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Retention Bonus And Severance Agreement

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Sectors: Retail
Governing Law: Delaware, View Delaware State Laws
Effective Date: June 18, 1999
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CONFIDENTIAL


June 18, 1999


Peter Lynch Acme Markets, Inc. 75 Valley Stream Parkway Malvern, PA 19355


Re: Retention Bonus and Severance Agreement and Release


Dear Peter:


This Retention Bonus and Severance Agreement and Release (the "Letter Agreement") sets forth the terms of your employment with Albertson's Inc. or one of its affiliates ("Albertson's") commencing on the date of closing of the merger involving American Stores Company ("ASC") and Albertson's. The date of closing will occur when the certificate of merger is filed with the Secretary of State of Delaware (the "Closing Date"). You are referred to in this Letter Agreement as "you" or "the executive," and American Stores Company and Albertson's are referred to collectively as the "Company." Congratulations on your joining the Albertson's team.


1. Duration. The term of this Letter Agreement will begin on the Closing
Date and end three years later, unless sooner terminated (the
"Employment Term").


2. Title. You will be employed as Executive Vice President, Operations.
You will devote your best efforts and all of your business time,
attention and skill to the performance of the duties associated with
this position. You will report to The Chairman and Chief Executive
Officer or his/her successor. You will also perform such other duties
as The Chairman and Chief Executive Officer or his/her successor may
in good faith assign to you, which shall not be inconsistent with your
position with Albertson's. Your principal place of employment will be
Boise, ID.


3. Compensation. Your annual base salary will be $375,000, which will be
paid to you in accordance with Albertson's normal payroll procedures.
You will be eligible to receive a target bonus equal to 70% of your
base salary pursuant to the Albertson's, Inc. Officers' Bonus Plan in
accordance with the terms and conditions of that Plan. You will be
eligible to participate in the Albertson's Inc. Amended and Restated
1995 Stock-Based Incentive Plan. Stock option grants are discretionary
and must be approved by the Board of Directors of Albertson's Inc. on
an annual basis. Under that Plan, options are typically granted on an
annual basis and vest at the rate of twenty percent per year based on


continued employment with Albertson's. For illustrative purposes, a
Executive Vice President may be granted an annual option target grant
of approximately $2,000,000. This is the equivalent dollar amount
"invested" in Albertson's stock through the plan. For example, if the
stock price of Albertson's on the date of grant is $60.00, 33,334
shares would be granted ($2,000,000/$60.00 per share). For the first
year of your employment, the amount of option grants are expected to
be doubled (e.g., 66,667 shares assuming a $60.00 per share stock
price). It is anticipated that the first stock option grants to you
under the Plan will be made within thirty days following the closing
of the merger. The foregoing does not obligate Albertson's to make any
kind of option grant.


4. Benefits. During your employment, you will be eligible to participate
in the applicable benefit plans and programs generally made available
to other Albertson's executives of similar status, primary place of
employment and title to you. You recognize that these plans and
programs may change at any time.


5. Retention Bonus. You will be eligible for a retention bonus of up to
$787,500 subject to the terms described below. One third of that
amount (i.e., $262,500) will be paid to you only if you are employed
by Albertson's on the first anniversary of the Closing Date. One third
of that amount will be paid to you only if you are employed by
Albertson's on the second anniversary of the Closing Date. And, one
third of that amount will be paid to you only if you are employed by
Albertson's on the third anniversary of the Closing Date. All such
amounts will be paid as soon as reasonably practicable following the
respective anniversary dates.


6. Termination.


(a) If your employment is terminated by Albertson's without
"Cause" (as defined below) or you terminate your employment with "Good
Reason" (as defined below), Albertson's sole obligation to you
hereunder shall be to pay or provide to you (i) any accrued and unpaid
base salary earned through the date of termination, (ii) an amount
equal to $787,500, less the amount of all payments theretofore paid to
you pursuant to Section 5 hereof and (iii) for the duration of the
three-year Employment Term, medical, dental and life insurance
benefits as if your employment had not been terminated; provided,
however, that if you become reemployed with another employer and are
eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility. You may terminate
your employment for Good Reason only if you provide Albertson's
written notice of such termination within ninety days of the
occurrence of Good Reason.


(b) If your employment with Albertson's terminates for "Cause"
or you terminate without "Good Reason," Albertson's sole obligation
to you hereunder shall be to pay to you any accrued and unpaid base
salary earned through the date of termination.


F:A - Tier I.doc
2


For purposes of this Letter Agreement "Cause" shall mean:


(i) Your willful and continued failure to perform
substantially your duties with Albertson's (other than any such
failure resulting from incapacity due to physical or mental
illness) which has not been cured within thirty days after a
written demand for substantial performance is delivered to you by
the Chief Executive Officer of Albertson's which specifically
identifies the manner in which you have not substantially
performed your duties, or


(ii) Your willfully engaging in illegal conduct or gross
misconduct which is materially and demonstrably injurious to
Albertson's.


For purposes of this provision, no act or failure to act on your
part shall be considered "willful" unless it is done, or omitted to be
done, by you in bad faith or without reasonable belief that your
action or omission was in the best interests of Albertson's.


For purposes of this Letter Agreement "Good Reason" shall mean:


(i) Your base salary is reduced below $375,000;


(ii) Your duties and responsibilities as Executive Vice
President, Operations are materially and adversely diminished,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied
by Albertson's promptly after written notice thereof is given by
you to Albertson's; or


(iii) You are required to be based at a location more than
35 miles from the location where your employment is based
pursuant to this Letter Agreement.


(c) The severance pay and benefits provided for in this
Section 6 shall be in lieu of any other severance pay to which you may
be entitled under any severance policy; employment agreement or other
policy, plan or program with Albertson's or any of its affiliates
(including, after the Closing Date, American Stores Company and its
affiliates). Your entitlement to any compensation or benefits other
than as provided herein shall be determined in accordance with the
employee benefit plans of Albertson's as in effect from time to time
and as may be modified.


(d) Any termination by Albertson's for Cause, or by you for Good
Reason, shall be communicated by a Notice of Termination to the other
party hereto. For purposes of this Letter Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Letter Agreement relied upon, and (ii)
to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of your
employment under the provision so indicated. The failure by you or
Albertson's to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of yours or Albertson's, respectively,


F:A - Tier I.doc
3


hereunder or preclude you or Albertson's, respectively, from asserting
such fact or circumstance in enforcing yours or Albertson's rights
hereunder.


(e) You may be entitled to certain "gross up" payments in
connection with the merger involving Albertson's and American Stores
Company as set forth in Addendum A attached hereto and incorporated
herein by reference.


7. Employment At-Will. At the end of the three year term of this
Agreement, you will be employed on an at-will basis, such that you may
terminate your employment at any time and Albertson's may terminate
your employment at any time for any reason.


8. Entire Agreement. This Letter Agreement sets forth the entire
agreement of the parties with respect to your employment with
Albertson's and any of its affiliates and the termination thereof, and
supercedes any and all agreements, oral or written, with respect
thereto, including,
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