equivalents during the year. Common stock equivalents used in computing diluted earnings per share related to stock options which, if exercised, would have a dilutive effect on earnings per share. The Company had antidilutive shares for 2000, 1999 and 1998 of $441,000, $153,700 and none, respectively. 15 The Company's calculations of earnings per share-basic and earnings per share-diluted were as follows: - ------------------------------------- ------------- ------------- ------------- 2000 1999 1998 - ------------------------------------- ------------- ------------- ------------- Net earnings available for common shareholders $7,913,000 $8,358,000 $8,518,000 Weighted average shares outstanding 5,935,000 6,336,000 6,749,000 Earnings per share-basic $1.33 $1.32 $1.26 - ------------------------------------- ------------- ------------- ------------- Net earnings available for common shareholders $7,913,000 $8,358,000 $8,518,000 Weighted average shares outstanding 5,935,000 6,336,000 6,749,000 Stock options' dilutive effect 16,000 102,000 174,000 Weighted average shares and equivalents outstanding 5,951,000 6,438,000 6,923,000 Earnings per share-diluted $1.33 $1.30 $1.23 - ------------------------------------- ------------- ------------- ------------- (11) Segment Reporting The Company's operations are classified into two reportable business segments, wholesale and retail. The operational performance of both wholesale and retail segments are managed and evaluated by management. The wholesale segment represents the Company's business activities relating to food wholesale distribution. At December 30, 2000, the Company provided products to 71 franchised units, 19 corporate stores and a number of independent retail stores. The wholesale segment includes warehousing, transportation and other logistical functions, and derives its revenues primarily from the sale of groceries, produce, dairy, meat and cigarette products to the Company's franchised, corporate and independent retail customers. The retail segment relates to the Company's retail supermarket activities. Revenues are realized through the sale of groceries, dairy, produce, meat, bakery, deli and other merchandise by the Company's corporate retail stores to retail consumers. The accounting policies of the two segments are the same as those described in the Summary of Significant Accounting Policies. The Company's management utilizes several measurement tools in evaluating each segment's performance and each segment's resource requirements. However, the principal measurement tools are consistent with the Company's consolidated financial statements and accordingly are reported on a similar basis. Wholesale operating profits on sales through the Company's corporate stores are allocated to the retail segment. The "corporate" heading includes corporate-related items, principally cash and equivalents. As it relates to operating income, "corporate" heading includes corporate-related items allocated to the appropriate segments. 16 Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands). - --------------------------------- --------------- --------------- -------------- Sales 2000 1999 1998 - --------------------------------- --------------- --------------- -------------- Wholesale sales $ 409,437 $ 411,913 $ 404,047 Intracompany sales (114,910) (123,376) (123,912) --------------- --------------- -------------- Net wholesale sales 294,527 288,537 280,135 Retail sales 207,529 208,422 204,750 - --------------------------------- --------------- --------------- -------------- Total $ 502,056 $ 496,959 $ 484,885 ================================= =============== =============== ============== - --------------------------------- --------------- --------------- -------------- Earnings before income taxes 2000 1999 1998 - --------------------------------- --------------- --------------- -------------- Wholesale $ 9,351 $ 9,870 $ 9,749 Retail 2,914 3,372 3,741 --------------- --------------- -------------- Total operating income 12,265 13,242 13,490 Interest income 1,349 1,175 1,242 Interest expense (852) (761) (816) - --------------------------------- --------------- --------------- -------------- Earnings before income taxes $ 12,762 $ 13,656 $ 13,916 ================================= =============== =============== ============== - --------------------------------- --------------- --------------- -------------- Capital Expenditures 2000 1999 1998 - --------------------------------- --------------- --------------- -------------- Wholesale $ 378 $ 199 $ 149 Retail 2,214 1,869 2,443 Corporate 2,686 1,141 1,255 - --------------------------------- --------------- --------------- -------------- Total $ 5,278 $ 3,209 $ 3,847 ================================= =============== =============== ============== - --------------------------------- --------------- --------------- -------------- Depreciation and Amortization 2000 1999 1998 - --------------------------------- --------------- --------------- -------------- Wholesale $ 829 $ 820 $ 933 Retail 3,001 2,450 2,457 Corporate 1,385 1,689 1,685 - --------------------------------- --------------- --------------- -------------- Total $ 5,215 $ 4,959 $ 5,075 ================================= =============== =============== ============== - --------------------------------- --------------- --------------- -------------- Identifiable Assets 2000 1999 1998 - --------------------------------- --------------- --------------- -------------- Wholesale $ 31,764 $ 33,941 $ 32,040 Retail 28,260 28,546 26,550 Corporate 44,875 31,140 45,726 - --------------------------------- --------------- --------------- -------------- Total $ 104,899 $ 93,627 $ 104,316 ================================= =============== =============== ============== 17 Unaudited Quarterly Financial Information The Company generally includes sixteen weeks in its first quarter and twelve weeks in each subsequent quarter. Summarized quarterly and annual financial information for fiscal years 2000 and 1999 follows:
- --------------------------------------------- --------------------------------------------------------------------- (dollars and shares in thousands, except per Share data) Fiscal Year Ended December 30, 2000 - --------------------------------------------- --------------------------------------------------------------------- First Second Third Fourth Year - -------------------------------------- -------------- -------------- --------------- -------------- --------------- Net sales $147,688 $116,459 $116,341 $121,568 $502,056 Gross profit 24,459 19,471 18,843 19,980 82,753 Net earnings 1,869 1,903 1,555 2,586 7,913 Earnings per share - basic 0.31 0.32 0.26 0.44 1.33 Earnings per share - diluted 0.31 0.32 0.26 0.44 1.33 Weighted average shares and equivalents outstanding 5,999 5,989 5,951 5,916 5,951 - -------------------------------------- -------------- -------------- --------------- -------------- --------------- - --------------------------------------------- --------------------------------------------------------------------- (dollars and shares in thousands, except per share data) Fiscal Year Ended January 1, 2000 - --------------------------------------------- --------------------------------------------------------------------- First Second Third Fourth Year - -------------------------------------- -------------- -------------- --------------- -------------- --------------- Net sales $146,951 $115,124 $113,406 $121,478 $496,959 Gross profit 23,796 18,748 18,353 19,453 80,350 Net earnings 1,831 2,038 1,673 2,816 8,358 Earnings per share - basic 0.28 0.32 0.27 0.47 1.32 Earnings per share - diluted 0.27 0.31 0.26 0.46 1.30 Weighted average shares and equivalents outstanding 6,756 6,601 6,421 6,095 6,438 - -------------------------------------- -------------- -------------- --------------- -------------- ---------------
Common Stock Information The Company's common stock is traded over-the-counter on the Nasdaq Stock Market under the symbol SAVO. There are approximately 1,200 shareholders of the Company's common stock. An analysis of the high and low last sale stock prices by quarter and for the last three years are as follows:
- -------- ------------------ ------------------- ------------------- ------------------- ------------------ First Second Third Fourth Year - -------- ------------------ ------------------- ------------------- ------------------- ------------------ High Low High Low High Low High Low High Low 2000 $13.00 $ 9.88 $12.00 $10.25 $12.06 $10.50 $12.00 $10.63 $13.00 $ 9.88 1999 17.38 15.88 17.13 16.00 16.50 15.75 15.75 11.25 17.38 11.25 1998 17.75 15.00 17.50 15.50 16.00 15.13 16.50 15.50 17.75 15.00 - -------- -------- --------- --------- --------- --------- --------- --------- --------- -------- ---------
Cash dividends paid per share were:
- -------- ------------------ ------------------ ------------------ ------------------ ------------------ First Second Third Fourth Year - -------- ------------------ ------------------ ------------------ ------------------ ------------------ 2000 $0.09 $0.09 $0.09 $0.09 $0.36 1999 0.08 0.08 0.09 0.09 0.34 1998 0.07 0.07 0.08 0.08 0.30 - -------- ------------------ ------------------ ------------------ ------------------ ------------------
Under the Company's loan agreements, approximately $6,100,000 of retained earnings were available for the payment of cash dividends, stock repurchases and other restricted payments at December 30, 2000. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects", "projects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives, strategies or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties including, but not limited to, the following: (i) presence of intense competitive market activity in the Company's market areas; (ii) ability to identify and develop new market locations and opportunities for expansion purposes; (iii) continuing ability to obtain reasonable vendor marketing funds for promotional purposes; (iv) ongoing advancing information technology requirements, which may require the Company to spend substantial capital expenditures and can dilute the Company's earnings for a significant period; and (v) the Company's ability to continue to recruit, train and retain quality franchise and corporate retail store operators. Due principally to the competitive nature of the industry and to the quality of its retail store operators, the Company continues to evaluate various courses of action relating to its underperforming retail operations. These courses of action include closures, conversions and consolidations of retail stores. Implementation of these actions can result in certain repositioning charges to the Company. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Results of Operations The following table sets forth certain items from the Company's Consolidated Statements of Earnings as a percent of net sales and the year-to-year percentage changes in the amounts of such line items.
- --------------------------------------- ------------------------------------------ ------------------------------ Percent of net sales Percentage change - --------------------------------------- ------------------------------------------ ------------------------------ 2000 1999 1998 2000 1999 vs. 1999 vs. 1998 - --------------------------------------- ------------- -------------- ------------- -------------- --------------- Net sales 100.0% 100.0% 100.0% 1.0% 2.5% Gross margin 16.5% 16.2% 16.1% 3.0% 2.9% Operating and administrative expenses 14.0% 13.5% 13.3% 5.0% 3.9% Earnings before income taxes 2.5% 2.7% 2.9% (6.5%) (1.9%) Net earnings 1.6% 1.7% 1.8% (5.3%) (1.9%) - --------------------------------------- ------------- -------------- ------------- -------------- ---------------
2000 vs. 1999 Net Sales Net sales for 2000 were $502.1 million, compared to $497.0 million for 1999. This was the first time in the Company's history that the half-billion dollar annual sales volume milestone was reached. The increase of $5.1 million, or 1.0%, was due to increased net wholesale sales. Net wholesale sales in 2000 increased 2.1% to $294.5 million, compared to $288.5 million in 1999. The net wholesale sales improvement was attributable to the following: 19 o The successful conversion to the Piggly Wiggly program of two new market franchise stores in Niagara and Winneconne, Wisconsin from other wholesalers during the third quarter of 1999; o The successful conversion to the Piggly Wiggly program of one new market franchise unit in Markesan, Wisconsin from another wholesaler in January 2000; and o The completion of one new market franchise supermarket in Kewaskum, Wisconsin in June 2000. The conversion of one franchise supermarket into a corporate store in November 1999 and additional competitive activities in certain franchise market areas offset some of the net wholesales sales volume increase. Retail sales decreased nominally to $207.5 million in 2000, compared to $208.4 million in 1999. This decrease was principally attributable to several of the Company's retail stores experiencing intense competitive pressures. As part of the Company's continuing efforts to expand its "virtual chain" program, a new 55,000 square-foot franchise replacement supermarket was completed in January 2001 in Slinger, Wisconsin. There are currently four additional facility projects in various phases of planning or construction with completions scheduled throughout 2001. These projects include one replacement franchise unit in Campbellsport, Wisconsin; one expanded franchise store in Mequon, Wisconsin; and two replacement corporate stores in Sheboygan, Wisconsin and Zion, Illinois, respectively. Additionally, the Company announced on January 31, 2001, an agreement to convert a retail supermarket owned and operated by Kohler Company into a Piggly Wiggly franchise unit before the end of the second quarter of 2001. These five facility projects and one new market franchise store will increase aggregate selling space by nearly 75,000 square feet and should contribute to potentially increased wholesale sales in 2001. Based on the Company's internal wholesale price index, inflation did not have a significant effect on sales between years. Gross Margin Gross margin increased to 16.5% in 2000 from 16.2% in 1999. This improvement, primarily due to retail operations, was attributable to merchandising and product promotional mix changes that were initiated in the beginning of 2000. During 1999 gross margin was adversely impacted by certain merchandising promotional events such as the 50th anniversary of Piggly Wiggly promotion. Operating and Administrative Expenses Operating and administrative expenses, as a percent of sales, increased to 14.0% in 2000, compared to 13.5% in 1999. This increase of 0.5%, or $3.4 million, was principally attributable to the following factors: o Due primarily to three retail union health and accident rate increases between September 1, 1999 and February 1, 2000, the Company incurred additional health and accident insurance expenses of approximately $1.1 million, or an increase of 33%, compared to 1999 levels. The Company believes that further rate increases are possible during 2001. o Due to the extremely tight labor market in Wisconsin, especially in Sheboygan, additional overtime hours were necessary to operate the Company's distribution facility. This resulted in the Company incurring incremental distribution payroll costs approximating $500,000. o As the Company continued its efforts to evaluate various strategic alternatives, one-time professional fees in excess of $400,000 were incurred. The Company continues to evaluate various acquisition and strategic alternatives. 20 Due to the continuing competitive nature of the industry, certain franchise operators and corporate retail stores continue to experience operational challenges in their respective marketplaces. As a result, the Company continues to incur significant receivable realization charges from a number of underperforming franchise operators. Total 2000 and 1999 realization charges relating to wholesale bad debts and retail subsidies were $1.7 million and $2.3 million, respectively. Although certain franchise retail operations have improved, the Company continues to evaluate various business initiatives relating to the operations of its underperforming and noncompetitive stores. These initiatives include, but are not limited to, the sale and subsequent conversion of these stores, the closure of these supermarkets or the implementation of other operational changes. As with prior years, implementation of any of these options would likely result in the Company incurring certain repositioning or restructuring charges involving the termination costs of replaced, sold or closed stores. These actions would likely negatively impact earnings results in the short-term, however, the Company would likely only take such action if it believes that such actions will help the Company's long-term profitability. While the Company did not incur any significant repositioning expenses during fiscal 2000 and 1999, the Company believes there is a greater likelihood that additional repositioning expenses may be incurred in 2001 as the Company further evaluates its options with regard to certain stores. Net Earnings The Company's fiscal 2000 operating income decreased 7.4% to $12.3 million, compared to $13.2 million in 1999. After allocating wholesale operating profits on sales through the Company's corporate stores to retail, the wholesale segment yielded $9.4 million in operating income while the retail segment contributed $2.9 million, compared to $9.9 million wholesale and $3.3 million retail for fiscal 1999. Fiscal 2000 earnings before income taxes decreased 6.5% to $12.8 million, compared to $13.7 million in 1999. As a percent of sales, earnings before income taxes decreased to 2.5% in 2000 from 2.7% in 1999. Net earnings for 2000 decreased 5.3% to $7.9 million, compared to $8.4 million in 1999. Due principally to the intense competitiveness in certain market areas, the Company's net earnings-to-sales ratio decreased nominally to 1.58% in 2000, compared to 1.68% in 1999. As a result of significant Company stock repurchases in 2000 and 1999, diluted earnings per share for 2000 increased 2.3% to $1.33 from $1.30 in 1999. The Company's weighted average common shares and equivalents were 5,951,000 and 6,438,000 for 2000 and 1999, respectively. 1999 vs. 1998 Net Sales Net sales for 1999 were $497.0 million, compared to $484.9 million for 1998. The increase of $12.1 million, or 2.5%, was due to increased wholesale and retail sales volume. Net wholesale sales in 1999 increased 3.0% to $288.5 million, compared to $280.1 million in 1998. The wholesale sales improvement was attributable to the following: o The completion of two Wisconsin franchise store facility projects during the second quarter of 1998; o The completion of five Wisconsin franchise store facility projects during the first half of 1999; o The opening of one new market franchise store in May 1999; o The successful conversion to the Piggly Wiggly program of two new market franchise stores from other wholesalers during the third quarter of 1999; and o A series of successful marketing events, including the 50th anniversary of Piggly Wiggly in Wisconsin held in October and November of 1999. 21 Net wholesale sales were, however, negatively impacted by the Company's two consolidations which were completed in November 1998 and January 1999 resulting in two franchise store closures. Retail sales increased 1.8% to $208.4 million in 1999, compared to $204.8 million in 1998. This improvement in retail sales volume was primarily attributable to the Company's opening of its replacement corporate store in Appleton, Wisconsin in August 1998 and the continued success of various marketing and promotional events. To a lesser extent, retail sales also increased due to the conversion of one franchise store into a corporate store in November 1999. Competitive pressures in certain market areas, however, had an adverse impact on the Company's retail sales in 1999. During 1999 the Company had seven facility projects, all but one of which were completed in 2000. These projects included expansions in Kaukauna and Jackson, Wisconsin; one corporate replacement store in Racine, Wisconsin; two replacement supermarkets in Pardeeville and New Holstein, Wisconsin; and one new market store in Kewaskum, Wisconsin. Gross Margin Gross margin increased nominally to 16.2% in 1999 from 16.1% in 1998. This nominal increase was offset by lower margin sales from the successful 50th anniversary promotion. Operating and Administrative Expenses Operating and administrative expenses, as a percent of sales, increased to 13.5% in 1999, compared to 13.3% in 1998. This increase of 0.2%, or $2.5 million, was principally attributable to a number of factors. From the retail business segment, the Company incurred additional expenses of approximately $850,000 relating to both the Appleton store that was opened in August 1998 and to the Oshkosh store that was converted from a franchise store to a corporate store in November 1999. From the wholesale business segment, the Company incurred additional realization charges of nearly $800,000 in 1999 compared to 1998. Additionally, the Company incurred and expensed more than $500,000 for its comprehensive analysis and evaluation of the Company's ongoing core business (non-Y2K related) requirements. Due to the continuing competitive nature of the industry, certain franchise operators and corporate retail stores experienced operational difficulties in their respective marketplaces. As a result, the Company continued to incur significant realization charges from a number of underperforming franchise operators. Total 1999 and 1998 realization charges relating to wholesale bad debts and retail subsidies were $2.3 million and $1.5 million, respectively. Although certain franchise retail operations improved, the Company continued to evaluate various business initiatives relating to the operations of its underperforming and noncompetitive stores. These initiatives included, but were not limited to, the sale and subsequent conversion of these stores, the closure of these supermarkets or the implementation of other operational changes. During 1999, the Company did not incur any repositioning charges, compared to $200,000 for 1998. Net Earnings The Company's fiscal 1999 operating income decreased 1.8% to $13.2 million, compared to $13.5 million in 1998. After allocating wholesale operating profits on sales through the Company's corporate stores to retail, the wholesale segment yielded $9.9 million in operating income while the retail segment contributed $3.3 million. Fiscal 1999 earnings before income taxes decreased 1.9% to $13.7 million, compared to $13.9 million in 1998. As a percent of sales, earnings before income taxes decreased to 2.7% in 1999 from 2.9% in 1998. Net earnings for 1999 decreased 1.9% to $8.4 million, compared to $8.5 million in 1998. Due principally to the intense competitiveness in certain market areas, the Company's net earnings-to-sales ratio decreased to 1.68% in 1999, compared to 1.76% in 1998. Diluted earnings per share for 1999 increased 5.7% to 22 $1.30 from $1.23 in 1998. Although net earnings decreased nominally in 1999 compared to 1998, diluted earnings per share increased due to the Company's repurchases of 821,600 shares which reduced the weighted average shares and equivalents outstanding. Liquidity and Capital Resources During fiscal 2000 the primary source of liquidity was cash generated from operations. Total cash generated from operations for fiscal 2000 was $21.3 million, compared to $5.5 million in 1999. Cash flow from operations increased significantly between years due principally to timing of cash receipts, cash payments and changes in short-term financing to the Company's wholesale customers. Net cash outflows for investing activities totaled $4.9 million in 2000 compared to $2.5 million in 1999. This increase in outflows was primarily attributable to increased capital expenditures in 2000, compared to 1999. Of the total capital expenditures of $5.3 million in 2000, the Company invested more than $2.2 million for retail upgrades. Approximately 55% of the retail expenditures related to equipment purchases for the replacement supermarket in Racine, Wisconsin. The remainder of the retail expenditures was used for other corporate retail store equipment and technological upgrades. The wholesale and corporate capital expenditures of $3.1 million in 2000, compared to $1.3 million in 1999, were principally technology-related upgrades. For 2001 the Company's capital budget is estimated at $7.1 million, of which $4.15 million was committed as of December 30, 2000. Of this $7.1 million total, the Company has allocated $4.5 million for retail replacement units and upgrades, $1.1 for technology hardware and software and $1.1 for distribution upgrades. This capital budget of $7.1 million is exclusive of any capital expenditures the Company may incur in 2001 as a result of its comprehensive evaluation of the core business systems. The Company expects to finance these projects from internally generated capital. If the Company decides to channel its working capital to certain strategic growth needs, the Company can also avail itself of its current unused and unsecured bank revolving line of credit totaling $16 million. Net cash outflows for financing activities were $7.4 million in 2000 compared to $14.9 million in 1999. The Company repurchased 558,540 shares of its own stock in 2000 aggregating $6.1 million, compared to 821,600 shares for $12.9 million during 1999. The Company's Board of Directors amended the stock repurchase program twice during 2000, increasing the stock repurchase program from $15 million to eventually $25 million of repurchase authority as of the end of the year. As of December 30, 2000, only $7.4 million remained available for stock repurchases. Since the first stock repurchase program commenced in January 1992, the Company has repurchased nearly 3,500,000 shares, or approximately 40%, of its outstanding common stock. In summary, cash and equivalents for fiscal 2000 increased $8.9 million, resulting in a year-end balance of $31.3 million. Of this year-end cash balance, approximately $21.9 million was invested in short-term investments with maturities of less than three months, such as taxable money market funds and commercial paper with strong credit ratings. The Company does not use any form of derivative securities for hedging or for other reasons. The Company is generally the prime lessee of new retail store facilities, which it then subleases to independent franchise operators. All new facilities in 2000 were financed through operating lease agreements. The Company also leases transportation equipment, principally tractors and trailers, corporate office space and certain office equipment. Some leases contain contingent rental provisions based on sales volume at retail stores or miles traveled for transportation equipment. Contingent rentals for 2000 and 1999 were both approximately $1.0 million. At December 30, 2000, the Company had recorded $11.6 million of minimum lease payments required to be paid under operating leases in 2001. Additionally, at December 30, 2000, the Company had $8.3 million of long-term capital lease obligations, $4.2 million of which represented long-term receivables from wholesale customers under capital leases. The Company typically provides short-term financing support to its wholesale customers for the purchase of facilities and equipment for new or remodeled stores. After being provided, this financing support is subsequently refinanced, typically through banks, with the Company being reimbursed. As part of the financing 23 program, the Company had contingent liabilities under bank note guarantees totaling nearly $18.0 million at December 30, 2000. All of the loan guarantees are substantially collateralized, principally with equipment and inventory and, to a lesser extent, with building facilities. At December 30, 2000, the Company's ratio of total liabilities to shareholders' investment was 1.12, compared to a ratio of 0.95 at January 1, 2000. The Company believes its cash, working capital and debt-to-equity positions continue to compare very favorably to most industry competitors. Additionally, the Company believes that its financial condition and cash flow from operations will continue to provide it with adequate long-term flexibility to finance anticipated capital requirements without adversely impacting its financial position or liquidity. Company Business The Company is engaged in distributing food and related products at wholesale and retail. At December 30, 2000, the Company franchised 71 and operated 19 corporate retail supermarkets under the Piggly Wiggly name in its eastern and northeastern Illinois market areas. The Company is the prime supplier to its franchised and corporate supermarkets. The Company also serves as a wholesaler to other smaller independent retail stores in its market areas. The Company supplies grocery, frozen food, dairy and produce to its customers through its 364,000 square-foot distribution center in Sheboygan, Wisconsin. Also, the Company provides its customers with fresh, frozen and processed meats, eggs and deli items through a third-party distribution facility in Milwaukee, Wisconsin on a contract basis. The Company employs approximately 1,750 persons, nearly 1,300 of whom are employed in the corporate retail segment operations. A majority of the Company's retail employees are employed on a part-time basis. Of the Company's remaining employees, approximately 200 are engaged in warehousing, distribution and trucking activities, and nearly 250 are corporate and administrative personnel. 24 EX-21 10 0010.txt SUBSIDIARIES EXHIBIT 21 Subsidiaries of the Registrant. Schultz Sav-O Stores, Inc. has two subsidiaries, both of which are Wisconsin corporations: PW Trucking, Inc. and Fresh Brands, Inc. EX-23 11 0011.txt CONSENT EXHIBIT 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated February 8, 2001 included in the Company's previously filed Form S-8 Registration Statement, File No. 33-34991. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin March 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----