UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 27, 2009
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number
000-23314
TRACTOR SUPPLY COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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13-3139732
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.)
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Incorporation or Organization)
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200 Powell Place, Brentwood, Tennessee
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37027
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants Telephone Number, Including Area Code:
(615) 440-4000
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
þ
NO
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
YES
o
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act
(check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.)
YES
o
NO
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the
latest practicable date.
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Class
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Outstanding at July 25, 2009
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Common Stock, $.008 par value
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36,026,955
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TRACTOR SUPPLY COMPANY
INDEX
Page 2
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
TRACTOR SUPPLY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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June 27,
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December 27,
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June 28,
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2009
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2008
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2008
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(Unaudited)
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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91,845
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$
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36,989
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$
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62,702
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Inventories
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644,925
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603,435
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675,961
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Prepaid expenses and other current assets
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32,499
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41,902
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39,214
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Deferred income taxes
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7,101
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1,676
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238
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Total current assets
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776,370
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684,002
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778,115
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Property and equipment, net of accumulated depreciation
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363,895
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362,033
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357,151
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Goodwill
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10,258
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10,258
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10,258
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Deferred income taxes
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15,895
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13,727
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17,665
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Other assets
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5,093
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5,977
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6,012
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Total assets
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$
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1,171,511
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$
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1,075,997
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$
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1,169,201
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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294,776
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$
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286,828
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$
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394,014
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Other accrued expenses
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109,535
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113,465
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101,310
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Current portion of capital lease obligations
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476
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550
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629
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Income taxes currently payable
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32,673
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25,520
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Total current liabilities
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437,460
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400,843
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521,473
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Revolving credit loan
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Capital lease obligations, less current maturities
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1,599
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1,797
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2,093
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Straight line rent liability
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42,212
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38,016
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34,619
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Other long-term liabilities
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25,827
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25,211
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23,844
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Total liabilities
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507,098
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465,867
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582,029
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Stockholders equity:
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Preferred stock, 40,000 shares authorized, $1.00
par value; no shares issued
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Common stock, 100,000,000 shares authorized; $.008
par value; 41,010,891 shares issued and 35,894,967
shares outstanding at June 27, 2009, 40,875,886
shares issued and 36,061,585 shares outstanding at
December 27, 2008 and 40,798,404 shares issued and
36,766,824 shares outstanding at June 28, 2008
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328
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327
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326
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Additional paid-in capital
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176,953
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168,045
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159,613
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Treasury stock at cost, 5,115,924 shares at June
27, 2009, 4,814,301 shares at December 27, 2008 and
4,031,580 shares at June 28, 2008
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(213,775
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)
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(203,915
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)
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(177,858
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)
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Retained earnings
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700,907
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645,673
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605,091
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Total stockholders equity
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664,413
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610,130
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587,172
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Total liabilities and stockholders equity
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$
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1,171,511
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$
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1,075,997
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$
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1,169,201
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The
accompanying notes are an integral part of this statement.
Page 3
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
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For the fiscal
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For the fiscal
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three months ended
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six months ended
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June 27,
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June 28,
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June 27,
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June 28,
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2009
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2008
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2009
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2008
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(Unaudited)
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(Unaudited)
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Net sales
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$
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946,504
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$
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898,327
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$
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1,596,675
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$
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1,474,535
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Cost of merchandise sold
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644,306
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624,818
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1,093,441
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1,025,510
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Gross margin
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302,198
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273,509
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503,234
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449,025
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Selling, general and administrative expenses
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197,769
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187,343
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381,419
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350,528
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Depreciation and amortization
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16,135
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15,008
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32,336
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29,380
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Operating income
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88,294
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71,158
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89,479
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69,117
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Interest expense, net
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264
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573
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678
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1,796
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Income before income taxes
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88,030
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70,585
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88,801
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67,321
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Income tax expense
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33,266
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27,233
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33,567
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25,973
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Net income
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$
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54,764
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$
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43,352
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$
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55,234
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$
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41,348
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Net income per share basic
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$
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1.53
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$
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1.17
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$
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1.54
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$
|
1.11
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Net income per share diluted
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$
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1.50
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$
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1.15
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$
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1.51
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$
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1.09
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The
accompanying notes are an integral part of this statement.
Page 4
TRACTOR SUPPLY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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For the fiscal
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six months ended
|
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June 27,
|
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June 28,
|
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|
2009
|
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|
2008
|
|
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(Unaudited)
|
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Cash flows from operating activities:
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Net income
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$
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55,234
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$
|
41,348
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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32,336
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29,380
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Loss (gain) on sale of property and equipment
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106
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(89
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)
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Stock compensation expense
|
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6,126
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6,151
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Deferred income taxes
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(7,593
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)
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(934
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)
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Change in assets and liabilities:
|
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Inventories
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(41,490
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)
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(39,973
|
)
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Prepaid expenses and other current assets
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9,409
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3,259
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Accounts payable
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7,948
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|
|
|
135,668
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Other accrued expenses
|
|
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(3,930
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)
|
|
|
(14,291
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)
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Income taxes currently payable
|
|
|
32,673
|
|
|
|
20,458
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Other
|
|
|
5,636
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|
|
|
3,076
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Net cash provided by operating activities
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96,455
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184,053
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|
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Cash flows from investing activities:
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Capital expenditures
|
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(34,144
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)
|
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|
(53,467
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)
|
Proceeds from sale of property and equipment
|
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|
6
|
|
|
|
234
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net cash used in investing activities
|
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|
(34,138
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)
|
|
|
(53,233
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit agreement
|
|
|
274,033
|
|
|
|
329,868
|
|
Repayments under revolving credit agreement
|
|
|
(274,033
|
)
|
|
|
(384,868
|
)
|
Tax benefit on stock option exercises
|
|
|
999
|
|
|
|
211
|
|
Principal payments under capital lease obligations
|
|
|
(272
|
)
|
|
|
(476
|
)
|
Repurchase of common stock
|
|
|
(9,860
|
)
|
|
|
(27,809
|
)
|
Net proceeds from issuance of common stock
|
|
|
1,672
|
|
|
|
1,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(7,461
|
)
|
|
|
(81,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
54,856
|
|
|
|
49,522
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
36,989
|
|
|
|
13,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
91,845
|
|
|
$
|
62,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
645
|
|
|
$
|
2,555
|
|
Income taxes
|
|
|
5,745
|
|
|
|
6,177
|
|
The
accompanying notes are an integral part of this statement.
Page 5
TRACTOR SUPPLY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation:
The accompanying unaudited interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States and the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. These
statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year
ended December 27, 2008. The results of operations for the fiscal three-month and six-month
periods are not necessarily indicative of results for the full fiscal year.
Our business is highly seasonal. Historically, our sales and profits have been the highest in the
second and fourth fiscal quarters of each year due to the sale of seasonal products. Unseasonable
weather, excessive precipitation, drought, and early or late frosts may also affect our sales. We
believe, however, that the impact of adverse weather conditions is somewhat mitigated by the
geographic dispersion of our stores.
We experience our highest inventory and accounts payable balances during the first fiscal quarter
each year for purchases of seasonal products in anticipation of the spring selling season and again
during the third fiscal quarter in anticipation of the winter selling season.
Note 2 Reclassifications:
Certain amounts in previously issued financial statements have been reclassified to conform to the
fiscal 2009 presentation. Amounts related to voucher receivables ($0.2 million and $0.3 million at
December 27, 2008 and June 28, 2008, respectively) have been reclassified from cash and cash
equivalents to prepaid expenses and other current assets. Also, amounts related to prepaid
fixtures ($0.3 million at December 27, 2008) previously classified in prepaid expenses and other
current assets have been reclassified to other assets to reflect their long-term status. These
changes have affected our December 27, 2008 and June 28, 2008 Consolidated Balance Sheets and the
Consolidated Statement of Cash Flows for the fiscal six months ended June 28, 2008.
Note 3 Cash and Cash Equivalents:
Temporary cash investments, with a maturity of three months or less when purchased, are considered
to be cash equivalents. The majority of payments due from banks for customer credit card
transactions process within 24-48 hours and are accordingly classified as cash and cash
equivalents. Book overdrafts are offset against cash deposits held at the same financial
institution. At June 27, 2009 the Company maintained $102.4 million of its excess available cash
in an account at the same financial institution as its disbursement accounts. This excess
available cash offset all $99.9 million of book overdrafts, and the remaining net $2.5 million was
included in cash at June 27, 2009. After the offset of excess available cash, $79.4 million and
$98.6 million of net book overdrafts were included in accounts payable at December 27, 2008 and
June 28, 2008, respectively.
Note 4 Fair Value of Financial Instruments:
Our financial instruments consist of cash and cash equivalents, short-term receivables and payables
and long-term debt instruments, including capital leases. The carrying values of cash and cash
equivalents, receivables and trade payables equal current fair value. We had no borrowings under
the revolving credit loan at June 27, 2009, December 27, 2008 or June 28, 2008.
Page 6
Note 5 Inventories:
Inventories are stated using the lower of last-in, first-out (LIFO) cost or market. Inventories are
not in excess of market value. Quarterly inventory determinations under LIFO are based on
assumptions as to projected inventory levels at the end of the fiscal year, sales for the year and
the expected rate of inflation/deflation for the year. If the first-in, first-out (FIFO) method of
accounting for inventory had been used, inventories would have been approximately $74.8 million,
$68.3 million and $37.4 million higher than reported at June 27, 2009, December 27, 2008 and
June 28, 2008, respectively.
Note 6 Property and Equipment:
Property and equipment is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27,
|
|
|
December 27,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Land
|
|
$
|
25,410
|
|
|
$
|
25,410
|
|
|
$
|
25,410
|
|
Buildings and improvements
|
|
|
334,414
|
|
|
|
325,081
|
|
|
|
297,679
|
|
Furniture, fixtures and equipment
|
|
|
210,655
|
|
|
|
198,881
|
|
|
|
187,895
|
|
Computer software and hardware
|
|
|
79,064
|
|
|
|
74,589
|
|
|
|
67,621
|
|
Construction in progress
|
|
|
16,703
|
|
|
|
12,615
|
|
|
|
23,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666,246
|
|
|
|
636,576
|
|
|
|
602,066
|
|
Accumulated depreciation and amortization
|
|
|
(302,351
|
)
|
|
|
(274,543
|
)
|
|
|
(244,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
363,895
|
|
|
$
|
362,033
|
|
|
$
|
357,151
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Share-Based Payments:
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payments
(SFAS 123(R)), we recognize compensation expense for share-based payments based on the fair value
of the awards. Share-based payments include stock option and restricted stock unit grants and
certain transactions under our Employee Stock Purchase Plan (the ESPP). SFAS 123(R) requires
share-based compensation expense to be based on the following: a) grant date fair value estimated
in accordance with the original provisions of SFAS 123 for unvested options granted prior to the
adoption of SFAS 123(R); b) grant date fair value estimated in accordance with the provisions of
SFAS 123(R) for all share-based payments granted subsequent to adoption; and c) the discount on
shares sold to employees subsequent to adoption, which represents the difference between the grant
date fair value and the employee purchase price. Share-based compensation expense lowered pre-tax
income by $2.9 million and $3.0 million for the second quarter of fiscal 2009 and 2008,
respectively, and $6.1 million and $6.2 million for the first six months of fiscal 2009 and 2008,
respectively. The benefits of tax deductions in excess of recognized compensation expense are
reported as a financing cash flow.
Under SFAS 123(R), forfeitures are estimated at the time of valuation and reduce expense ratably
over the vesting period. This estimate is adjusted periodically based on the extent to which actual
forfeitures differ, or are expected to differ, from the previous estimate.
Stock Incentive Plan
Effective May 7, 2009, the Company adopted the 2009 Stock Incentive Plan replacing the 2006 Stock
Incentive Plan. Following the adoption of the 2009 Stock Incentive Plan, no further grants may be
made under the 2006 Stock Incentive Plan. Under the terms of the 2009 Stock Incentive Plan
3,100,000 shares are available for grant as stock options or other awards.
Under our 2009 Stock Incentive Plan, options may be granted to officers, non-employee directors and
other employees. The per share exercise price of options granted shall not be less than the fair
market value of the stock on the date of grant and such options will expire no later than ten years
from the date of grant. Also, the aggregate fair market value of the stock with respect to which
incentive stock options are exercisable on a tax deferred basis for the first time by an individual
in any calendar year may not exceed $100,000. Vesting of options commences at various anniversary
dates following the dates of grant.
Page 7
The fair value of each option grant is separately estimated for each vesting date. The fair value
of each option is recognized as compensation expense ratably over the vesting period. We have
estimated the fair value of all stock option awards as of the date of the grant by applying a
Black-Scholes
pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation expense,
including expected stock price volatility.
The following summarizes information concerning stock option grants during fiscal 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
Stock options granted
|
|
|
6,200
|
|
|
|
28,000
|
|
|
|
546,826
|
|
|
|
584,874
|
|
Weighted average exercise price
|
|
$
|
38.73
|
|
|
$
|
36.41
|
|
|
$
|
34.29
|
|
|
$
|
38.32
|
|
Weighted average fair value
|
|
$
|
13.81
|
|
|
$
|
13.55
|
|
|
$
|
12.86
|
|
|
$
|
14.51
|
|
The weighted average key assumptions used in determining the fair value of options granted in
the three and six months ended June 27, 2009 and June 28, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
Expected price volatility
|
|
|
39.3
|
%
|
|
|
32.5
|
%
|
|
|
39.8
|
%
|
|
|
34.0
|
%
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
2.6
|
%
|
|
|
1.6
|
%
|
|
|
2.6
|
%
|
Weighted average expected lives in years
|
|
|
4.7
|
|
|
|
4.7
|
|
|
|
5.2
|
|
|
|
5.0
|
|
Forfeiture rate
|
|
|
8.0
|
%
|
|
|
2.3
|
%
|
|
|
6.8
|
%
|
|
|
5.8
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
As of June 27, 2009, total unrecognized compensation expense related to non-vested stock
options and restricted stock units was $17,719,948 with a weighted average expense recognition
period of 1.66 years.
Restricted Stock Units
During the first six months of 2009 and 2008, we issued 149,151 and 77,796 restricted stock units
which vest over an approximate three-year term and had a grant date weighted average fair value of
$34.63 and $38.27, respectively.
Employee Stock Purchase Plan
The ESPP provides our employees the opportunity to purchase, through payroll deductions, shares of
our common stock at a 15% discount. Pursuant to the terms of the ESPP, we issued 26,434 and 28,815
shares of our common stock during the first six months of fiscal 2009 and 2008, respectively.
Total stock compensation expense related to the ESPP was approximately $229,000 and $256,000 during
the first six months of 2009 and 2008, respectively. At June 27, 2009, there were 3,211,621 shares
of common stock reserved for future issuance under the ESPP.
There were no significant modifications to our share-based compensation plans during the six months
ended June 27, 2009 (provided that, as noted above, the Company adopted its 2009 Stock Incentive
Plan in replacement of its 2006 Stock Incentive Plan, effective May 7, 2009).
Note 8 Net Income Per Share:
We present both basic and diluted earnings per share (EPS) on the face of the consolidated
statements of income. As provided by SFAS 128 Earnings per Share, basic EPS is calculated as
income available to common stockholders divided by the weighted average number of shares
outstanding during the period. Diluted EPS is calculated using the weighted average outstanding
common shares and the treasury stock method for options and restricted stock units.
Page 8
Net income per share is calculated as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
54,764
|
|
|
|
35,884
|
|
|
$
|
1.53
|
|
|
$
|
43,352
|
|
|
|
37,193
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and
restricted stock units
outstanding
|
|
|
|
|
|
|
630
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
613
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
54,764
|
|
|
|
36,514
|
|
|
$
|
1.50
|
|
|
$
|
43,352
|
|
|
|
37,806
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Six months ended
|
|
|
|
June 27, 2009
|
|
|
June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,234
|
|
|
|
35,918
|
|
|
$
|
1.54
|
|
|
$
|
41,348
|
|
|
|
37,354
|
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and
restricted stock units
outstanding
|
|
|
|
|
|
|
615
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
624
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,234
|
|
|
|
36,533
|
|
|
$
|
1.51
|
|
|
$
|
41,348
|
|
|
|
37,978
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Credit Agreement:
We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group
(the Credit Agreement), which provides for borrowings up to $350 million (with sublimits of $75
million and $20 million for letters of credit and swingline loans, respectively). The Credit
Agreement has an Increase Option for $150 million (subject to additional lender group commitments).
The Credit Agreement is unsecured and matures in February 2012, with proceeds expected to be used
for working capital, capital expenditures and share repurchases. Borrowings bear interest at
either the banks base rate or LIBOR plus an additional amount ranging from 0.35% to 0.90% per
annum, adjusted quarterly based on our performance (0.50% at June 27, 2009 and June 28, 2008). We
are also required to pay a commitment fee ranging from 0.06% to 0.18% per annum for unused capacity
(0.10% at June 27, 2009 and June 28, 2008). The agreement requires quarterly compliance with
respect to fixed charge coverage and leverage ratios. As of June 27, 2009, we were in compliance
with all debt covenants.
Note 10 Treasury Stock:
We have a Board-approved share repurchase program which provides for repurchase of up to $400
million of common stock, exclusive of any fees, commissions, or other expenses related to such
repurchases, through December 2011. The repurchases may be made from time to time on the open
market or in privately negotiated transactions. The timing and amount of any shares repurchased
under the program will depend on a variety of factors, including price, corporate and regulatory
requirements, capital availability, and other market conditions. Repurchased shares will be held
in treasury. The program may be limited or terminated at any time without prior notice.
We repurchased 20,639 and 738,368 shares under the share repurchase program during the second
quarter of 2009 and 2008, respectively. The total cost of the share repurchases was $0.7 million
and $25.0 million during the second quarter of 2009 and 2008, respectively. We repurchased 301,623
and 815,393 shares under the share repurchase program during the first six months of 2009 and 2008,
respectively. The total cost of the share repurchases was $9.9 million and $27.8 million during
the first six months of 2009 and 2008, respectively. As of June 27, 2009, we had
remaining authorization under the share repurchase program of $186.4 million exclusive of any fees,
commissions, or other expenses.
Page 9
Note 11 New Accounting Pronouncements:
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised
2007), Business Combinations (SFAS 141R), which replaces SFAS No. 141, Business Combinations
(SFAS 141) issued in 2001
.
Whereas its predecessor applied only to business combinations in which
control was obtained by transferring consideration, the revised standard applies to all
transactions or other events in which one entity obtains control over another. SFAS 141R defines
the acquirer as the entity that obtains control over one or more other businesses and defines the
acquisition date as the date the acquirer achieves control. SFAS 141R requires the acquirer to
recognize assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at
their respective fair values as of the acquisition date. The revised standard changes the treatment
of acquisition-related costs, restructuring costs related to an acquisition that the acquirer
expects but is not obligated to incur, contingent consideration associated with the purchase price
and preacquisition contingencies associated with acquired assets and liabilities. SFAS 141R retains
the guidance in SFAS 141 for identifying and recognizing intangible assets apart from goodwill. The
revised standard applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or after December 15,
2008. We adopted SFAS 141R effective December 28, 2008 (fiscal 2009). Thus we are required to apply
the provisions of SFAS 141R to any business acquisition which occurs on or after December 28, 2008,
but this standard had no effect on prior acquisitions.
In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of the
Useful Life of Intangible Assets, which amends the factors that must be considered in developing
renewal or extension assumptions used to determine the useful life over which to amortize the cost
of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets (SFAS
142). The FSP requires an entity to consider its own assumptions about renewal or extension of
the term of the arrangement, consistent with its expected use of the asset, and is an attempt to
improve consistency between the useful life of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of the asset under SFAS 141. We
adopted the FSP effective December 28, 2008 (fiscal 2009), and the guidance for determining the
useful life of a recognized intangible asset is applied prospectively to intangible assets acquired
after the effective date. The FSP did not have an impact on our financial condition, results of
operations or cash flow.
On April 9, 2009, the FASB released FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (FSP No. FAS 107-1). FSP No. FAS 107-1 extends the disclosure
requirements of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to
interim financial statements of publicly traded companies as defined in APB Opinion No. 28, Interim
Financial Reporting. We adopted FSP No. FAS 107-1 effective June 27, 2009. The adoption of this
FSP did not have a significant impact on our financial condition, results of operations or cash
flow.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued and requires entities to disclose the date through
which they have evaluated subsequent events. We adopted SFAS 165 effective June 27, 2009. The
adoption of SFAS 165 changed certain financial statement disclosures but did not have an impact on
our financial condition, results of operations or cash flows.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 will become the
single source of authoritative nongovernmental U.S. generally accepted accounting principles
(GAAP), superseding existing FASB, American Institute of Certified Public Accountants, Emerging
Issues Task Force, and related accounting literature. SFAS 168 reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a consistent
structure. Also included is relevant Securities and Exchange Commission guidance organized using
the same topical structure in separate sections. SFAS 168 will be effective for financial
statements issued for reporting periods that end after September 15, 2009. This will have an
impact on the Companys notes to financial statements since all future references to authoritative
accounting literature will be references in accordance with SFAS 168.
Page 10
Note 12 Commitments and Contingencies:
Construction commitments
We had commitments for new store construction projects totaling approximately $3.8 million at
June 27, 2009.
Litigation
We are involved in various litigation matters arising in the ordinary course of business. We
expect these matters will be resolved without material adverse effect on our consolidated financial
position or results of operations. Any estimated loss related to such matters has been adequately
provided in accrued liabilities to the extent probable and reasonably estimable. It is possible,
however, that future results of operations for any particular quarterly or annual period could be
affected by changes in circumstances relating to these proceedings.
Note 13 Subsequent Events:
We
evaluated all events or transactions that occurred after June 27, 2009 up through August 4,
2009, which represents the date these financial statements were filed with the Securities and
Exchange Commission.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
General
The following discussion and analysis should be read in conjunction with our Annual Report on Form
10-K for the fiscal year ended December 27, 2008. The following discussion and analysis also
contains certain historical and forward-looking information. The forward-looking statements
included herein are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Act). All statements, other than statements of historical
facts, which address activities, events or developments that we expect or anticipate will or may
occur in the future, including such things as estimated results of operations in future periods,
future capital expenditures (including their amount and nature), business strategy, expansion and
growth of our business operations and other such matters are forward-looking statements. These
forward-looking statements may be affected by certain risks and uncertainties, any one, or a
combination of which could materially affect the results of our operations. To take advantage of
the safe harbor provided by the Act, we are identifying certain factors that could cause actual
results to differ materially from those expressed in any forward-looking statements, whether oral
or written.
Our business is highly seasonal. Historically, our sales and profits have been the highest in the
second and fourth fiscal quarters of each year due to the sale of seasonal products. Unseasonable
weather, excessive precipitation, drought, and early or late frosts may also affect our sales. We
believe, however, that the impact of severe weather conditions is somewhat mitigated by the
geographic dispersion of our stores.
We experience our highest inventory and accounts payable balances during our first fiscal quarter
each year for purchases of seasonal products in anticipation of the spring selling season and again
during our third fiscal quarter in anticipation of the winter selling season.
As with any business, many aspects of our operations are subject to influences outside our control.
These factors include general economic conditions affecting consumer spending, the timing and
acceptance of new products in the stores, the mix of goods sold, purchase price volatility
(including inflationary and deflationary pressures), the ability to increase sales at existing
stores, the ability to manage growth and identify suitable locations and negotiate favorable lease
agreements on new and relocated stores, the continued availability of favorable credit sources,
capital market conditions in general, failure to open new stores in the manner currently
contemplated, the impact of new stores on our business, competition, weather conditions, the
seasonal nature of our business, effective merchandising initiatives and marketing emphasis, the
ability to retain vendors, reliance on foreign suppliers, the ability to attract, train and retain
qualified employees, product liability and other claims in the ordinary course of business,
potential legal proceedings, management of our information systems, effective tax rate changes and
results of examination by taxing authorities, and the ability to maintain an effective system of
internal control over financial reporting. We
Page 11
discuss in greater detail risk factors relating to our business in Item 1A of our
Annual Report on Form 10-K for the fiscal year ended December 27, 2008. Forward-looking statements
are based on our knowledge of our business and the environment in which we operate, but because of
the factors listed above or other factors, actual results could differ materially from those
reflected by any forward-looking statements. Consequently, all of the forward-looking statements
made are qualified by these cautionary statements and there can be no assurance that the actual
results or developments anticipated will be realized or, even if substantially realized, that they
will have the expected consequences to or effects on our business and operations. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date hereof. We undertake no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
Results of Operations
Fiscal Three Months (Second Quarter) and Six Months Ended June 27, 2009 and June 28, 2008
Net sales increased 5.4% to $946.5 million for the second quarter of 2009 from $898.3 million for
the second quarter of 2008. Net sales increased 8.3% to $1.60 billion for the first six months of
fiscal 2009 from $1.47 billion for the first six months of fiscal 2008. The net sales increase for
the second quarter resulted primarily from the addition of new stores, partially offset by a
same-store sales decrease of 2.7%. The net sales increase for the first six months of fiscal 2009
was primarily the result of new store openings as same-store sales remained flat. Our second
quarter same-store sales decline was primarily driven by softness in sales of seasonal big ticket
and discretionary merchandise, partially offset by continued strong results in core consumable
categories, including animal and pet-related products. Additionally, same-store sales were
negatively impacted by approximately 100 basis points due to one less selling day related to the
shift of the Easter holiday from March into April.
We opened 13 new stores during the second quarter of 2009 compared to 23 new store openings during
the prior years second quarter. During the first six months of 2009, we opened 41 new stores with
one relocation, compared to 50 new store openings and no relocations during the first six months of
2008. We closed one store during the first six months of 2009. We operated 895 stores at June 27,
2009, compared to 814 stores at June 28, 2008.
The following chart indicates the average percentage of sales represented by each of our major
product categories during the second quarter and first six months of fiscal 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 27,
|
|
|
June 28,
|
|
|
June 27,
|
|
|
June 28,
|
|
Product Category:
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Livestock and Pet
|
|
|
37
|
%
|
|
|
34
|
%
|
|
|
40
|
%
|
|
|
37
|
%
|
Seasonal Products
|
|
|
27
|
|
|
|
29
|
|
|
|
23
|
|
|
|
25
|
|
Hardware and Tools
|
|
|
13
|
|
|
|
13
|
|
|
|
14
|
|
|
|
14
|
|
Clothing and Footwear
|
|
|
5
|
|
|
|
6
|
|
|
|
7
|
|
|
|
7
|
|
Truck, Trailer and Towing
|
|
|
9
|
|
|
|
9
|
|
|
|
8
|
|
|
|
9
|
|
Agricultural
|
|
|
9
|
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin for the second quarter and the first six months of fiscal 2009 was $302.2 million and
$503.2 million, respectively. This represents an increase of 10.5% and 12.1%, respectively, over
the comparable periods of the prior year. As a percent of sales, gross margin increased 150 basis
points to 31.9% for the second quarter of fiscal 2009 compared to 30.4% for the comparable period
in fiscal 2008. The improvement in gross margin percentage for the quarter resulted primarily from
reduced transportation costs and a more favorable LIFO provision compared to last year. The
reduced transportation costs resulted primarily from lower fuel costs and to a lesser extent
improved transportation efficiencies. The decrease in the LIFO charge is primarily attributable to
lower inflation, and less clearance merchandise, contributing to a more favorable product mix. The
LIFO provision is dependent upon a combination of expected year-end inventory levels and mix, as
well as the expected year-end inflation rate for the various product categories. We continue to
project a LIFO charge for the full year, despite various cost reductions in several key product
categories, because we anticipate a net increase in aggregate total inventory. The increase is
driven by our mix, which continues to shift to fresh, faster turning goods, as well as our store
base expansion. As a
result, we are adding merchandise that has higher inflation indices than the existing Company
averages, and this creates a LIFO provision even as inflation moderates and inventory per store
declines.
Page 12
For the first six months of fiscal 2009, the gross margin rate was 31.5% compared to 30.5% for the
first six months of fiscal 2008, primarily from reduced transportation costs and a decrease in the
LIFO charge.
Selling, general and administrative (SG&A) expenses increased 10 basis points to 20.9% of sales
in the second quarter of fiscal 2009 from 20.8% of sales in the second quarter of fiscal 2008. The
second quarter increase as a percent to sales was primarily attributable to lower than anticipated
sales and was substantially offset by reduced marketing costs due to the elimination of television
advertising spending. SG&A expenses for the first six months of fiscal 2009 increased 10 basis
points to 23.9% of sales from 23.8% in the first six months of fiscal 2008, primarily due to less
sales leverage, partially offset by reduced marketing spend.
Depreciation and amortization expense was consistent at 1.7% of sales in the second quarter of
fiscal 2009 and 2008. As a percent of sales, depreciation and amortization expense was consistent
at 2.0% in the first six months of fiscal 2009 and 2008.
Interest expense for the second quarter of 2009 was $0.3 million compared to $0.6 million in the
prior year second quarter. For the first six months of fiscal 2009, interest expense decreased to
$0.7 million compared to $1.8 million for the comparable period in fiscal 2008 due to a lower
average outstanding balance on our credit facility and a lower weighted-average interest rate. Our
effective income tax rate decreased to 37.8% in the second quarter and first six months of fiscal
2009 compared with 38.6% for the second quarter and first six months of fiscal 2008 largely due to
certain federal tax credits and the estimated favorable impact of other permanent tax differences
on the revised full year taxable income.
As a result of the foregoing factors, net income for the second quarter of fiscal 2009 increased
26.3% to $54.8 million compared to $43.4 million in the second quarter of fiscal 2008. Net income
for the first six months of fiscal 2009 increased 33.6% to $55.2 million from $41.3 million in the
first six months of the prior year. Net income, as a percent of sales, increased 100 basis points
to 5.8% for the second quarter of fiscal 2009 compared to 4.8% in the second quarter of fiscal
2008. For the first six months of fiscal 2009, net income as a percent of sales increased 70 basis
points to 3.5%, compared to 2.8% for the first six months of fiscal 2008. Net income per diluted
share for the second quarter of fiscal 2008 increased to $1.50 from $1.15 and, for the first six
months of fiscal 2009, increased to $1.51 from $1.09. Outstanding shares were reduced as a result
of repurchases under the Share Repurchase Program. See Note 10 of the Notes to the Consolidated
Financial Statements included herein for further discussion regarding our Share Repurchase Program.
Liquidity and Capital Resources
In addition to normal operating expenses, our primary ongoing cash requirements are for store
expansion and remodeling programs, including inventory purchases and technology upgrades. Our
primary ongoing sources of liquidity are funds provided from operations, commitments available
under our revolving credit agreement and normal trade credit.
Page 13
At June 27, 2009, we had working capital of $338.9 million, which was a $55.7 million increase and
an $82.3 million increase compared to December 27, 2008 and June 28, 2008, respectively. The
shifts in working capital were primarily attributable to changes in the following components of
current assets and current liabilities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27,
|
|
|
Dec. 27,
|
|
|
|
|
|
|
June 28,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
2008
|
|
|
Variance
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
91.9
|
|
|
$
|
37.0
|
|
|
$
|
54.9
|
|
|
$
|
62.7
|
|
|
$
|
29.2
|
|
Inventories
|
|
|
644.9
|
|
|
|
603.4
|
|
|
|
41.5
|
|
|
|
676.0
|
|
|
|
(31.1
|
)
|
Prepaid expenses and other current assets
|
|
|
32.5
|
|
|
|
41.9
|
|
|
|
(9.4
|
)
|
|
|
39.2
|
|
|
|
(6.7
|
)
|
Deferred income taxes
|
|
|
7.1
|
|
|
|
1.7
|
|
|
|
5.4
|
|
|
|
0.2
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
776.4
|
|
|
|
684.0
|
|
|
|
92.4
|
|
|
|
778.1
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
294.8
|
|
|
|
286.8
|
|
|
|
8.0
|
|
|
|
394.0
|
|
|
|
(99.2
|
)
|
Other accrued expenses
|
|
|
109.5
|
|
|
|
113.5
|
|
|
|
(4.0
|
)
|
|
|
101.3
|
|
|
|
8.2
|
|
Current portion of capital lease obligation
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.6
|
|
|
|
(0.1
|
)
|
Income tax currently payable
|
|
|
32.7
|
|
|
|
|
|
|
|
32.7
|
|
|
|
25.6
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437.5
|
|
|
|
400.8
|
|
|
|
36.7
|
|
|
|
521.5
|
|
|
|
(84.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
338.9
|
|
|
$
|
283.2
|
|
|
$
|
55.7
|
|
|
$
|
256.6
|
|
|
$
|
82.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In comparison to prior year end, working capital increased as a result of inventory and cash
balances rising more quickly than payables. The increase in inventories resulted primarily from
the purchase of additional inventory for new stores. The increase in cash resulted from strong
earnings in the first six months of 2009.
The increase in working capital as compared to the second quarter of 2008 was the result of an
increase in cash and a decline in payables, partially offset by a decline in inventories. Cash has
increased as a result of strong earnings in 2009 while payables have declined primarily related to
the classification of book overdrafts. At June 27, 2009 the Company maintained $102.4 million of
its excess available cash in an account at the same financial institution as its disbursement
accounts. This excess available cash offset all $99.9 million of book overdrafts, and the
remaining net $2.5 million was included in cash at June 27, 2009. In comparison, after the offset
of excess available cash, $79.4 million and $98.6 million of net book overdrafts were included in
accounts payable at December 27, 2008 and June 28, 2008, respectively.
We have aggressively managed inventory and reduced our average inventory per store. There was a
slight decrease in financed inventory from 55.4% at the end of second quarter 2008 to 53.4% at the
end of the current quarter, as we have been more aggressive in working with our vendors in
capturing payment discounts. (The calculated financed inventory assumes FIFO inventory, excludes
inventory in-transit, and includes gross book overdrafts in accounts payable.)
Operations provided net cash of $96.5 million and $184.1 million in the first six months of fiscal
2009 and fiscal 2008, respectively. The $87.6 million decrease in net cash provided in 2009 over
2008 is primarily due to changes in the following operating activities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
Net income
|
|
$
|
55.2
|
|
|
$
|
41.3
|
|
|
$
|
13.9
|
|
Depreciation and amortization
|
|
|
32.3
|
|
|
|
29.4
|
|
|
|
2.9
|
|
Inventories and accounts payable
|
|
|
(33.5
|
)
|
|
|
95.7
|
|
|
|
(129.2
|
)
|
Prepaid expenses and other current assets
|
|
|
9.4
|
|
|
|
3.3
|
|
|
|
6.1
|
|
Other accrued expenses
|
|
|
(3.9
|
)
|
|
|
(14.3
|
)
|
|
|
10.4
|
|
Income taxes currently payable
|
|
|
32.7
|
|
|
|
20.5
|
|
|
|
12.2
|
|
Other, net
|
|
|
4.3
|
|
|
|
8.2
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
$
|
96.5
|
|
|
$
|
184.1
|
|
|
$
|
(87.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Page 14
The decline in net cash provided by operations in the first six months of fiscal 2009 compared with
the first six months of fiscal 2008 primarily relates to the book overdrafts compared to the prior
year. As discussed previously, $102.4 million of excess available cash offset all $99.9 million of
book overdrafts at June 27, 2009. In comparison, after the offset of cash, $98.6 million of net
book overdrafts were included in accounts payable at June 28, 2008.
Investing activities used $34.1 million and $53.2 million in the first six months of fiscal 2009
and fiscal 2008, respectively. The majority of this cash requirement relates to our capital
expenditures.
Capital expenditures for the first six months of fiscal 2009 and fiscal 2008 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 27,
|
|
|
June 28,
|
|
|
|
2009
|
|
|
2008
|
|
New/relocated stores and stores not yet opened
|
|
$
|
17.3
|
|
|
$
|
22.5
|
|
Existing stores
|
|
|
8.5
|
|
|
|
5.6
|
|
Information technology
|
|
|
8.0
|
|
|
|
7.8
|
|
Distribution center capacity and improvements
|
|
|
0.3
|
|
|
|
9.0
|
|
Existing store properties acquired from lessors
|
|
|
|
|
|
|
8.5
|
|
Other
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
$
|
34.1
|
|
|
$
|
53.5
|
|
|
|
|
|
|
|
|
The above table reflects 41 new stores in the first six months of fiscal 2009, compared to 50 new
stores during the first six months of fiscal 2008.
Financing activities used $7.5 million and $81.3 million in the first six months of fiscal 2009 and
fiscal 2008, respectively. This decrease in net cash used is largely due to a lower level of
repayments under the Senior Credit Facility and reduced share repurchases.
We are party to a Senior Credit Facility with Bank of America, N.A., as agent for a lender group,
which provides for borrowings up to $350 million (with sublimits of $75 million and $20 million for
letters of credit and swingline loans, respectively). The Credit Agreement has an Increase Option
for $150 million (subject to additional lender group commitments). We had approximately $322.0
million available for future borrowings, net of outstanding letters of credit, under our Credit
Agreement at June 27, 2009.
The Credit Agreement is unsecured and matures in February 2012, with proceeds expected to be used
for working capital, capital expenditures and share repurchases. Borrowings bear interest at
either the banks base rate or LIBOR plus an additional amount ranging from 0.35% to 0.90% per
annum, adjusted quarterly based on our performance (0.50% at June 27, 2009 and June 28, 2008). We
are also required to pay a commitment fee ranging from 0.06% to 0.18% per annum for unused capacity
(0.10% at June 27, 2009 and June 28, 2008). As of June 27, 2009, we were in compliance with all
debt covenants.
We believe that our cash flow from operations, borrowings available under our Credit Agreement, and
normal trade credit will be sufficient to fund our operations and capital expenditure needs,
including store openings and renovations, over the next several years.
Share Repurchase Program
We have a Board-approved share repurchase program which provides for repurchase of up to $400
million of common stock, exclusive of any fees, commissions, or other expenses related to such
repurchases, through December 2011. The repurchases may be made from time to time on the open
market or in privately negotiated transactions. The timing and amount of any shares repurchased
under the program will depend on a variety of factors, including price, corporate and regulatory
requirements, capital availability, and other market conditions. Repurchased shares will be held
in treasury. The program may be limited or terminated at any time without prior notice.
Page 15
We repurchased 20,639 and 738,368 shares under the share repurchase program during the second
quarter of 2009 and 2008, respectively. The total cost of the share repurchases was $0.7 million
and $25.0 million during the second quarter of 2009 and 2008, respectively. We repurchased 301,623
and 815,393 shares under the share repurchase program during the first six months of 2009 and 2008,
respectively. The total cost of the share repurchases was $9.9 million and $27.8 million during
the first six months of 2009 and 2008, respectively. As of June 27, 2009, we had remaining
authorization under the share repurchase program of $186.4 million exclusive of any fees,
commissions, or other expenses.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements are limited to operating leases and outstanding letters of
credit. Leasing buildings and equipment for retail stores and offices rather than acquiring these
significant assets allows us to utilize financial capital to operate the business rather than
maintain assets. Letters of credit allow us to purchase inventory in a timely manner.
We had outstanding letters of credit of $28.0 million at June 27, 2009.
Significant Contractual Obligations and Commercial Commitments
We had commitments for new store construction projects totaling approximately $3.8 million at
June 27, 2009. There has been no material change in our contractual obligations and commercial
commitments other than in the ordinary course of business since the end of fiscal 2008.
Significant Accounting Policies and Estimates
Our discussion and analysis of our financial position and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us to make informed estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
Significant accounting policies, including areas of critical management judgments and estimates,
have primary impact on the following financial statement areas:
|
|
|
Revenue recognition and sales returns
|
|
|
|
|
Inventory valuation (including LIFO)
|
|
|
|
|
Share-based payments
|
|
|
|
|
Self-insurance reserves
|
|
|
|
|
Sales tax audit reserve
|
|
|
|
|
Tax contingencies
|
|
|
|
|
Goodwill
|
|
|
|
|
Long-lived assets
|
See the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended December 27, 2008 for a discussion of our critical accounting policies. Our
financial position and/or results of operations may be materially different when reported under
different conditions or when using different assumptions in the application of such policies. In
the event estimates or assumptions prove to be different from actual amounts, adjustments are made
in subsequent periods to reflect more current information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in interest rates primarily from the Credit Agreement. The Credit
Agreement bears interest at either the banks base rate (3.25% and 5.00% at June 27, 2009 and
June 28, 2008, respectively) or LIBOR (0.31% and 2.48% at June 27, 2009 and June 28, 2008,
respectively) plus an additional amount ranging from 0.35% to 0.90% per annum, adjusted quarterly,
based on our performance (0.50% at June 27, 2009 and June 28, 2008). We are also required to pay,
quarterly in arrears, a commitment fee ranging from 0.06% to 0.18% based on the daily average
unused portion of the Credit Agreement (0.10% at June 27, 2009 and June 28, 2008). See Note 9 of
the Notes to the Consolidated Financial Statements included herein for further discussion regarding
the Credit Agreement.
Page 16
Although we cannot determine the full effect of inflation and deflation on our operations, we
believe our sales and results of operations are affected by both. We are subject to market risk
with respect to the pricing of certain
products and services, which include, among other items, steel, grain, petroleum, corn, soybean and
other commodities as well as transportation services. Therefore, we may experience both
inflationary and deflationary pressure on product cost, which may impact consumer demand and, as a
result, sales and gross margin. Our strategy is to reduce or mitigate the effects of purchase
price volatility principally by taking advantage of vendor incentive programs, economies of scale
from increased volume of purchases, adjusting retail prices and selectively buying from the most
competitive vendors without sacrificing quality. Due to the competitive environment, such
conditions have and may continue to adversely impact our financial performance.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the 1934
Act), under the supervision and with the participation of our principal executive officer and
principal financial officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) as of
June 27, 2009. Based on this evaluation, our principal executive officer and principal financial
officer concluded that, as of June 27, 2009, our disclosure controls and procedures were effective
to ensure that information required to be disclosed by us in the reports that we file or submit
under the 1934 Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the second
fiscal quarter of 2009 that have materially affected or are reasonably likely to materially affect
our internal control over financial reporting.
Page 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various litigation matters arising in the ordinary course of business. We
expect these matters will be resolved without material adverse effect on our consolidated financial
position or results of operations. Any estimated loss related to such matters has been adequately
provided in accrued liabilities to the extent probable and reasonably estimable. It is possible,
however, that future results of operations for any particular quarterly or annual period could be
affected by changes in circumstances relating to these proceedings.
Item 1A. Risk Factors
There have been no material changes to our risk factors as previously disclosed in our Annual
Report on Form 10-K for the fiscal year ended December 27, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
We have a share repurchase program which provides for repurchase of up to $400 million of our
outstanding common stock through December 2011. Stock repurchase activity during the second
quarter of fiscal 2009 was as follows:
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Number
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|
|
|
|
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|
|
|
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of Shares
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Maximum Dollar
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|
|
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Purchased as
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|
Value of Shares
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|
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Part of Publicly
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That May Yet Be
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Number of
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Average
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Announced
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Purchased Under
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Shares
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Price Paid
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Plans or
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the Plans or
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Period
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Purchased
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Per Share
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Programs
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Programs
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March 29, 2009 April 25, 2009
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|
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5,843
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$
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35.79
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5,843
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$
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186,911,433
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April 26, 2009 May 23, 2009
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10,920
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35.38
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10,920
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186,525,465
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May 24, 2009 June 27, 2009
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3,876
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37.94
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3,876
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186,378,522
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|
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As of June 27, 2009
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20,639
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20,639
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$
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186,378,522
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We expect to implement the balance of the repurchase program through purchases made from time to
time either in the open market or through private transactions, in accordance with regulations of
the Securities and Exchange Commission.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a)
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Our Annual Meeting of Stockholders was held on May 7, 2009 at our corporate headquarters in
Brentwood, Tennessee.
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(b)
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The stockholders elected, for a one-year term, the directors set forth below.
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Page 18
(c)
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The stockholders voted on the following matters at the Annual Meeting:
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1.
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The election of ten directors for a one-year term ending at the 2010 Annual Meeting of
Stockholders:
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Nominees For Directors
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For
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Withheld
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James F. Wright
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32,567,611
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786,130
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Johnston C. Adams
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32,945,820
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407,921
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William Bass
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33,135,161
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218,580
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Jack Bingleman
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33,032,098
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321,643
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S.P. Braud
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32,653,833
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699,908
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Richard W. Frost
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32,940,051
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413,690
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Cynthia T. Jamison
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32,959,604
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394,137
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Gerard E. Jones
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33,153,007
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200,734
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George MacKenzie
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32,974,318
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379,423
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Edna K. Morris
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32,959,511
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394,230
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2.
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To approve the 2009 Stock Incentive Plan:
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For
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Against
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Abstain
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Non Votes
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24,278,613
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3,711,103
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451,065
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|
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4,912,960
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3.
|
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Ratification of the appointment of Ernst & Young LLP as independent auditors for the
fiscal year ending December 26, 2009.
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|
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|
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For
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Against
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Abstain
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32,667,105
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662,187
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24,449
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Item 5. Other Information
None
Item 6. Exhibits
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Exhibits
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10.42
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Form of Change in Control Agreement for each of Anthony F. Crudele; Stanley L.
Ruta; Gregory A. Sandfort; and Kimberly D. Vella.
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10.43
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Form of Change in Control Agreement for James F. Wright.
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10.44
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Form of Incentive Stock Option Agreement under the Tractor Supply Company 2009
Stock Incentive Plan.
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10.45
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Form of Restricted Share Unit Agreement under the Tractor Supply Company 2009
Stock Incentive Plan.
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10.46
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Form of Nonqualified Stock Option Agreement under the Tractor Supply Company
2009 Stock Incentive Plan.
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31.1
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Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer and Chief Financial Officer under
Section 906 of the Sarbanes-Oxley Act of 2002.
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Page 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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TRACTOR SUPPLY COMPANY
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Date: August 4, 2009
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By:
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/s/ Anthony F. Crudele
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Anthony F. Crudele
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Executive Vice President
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
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Page 20
EXHIBIT INDEX
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Exhibit No.
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Description
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10.42
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|
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Form of Change in Control Agreement for each of Anthony F. Crudele; Stanley L. Ruta;
Gregory A. Sandfort; and Kimberly D. Vella.
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|
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10.43
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Form of Change in Control Agreement for James F. Wright.
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10.44
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Form of Incentive Stock Option Agreement under the Tractor Supply Company 2009 Stock
Incentive Plan.
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10.45
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Form of Restricted Share Unit Agreement under the Tractor Supply Company 2009 Stock
Incentive Plan.
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10.46
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Form of Nonqualified Stock Option Agreement under the Tractor Supply Company 2009 Stock
Incentive Plan.
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31.1
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Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
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|
|
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|
31.2
|
|
|
Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32.1
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the
Sarbanes-Oxley Act of 2002.
|
Page 21
Exhibit 10.42
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT
, dated as of
, 20_____, is made by and between Tractor
Supply Company, a Delaware corporation (the Company), and
(the Executive).
WHEREAS
, the Company considers it essential to the best interests of its stockholders to
foster the continued employment of key management personnel; and
WHEREAS
, the Board recognizes that, as is the case with many publicly held corporations, the
possibility of a Change in Control exists and that such possibility, and the uncertainty and
questions that it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders; and
WHEREAS
, the Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of certain members of the Companys senior
management, including the Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change in Control.
NOW, THEREFORE
, in consideration of the premises and the mutual covenants herein contained,
the Company and the Executive hereby agree as follows:
1.
Defined Terms
.
The definitions of capitalized terms used in this Agreement are
provided in the last Section hereof.
2.
Term of Agreement
.
The Term of this Agreement shall commence on the date hereof
and shall continue in effect through June 30, 2012; provided, however, that if a Change in Control
occurs during the Term, the Term shall expire no earlier than the second anniversary of the date on
which such Change in Control occurs.
3.
Companys Covenants
.
In order to induce the Executive to remain in the employ of
the Company and in consideration of the Executives covenants set forth in Section 4 hereof, the
Company agrees, under the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in Section 5(c) hereof,
no Severance Payments or other benefits shall be payable or provided under this Agreement unless
there shall have been (or, under the terms of the last sentence of Section 6(a) hereof, there shall
be deemed to have been) a termination of the Executives employment with the Company on or
following a Change in Control and during the Term. This Agreement shall not be construed as
creating an express or implied contract of employment and, except as
otherwise agreed in writing between the Executive and the Company, the Executive shall not
have any right to be retained in the employ of the Company.
4.
The Executives Covenants
.
(a)
Employment
. The Executive agrees that, subject to the terms and conditions of
this Agreement, in the event of a Change in Control during the Term, the Executive will remain in
the employ of the Company until the earliest of (i) a date which is six (6) months from the date of
such Change in Control, (ii) the Date of Termination by the Executive of the Executives employment
for Good Reason or by reason of death, Disability or Retirement, or (iii) the termination by the
Company of the Executives employment for any reason.
(b)
Noncompetition, etc.
The Executive agrees that the Executive will not, for a
period of one year from the Date of Termination of the Executives employment by the Company, (i)
directly or indirectly become an employee, director, consultant or advisor of, or otherwise
affiliated with, any operator of farm and ranch stores in the United States, (ii) directly or
indirectly solicit or hire, or encourage the solicitation or hiring of, any person who was an
employee of the Company at any time on or after such Date of Termination (unless more than six
months shall have elapsed between the last day of such persons employment by the Company and the
first date of such solicitation or hiring), or (iii) disparage the name, business reputation or
business practices of the Company or any of its officers or directors, or interfere with the
Companys existing or prospective business relationships. The Executive also agrees that the
Executive will not, during Executives employment and following the Date of Termination of
Executives employment, without the written consent of the Company, disclose to any person, other
than as required by law or court order, any confidential information or trade secrets obtained by
the Executive while in the employ of the Company; provided, however, that confidential information
shall not include any information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any specific information or type of information
generally not considered confidential by persons engaged in the same business as the Company. The
Executive acknowledges that these restrictions are reasonable and necessary to protect the
Companys legitimate interests, that the Company would not have entered into this Agreement in the
absence of such restrictions, and that any violation of these restrictions will result in
irreparable harm to the Company. The Executive agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving actual damages, as
well as an equitable accounting of all earnings, profits and other benefits arising from any
violation hereof, which rights shall be cumulative and in addition to any other rights or remedies
to which the Company may be entitled.
(c)
Return of Confidential Information
. Upon termination of Executives employment
with the Company or at any other time upon the Companys request, Executive shall promptly return
to the Company all originals and all copies (including
photocopies and facsimiles and copies on computers or other means of electronic storage) of all
materials relating in any way to confidential information or the business of the Company or any
affiliates of the Company, whether made or compiled by Executive or furnished to Executive by
virtue of his or her employment with the Company and will so represent to the Company. Upon
Executives termination of employment with the Company, Executive shall also return to the Company
all Company property in his or her possession.
2
5.
Compensation Other Than Severance Payments
.
(a) If the Executives employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay the Executives full salary to the Executive
through the Date of Termination (the Accrued Salary) at the rate in effect immediately prior to
the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, together with all compensation and benefits
payable to the Executive through the Date of Termination under and in accordance with the terms of
the Companys compensation and benefit plans, programs or arrangements as in effect immediately
prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good Reason. The Accrued
Salary shall be paid to the Executive within thirty (30) days of the Date of Termination, with the
payment date determined by the Company in its sole discretion.
(b) If the Executives employment shall terminate for any reason following a Change in Control
and during the Term, the Company shall pay to the Executive the Executives normal post-termination
compensation and benefits, if any; provided, however, that, the severance benefits provided in
Section 6 hereof shall be exclusive and the Executive shall not be entitled to participate in, or
receive severance benefits under, any other severance plan or program that may be adopted by the
Company or any other employment agreement. Any post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Companys retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date
of Termination or, if more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
(c) Notwithstanding any provision of any stock option plan, stock incentive plan, restricted
stock plan, stock option or similar plan or agreement to the contrary, immediately upon the
occurrence of a Change in Control during the Term, and without regard to whether the Executives
employment is terminated, the Executive shall be fully vested in all then outstanding options to
acquire stock of the Company (or if such options have been assumed by, or replaced with options for
shares of, a parent, surviving or acquiring company, such assumed or replacement options), and all
then outstanding restricted shares of stock of the Company and other equity-based awards
(including restricted stock units) (or the stock or equity of any parent, surviving or acquiring
company into which such restricted shares have been converted or for which they have been
exchanged) held by the Executive.
3
6.
Severance Payments
.
(a)
Severance Payments
. If the Executives employment is terminated following a
Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of
death, Disability or Retirement, or (C) by the Executive without Good Reason, then the Company
shall pay the Executive the following amounts, and provide the Executive the following benefits
(collectively, the Severance Payments), together with any Gross-Up Payment payable under Section
6(b) hereof, in addition to any payments and benefits to which the Executive is entitled under
Section 5 hereof:
(i) In lieu of any further salary payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance benefit otherwise payable to the
Executive (including pursuant to any employment agreement), the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to 1.5 times the sum of (x) the
Executives base salary as in effect immediately prior to the Date of Termination or, if
higher, in effect immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, and (y) the Executives target annual bonus pursuant to any
annual bonus or incentive plan maintained by the Company in respect of the fiscal year in
which occurs the Date of Termination or, if higher, in respect of the fiscal year in which
occurs the Change in Control.
(ii) For the two year period immediately following the Date of Termination, the
Company shall arrange to provide the Executive and his dependents life, disability,
accident and health insurance benefits substantially similar to those provided to the
Executive and his dependents immediately prior to the Date of Termination or, if more
favorable to the Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting Good Reason, at no
greater cost to the Executive than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive consents to a different method
(after taking into account the effect of such method on the calculation of parachute
payments pursuant to Section 6(b) hereof), such insurance benefits shall be provided
through a third-party insurer. The Companys payment of such premiums shall be paid
directly to the relevant third party insurers on a monthly basis. Benefits otherwise
receivable by the Executive pursuant to this Section 6(a)(ii) shall be reduced to the
extent benefits of the same type are received by or made available to the Executive by a
subsequent employer of the Executive during the two year period following the
Executives termination of employment (and any such benefits received by or made available
to the Executive shall be reported to the Company by the Executive); provided, however,
that the Company shall reimburse the Executive for the excess, if any, of the cost of such
benefits to the Executive over such cost immediately prior to the Date of Termination or,
if more favorable to the Executive, the first occurrence of an event or circumstance
constituting Good Reason.
4
(iii) Notwithstanding any provision of any stock option plan, stock incentive plan,
restricted stock plan or similar plan or agreement to the contrary, as of the Date of
Termination, (x) the Executive shall be fully vested in all outstanding options to acquire
stock of the Company (or the options of any parent, surviving, or acquiring company then
held by the Executive) and all then outstanding restricted shares of stock of the Company
and other equity-based awards (including restricted stock units) (or such parent, surviving
or acquiring company) held by the Executive, and (y) subject to any limitation on exercise
in any such plan or agreement that may not be amended without stockholder approval, all
options referred to in clause (x) above shall be immediately exercisable and shall remain
exercisable until the earlier of (1) the second anniversary of the Date of Termination, or
(2) the otherwise applicable expiration date of the term of such option.
(iv) To the extent that the full vesting of any stock option, share of restricted
stock or other equity-based award, or the full exercisability of any stock option or other
equity-based award, provided for in Section 5(c) or Section 6(a)(iii) should violate any
law, rule or regulation of any governmental authority or self-regulatory organization
applicable to the Company, or to the extent otherwise determined by the Company in its sole
discretion, the Company may, in lieu of providing any vesting or exercisability rights
pursuant to Section 5(c) or 6(a)(iii), (x) cancel any or all of the Executives outstanding
options in exchange for a lump sum payment, in cash, equal to the excess of the fair market
value of the shares of stock underlying such options (whether or not vested or exercisable)
on the Date of Termination (as reasonably determined by the Board in good faith) over the
aggregate exercise price provided for in such stock options, and (y) repurchase any shares
of restricted stock or other equity-based awards (including restricted stock units) at
their fair market value (as determined by the Board without regard to the restrictions on
such shares of stock). The lump sum payment provided for in this Section 6(a)(iv) shall be
made, if at all, within thirty (30) days of the Date of Termination, with the payment date
determined by the Company in its sole discretion.
(v) The Company shall pay to the Executive a lump sum amount, in cash, equal to the
Executives target annual bonus under any bonus plan maintained by the Company in respect
of the fiscal year in which occurs the Date of Termination multiplied by a fraction, the
numerator of which is the
number of days in such fiscal year through and including the Date of Termination, and the
denominator of which is 365. The lump sum payment provided for in this Section 6(a)(v)
shall be made, if at all, within thirty (30) days of the Date of Termination, with the
payment date determined by the Company in its sole discretion.
(vi) The Company shall provide the Executive with outplacement services suitable to
the Executives position for a period of one year following his or her Date of Termination
or, if earlier, until the first acceptance by the Executive of an offer of employment.
5
For purposes of this Agreement, the Executives employment shall be deemed to have been
terminated following a Change in Control by the Company without Cause or by the Executive with Good
Reason, if (x) the Executives employment is terminated by the Company without Cause (whether or
not a Change in Control ever occurs) and, at the time of such termination, the Company is a party
to a written agreement the consummation of which would constitute a Change in Control, or (y) the
Executive terminates his employment for Good Reason (whether or not a Change in Control ever
occurs) within six (6) months of the occurrence of the event which constitutes Good Reason, or if
shorter, the end of the term, and, both at the time the event occurs that constitutes Good Reason
and at the time of such termination, the Company is a party to such an agreement.
Notwithstanding anything herein to the contrary, to the maximum extent permitted by applicable
law, the Severance Payments to be made to the Executive pursuant to this Section 6(a) shall be made
in reliance upon Treasury Regulations promulgated under Section 409A of the Code, including Section
1.409A-1(b)(9) of the Treasury Regulations (including any exceptions from the application of
Section 409A thereunder) or Section 1.409A-1(b)(4) of the Treasury Regulations. For this purpose,
each Severance Payment shall be considered a separate and distinct payment for purposes of Section
409A of the Code. However, to the extent any such payments are treated as non-qualified deferred
compensation subject to Section 409A of the Code, then (a) no amount shall be payable pursuant to
this Section 6(a) unless Executives termination of employment constitutes a separation from
service within the meaning of Section 1.409A-1(h) of the Treasury Regulations and (b) if Executive
is deemed at the time of his separation from service to be a specified employee for purposes of
Section 409A(a)(2)(B)(i) of the Code, then to the extent delayed commencement of any portion of the
Severance Payments to which Executive is entitled under this Agreement is required in order to
avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of
Executives Severance Payments shall not be provided to Executive prior to the earlier of (x) the
expiration of the six-month period measured from the date of the Executives separation from
service with the Company (as such term is defined in Section 1.409A-1(h) of the Treasury
Regulations) or (y) the date of Executives death. Upon the earlier of such dates, all payments
deferred pursuant to this paragraph shall be paid in a lump sum to the Executive, and any remaining
payments due under the Agreement shall be paid as otherwise
provided herein. The determination of whether the Executive is a specified employee for
purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his separation from service
shall be made by the Company in accordance with the terms of Section 409A of the Code and
applicable guidance thereunder (including without limitation Section 1.409A-1(i) of the Treasury
Regulations and any successor provision thereto).
6
(b)
Gross-Up Payment
(i) Whether or not the Executive becomes entitled to the Severance Payments, except as
otherwise provided in Section 6(b)(ii) hereof, if any of the payments or benefits received
or to be received by the Executive in connection with a Change in Control or the
Executives termination of employment
(
whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, with any Person whose actions
result in a Change in Control or with any Person affiliated with the Company or such
Person
)
(such payments or benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the Total Payments) will be subject to the Excise Tax, the Company shall
pay to the Executive an additional amount (the Gross-Up Payment) such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the Gross-Up
Payment, and after taking into account the phase out of the itemized deductions
attributable to the Gross-Up Payment, shall be equal to the Total Payments.
(ii) If the Total Payments would (but for this Section 6(b)) be subject (in whole or
part) to the Excise Tax, but the aggregate value of the portion of the Total Payments that
are considered parachute payments within the meaning of section 280G(b)(2) of the Code is
less than 330% of the Executives Base Amount, then subsection (i) of this Section 6(b)
shall not apply, and the cash Severance Payments shall be reduced (if necessary, to zero),
and all other Severance Payments shall thereafter be reduced (if necessary, to zero), to
the extent necessary to cause the Total Payments not to be subject to the Excise Tax.
(iii) For purposes of determining whether any of the Total Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (A) all of the Total Payments shall be
treated as parachute payments (within the meaning of Section 280G(b)(2) of the Code)
unless, in the opinion of tax counsel (Tax Counsel) reasonably acceptable to the
Executive and selected by the accounting firm that was, immediately prior to the Change in
Control, the Companys independent auditor (the Auditor), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, (B) all excess parachute payments within the meaning of
Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the
opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base
Amount allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, and (C) the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, (x)
the Executive shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the states and
localities of the Executives residence and employment on the Date of Termination, net of
the maximum reduction in federal income taxes that could be obtained from deduction of such
state and local taxes, (y) the Executive shall be deemed to pay employment taxes at the
highest rates in effect in the state and locality of the Executives employment, and (z)
amounts actually withheld from any payment to the Executive pursuant to Section 11 hereof
with respect to income or employment taxes shall be ignored.
7
(iv) In the event that the Excise Tax is Finally Determined to be less than the amount
taken into account hereunder in calculating the Gross-Up Payment and, after giving effect
to such Finally Determined amount, the Severance Payments are to be reduced pursuant to
Section 6(b)(ii) hereof, then the Executive shall repay to the Company, within five (5)
business days following the date that the amount of such reduction in the Severance
Payments is Finally Determined, the Gross-Up Payment previously paid to the Executive and
the amount of such reduction in the Severance Payments, plus interest on the amount of such
repayments at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.
(v) In the event that the Excise Tax is Finally Determined to be less than the amount
taken into account hereunder in calculating the Gross-Up Payment, but, after giving effect
to such Finally Determined amount, no reduction of the Severance Payments is required
pursuant to Section 6(b)(ii) hereof, then the Executive shall repay to the Company, within
five (5) business days following the time that the amount of such reduction in the Excise
Tax is Finally Determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and
federal, state and local income and employment taxes imposed on the Gross-Up Payment being
repaid by the Executive), to the extent that such repayment results in a reduction in the
Excise Tax and a dollar-for-dollar reduction in the Executives taxable income and wages
for purposes of federal, state and local income and employment taxes, plus interest on the
amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.
(vi) Except as otherwise provided in Section 6(b)(vii) below, in the event that the
Excise Tax is Finally Determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the Company
shall, within five (5) business days following the time that the amount of such excess is
Finally Determined, (A) make an additional Gross-Up Payment in respect of such excess and a
Gross-Up Payment in respect of any amounts paid pursuant to clause (B) or (C) of this
Section 6(b)(vi) (plus any interest, penalties or additions payable by the Executive with
respect to such amounts), (B) if the Severance Payments were reduced pursuant to Section
6(b)(ii) hereof, but after giving effect to such final determination, the Severance
Payments should not have been so reduced, the amount by which the Severance Payments were
reduced pursuant to Section 6(b)(ii) hereof, and (C) interest on such amounts at 120% of
the rate provided in Section 1274(b)(2) of the Code.
8
(vii) In the event that the Severance Payments were reduced pursuant to Section
6(b)(ii) hereof and the value of the Total Payments that are considered parachute
payments within the meaning of Section 280G(b)(2) of the Code is Finally Determined to
differ from the amount taken into account hereunder in calculating the Gross-Up Payment,
but such Finally Determined value still does not exceed 330% of the Executives Base
Amount, then, within five (5) business days following the date on which such value is
Finally Determined, (x) the Company shall pay to the Executive the amount (if any) by which
the reduced Severance Payments (after taking the Finally Determined value into account)
exceeds the amount of the reduced Severance Payments actually paid to the Executive, plus
interest on the amount of such payment at 120% of the rate provided in Section 1274(b) of
the Code, or (y) the Executive shall pay to the Company the amount (if any) by which the
reduced Severance Payments actually paid to the Executive exceeds the amount of the reduced
Severance Payments (after taking the Finally Determined value into account), plus interest
on the amount of such payment at 120% of the rate provided in Section 1274(b) of the Code.
(c) The payments provided for in Section 6(a)(i) and (b)(i) hereof shall be made not later
than the tenth business day following the Date of Termination, with the payment date determined by
the Company in its sole discretion; provided, however, that if the amounts of the payments under
Section 6(b)(i) cannot be Finally Determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company or, in the case of
payments under Section 6(b)(i) hereof, in accordance with Section 6(b) hereof, of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay the remainder of
such payments (together with interest on the unpaid remainder (or on all such payments to the
extent the Company fails to make such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the sixtieth (60th) day after the Date of Termination,
with the payment date determined by the Company in its sole discretion. At the time that payments
are made under this Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has received from Tax
Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in
writing shall be attached to the statement).
(d) The Executive and the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments. The Company shall pay to the Executive all legal
fees and expenses incurred by the Executive (i) in obtaining or enforcing any benefit or right
provided by this Agreement or (ii) in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or benefit provided
hereunder, provided that, in either case, Executive prevails on the merits of such action. In the
event of a claim as to which Executive only obtains partial recovery or relief, Executive shall be
considered to have prevailed if Executive should receive more than 50% of the amount or relief
claimed. Such payments shall be made within five (5) business days after the later of (y) delivery
of the Executives written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require and (z) a final, non-appealable judgment from a
court of competent jurisdiction or the binding conclusion of an audit, investigation or proceeding
by the IRS or applicable agency.
9
(e) All reimbursements and in-kind benefits described in this Section 6 shall be made within
the time periods set forth in Treasury Reg. § 1.409A-3(i)(1)(iv) to the extent applicable. The
amount of expenses eligible for reimbursement, and the in-kind benefits provided, during any year
pursuant to this Section 6 shall not affect the expenses eligible for reimbursement, or in-kind
benefits to be provided in any other year.
7.
Termination Procedures and Compensation During Dispute
.
(a)
Notice of Termination
. After a Change in Control and during the Term, any
purported termination of the Executives employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the other party hereto in
accordance with Section 10 hereof. For purposes of this Agreement, a Notice of Termination shall
mean a notice which shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executives employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include an invitation to attend a meeting of the Board, to be
held no sooner than fifteen (15) days and no later than thirty (30) days
following the date of such Notice of Termination for the purpose of considering whether Cause
existed for the Executives termination. If the Executive elects to attend the meeting, the
Executive and his or her counsel shall be given the opportunity to address the Board. At the
conclusion of the meeting, the Board shall vote whether the Executive was guilty of conduct giving
rise to Cause hereunder, which vote shall require not less than three-quarters (3/4) of the entire
membership of the Board in order to confirm the Executives termination for Cause. If the Board
fails to confirm the Executives termination for Cause, the Board may elect to reinstate the
Executive or treat the termination as a termination without Cause for purposes of this Agreement.
The Company shall have no liability to the Executive with respect to any benefit other than cash
compensation that is denied the Executive during the period between the delivery of a Notice of
Termination for Cause and the Boards subsequent failure to confirm that Cause existed. Notice of
Termination due to a Good Reason must be provided by the Executive to the Company within ninety
(90) days of the occurrence of the event which is the basis for such Good Reason exists.
(b)
Date of Termination
. The Date of Termination, with respect to any termination
of the Executives employment after a Change in Control and during the Term, shall mean the date
specified in the Notice of Termination which, except in the case of a termination for Cause, shall
not be less than fifteen (15) days from the date such Notice of Termination is given and in the
case of a Good Reason, shall mean the notice and cure period requirements contained in Sections
7(a) and 16(q) herein. Notwithstanding the foregoing, the Company shall have the right to restrict
the Executives access to company facilities and properties, and to terminate the Executives
authority to act on behalf of the Company, in such manner as the Company, in its sole discretion,
shall deem appropriate during the period between the delivery of such a Notice of Termination and
the Date of Termination. The Date of Termination with respect to a termination for Cause shall be
the date the Notice of Termination is delivered to the Executive or such later date as the Company
shall expressly provide; provided, however, that if a Notice of Termination for Cause is delivered
to the Executive and the Board subsequently determines pursuant to Section 7(a) hereof that Cause
did not exist but does not reinstate the Executive, the Date of Termination shall be deemed to be
the date of such Board determination.
10
8.
No Mitigation
.
The Company agrees that, if the Executives employment with the
Company terminates during the Term, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to
Section 6 hereof. Further, the amount of any payment or benefit provided for in this Agreement
shall not be reduced by any compensation earned by the Executive as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise except as expressly provided herein.
9.
Successors; Binding Agreement
.
(a) In addition to any obligations imposed by law upon any successor to the Company, the
Company will require any successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to or upon the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executives employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. For purposes of the
payment provided for in the previous sentence, such payment shall only occur if the succession is a
change in control of the Company as defined in Treasury Regulation 1.409A-3(i)(5). If the
Company successfully obtains such assumption and agreement prior to or upon the effectiveness of
any such succession and the successor extends an offer of employment to the Executive, any
termination of the Executives employment with the Company incident to such succession shall be
ignored for purposes of this Agreement; provided that nothing contained in this Section 9(a) shall
limit the Executives right to terminate employment with the successor for Good Reason if the
succession constitutes a Change in Control and the successor takes any action subsequent to such
succession that would constitute Good Reason hereunder.
11
(b) This Agreement shall inure to the benefit of and be enforceable by the Executives
personal or legal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executives estate.
10.
Notices
.
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested, postage prepaid,
addressed, if to the Executive, to the address inserted below the Executives signature on the
final page hereof and, if to the Company, to the address set forth below, or to such other address
as either party may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
Attention: Corporate Secretary
11.
Miscellaneous
.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and signed by the
Executive and such officer as may be designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent
time. The validity, interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Tennessee. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required under federal,
state or local law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by their nature may require
either partial or total performance after the expiration of the Term (including, without
limitation, those under Sections 4, 6 and 7 hereof) shall survive such expiration.
12
12.
Validity
.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
13.
Counterparts
.
This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
instrument.
14.
Settlement of Disputes
.
Except as otherwise provided by law, this Agreement or
the specific terms of any employee benefit plan of the Company, all claims by the Executive for
benefits under this Agreement shall be directed to and determined by the Board and shall be in
writing. The Executive shall provide the Board with all materials and information reasonably
requested by the Board in connection with its review of any such claim. Any denial by the Board of
a claim for benefits under this Agreement shall be delivered to the Executive in writing within 90
days of its receipt of the claim and shall set forth the specific reasons for the denial, the
specific provisions of this Agreement relied upon, a description of any additional material or
information necessary to perfect the claim, and a statement of the Executives right to file an
action under ERISA. The Board shall afford a reasonable opportunity to the Executive for a review
of the decision denying a claim and shall further allow the Executive to appeal to the Board a
decision of the Board within sixty (60) days after notification by the Board that the Executives
claim has been denied. In pursuing his or her appeal, the Executive shall be permitted to submit
written comments, documents, records or other relevant information relating to his or her claim.
In addition, the Executive will be provided, upon request and free of charge, reasonable access to,
and
copies of, all documents, records and other information relevant to his or her claim. The
Companys review will take into account all information submitted by the Executive regarding the
claim, regardless of whether or not such information was submitted or considered in the initial
determination. The Company will render its decision on such review within a reasonable period of
time, but not later than 60 days from the Companys receipt of the Executives written appeal. If
the appeal is denied in whole or in part, the Executive will receive a written notification of the
denial which will include (i) the specific reasons for the denial, (ii) reference to the specific
provisions of the Agreement upon which the denial was based and (iii) a statement of the
Executives right to bring an action under ERISA.
15.
Compliance with Section 409A
.
The parties acknowledge and agree that, to the
extent applicable, this Agreement shall be interpreted in accordance with, and the parties agree to
use their best efforts to achieve timely compliance with, Section 409A of the Code and the Treasury
Regulations and other interpretive guidance issued thereunder, including without limitation any
such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any
provision of this Agreement to the contrary, in the event that the Company determines that any
compensation or benefits payable or provided under this Agreement may be subject to Section 409A of
the Code, the Company may, with the consent of the Executive, adopt such limited amendments to this
Agreement and appropriate policies and procedures, including amendments and policies with
retroactive effect, that the Company reasonably determines are necessary or appropriate to (i)
exempt the compensation and benefits payable under this Agreement from Section 409A of the Code
and/or preserve the intended tax treatment of the compensation and benefits provided with respect
to this Agreement or (ii) comply with the requirements of Section 409A of the Code.
13
16.
Definitions
.
For purposes of this Agreement, the following terms shall have the
meanings indicated below:
(a) Affiliate shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of
the Exchange Act.
(b) Auditor shall have the meaning set forth in Section 6(b) hereof.
(c) Base Amount shall have the meaning set forth in section 280G(b)(3) of the Code.
(d) Beneficial Owner shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(e) Board shall mean the Board of Directors of the Company.
(f) Cause for termination by the Company of the Executives employment shall mean (i)
Executives failure or refusal to carry out the lawful directions of the Company, which are
reasonably consistent with the responsibilities of
the Executives position; (ii) a material act of dishonesty or disloyalty by Executive related to
the business of the Company; (iii) Executives conviction of a felony, a lesser crime against the
Company, or any crime involving dishonest conduct; (iv) Executives habitual or repeated misuse or
habitual or repeated performance of the Executives duties under the influence of alcohol or
controlled substances; or (v) any incident materially compromising the Executives reputation or
ability to represent the Company with the public or any act or omission by the Executive that
substantially impairs the Companys business, good will or reputation.
(g) Change in Control shall be deemed to have occurred if:
(i) Any Person (including a group as defined in Section 14(d) of the Exchange Act) other
than an Exempt Person is or becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing more than 35% of the combined voting power of the Companys then
outstanding securities; provided, however, that no Change of Control shall be deemed to have
occurred as a result of a change in ownership percentage resulting solely from an acquisition of
securities by the Company; or
14
(ii) During any two (2) consecutive years during the Term, individuals who at the beginning of
such two (2) year period constitute the Board and any new director whose election to the Board or
nomination for election by the Companys stockholders was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved (such individuals and any such
new director being referred to as the Incumbent Board) cease for any reason to constitute at
least a majority of the Board; provided, however, that no individual shall be considered a member
of the Incumbent Board if such individual initially assumed office as a result of either an actual
or threatened Election Contest (as described in Rule 14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a Proxy Contest) including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest; or
(iii) Consummation of a reorganization, merger or consolidation of the Company (a Business
Combination), in each case, unless, following such Business Combination, all or substantially all
of the individuals and entities who were the beneficial owners of outstanding voting securities of
the Company immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the company resulting from such Business
Combination (including, without limitation, a company which, as a result of such transaction, owns
the Company or all or substantially all of the Companys assets either directly or through one or
more subsidiaries) in substantially
the same proportions as their ownership immediately prior to such Business Combination of the
outstanding voting securities of the Company; or
(iv) A sale or other disposition of all or substantially all of the assets of the Company
(other than in a transaction in which all or substantially all of the individuals and entities who
were the Beneficial Owners of outstanding voting securities of the Company immediately prior to
such sale or other disposition beneficially own, directly or indirectly, substantially all of the
combined voting power of the then outstanding voting securities entitled to vote generally in the
election of directors of the acquirer of such assets (either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership immediately prior to such
sale or other disposition), or the approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(h) Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
(i) Company shall mean Tractor Supply Company and, except in determining whether or not any
Change in Control of the Company has occurred, shall include any successor to its business or
assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(j) Date of Termination shall have the meaning set forth in Section 7(b) hereof.
15
(k) Disability shall be deemed the reason for the termination by the Company of the
Executives employment, if, as a result of the Executives incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time performance of the Executives
duties with the Company for a period of six (6) consecutive months, the Company shall have given
the Executive a Notice of Termination for Disability, and, within thirty (30) days after such
Notice of Termination is given, the Executive shall not have returned to the full-time performance
of the Executives duties.
(l) Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to
time.
(m) Excise Tax shall mean any excise tax imposed under Section 4999 of the Code.
(n) Executive shall mean the individual named in the preamble to this Agreement.
(o) Exempt Person shall mean Joseph H. Scarlett, Jr., his spouse, his children and their
spouses, and his grandchildren (or the legal representative of any such person) and each trust for
the benefit of any such person.
(p) Finally Determined shall mean, with respect to any amount used in the computation of a
Gross-Up Payment, that such amount has been the subject of an audit adjustment by the Internal
Revenue Service that is either (i) agreed to by both the Executive and the Company, such agreement
not to be unreasonably withheld, or (ii) sustained by a court of competent jurisdiction in a
decision with which the Executive and the Company concur, such concurrence not to be unreasonably
withheld, or with respect to which the period within which an appeal may be filed has lapsed
without a notice of appeal being filed or there is no further right of appeal.
(q) Good Reason for termination by the Executive of the Executives employment shall mean
the occurrence (without the Executives express written consent) after any Change in Control, of
any one of the following acts by the Company, or failures by the Company to act, unless, in the
case of any act or failure to act described in paragraph (i), (v) or (vi) below, such act or
failure to act is corrected within the later of 30 days of the Companys receipt of notice of Good
Reason from the Executive or prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment to the Executive of any duties materially inconsistent with the
Executives status as a senior executive officer of the Company or a material adverse
alteration in the nature or status of the Executives responsibilities from those in effect
immediately prior to the Change in Control;
16
(ii) a material reduction by the Company in the Executives annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of the Executives principal place of employment to a location
more than 50 miles from the Executives principal place of employment immediately prior to
the Change in Control or the Companys requiring the Executive to be based anywhere other
than such principal place of employment (or permitted relocation thereof) except for
required travel on the Companys business to an extent substantially consistent with the
Executives present business travel obligations;
(iv) the failure by the Company to pay to the Executive any material portion of the
Executives current compensation, or to pay to the Executive any material portion of an
installment of deferred compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any compensation plan in which
the Executive participates immediately prior to the Change in Control which is material to
the Executives total compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the failure by
the Company to continue the Executives participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the Executives participation
relative to other participants, as existed immediately prior to the Change in Control; or
(vi) the failure by the Company to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of the Companys pension,
savings, life insurance, medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control (except for across
the board changes similarly affecting all senior executives of the Company and all senior
executives of any Person in control of the Company), the taking of any other action by the
Company which would directly or indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit enjoyed by the Executive at the time
of the Change in Control, or the failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is entitled in accordance with the
Companys normal vacation policy in effect at the time of the Change in Control.
17
The Executives right to terminate the Executives employment for Good Reason shall not be
affected by the Executives incapacity due to physical or mental illness. The Executives continued
employment shall not constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
(r) Gross-Up Payment shall have the meaning set forth in Section 6(b) hereof.
(s) Notice of Termination shall have the meaning set forth in Section 7(a) hereof.
(t) Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified
and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the
Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company
(u) Retirement shall be deemed the reason for the termination by the Executive of the
Executives employment if such employment is terminated in accordance with the Companys retirement
policy, including early retirement, generally applicable to its salaried employees.
(v) Severance Payments shall have the meaning set forth in Section 6(a) hereof.
(w) Tax Counsel shall have the meaning set forth in Section 6(b) hereof.
(x) Term shall mean the period of time described in Section 2 hereof (including any
extension, continuation or termination described therein).
(y) Total Payments shall mean those payments so described in Section 6(b) hereof.
18
IT WITNESS WHEREOF,
the parties have executed this Agreement as of the date first above
written.
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By:
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Name:
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Title: Chief Executive Officer
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EXECUTIVE
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Name:
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Address:
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(Please print carefully)
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19
Exhibit 10.43
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT
, dated as of
, 20_____, is made by and between Tractor
Supply Company, a Delaware corporation (the Company), and James F. Wright (the Executive).
WHEREAS
, the Company considers it essential to the best interests of its stockholders to
foster the continued employment of key management personnel; and
WHEREAS
, the Board recognizes that, as is the case with many publicly held corporations, the
possibility of a Change in Control exists and that such possibility, and the uncertainty and
questions that it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders; and
WHEREAS
, the Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of certain members of the Companys senior
management, including the Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change in Control.
NOW, THEREFORE
, in consideration of the premises and the mutual covenants herein contained,
the Company and the Executive hereby agree as follows:
1.
Defined Terms
.
The definitions of capitalized terms used in this Agreement are
provided in the last Section hereof.
2.
Term of Agreement
.
The Term of this Agreement shall commence on the date hereof
and shall continue in effect through June 30, 2012; provided, however, that if a Change in Control
occurs during the Term, the Term shall expire no earlier than the second anniversary of the date on
which such Change in Control occurs.
3.
Companys Covenants
.
In order to induce the Executive to remain in the employ of
the Company and in consideration of the Executives covenants set forth in Section 4 hereof, the
Company agrees, under the conditions described herein, to pay the Executive the Severance Payments
and the other payments and benefits described herein. Except as provided in Section 5(c) hereof,
no Severance Payments or other benefits shall be payable or provided under this Agreement unless
there shall have been (or, under the terms of the last sentence of Section 6(a) hereof, there shall
be deemed to have been) a termination of the Executives employment with the Company on or
following a Change in Control and during the Term. This Agreement shall not be construed as
creating an express or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right to be retained
in the employ of the Company.
4.
The Executives Covenants
.
(a)
Employment
. The Executive agrees that, subject to the terms and conditions of
this Agreement, in the event of a Change in Control during the Term, the Executive will remain in
the employ of the Company until the earliest of (i) a date which is six (6) months from the date of
such Change in Control, (ii) the Date of Termination by the Executive of the Executives employment
for Good Reason or by reason of death, Disability or Retirement, or (iii) the termination by the
Company of the Executives employment for any reason.
(b)
Noncompetition, etc.
The Executive agrees that the Executive will not, for a
period of one year from the Date of Termination of the Executives employment by the Company, (i)
directly or indirectly become an employee, director, consultant or advisor of, or otherwise
affiliated with, any operator of farm and ranch stores in the United States, (ii) directly or
indirectly solicit or hire, or encourage the solicitation or hiring of, any person who was an
employee of the Company at any time on or after such Date of Termination (unless more than six
months shall have elapsed between the last day of such persons employment by the Company and the
first date of such solicitation or hiring), or (iii) disparage the name, business reputation or
business practices of the Company or any of its officers or directors, or interfere with the
Companys existing or prospective business relationships. The Executive also agrees that the
Executive will not, during Executives employment and following the Date of Termination of
Executives employment, without the written consent of the Company, disclose to any person, other
than as required by law or court order, any confidential information or trade secrets obtained by
the Executive while in the employ of the Company; provided, however, that confidential information
shall not include any information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any specific information or type of information
generally not considered confidential by persons engaged in the same business as the Company. The
Executive acknowledges that these restrictions are reasonable and necessary to protect the
Companys legitimate interests, that the Company would not have entered into this Agreement in the
absence of such restrictions, and that any violation of these restrictions will result in
irreparable harm to the Company. The Executive agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving actual damages, as
well as an equitable accounting of all earnings, profits and other benefits arising from any
violation hereof, which rights shall be cumulative and in addition to any other rights or remedies
to which the Company may be entitled.
(c)
Return of Confidential Information
. Upon termination of Executives employment
with the Company or at any other time upon the Companys request, Executive shall promptly return
to the Company all originals and all copies (including photocopies and facsimiles and copies on
computers or other means of electronic storage) of all materials relating in any way to
confidential information or the business of the
Company or any affiliates of the Company, whether made or compiled by Executive or furnished to
Executive by virtue of his or her employment with the Company and will so represent to the Company.
Upon Executives termination of employment with the Company, Executive shall also return to the
Company all Company property in his or her possession.
2
5.
Compensation Other Than Severance Payments
.
(a) If the Executives employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay the Executives full salary to the Executive
through the Date of Termination (the Accrued Salary) at the rate in effect immediately prior to
the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, together with all compensation and benefits
payable to the Executive through the Date of Termination under and in accordance with the terms of
the Companys compensation and benefit plans, programs or arrangements as in effect immediately
prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good Reason. The Accrued
Salary shall be paid to the Executive within thirty (30) days of the Date of Termination, with the
payment date determined by the Company in its sole discretion.
(b) If the Executives employment shall terminate for any reason following a Change in Control
and during the Term, the Company shall pay to the Executive the Executives normal post-termination
compensation and benefits, if any; provided, however, that, the severance benefits provided in
Section 6 hereof shall be exclusive and the Executive shall not be entitled to participate in, or
receive severance benefits under, any other severance plan or program that may be adopted by the
Company or any other employment agreement. Any post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Companys retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date
of Termination or, if more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason.
(c) Notwithstanding any provision of any stock option plan, stock incentive plan, restricted
stock plan, stock option or similar plan or agreement to the contrary, immediately upon the
occurrence of a Change in Control during the Term, and without regard to whether the Executives
employment is terminated, the Executive shall be fully vested in all then outstanding options to
acquire stock of the Company (or if such options have been assumed by, or replaced with options for
shares of, a parent, surviving or acquiring company, such assumed or replacement options), and all
then outstanding restricted shares of stock of the Company and other equity-based awards (including
restricted stock units) (or the stock or equity of any parent, surviving or acquiring company into
which such restricted shares have been converted or for which they have been exchanged) held by the
Executive.
3
6.
Severance Payments
.
(a)
Severance Payments
. If the Executives employment is terminated following a
Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of
death, Disability or Retirement, or (C) by the Executive without Good Reason, then the Company
shall pay the Executive the following amounts, and provide the Executive the following benefits
(collectively, the Severance Payments), together with any Gross-Up Payment payable under Section
6(b) hereof, in addition to any payments and benefits to which the Executive is entitled under
Section 5 hereof:
(i) In lieu of any further salary payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance benefit otherwise payable to the
Executive (including pursuant to any employment agreement), the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to 2.0 times the sum of (x) the
Executives base salary as in effect immediately prior to the Date of Termination or, if
higher, in effect immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, and (y) the Executives target annual bonus pursuant to any
annual bonus or incentive plan maintained by the Company in respect of the fiscal year in
which occurs the Date of Termination or, if higher, in respect of the fiscal year in which
occurs the Change in Control.
(ii) For the two year period immediately following the Date of Termination, the
Company shall arrange to provide the Executive and his dependents life, disability,
accident and health insurance benefits substantially similar to those provided to the
Executive and his dependents immediately prior to the Date of Termination or, if more
favorable to the Executive, those provided to the Executive and his dependents immediately
prior to the first occurrence of an event or circumstance constituting Good Reason, at no
greater cost to the Executive than the cost to the Executive immediately prior to such date
or occurrence; provided, however, that, unless the Executive consents to a different method
(after taking into account the effect of such method on the calculation of parachute
payments pursuant to Section 6(b) hereof), such insurance benefits shall be provided
through a third-party insurer. The Companys payment of such premiums shall be paid
directly to the relevant third party insurers on a monthly basis. Benefits otherwise
receivable by the Executive pursuant to this Section 6(a)(ii) shall be reduced to the
extent benefits of the same type are received by or made available to the Executive by a
subsequent employer of the Executive during the two year period following the Executives
termination of employment (and any such benefits received by or made available to the
Executive shall be reported to the Company by the Executive); provided, however, that the
Company shall reimburse the Executive for the excess, if any, of the cost of such benefits
to the Executive over such cost immediately prior to the Date of Termination or, if more
favorable to the Executive, the first occurrence of an event or circumstance constituting
Good Reason.
4
(iii) Notwithstanding any provision of any stock option plan, stock incentive plan,
restricted stock plan or similar plan or agreement to the contrary, as of the Date of
Termination, (x) the Executive shall be fully vested in all outstanding options to acquire
stock of the Company (or the options of any parent, surviving, or acquiring company then
held by the Executive) and all then outstanding restricted shares of stock of the Company
and other equity-based awards (including restricted stock units) (or such parent, surviving
or acquiring company) held by the Executive, and (y) subject to any limitation on exercise
in any such plan or agreement that may not be amended without stockholder approval, all
options referred to in clause (x) above shall be immediately exercisable and shall remain
exercisable until the earlier of (1) the second anniversary of the Date of Termination, or
(2) the otherwise applicable expiration date of the term of such option.
(iv) To the extent that the full vesting of any stock option, share of restricted
stock or other equity-based award, or the full exercisability of any stock option or other
equity-based award, provided for in Section 5(c) or Section 6(a)(iii) should violate any
law, rule or regulation of any governmental authority or self-regulatory organization
applicable to the Company, or to the extent otherwise determined by the Company in its sole
discretion, the Company may, in lieu of providing any vesting or exercisability rights
pursuant to Section 5(c) or 6(a)(iii), (x) cancel any or all of the Executives outstanding
options in exchange for a lump sum payment, in cash, equal to the excess of the fair market
value of the shares of stock underlying such options (whether or not vested or exercisable)
on the Date of Termination (as reasonably determined by the Board in good faith) over the
aggregate exercise price provided for in such stock options, and (y) repurchase any shares
of restricted stock or other equity-based awards (including restricted stock units) at
their fair market value (as determined by the Board without regard to the restrictions on
such shares of stock). The lump sum payment provided for in this Section 6(a)(iv) shall be
made, if at all, within thirty (30) days of the Date of Termination, with the payment date
determined by the Company in its sole discretion.
(v) The Company shall pay to the Executive a lump sum amount, in cash, equal to the
Executives target annual bonus under any bonus plan maintained by the Company in respect
of the fiscal year in which occurs the Date of Termination multiplied by a fraction, the
numerator of which is the number of days in such fiscal year through and including the Date
of Termination, and the denominator of which is 365. The lump sum payment provided for in
this Section 6(a)(v) shall be made, if at all, within thirty (30) days of the Date of
Termination, with the payment date determined by the Company in its sole discretion.
(vi) The Company shall provide the Executive with outplacement services suitable to
the Executives position for a period of one year following his or her Date of Termination
or, if earlier, until the first acceptance by the Executive of an offer of employment.
5
For purposes of this Agreement, the Executives employment shall be deemed to have been
terminated following a Change in Control by the Company without Cause or by the Executive with Good
Reason, if (x) the Executives employment is terminated by the Company without Cause (whether or
not a Change in Control ever occurs) and, at the time of such termination, the Company is a party
to a written agreement the consummation of which would constitute a Change in Control, or (y) the
Executive terminates his employment for Good Reason (whether or not a Change in Control ever
occurs) within six (6) months of the occurrence of the event which constitutes Good Reason, or if
shorter, the end of the term, and, both at the time the event occurs that constitutes Good Reason
and at the time of such termination, the Company is a party to such an agreement.
Notwithstanding anything herein to the contrary, to the maximum extent permitted by applicable
law, the Severance Payments to be made to the Executive pursuant to this Section 6(a) shall be made
in reliance upon Treasury Regulations promulgated under Section 409A of the Code, including Section
1.409A-1(b)(9) of the Treasury Regulations (including any exceptions from the application of
Section 409A thereunder) or Section 1.409A-1(b)(4) of the Treasury Regulations. For this purpose,
each Severance Payment shall be considered a separate and distinct payment for purposes of Section
409A of the Code. However, to the extent any such payments are treated as non-qualified deferred
compensation subject to Section 409A of the Code, then (a) no amount shall be payable pursuant to
this Section 6(a) unless Executives termination of employment constitutes a separation from
service within the meaning of Section 1.409A-1(h) of the Treasury Regulations and (b) if Executive
is deemed at the time of his separation from service to be a specified employee for purposes of
Section 409A(a)(2)(B)(i) of the Code, then to the extent delayed commencement of any portion of the
Severance Payments to which Executive is entitled under this Agreement is required in order to
avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of
Executives Severance Payments shall not be provided to Executive prior to the earlier of (x) the
expiration of the six-month period measured from the date of the Executives separation from
service with the Company (as such term is defined in Section 1.409A-1(h) of the Treasury
Regulations) or (y) the date of Executives death. Upon the earlier of such dates, all payments
deferred pursuant to this paragraph shall be paid in a lump sum to the Executive, and any remaining
payments due under the Agreement shall be paid as otherwise provided herein. The determination of
whether the Executive is a specified employee for purposes of Section 409A(a)(2)(B)(i) of the
Code as of the time of his separation from service shall be made by the Company in accordance with
the terms of Section 409A of the Code and applicable guidance thereunder (including without
limitation Section 1.409A-1(i) of the Treasury Regulations and any successor provision thereto).
6
(b)
Gross-Up Payment
(i) Whether or not the Executive becomes entitled to the Severance Payments, except as
otherwise provided in Section 6(b)(ii) hereof, if any of the payments or benefits received
or to be received by the Executive in connection
with a Change in Control or the Executives termination of employment
(
whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with the Company,
with any Person whose actions result in a Change in Control or with any Person affiliated
with the Company or such Person
)
(such payments or benefits, excluding the Gross-Up
Payment, being hereinafter referred to as the Total Payments) will be subject to the
Excise Tax, the Company shall pay to the Executive an additional amount (the Gross-Up
Payment) such that the net amount retained by the Executive, after deduction of any Excise
Tax on the Total Payments and any federal, state and local income and employment taxes and
Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of the
itemized deductions attributable to the Gross-Up Payment, shall be equal to the Total
Payments.
(ii) If the Total Payments would (but for this Section 6(b)) be subject (in whole or
part) to the Excise Tax, but the aggregate value of the portion of the Total Payments that
are considered parachute payments within the meaning of section 280G(b)(2) of the Code is
less than 330% of the Executives Base Amount, then subsection (i) of this Section 6(b)
shall not apply, and the cash Severance Payments shall be reduced (if necessary, to zero),
and all other Severance Payments shall thereafter be reduced (if necessary, to zero), to
the extent necessary to cause the Total Payments not to be subject to the Excise Tax.
(iii) For purposes of determining whether any of the Total Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (A) all of the Total Payments shall be
treated as parachute payments (within the meaning of Section 280G(b)(2) of the Code)
unless, in the opinion of tax counsel (Tax Counsel) reasonably acceptable to the
Executive and selected by the accounting firm that was, immediately prior to the Change in
Control, the Companys independent auditor (the Auditor), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, (B) all excess parachute payments within the meaning of
Section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the
opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable
compensation, or are otherwise not subject to the Excise Tax, and (C) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the Auditor in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, (x) the Executive shall be deemed to pay
federal income tax at the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the states and localities of the Executives residence
and employment on the Date of Termination, net of the maximum reduction in federal income
taxes that could be obtained from deduction of such state and local taxes, (y) the
Executive shall be deemed to pay employment taxes at the highest rates in effect in the state and
locality of the Executives employment, and (z) amounts actually withheld from any payment
to the Executive pursuant to Section 11 hereof with respect to income or employment taxes
shall be ignored.
7
(iv) In the event that the Excise Tax is Finally Determined to be less than the amount
taken into account hereunder in calculating the Gross-Up Payment and, after giving effect
to such Finally Determined amount, the Severance Payments are to be reduced pursuant to
Section 6(b)(ii) hereof, then the Executive shall repay to the Company, within five (5)
business days following the date that the amount of such reduction in the Severance
Payments is Finally Determined, the Gross-Up Payment previously paid to the Executive and
the amount of such reduction in the Severance Payments, plus interest on the amount of such
repayments at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.
(v) In the event that the Excise Tax is Finally Determined to be less than the amount
taken into account hereunder in calculating the Gross-Up Payment, but, after giving effect
to such Finally Determined amount, no reduction of the Severance Payments is required
pursuant to Section 6(b)(ii) hereof, then the Executive shall repay to the Company, within
five (5) business days following the time that the amount of such reduction in the Excise
Tax is Finally Determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and
federal, state and local income and employment taxes imposed on the Gross-Up Payment being
repaid by the Executive), to the extent that such repayment results in a reduction in the
Excise Tax and a dollar-for-dollar reduction in the Executives taxable income and wages
for purposes of federal, state and local income and employment taxes, plus interest on the
amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code.
(vi) Except as otherwise provided in Section 6(b)(vii) below, in the event that the
Excise Tax is Finally Determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the Company
shall, within five (5) business days following the time that the amount of such excess is
Finally Determined, (A) make an additional Gross-Up Payment in respect of such excess and a
Gross-Up Payment in respect of any amounts paid pursuant to clause (B) or (C) of this
Section 6(b)(vi) (plus any interest, penalties or additions payable by the Executive with
respect to such amounts), (B) if the Severance Payments were reduced pursuant to Section
6(b)(ii) hereof, but after giving effect to such final determination, the Severance
Payments should not have been so reduced, the amount by which the Severance Payments were
reduced pursuant to Section 6(b)(ii) hereof, and (C) interest on such amounts at 120% of
the rate provided in Section 1274(b)(2) of the Code.
8
(vii) In the event that the Severance Payments were reduced pursuant to Section
6(b)(ii) hereof and the value of the Total Payments that are considered parachute
payments within the meaning of Section 280G(b)(2) of the Code is Finally Determined to
differ from the amount taken into account hereunder in calculating the Gross-Up Payment,
but such Finally Determined value still does not exceed 330% of the Executives Base
Amount, then, within five (5) business days following the date on which such value is
Finally Determined, (x) the Company shall pay to the Executive the amount (if any) by which
the reduced Severance Payments (after taking the Finally Determined value into account)
exceeds the amount of the reduced Severance Payments actually paid to the Executive, plus
interest on the amount of such payment at 120% of the rate provided in Section 1274(b) of
the Code, or (y) the Executive shall pay to the Company the amount (if any) by which the
reduced Severance Payments actually paid to the Executive exceeds the amount of the reduced
Severance Payments (after taking the Finally Determined value into account), plus interest
on the amount of such payment at 120% of the rate provided in Section 1274(b) of the Code.
(c) The payments provided for in Section 6(a)(i) and (b)(i) hereof shall be made not later
than the tenth business day following the Date of Termination, with the payment date determined by
the Company in its sole discretion; provided, however, that if the amounts of the payments under
Section 6(b)(i) cannot be Finally Determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company or, in the case of
payments under Section 6(b)(i) hereof, in accordance with Section 6(b) hereof, of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay the remainder of
such payments (together with interest on the unpaid remainder (or on all such payments to the
extent the Company fails to make such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later
than the sixtieth (60th) day after the Date of Termination, with the payment date determined by the
Company in its sole discretion. At the time that payments are made under this Agreement, the
Company shall provide the Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including, without limitation, any
opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors
or consultants (and any such opinions or advice which are in writing shall be attached to the
statement).
(d) The Executive and the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments. The Company shall pay to the Executive all legal
fees and expenses incurred by the Executive (i) in obtaining or enforcing any benefit or right
provided by this Agreement or (ii) in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or benefit provided
hereunder, provided that, in either case, Executive prevails on the merits of such action. In the
event of a claim as to
which Executive only obtains partial recovery or relief, Executive shall be considered to have
prevailed if Executive should receive more than 50% of the amount or relief claimed. Such payments
shall be made within five (5) business days after the later of (y) delivery of the Executives
written requests for payment accompanied with such evidence of fees and expenses incurred as the
Company reasonably may require and (z) a final, non-appealable judgment from a court of competent
jurisdiction or the binding conclusion of an audit, investigation or proceeding by the IRS or
applicable agency.
9
(e) All reimbursements and in-kind benefits described in this Section 6 shall be made within
the time periods set forth in Treasury Reg. § 1.409A-3(i)(1)(iv) to the extent applicable. The
amount of expenses eligible for reimbursement, and the in-kind benefits provided, during any year
pursuant to this Section 6 shall not affect the expenses eligible for reimbursement, or in-kind
benefits to be provided in any other year.
7.
Termination Procedures and Compensation During Dispute
.
(a)
Notice of Termination
. After a Change in Control and during the Term, any
purported termination of the Executives employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the other party hereto in
accordance with Section 10 hereof. For purposes of this Agreement, a Notice of Termination shall
mean a notice which shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executives employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include an invitation to attend a meeting of the Board, to be
held no sooner than fifteen (15) days and no later than thirty (30) days following the date of such
Notice of Termination for the purpose of considering whether Cause existed for the Executives
termination. If the Executive elects to attend the meeting, the Executive and his or her counsel
shall be given the opportunity to address the Board. At the conclusion of the meeting, the Board
shall vote whether the Executive was guilty of conduct giving rise to Cause hereunder, which vote
shall require not less than three-quarters (3/4) of the entire membership of the Board in order to
confirm the Executives termination for Cause. If the Board fails to confirm the Executives
termination for Cause, the Board may elect to reinstate the Executive or treat the termination as a
termination without Cause for purposes of this Agreement. The Company shall have no liability to
the Executive with respect to any benefit other than cash compensation that is denied the Executive
during the period between the delivery of a Notice of Termination for Cause and the Boards
subsequent failure to confirm that Cause existed. Notice of Termination due to a Good Reason must
be provided by the Executive to the Company within ninety (90) days of the occurrence of the event
which is the basis for such Good Reason exists.
10
(b)
Date of Termination
. The Date of Termination, with respect to any termination
of the Executives employment after a Change in Control and during the Term, shall mean the date
specified in the Notice of Termination which, except in the case of a termination for Cause, shall
not be less than fifteen (15) days from the date such
Notice of Termination is given and in the case of a Good Reason, shall mean the notice and cure
period requirements contained in Sections 7(a) and 16(q) herein. Notwithstanding the foregoing,
the Company shall have the right to restrict the Executives access to company facilities and
properties, and to terminate the Executives authority to act on behalf of the Company, in such
manner as the Company, in its sole discretion, shall deem appropriate during the period between the
delivery of such a Notice of Termination and the Date of Termination. The Date of Termination with
respect to a termination for Cause shall be the date the Notice of Termination is delivered to the
Executive or such later date as the Company shall expressly provide; provided, however, that if a
Notice of Termination for Cause is delivered to the Executive and the Board subsequently determines
pursuant to Section 7(a) hereof that Cause did not exist but does not reinstate the Executive, the
Date of Termination shall be deemed to be the date of such Board determination.
8.
No Mitigation
.
The Company agrees that, if the Executives employment with the
Company terminates during the Term, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to
Section 6 hereof. Further, the amount of any payment or benefit provided for in this Agreement
shall not be reduced by any compensation earned by the Executive as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise except as expressly provided herein.
9.
Successors; Binding Agreement
.
(a) In addition to any obligations imposed by law upon any successor to the Company, the
Company will require any successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to or upon the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executives employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. For purposes of the
payment provided for in the previous sentence, such payment shall only occur if the succession is a
change in control of the Company as defined in Treasury Regulation 1.409A-3(i)(5). If the
Company successfully obtains such assumption and agreement prior to or upon the effectiveness of
any such succession and the successor extends an offer of employment to the Executive, any
termination of the Executives employment with the Company incident to such succession shall be
ignored for purposes of this Agreement; provided that nothing contained in this Section 9(a) shall
limit the Executives right to terminate employment with the successor for Good Reason
if the succession constitutes a Change in Control and the successor takes any action subsequent to
such succession that would constitute Good Reason hereunder.
11
(b) This Agreement shall inure to the benefit of and be enforceable by the Executives
personal or legal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executives estate.
10.
Notices
.
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested, postage prepaid,
addressed, if to the Executive, to the address inserted below the Executives signature on the
final page hereof and, if to the Company, to the address set forth below, or to such other address
as either party may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
Attention: Corporate Secretary
11.
Miscellaneous
.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and signed by the
Executive and such officer as may be designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent
time. The validity, interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Tennessee. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required under federal,
state or local law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by their nature may require
either partial or total performance after the expiration of the Term (including, without
limitation, those under Sections 4, 6 and 7 hereof) shall survive such expiration.
12
12.
Validity
.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
13.
Counterparts
.
This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
instrument.
14.
Settlement of Disputes
.
Except as otherwise provided by law, this Agreement or
the specific terms of any employee benefit plan of the Company, all claims by the Executive for
benefits under this Agreement shall be directed to and determined by the Board and shall be in
writing. The Executive shall provide the Board with all materials and information reasonably
requested by the Board in connection with its review of any such claim. Any denial by the Board of
a claim for benefits under this Agreement shall be delivered to the Executive in writing within 90
days of its receipt of the claim and shall set forth the specific reasons for the denial, the
specific provisions of this Agreement relied upon, a description of any additional material or
information necessary to perfect the claim, and a statement of the Executives right to file an
action under ERISA. The Board shall afford a reasonable opportunity to the Executive for a review
of the decision denying a claim and shall further allow the Executive to appeal to the Board a
decision of the Board within sixty (60) days after notification by the Board that the Executives
claim has been denied. In pursuing his or her appeal, the Executive shall be permitted to submit
written comments, documents, records or other relevant information relating to his or her claim.
In addition, the Executive will be provided, upon request and free of charge, reasonable access to,
and copies of, all documents, records and other information relevant to his or her claim. The
Companys review will take into account all information submitted by the Executive regarding the
claim, regardless of whether or not such information was submitted or considered in the initial
determination. The Company will render its decision on such review within a reasonable period of
time, but not later than 60 days from the Companys receipt of the Executives written appeal. If
the appeal is denied in whole or in part, the Executive will receive a written notification of the
denial which will include (i) the specific reasons for the denial, (ii) reference to the specific
provisions of the Agreement upon which the denial was based and (iii) a statement of the
Executives right to bring an action under ERISA.
15.
Compliance with Section 409A
.
The parties acknowledge and agree that, to the
extent applicable, this Agreement shall be interpreted in accordance with, and the parties agree to
use their best efforts to achieve timely compliance with, Section 409A of the Code and the Treasury
Regulations and other interpretive guidance issued thereunder, including without limitation any
such regulations or other guidance that may be issued after the Effective Date. Notwithstanding any
provision of this Agreement to the contrary, in the event that the Company determines that any
compensation or benefits payable or provided under this Agreement may be subject to Section 409A of
the Code, the Company may, with the consent of the Executive, adopt such limited amendments to this
Agreement and appropriate policies and procedures, including amendments and policies with
retroactive effect, that the Company reasonably determines are necessary or
appropriate to (i) exempt the compensation and benefits payable under this Agreement from
Section 409A of the Code and/or preserve the intended tax treatment of the compensation and
benefits provided with respect to this Agreement or (ii) comply with the requirements of Section
409A of the Code.
13
16.
Definitions
.
For purposes of this Agreement, the following terms shall have the
meanings indicated below:
(a) Affiliate shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of
the Exchange Act.
(b) Auditor shall have the meaning set forth in Section 6(b) hereof.
(c) Base Amount shall have the meaning set forth in section 280G(b)(3) of the Code.
(d) Beneficial Owner shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(e) Board shall mean the Board of Directors of the Company.
(f) Cause for termination by the Company of the Executives employment shall mean (i)
Executives failure or refusal to carry out the lawful directions of the Company, which are
reasonably consistent with the responsibilities of the Executives position; (ii) a material act of
dishonesty or disloyalty by Executive related to the business of the Company; (iii) Executives
conviction of a felony, a lesser crime against the Company, or any crime involving dishonest
conduct; (iv) Executives habitual or repeated misuse or habitual or repeated performance of the
Executives duties under the influence of alcohol or controlled substances; or (v) any incident
materially compromising the Executives reputation or ability to represent the Company with the
public or any act or omission by the Executive that substantially impairs the Companys business,
good will or reputation.
(g) Change in Control shall be deemed to have occurred if:
(i) Any Person (including a group as defined in Section 14(d) of the Exchange Act) other
than an Exempt Person is or becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing more than 35% of the combined voting power of the Companys then
outstanding securities; provided, however, that no Change of Control shall be deemed to have
occurred as a result of a change in ownership percentage resulting solely from an acquisition of
securities by the Company; or
14
(ii) During any two (2) consecutive years during the Term, individuals who at the beginning of
such two (2) year period constitute the Board and any new director whose election to the Board or
nomination for election by the Companys
stockholders was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose election or nomination for
election was previously so approved (such individuals and any such new director being referred to
as the Incumbent Board) cease for any reason to constitute at least a majority of the Board;
provided, however, that no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or threatened Election
Contest (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a
Proxy Contest) including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or
(iii) Consummation of a reorganization, merger or consolidation of the Company (a Business
Combination), in each case, unless, following such Business Combination, all or substantially all
of the individuals and entities who were the beneficial owners of outstanding voting securities of
the Company immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the company resulting from such Business
Combination (including, without limitation, a company which, as a result of such transaction, owns
the Company or all or substantially all of the Companys assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership immediately prior to
such Business Combination of the outstanding voting securities of the Company; or
(iv) A sale or other disposition of all or substantially all of the assets of the Company
(other than in a transaction in which all or substantially all of the individuals and entities who
were the Beneficial Owners of outstanding voting securities of the Company immediately prior to
such sale or other disposition beneficially own, directly or indirectly, substantially all of the
combined voting power of the then outstanding voting securities entitled to vote generally in the
election of directors of the acquirer of such assets (either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership immediately prior to such
sale or other disposition), or the approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(h) Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
(i) Company shall mean Tractor Supply Company and, except in determining whether or not any
Change in Control of the Company has occurred, shall include any successor to its business or
assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(j) Date of Termination shall have the meaning set forth in Section 7(b) hereof.
15
(k) Disability shall be deemed the reason for the termination by the Company of the
Executives employment, if, as a result of the Executives incapacity due to physical or mental
illness, the Executive shall have been absent from the full-time performance of the Executives
duties with the Company for a period of six (6) consecutive months, the Company shall have given
the Executive a Notice of Termination for Disability, and, within thirty (30) days after such
Notice of Termination is given, the Executive shall not have returned to the full-time performance
of the Executives duties.
(l) Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to
time.
(m) Excise Tax shall mean any excise tax imposed under Section 4999 of the Code.
(n) Executive shall mean the individual named in the preamble to this Agreement.
(o) Exempt Person shall mean Joseph H. Scarlett, Jr., his spouse, his children and their
spouses, and his grandchildren (or the legal representative of any such person) and each trust for
the benefit of any such person.
(p) Finally Determined shall mean, with respect to any amount used in the computation of a
Gross-Up Payment, that such amount has been the subject of an audit adjustment by the Internal
Revenue Service that is either (i) agreed to by both the Executive and the Company, such agreement
not to be unreasonably withheld, or (ii) sustained by a court of competent jurisdiction in a
decision with which the Executive and the Company concur, such concurrence not to be unreasonably
withheld, or with respect to which the period within which an appeal may be filed has lapsed
without a notice of appeal being filed or there is no further right of appeal.
(q) Good Reason for termination by the Executive of the Executives employment shall mean
the occurrence (without the Executives express written consent) after any Change in Control, of
any one of the following acts by the Company, or failures by the Company to act, unless, in the
case of any act or failure to act described in paragraph (i), (v) or (vi) below, such act or
failure to act is corrected within the later of 30 days of the Companys receipt of notice of Good
Reason from the Executive or prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment to the Executive of any duties materially inconsistent with the
Executives status as a senior executive officer of the Company or a material adverse
alteration in the nature or status of the Executives responsibilities from those in effect
immediately prior to the Change in Control;
16
(ii) a material reduction by the Company in the Executives annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of the Executives principal place of employment to a location
more than 50 miles from the Executives principal place of employment immediately prior to
the Change in Control or the Companys requiring the Executive to be based anywhere other
than such principal place of employment (or permitted relocation thereof) except for
required travel on the Companys business to an extent substantially consistent with the
Executives present business travel obligations;
(iv) the failure by the Company to pay to the Executive any material portion of the
Executives current compensation, or to pay to the Executive any material portion of an
installment of deferred compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any compensation plan in which
the Executive participates immediately prior to the Change in Control which is material to
the Executives total compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the failure by
the Company to continue the Executives participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the Executives participation
relative to other participants, as existed immediately prior to the Change in Control; or
(vi) the failure by the Company to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of the Companys pension,
savings, life insurance, medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control (except for across
the board changes similarly affecting all senior executives of the Company and all senior
executives of any Person in control of the Company), the taking of any other action by the
Company which would directly or indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit enjoyed by the Executive at the time
of the Change in Control, or the failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is entitled in accordance with the
Companys normal vacation policy in effect at the time of the Change in Control.
17
The Executives right to terminate the Executives employment for Good Reason shall not be
affected by the Executives incapacity due to physical or mental illness. The
Executives continued employment shall not constitute consent to, or a waiver of rights with
respect to, any act or failure to act constituting Good Reason hereunder.
(r) Gross-Up Payment shall have the meaning set forth in Section 6(b) hereof.
(s) Notice of Termination shall have the meaning set forth in Section 7(a) hereof.
(t) Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified
and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the
Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(u) Retirement shall be deemed the reason for the termination by the Executive of the
Executives employment if such employment is terminated in accordance with the Companys retirement
policy, including early retirement, generally applicable to its salaried employees.
(v) Severance Payments shall have the meaning set forth in Section 6(a) hereof.
(w) Tax Counsel shall have the meaning set forth in Section 6(b) hereof.
(x) Term shall mean the period of time described in Section 2 hereof (including any
extension, continuation or termination described therein).
(y) Total Payments shall mean those payments so described in Section 6(b) hereof.
18
IT WITNESS WHEREOF,
the parties have executed this Agreement as of the date first above
written.
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By:
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Name:
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Title:
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EXECUTIVE
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Name:
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Address:
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(Please print carefully)
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19
Exhibit 10.44
INCENTIVE
STOCK OPTION AGREEMENT
under the
TRACTOR SUPPLY COMPANY
2009 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT, dated as of «Grant_Date» between TRACTOR SUPPLY COMPANY, a Delaware
corporation (the Company), and «First_Name» «Middle» «Last_Name» (the Optionee).
The Companys Compensation Committee (the Committee) has determined that the objectives of
the Companys 2009 Stock Incentive Plan (the Plan) will be furthered by granting to the Optionee
an option pursuant to the Plan.
In consideration of the foregoing and of the mutual undertakings set forth in this Stock Option
Agreement (the Agreement), the Company and the Optionee hereby agree as follows:
SECTION 1.
Grant of Option
. The Company hereby grants to the Optionee a stock option to
purchase «ISO_Number_of_Shares» shares of the Common Stock of the Company, at a purchase price of
«Grant_Price» per share (the Exercise Price), which option is intended to qualify for the special
incentive stock option tax treatment described in Code section 422.
The Company cannot guarantee that the special tax treatment will apply. For example, if the
Optionee sells the Common Stock acquired pursuant to the exercise of this option either within two
years after the date of this Agreement or within one year after the date this option (or part
thereof) is exercised, this special tax treatment will not apply.
If the option (or any part thereof) does not qualify for incentive stock option treatment for
any reason, then, to the extent of such nonqualification, the option (or portion thereof) shall be
treated as a nonqualified stock option granted under the Plan, provided that the option (or portion
thereof) otherwise satisfies the terms and conditions of the Plan generally relating to
nonqualified stock options.
SECTION 2.
Exercisability
. Subject to Section 4 hereof, the option shall be exercisable as
follows:
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Shares
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Cumulative
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Becoming
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Shares
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On and After
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Exercisable
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Exercisable
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«Vest_3313Grant_Date_Plus_1_year»
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«ISO_2010_Vest»
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«ISO_2010_Cum»
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«Vest_6623Grant_Date_Plus_2_years»
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«ISO_2011_Vest»
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«ISO_2011_Cum»
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«Vest _100Grant_Date_Plus_3_years»
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«ISO_2012_Vest»
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«ISO_2012_Cum»
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Through «ExpirationGrant_Date_plus_10_years»
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«ISO_DISO_Shares»
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SECTION 3.
Method of Option Exercise; Involuntary Option Cash-Out
.
(a) The option or any part thereof may be exercised, with respect to whole shares only, by giving
to the Company written notice of exercise in the form attached hereto as Exhibit A. The Optionee
shall exercise any options through the Company sponsored exercise program. The Optionee shall have
no right to receive shares of Common Stock with respect to an option exercise, prior to the option
exercise date.
(b) At any time after the Companys receipt of written notice of exercise and prior to the option
exercise date, the Committee, in its sole discretion, shall have the right, by written notice to
the Optionee, to cancel the option or any part thereof subject to the written notice of exercise if
the Committee, in its sole judgment, determines that legal or contractual restrictions and/or
blockage and/or other market considerations would make the Companys acquisition of Common Stock
from, and/or the Optionees sale of Common Stock to, the public markets illegal, impracticable or
inadvisable. If the Committee determines to so cancel the option or any part thereof subject to
the written notice of exercise, the Company shall pay to the Optionee an amount equal to the excess
(if any) of (i) the aggregate Fair Market Value of the shares of Common Stock subject to the option
or part thereof cancelled (determined as of the option exercise date) over (ii) the aggregate
Exercise Price of the shares of Common Stock subject to the option or part thereof cancelled. Such
amount shall be delivered to the Optionee as soon as practicable after such option or part thereof
is cancelled.
SECTION 4.
Termination of Employment
.
(a)
General Rule
. The non-vested portion of any option shall terminate and expire upon the
Optionees termination of employment for any reason except that upon termination of Optionees
employment or service as a result of (1) death or (2) disability (as defined below), any unvested
portion of the option granted hereunder shall vest in full as of the date of such termination. The
vested portion shall remain exercisable following termination of employment only under the
circumstances and to the extent provided in this Section 4.
(b)
Termination for Cause; Optionee Quits Employment
. If the Optionees employment is
terminated for Cause or if the Optionee quits employment, whether or not the Optionee is a party to
a written employment contract, the option granted hereunder shall immediately terminate and become
void and of no effect on the day the Optionees employment terminates.
(c)
Regular Termination; Leaves of Absence
. If the Optionees employment terminates for
reasons other than as provided in subsection (b) above or subsections (d) or (e) below, the vested
portion of the option granted hereunder may be exercised until the earlier of (i) three months
after the day the Optionees employment terminates and (ii) the date on which the option otherwise
terminates or expires in accordance with the applicable provisions of the Plan and this Agreement;
provided
that the Committee may determine, in its sole discretion, such longer or shorter
period for exercise (not to exceed the remaining term of the option) in the case of an individual
whose employment terminates for reasons as provided herein in subsection (c), or solely because his
employer ceases to be an Affiliate or he transfers his employment with the Companys consent to a
purchaser of a business disposed of by the Company. Subject to Section
4(e) below, the Committee may, in its discretion, determine (A) whether any leave of absence
(including short-term or long-term disability or medical leave) constitutes a termination of
employment within the meaning of the Plan and (B) the impact, if any, of any such leave on awards
under the Plan theretofore made to an Optionee who takes any such leave.
2
Any extension of the exercise period beyond 90 days from the date of such termination will
automatically disqualify the option from the special tax treatment accorded incentive stock
options.
(d)
Death
. In the event that the Optionees employment terminates by reason of death, or
if the Optionees employment shall terminate as described in subsection (c) above and he dies
within the period for exercise provided for therein, the vested portion of the option shall be
exercisable by the person to whom the option has passed under the Optionees will (or if
applicable, pursuant to the laws of descent and distribution) until the earlier of (i) one year
after the Optionees death and (ii) the date on which the option otherwise terminates or expires in
accordance with the applicable provisions of the Plan and this Agreement.
(e)
Disability
. In the event that Optionees employment or service terminates by reason of
Disability (as defined below), the vested portion of the option granted hereunder shall be
exercisable by Optionee until the earlier of (i) three years following the date of such termination
of employment or service, and (ii) the date on which the option granted hereunder otherwise
terminates or expires in accordance with the applicable provisions of the Plan and this Agreement.
For purposes of this Agreement, Disability means a disability that would qualify as a total and
permanent disability under the Companys then current long-term disability plan.
(f)
Change in Control
. Notwithstanding anything to the contrary contained herein, unless
otherwise provided in another contractual agreement between the Company and Optionee, if within one
year following a Change in Control, the Optionees employment with the Company (or its successor)
is terminated by reason of (i) Retirement or Early Retirement, (ii) for Good Reason by the Optionee
or (iii) involuntary termination by the Company for any reason other than for Cause, all Options
granted hereunder shall vest in full as of the date of such termination. Notwithstanding the
foregoing, in connection with a Change in Control, the Committee may, in its discretion, by
resolution adopted prior to the occurrence of the Change in Control, provide that this Option
shall, upon the occurrence of such Change in Control, be cancelled in exchange for a payment per
share in an amount based on Fair Market Value of the shares of Common Stock with reference to the
Change in Control less the Exercise Price, which amount may be zero (0) if applicable. For
purposes of clarity, if the Fair Market Value is less than the Exercise Price at the time of such
cancellation, the Grantee shall receive $0, and no consideration shall be given to the time value
of the options granted hereunder.
(g)
Right of Discharge Reserved
. Nothing in the Plan or this Agreement shall confer upon
the Optionee or any other person the right to continue in the employment of the Company or any
Affiliate or affect any right which the Company or any Affiliate may have to terminate the
employment of the Optionee or any other person.
3
SECTION 5.
Withholding Tax Requirements
. If as a condition of delivery of shares of Common
Stock upon the Optionees exercise of an option granted hereunder the Committee determines that it
is necessary or advisable to withhold an amount sufficient to satisfy any federal, state and other
governmental withholding tax requirements related thereto, then the Optionee shall be required to
satisfy all withholding tax requirements related to such option in accordance with Sections 6.4 and
14.6 of the Plan. By entering into this Agreement, the Optionee hereby agrees that, if the
Committee shall make such determination, then (a) the Optionee shall remit the full amount
necessary to satisfy such withholding tax requirements within 15 days after his receipt of a
statement for such amount from the Committee (unless and to the extent that the Committee permits
the Optionee to use the method of payment described in Sections 6.4(d) and 14.6 of the Plan), and
(b) the Company shall be entitled to withhold the amount of any such tax requirements from any
salary or other payments due to the Optionee, and to refuse to recognize such option exercise until
full satisfaction of such withholding tax requirements. The Optionee further agrees and
acknowledges that all other taxes, duties and fees related to such option exercise are for the
Optionees own account and must be paid directly by the Optionee.
SECTION 6.
Plan Provisions
. This Agreement shall be subject to all of the terms and
provisions of the Plan, which are hereby incorporated herein by reference and made a part hereof.
Any term defined in the Plan shall have the same meaning in this Agreement as in the Plan, except
as otherwise defined herein. In the event of any inconsistency between the terms of this Agreement
and the terms of the Plan, the terms of the Plan shall govern.
SECTION 7.
Optionees Acknowledgements
. By entering into this Agreement the Optionee
agrees and acknowledges that (a) he has received and read a copy of the Plan and (b) no member of
the Committee shall be liable for any action or determination made in good faith with respect to
the Plan or this Agreement or any award thereunder or hereunder.
SECTION 8.
Nontransferability
. No right granted to the Optionee under the Plan or this
Agreement shall be assignable or transferable by the Optionee (whether by operation of law or
otherwise and whether voluntarily or involuntarily), other than by will or by the laws of descent
and distribution. During the lifetime of the Optionee, all rights granted to the Optionee under
the Plan or under this Agreement shall be exercisable only by the Optionee.
SECTION 9.
Execution of Agreement
. Notwithstanding anything contained in this Agreement to
the contrary, the option may not be exercised until the Optionee has returned an executed copy of
this Agreement to the Company.
SECTION 10.
Notices
. Any notice to be given to the Company hereunder shall be in writing
and shall be addressed to the Corporate Controller of Tractor Supply Company at 200 Powell Place,
Brentwood, Tennessee 37027, or at such other address as the Company may hereafter designate to the
Optionee by notice as provided herein. Any notice to be given to the Optionee hereunder shall be
addressed to the Optionee at the address set forth below or at such other address as the Optionee
may hereafter designate to the Company by notice as provided herein. Notices hereunder shall be
deemed to have been duly given when received by personal delivery or by registered or certified
mail to the party entitled to receive the same.
4
SECTION 11.
Successors and Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and assigns of the Company and, to the extent set
forth in Section 14.1 of the Plan and Section 8 hereof, the heirs and personal representatives of
the Optionee.
SECTION 12.
Governing Law
. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Tennessee, without giving effect to the conflicts of laws
principles thereof.
SECTION 13.
Amendments to Option
. Subject to the restrictions contained in the Plan, the
Committee may waive any conditions or rights under, amend any terms of, or alter, suspend,
discontinue, cancel or terminate, the Option, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that
would adversely affect the rights of the Optionee or any holder or beneficiary of the Option shall
not to that extent be effective without the consent of the Optionee, holder or beneficiary
affected.
SECTION 14.
Definitions
. As used in this Agreement the following terms shall have the
meaning set forth below:
(a) Cause for termination by the Company of the Optionees employment shall mean (i) Optionees
failure or refusal to carry out the lawful directions of the Company, which are reasonably
consistent with the responsibilities of the Optionees position; (ii) a material act of dishonesty
or disloyalty by Optionee related to the business of the Company; (iii) Optionees conviction of a
felony, a lesser crime against the Company, or any crime involving dishonest conduct; (iv)
Optionees habitual or repeated misuse or habitual or repeated performance of the Optionees duties
under the influence of alcohol or controlled substances; or (v) any incident materially
compromising the Optionees reputation or ability to represent the Company with the public or any
act or omission by the Optionee that substantially impairs the Companys business, good will or
reputation.
(b) Change in Control shall mean, the happening of one of the following:
(i) any person or entity, including a group as defined in Section 13(d)(3) of
the Exchange Act, other than the Company or a wholly-owned Subsidiary thereof or any
employee benefit plan of the Company or any of its Subsidiaries, becomes the
beneficial owner of the Companys securities having 35% or more of the combined
voting power of the then outstanding securities of the Company that may be cast for
the election of directors of the Company (other than as a result of an issuance of
securities initiated by the Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sales of assets or contested election,
or any combination of the foregoing transactions, less than a majority of the
combined voting power of the then outstanding securities of the Company or any
successor corporation or entity entitled to vote generally in the election of the
directors of the Company or such other corporation or entity after such transaction
are held in the aggregate by the holders of the Companys securities entitled to
vote generally in the election of directors of the Company immediately prior to such
transaction; or
5
(iii) during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election, or the nomination for election by
the Companys shareholders, of each director of the Company first elected during
such period was approved by a vote of at least two-thirds of the directors of the
Company then still in office who were directors of the Company at the beginning of
any such period.
(c) Early Retirement shall mean retirement with the express consent of the Company at or before
the time of such retirement, from active employment with the Company and any Subsidiary or
Affiliate prior to having reached the age of 55 and ten years of service with the Company, in
accordance with any applicable early retirement policy of the Company then in effect or as may be
approved by the Committee.
(d) Good Reason means (i) a material reduction in a Optionees position, authority, duties or
responsibilities, (ii) any reduction in a Optionees annual base salary as in effect immediately
prior to a Change in Control; (iii) the relocation of the office at which the Optionee is to
perform the majority of his or her duties following a Change in Control to a location more than 30
miles from the location at which the Optionee performed such duties prior to the Change in Control;
or (iv) the failure by the Company or its successor to continue to provide the Optionee with
benefits substantially similar in aggregate value to those enjoyed by the Optionee under any of the
Companys pension, life insurance, medical, health and accident or disability plans in which
Optionee was participating immediately prior to a Change in Control, unless the Optionee is offered
participation in other comparable benefit plans generally available to similarly situated employees
of the Company or its successor after the Change in Control.
(e) Retirement shall mean, retirement of Optionee from active employment with the Company or any
of its Subsidiaries or Affiliates on or after such Optionee having reached the age of 55 and ten
years of service with the Company.
SECTION 15.
Severability
. If any provision of this Agreement is or becomes, or is deemed
to be, invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the option
award, or would disqualify the Plan or the option award under any laws deemed applicable by the
Committee, such provisions shall be construed or deemed amended to conform to the applicable laws,
or if it cannot be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the option award, such provision shall be stricken as
to such jurisdiction, Person or option award, and the remainder of the Plan and option award shall
remain in full force and effect.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
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TRACTOR SUPPLY COMPANY
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OPTIONEE:
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By:
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«First_Name» «Middle» «Last_Name»
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Current Address:
Please note changes below
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«Street_Address»
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«City». «State» «Zip»
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Address:
please print
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7
EXERCISE NOTICE
Exhibit A
Corporate Controller
Tractor Supply Company
200 Powell Place
Brentwood, TN 37027
The undersigned hereby irrevocably elects to exercise the right of purchase represented by the
Stock Option Agreements (the Agreement), dated as of per Exhibit A, for, and to purchase
thereunder, the number of shares of the common stock of Tractor Supply Company (the Common
Stock), as provided for therein and set forth in Exhibit A. The full amount of the option
exercise price shall be paid on the option exercise date, at the time this exercise notice is
received by the Company (unless the Committee exercises its right to cancel the option (or any part
thereof) subject hereto in accordance with Section 3.2 of the Tractor Supply Company Stock
Incentive Plan (the Plan) and Section 3 of the Agreement). Capitalized terms used but not
otherwise defined herein shall have the respective meanings ascribed to them in the Plan or the
Agreement, as applicable.
Payment of the option exercise price shall be made in full by delivery to the Company of an
assignment of the proceeds from the sale of Common Stock acquired upon exercise and an
authorization to the broker or selling agent to pay that amount to the Company, or in such other
manner as may be determined by the Committee. The undersigned hereby agrees to provide, if so
requested by the Committee, a written opinion of counsel satisfactory to the Company to the effect
that such assignment of proceeds from such broker or selling agent, or delivery of shares of Common
Stock already owned by the Optionee, if permitted by the Committee, would not result in the
Optionee incurring any liability under Section 16(b) of the Securities Exchange Act of 1934 and
such other opinions as the Committee may reasonably request.
The undersigned hereby agrees and acknowledges that he has received and reviewed a copy of the
current prospectus relating to the issuance of shares under the Plan and the most recent annual
report to stockholders of the Company.
The undersigned hereby further agrees to be bound by the terms and provisions of the Plan and
the Agreement.
i
Exercise of Stock Options:
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Vested Shares
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Shares To Be
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Grant Date
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Available
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Exercised
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Please issue a certificate or certificates for such shares of Common Stock to me at the address set
forth in the Agreement, or in the name of
at the address listed
below:
(Print)
ii
Exhibit 10.45
RESTRICTED SHARE UNIT AGREEMENT
under the
TRACTOR SUPPLY COMPANY
2009 STOCK INCENTIVE PLAN
THIS RESTRICTED SHARE UNIT AGREEMENT, dated
, (the Grant Date) is made by and
between Tractor Supply Company, a Delaware corporation hereinafter referred to as Company, and
[
Recipient Name
], an Employee of the Company or a Subsidiary, hereinafter referred to as
Grantee:
WHEREAS, the Company wishes to afford the Grantee the opportunity to acquire shares of Common Stock
or their economic equivalent; and
WHEREAS, the Company wishes to carry out the Companys 2009 Stock Incentive Plan (the Plan) (the
terms of which are hereby incorporated by reference and made a part of this Restricted Share Unit
Agreement); and
WHEREAS, the Compensation Committee of the Board of Directors (the Committee), appointed to
administer the Plan, has determined that it would be to the advantage and best interest of the
Company and its shareholders to grant Restricted Share Units, as defined in Section 2(x) of the
Plan, provided for herein to the Grantee as an inducement to enter into or remain in the service of
the Company or its Subsidiaries and as an incentive for increased efforts during such service, and
has advised the Company thereof and instructed the undersigned officer to issue said Restricted
Share Units;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
SECTION 1. Grant of Restricted Share Units
1.1 Grant of Restricted Share Units
. In consideration of the Grantees agreement to provide
services to the Company or its Subsidiaries, and for other good and valuable consideration, on the
date listed hereof the Company irrevocably grants to the Grantee
[# of Shares]
Restricted
Share Units, subject to the conditions described in Section 2 as well as the other provisions of
this Restricted Share Unit Agreement and the terms of the Plan.
1.2 Adjustments in Restricted Share Units
. The Committee shall make adjustments with respect
to this Restricted Share Units grant in accordance with the provisions of Section 4.2 of the Plan.
SECTION 2. Vesting
2.1 Vesting of Restricted Share Units
. Subject to Sections 2.2 and 2.3, 100% of the Restricted
Share Units awarded under this Restricted Share Unit Agreement shall vest upon the third
anniversary of the date of this Restricted Share Unit Agreement (the Normal Vesting
Date);
provided
, however, the Committee may determine, in its sole discretion, that
certain Restricted Share Units may vest earlier than upon the third anniversary of the date of this
Restricted Share Unit Agreement.
2.2 Acceleration of Vesting
.
(a) In the event of a termination of employment resulting from a Grantees death or Disability
(as defined below), any unvested Restricted Share Units granted hereunder shall vest in full as of
the date of such termination. For purposes of this Restricted Share Unit Agreement, Disability
means a disability that would qualify as a total and permanent disability under the Companys then
current long-term disability plan.
(b) Notwithstanding Section 2.1, unless otherwise provided in another contractual agreement
between the Company and Grantee, if within one year following a Change in Control, the Grantees
employment with the Company (or its successor) is terminated by reason of (i) Normal Retirement or
Early Retirement, (ii) for Good Reason by the Grantee or (iii) involuntary termination by the
Company for any reason other than for Cause, all Restricted Share Units granted hereunder shall
vest in full as of the date of such termination.
2.3 Risk of Forfeiture
. Subject to Sections 2.1 and 2.2, upon a termination of employment with
the Company, Grantee shall forfeit any non-vested Restricted Share Units.
2.4 Conditions to Issuance of Stock Certificates
. Any shares of Company Stock deliverable upon
the settlement of Restricted Share Units may be either previously authorized but unissued shares of
Common Stock or issued shares of Common Stock which have then been reacquired by the Company. Such
shares of Common Stock shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of Common Stock upon the settlement of
Restricted Share Units or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which such class of
stock is then listed; and
(b) The completion of any registration or other qualification of such shares under any state
or federal law or under rulings or regulations of the Securities and Exchange Commission or of any
other governmental regulatory body, which the Committee shall, in its sole discretion, deem
necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or federal governmental
agency which the Committee shall, in its sole discretion, determine to be necessary or advisable;
and
(d) The receipt by the Company of full payment of all amounts which, under federal, state or
local tax law, the Company (or Subsidiary) is required to withhold upon the settlement of the
Restricted Share Units.
2
SECTION 3. Payment of Restricted Share Units and Election To Defer
3.1 Timing of Payment of Restricted Share Units
. Subject to the Grantees election under
Section 3.3, Restricted Share Units shall be paid in accordance with the following:
(a) To the extent Restricted Share Units vest under Section 2.1, such Restricted Share Units
shall be paid upon the Normal Vesting Date.
(b) To the extent Restricted Share Units vest under Section 2.2, such Restricted Share Units
shall be paid upon termination of employment.
3.2 Form of Payment.
Vested Restricted Share Units shall be paid in shares of Company Stock.
3.3 Election to Defer Payment.
(a) Subject to Section 3.3(b), the Grantee may irrevocably elect to defer payment of
Restricted Share Units under Section 3.1 to either: (i) the date of the Grantees termination of
employment; or (ii) a date specified by the Grantee.
(b) The Grantees election under paragraph (a) above shall be made in such manner and at such
time as required by the Company and in accordance with Section 409A of the Code (including Section
1.409A-(2)(a)(5) of the Treasury Regulations promulgated thereunder) and shall apply to all
Restricted Share Units granted hereunder. If the Grantee elects to defer payment of Restricted
Share Units to termination of employment and at that time the Grantee is a specified employee as
determined under Section 1.409A-1(i) of the Treasury Regulations and any of the Companys stock is
publicly traded on an established securities market or otherwise at such time, then the payment of
vested Restricted Share Units shall not be paid until the earlier of the Grantees death or the
sixth month anniversary of Employees termination of employment (without interest for the delay in
payment).
(c) If the Grantee elects to defer payment to a specific date under paragraph (a) above and
the Grantee should die prior to such specified date, then payment of the Grantees vested
Restricted Share Units shall be paid within 30 days of the Grantees death, with the payment date
determined by the Company in its sole discretion, to the Grantees designated beneficiary and if
the Grantee has not designated a beneficiary then to the Grantees estate.
SECTION 4. Other Provisions
4.1 Administration
. The Committee shall have the power to interpret the Plan and this
Restricted Share Unit Agreement and to adopt such rules for the administration, interpretation, and
application of the Plan as are consistent therewith and to interpret, amend, or revoke any such
rules. All actions taken and all interpretations and determinations made by the Committee in good
faith shall be final and binding upon the Grantee, the Company, and all other interested persons.
No member of the Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan or the Restricted Share Units. In its
sole discretion, the Board may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan and this Restricted Share Unit
Agreement except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code,
or any regulations or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
3
4.2 Restricted Share Units Not Transferable
. Neither the Restricted Share Units nor any
interest or right therein or part thereof shall be sold, pledged, alienated, assigned, or otherwise
transferred or encumbered other than by will or the laws of descent and distribution, unless and
until the shares underlying such Restricted Share Units have been issued, and all restrictions
applicable to such shares have lapsed. Neither the Restricted Share Units nor any interest or right
therein or part thereof shall be liable for the debts, contracts, or engagements of the Grantee or
his successors in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment, or any
other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof
shall be null and void and of no effect.
4.3 Shares to Be Reserved
. The Company shall at all times during the term of the Restricted
Share Units reserve and keep available such number of shares of Common Stock as will be sufficient
to satisfy the requirements of this Restricted Share Unit Agreement.
4.4 Notices
. Any notice to be given under the terms of this Restricted Share Unit Agreement to
the Company shall be addressed to the Company in care of its Secretary, and any notice to be given
to the Grantee shall be addressed to him at the address given beneath his signature hereto. By a
notice given pursuant to this Section 4.4, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to the Grantee shall, if
the Grantee is then deceased, be given to the Grantees personal representative if such
representative has previously informed the Company of his status and address by written notice
under this Section 4.4. Any notice shall be deemed duly given when enclosed in a properly sealed
envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
4.5 Titles
. Titles are provided herein for convenience only and are not to serve as a basis
for interpretation or construction of this Restricted Share Unit Agreement.
4.6 Construction
. This Restricted Share Unit Agreement shall be administered, interpreted, and
enforced under the internal laws of the State of Tennessee without regard to conflicts of laws
thereof.
4.7 Severability
. In the event that any provision of this Restricted Share Unit Agreement
shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of this Restricted Share Unit Agreement
and this Restricted Share Unit Agreement shall be construed and enforced as if the illegal,
invalid, or unenforceable provision had never been included herein.
4
4.8 Conformity to Securities Laws
. The Grantee acknowledges that the Plan is intended to
conform to the extent necessary with all provisions of the Securities Act and the
Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including, without limitation, the applicable exemptive conditions of Rule
16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the
Restricted Share Units are granted, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Plan and this Restricted Share Unit
Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and
regulations.
4.9 Withholding of Taxes
. Company shall have the right to (i) make deductions from the number
of shares of Common Stock otherwise deliverable to the Grantee under this Restricted Share Unit
Agreement in an amount sufficient to satisfy withholding of any federal, state or local taxes
required by law provided; that, such amount shall not exceed the applicable minimum statutory
withholding requirements, or (ii) take such other action as may be necessary or appropriate to
satisfy any such tax withholding obligations.
4.10 Electronic Delivery and Electronic Signature
. Grantee hereby consents and agrees to
electronic delivery of any Plan documents, proxy materials, annual reports, and other related
documents. If the Company establishes procedures for an electronic signature system for delivery
and acceptance of Plan documents (including documents relating to any programs adopted under the
Plan), Grantee hereby consents to such procedures and agrees that his or her electronic signature
is the same as, and shall have the same force and effect as, his or her manual signature. Grantee
consents and agrees that any such procedures and delivery may be effected by a third party engaged
by the Company to provide administrative services related to the Plan, including any program
adopted under the Plan.
4.11. Inconsistencies between Plan Terms and Terms of Restricted Share Unit Agreement
. If
there is any inconsistency between the terms of this Restricted Share Unit Agreement and the terms
of the Plan, the Plans terms shall completely supersede and replace the conflicting terms of this
Restricted Share Unit Agreement.
4.12. No Guarantee of Employment
. Nothing in this Restricted Share Unit Agreement or in the
Plan shall confer upon the Grantee any right to continue in the employ of the Company or any
Subsidiary, or shall interfere with or restrict in any way the rights of the Company and its
Subsidiaries, which are hereby expressly reserved, to discharge the Grantee at any time for any
reason whatsoever, with or without cause.
4.13 Amendments or Termination
. This Restricted Share Unit Agreement and the Plan may be
amended without the consent of the Grantee provided that such amendment would not impair any rights
of the Grantee under this Restricted Share Unit Agreement. No amendment of this Restricted Share
Unit Agreement shall, without the consent of the Grantee, impair any rights of the Grantee under
this Restricted Share Unit Agreement. Notwithstanding any other provision of the Plan or this
Restricted Share Unit Agreement, the Company may terminate this Restricted Share Unit Agreement and
either issue shares of Common Stock deliverable upon vesting hereunder or pay the Grantee cash for
the Restricted Share Units based upon the Fair Market Value of the shares of Common Stock subject
hereto at the time of such termination) in accordance with Section 1.409A-3(j)(4)(ix) of the
Treasury Regulations.
5
4.14 Section 409A.
The parties acknowledge and agree that, to the extent applicable, this
Restricted Share Unit Agreement shall be interpreted in accordance with, and the parties agree to
use their best efforts to achieve timely compliance with, Section 409A of the Code and the Treasury
Regulations and other interpretive guidance issued thereunder, including without limitation any
such regulations or other guidance that may be issued after the Grant Date. Notwithstanding any
provision of this Award to the contrary, in the event that the Company determines that any
compensation or benefits payable or provided under this Restricted Share Unit Agreement may be
subject to Section 409A of the Code, the Company, with the Grantees consent, may adopt such
limited amendments to this Award and appropriate policies and procedures, including amendments and
policies with retroactive effect, that the Company reasonably determines are necessary or
appropriate to (i) exempt the compensation and benefits payable under this Restricted Share Unit
Agreement from Section 409A of the Code and/or preserve the intended tax treatment of the
compensation and benefits provided with respect to this Restricted Share Unit Agreement or (ii)
comply with the requirements of Section 409A of the Code.
Notwithstanding any other provision of this Restricted Share Unit Agreement, to the extent the
delivery of the shares represented by this Restricted Share Unit Agreement is treated as
non-qualified deferred compensation subject to Section 409A of the Code, then (a) no delivery of
such shares shall be made upon the Grantees termination of employment unless such termination of
employment constitutes a separation from service within the meaning of Section 1.409A-1(h) of the
Treasury Regulations.
4.15 Definitions
. As used in this Restricted Share Unit Agreement the following terms shall
have the meaning set forth below:
(a) Cause shall mean (i) the engaging by Grantee in willful misconduct that is injurious to
the Company or its Subsidiaries or Affiliates, or (ii) the embezzlement or misappropriation of
funds or property of the Company or its Subsidiaries or Affiliates by the Grantee. For purposes of
this paragraph, no act, or failure to act, on the Grantees part shall be considered willful
unless done, or omitted to be done, by the Grantee not in good faith and without reasonable belief
that the Grantees action or omission was in the best interest of the Company. Any determination
of Cause for purposes of this Restrictive Share Unit Agreement shall be made by the Committee in
its sole discretion. Any such determination shall be final and binding on Grantee.
(b) Change in Control shall mean, the happening of one of the following:
(i) any person or entity, including a group as defined in Section 13(d)(3) of the Exchange
Act, other than the Company or a wholly-owned Subsidiary thereof or any employee benefit plan of
the Company or any of its Subsidiaries, becomes the beneficial owner of the Companys securities
having 35% or more of the combined voting power of the then outstanding securities of the Company
that may be cast for the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course of business); or
6
(ii) as the result of, or in connection with, any cash tender or exchange offer, merger or
other business combination, sales of assets or contested election, or any combination of the
foregoing transactions, less than a majority of the combined voting power of the then outstanding
securities of the Company or any successor corporation or entity entitled to vote generally in the
election of the directors of the Company or such other corporation or entity after such transaction
are held in the aggregate by the holders of the Companys securities entitled to vote generally in
the election of directors of the Company immediately prior to such transaction; or
(iii) during any period of two consecutive years, individuals who at the beginning of any such
period constitute the Board cease for any reason to constitute at least a majority thereof, unless
the election, or the nomination for election by the Companys shareholders, of each director of the
Company first elected during such period was approved by a vote of at least two-thirds of the
directors of the Company then still in office who were directors of the Company at the beginning of
any such period.
(c) Early Retirement shall mean retirement with the express consent of the Company at or
before the time of such retirement, from active employment with the Company and any Subsidiary or
Affiliate prior to having reached the age of 55 and ten years of service with the Company, in
accordance with any applicable early retirement policy of the Company then in effect or as may be
approved by the Committee.
(d) Good Reason means (i) a material reduction in a Grantees position, authority, duties or
responsibilities, (ii) any reduction in a Grantees annual base salary as in effect immediately
prior to a Change in Control; (iii) the relocation of the office at which the Grantee is to perform
the majority of his or her duties following a Change in Control to a location more than 30 miles
from the location at which the Grantee performed such duties prior to the Change in Control; or
(iv) the failure by the Company or its successor to continue to provide the Grantee with benefits
substantially similar in aggregate value to those enjoyed by the Grantee under any of the Companys
pension, life insurance, medical, health and accident or disability plans in which Grantee was
participating immediately prior to a Change in Control, unless the Grantee is offered participation
in other comparable benefit plans generally available to similarly situated employees of the
Company or its successor after the Change in Control.
(e) Normal Retirement shall mean, retirement of Grantee from active employment with the
Company or any of its Subsidiaries or Affiliates on or after such Grantee having reached the age of
55 and ten years of service with the Company.
7
IN WITNESS WHEREOF, this Restricted Share Unit Agreement has been executed and delivered by
the parties hereto.
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Tractor Supply Company
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Grantee
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By:
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[Recipient Name]
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Taxpayer ID:
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Current Address:
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[Recipient Street Address]
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[City]
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Address:
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8
Exhibit 10.46
NONQUALIFIED STOCK OPTION AGREEMENT
under the
TRACTOR SUPPLY COMPANY
2009 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT, dated as of «Grant Date», between TRACTOR SUPPLY COMPANY, a Delaware
corporation (the Company), and «First_Name» «Middle» «Last_Name» (the Optionee).
The Companys Compensation Committee (the Committee) has determined that the objectives of the
Companys 2009 Stock Incentive Plan (the Plan) will be furthered by granting to the Optionee an
option pursuant to the Plan.
In consideration of the foregoing and of the mutual undertakings set forth in this Stock Option
Agreement (the Agreement), the Company and the Optionee hereby agree as follows:
SECTION 1.
Grant of Option
. The Company hereby grants to the Optionee a nonqualified
stock option to purchase «NQ1_DISO_Shares» shares of the Common Stock of the Company, at a
purchase price of «Grant_Price» per share (the Exercise Price).
SECTION 2.
Exercisability
. Subject to Section 4 hereof, the option shall be exercisable as
follows:
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Shares
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Cumulative
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Becoming
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Shares
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On or After
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Exercisable
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Exercisable
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«Vest_3313Grant_Date_Plus_1_year»
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«NQ_2010_Vest»
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«NQ_2010_Cum»
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«Vest_6623Grant_Date_Plus_2_years»
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«NQ_2011_Vest»
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«NQ_2011_Cum»
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«Vest _100Grant_Date_Plus_3_years»
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«NQ_2012_Vest»
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«NQ_2012_Cum»
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Through «ExpirationGrant_Date_plus_10_years»
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«NQ_DISO_Shares»
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SECTION 3.
Method of Option Exercise; Involuntary Option Cash-Out
.
(a) The option or any part thereof may be exercised, with respect to whole shares only, by giving
to the Company written notice of exercise in the form attached hereto as Exhibit A. Full payment
of the purchase price shall be made on the option exercise date by cash, certified or official bank
check or, in the Committees discretion, (i) by personal check (subject to collection) payable to
the Company, (ii) by the assignment of proceeds from the sale of Common Stock in the manner
provided in Section 6.4(d) of the Plan or (iii) by delivery of shares of Common Stock already owned
by the Optionee prior to the option exercise date. The Optionee shall have no right to pay the
Exercise Price, or to receive shares of Common Stock with respect to an option exercise, prior to
the option exercise date.
(b) At any time after the Companys receipt of written notice of exercise and prior to the option
exercise date, the Committee, in its sole discretion, shall have the right, by written notice to
the Optionee, to cancel the option or any part thereof subject to the written notice of exercise if
the Committee, in its sole judgment, determines that legal or contractual restrictions and/or
blockage and/or other market considerations would make the Companys acquisition of Common Stock
from, and/or the Optionees sale of Common Stock to, the public markets illegal, impracticable or
inadvisable. If the Committee determines to so cancel the option or any part thereof subject to
the written notice of exercise, the Company shall pay to the Optionee an amount equal to the excess
(if any) of (i) the aggregate Fair Market Value of the shares of Common Stock subject to the option
or part thereof cancelled (determined as of the option exercise date) over (ii) the aggregate
Exercise Price of the shares of Common Stock subject to the option or part thereof cancelled. Such
amount shall be delivered to the Optionee as soon as practicable after such option or part thereof
is cancelled.
SECTION 4.
Termination of Employment or Service
.
(a)
General Rule
. The non-vested portion of any option shall terminate and expire upon the
Optionees termination of employment or service for any reason except that upon termination of
Optionees employment or service as a result of (1) death or (2) Disability (as defined below), any
unvested portion of the option granted hereunder shall vest in full as of the date of such
termination. The vested portion of any option shall remain exercisable following termination of
employment or service only under the circumstances and to the extent provided in this Section 4.
(b)
Termination for Cause; Optionee Quits Employment
. If the Optionees employment or
service is terminated for Cause or if the Optionee quits, whether or not he is a party to a written
contract, the option granted hereunder shall immediately terminate and become void and of no effect
on the day the Optionees employment or service terminates.
(c)
Regular Termination; Leaves of Absence
. If the Optionees employment or service
terminates for reasons other than as provided in subsection (b) above or subsections (d) or (e)
below, the vested portion of the option granted hereunder may be exercised until the earlier of (i)
three months after the day his employment or service terminates and (ii) the date on which the
option otherwise terminates or expires in accordance with the applicable provisions of the Plan and
this Agreement;
provided
that the Committee may determine, in its sole discretion, such
longer or shorter period for exercise (not to exceed the remaining term of the option) in the case
of an individual whose employment or service terminates for reasons as provided herein in this
subsection (c), or solely because his employer ceases to be an Affiliate or he transfers his
employment or service with the Companys consent to a purchaser of a business disposed of by the
Company. Subject to Section 4(e) below, the Committee may, in its discretion, determine (A)
whether any leave of absence (including short-term or long-term disability or medical leave)
constitutes a termination of employment or service within the meaning of the Plan and (B) the
impact, if any, of any such leave on awards under the Plan theretofore made to an Optionee who
takes any such leave.
(d)
Death
. In the event that the Optionees employment or service terminates by reason of
death, or if the Optionees employment or service shall terminate as described in subsection (c)
above and he dies within the period for exercise provided for therein, the vested portion of the
option shall be exercisable by the person to whom the option has passed under the Optionees will
(or if applicable, pursuant to the laws of descent and distribution) until the earlier of (i) one
year after the Optionees death and (ii) the date on which the option otherwise terminates or
expires in accordance with the applicable provisions of the Plan and this Agreement.
2
(e)
Disability
. In the event that Optionees employment or service terminates by reason of
Disability (as defined below), the vested portion of the option granted hereunder shall be
exercisable by Optionee until the earlier of (i) three years following the date of such termination
of employment or service, and (ii) the date on which the option granted hereunder otherwise
terminates or expires in accordance with the applicable provisions of the Plan and this Agreement.
For purposes of this Agreement, Disability means a disability that would qualify as a total and
permanent disability under the Companys then current long-term disability plan.
(f)
Change in Control
. Notwithstanding anything to the contrary contained herein, unless
otherwise provided in another contractual agreement between the Company and Optionee, if within one
year following a Change in Control, the Optionees employment with the Company (or its successor)
is terminated by reason of (i) Retirement or Early Retirement, (ii) for Good Reason by the Optionee
or (iii) involuntary termination by the Company for any reason other than for Cause, all Options
granted hereunder shall vest in full as of the date of such termination. Notwithstanding the
foregoing, in connection with a Change in Control, the Committee may, in its discretion, by
resolution adopted prior to the occurrence of the Change in Control, provide that this Option
shall, upon the occurrence of such Change in Control, be cancelled in exchange for a payment per
share in an amount based on Fair Market Value of the shares of Common Stock with reference to the
Change in Control less the Exercise Price, which amount may be zero (0) if applicable. For
purposes of clarity, if the Fair Market Value is less than the Exercise Price at the time of such
cancellation, the Grantee shall receive $0, and no consideration shall be given to the time value
of the options granted hereunder.
(g)
Right of Discharge Reserved
. Nothing in the Plan or this Agreement shall confer upon
the Optionee or any other person the right to continue in the employment or service of the Company
or any Affiliate or affect any right which the Company or any Affiliate may have to terminate the
employment or service of the Optionee or any other person.
SECTION 5.
Withholding Tax Requirements
. If as a condition of delivery of shares of Common
Stock upon the Optionees exercise of an option granted hereunder the Committee determines that it
is necessary or advisable to withhold an amount sufficient to satisfy any federal, state and other
governmental withholding tax requirements related thereto, then the Optionee shall be required to
satisfy all withholding tax requirements related to such option in accordance with Sections 6.4 and
14.6 of the Plan. By entering into this Agreement, the Optionee hereby agrees that, if the
Committee shall make such determination, then (a) the Optionee shall remit the full amount
necessary to satisfy such withholding tax requirements within 15 days after his receipt of a
statement for such amount from the Committee (unless and to the extent that the Committee permits
the Optionee to use the method of payment described in Sections 6.4(d) and 14.6 of the Plan), and
(b) the Company shall be entitled to withhold the amount of any such tax requirements from any
salary or other payments due to the Optionee, and to refuse to recognize such option exercise until full satisfaction of such withholding tax
requirements. The Optionee further agrees and acknowledges that all other taxes, duties and fees
related to such option exercise are for the Optionees own account and must be paid directly by the
Optionee.
3
SECTION 6.
Plan Provisions
. This Agreement shall be subject to all of the terms and
provisions of the Plan, which are hereby incorporated herein by reference and made a part hereof.
Any term defined in the Plan shall have the same meaning in this Agreement as in the Plan, except
as otherwise defined herein. In the event of any inconsistency between the terms of this Agreement
and the terms of the Plan, the terms of the Plan shall govern.
SECTION 7.
Optionees Acknowledgements
. By entering into this Agreement the Optionee
agrees and acknowledges that (a) he has received and read a copy of the Plan, and accepts this
option upon all of the terms thereof, and (b) no member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or this Agreement or any award
thereunder or hereunder.
SECTION 8.
Nontransferability
. No right granted to the Optionee under the Plan or this
Agreement shall be assignable or transferable by the Optionee (whether by operation of law or
otherwise and whether voluntarily or involuntarily), other than by will or by the laws of descent
and distribution. During the lifetime of the Optionee, all rights granted to the Optionee under
the Plan or under this Agreement shall be exercisable only by the Optionee.
SECTION 9.
Execution of Agreement
. Notwithstanding anything contained in this Agreement to
the contrary, the option may not be exercised until the Optionee has returned an executed copy of
this Agreement to the Company.
SECTION 10.
Notices
. Any notice to be given to the Company hereunder shall be in writing
and shall be addressed to the Corporate Controller of Tractor Supply Company at 200 Powell Place,
Brentwood, Tennessee 37027, or at such other address as the Company may hereafter designate to the
Optionee by notice as provided herein. Any notice to be given to the Optionee hereunder shall be
addressed to the Optionee at the address set forth below or at such other address as the Optionee
may hereafter designate to the Company by notice as provided herein. Notices hereunder shall be
deemed to have been duly given when received by personal delivery or by registered or certified
mail to the party entitled to receive the same.
SECTION 11.
Successors and Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and assigns of the Company and, to the extent set
forth in Section 14.1 of the Plan and Section 8 hereof, the heirs and personal representatives of
the Optionee.
SECTION 12.
Governing Law
. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Tennessee, without giving effect to the conflicts of laws
principles thereof.
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SECTION 13.
Amendments to Option
. Subject to the restrictions contained in the Plan, the
Committee may waive any conditions or rights under, amend any terms of, or alter, suspend,
discontinue, cancel or terminate, the Option, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that
would adversely affect the rights of the Optionee or any holder or beneficiary of the Option shall
not to that extent be effective without the consent of the Optionee, holder or beneficiary
affected.
SECTION 14.
Definitions
. As used in this Agreement the following terms shall have the
meaning set forth below:
(a) Cause for termination by the Company of the Optionees employment shall mean (i) Optionees
failure or refusal to carry out the lawful directions of the Company, which are reasonably
consistent with the responsibilities of the Optionees position; (ii) a material act of dishonesty
or disloyalty by Optionee related to the business of the Company; (iii) Optionees conviction of a
felony, a lesser crime against the Company, or any crime involving dishonest conduct; (iv)
Optionees habitual or repeated misuse or habitual or repeated performance of the Optionees duties
under the influence of alcohol or controlled substances; or (v) any incident materially
compromising the Optionees reputation or ability to represent the Company with the public or any
act or omission by the Optionee that substantially impairs the Companys business, good will or
reputation.
(b) Change in Control shall mean, the happening of one of the following:
(i) any person or entity, including a group as defined in Section 13(d)(3) of
the Exchange Act, other than the Company or a wholly-owned Subsidiary thereof or any
employee benefit plan of the Company or any of its Subsidiaries, becomes the
beneficial owner of the Companys securities having 35% or more of the combined
voting power of the then outstanding securities of the Company that may be cast for
the election of directors of the Company (other than as a result of an issuance of
securities initiated by the Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sales of assets or contested election,
or any combination of the foregoing transactions, less than a majority of the
combined voting power of the then outstanding securities of the Company or any
successor corporation or entity entitled to vote generally in the election of the
directors of the Company or such other corporation or entity after such transaction
are held in the aggregate by the holders of the Companys securities entitled to
vote generally in the election of directors of the Company immediately prior to such
transaction; or
(iii) during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election, or the nomination for election by
the Companys shareholders, of each director of the Company first
elected during such period was approved by a vote of at least two-thirds of the
directors of the Company then still in office who were directors of the Company at
the beginning of any such period.
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(c) Early Retirement shall mean retirement with the express consent of the Company at or before
the time of such retirement, from active employment with the Company and any Subsidiary or
Affiliate prior to having reached the age of 55 and ten years of service with the Company, in
accordance with any applicable early retirement policy of the Company then in effect or as may be
approved by the Committee.
(d) Good Reason means (i) a material reduction in a Optionees position, authority, duties or
responsibilities, (ii) any reduction in a Optionees annual base salary as in effect immediately
prior to a Change in Control; (iii) the relocation of the office at which the Optionee is to
perform the majority of his or her duties following a Change in Control to a location more than 30
miles from the location at which the Optionee performed such duties prior to the Change in Control;
or (iv) the failure by the Company or its successor to continue to provide the Optionee with
benefits substantially similar in aggregate value to those enjoyed by the Optionee under any of the
Companys pension, life insurance, medical, health and accident or disability plans in which
Optionee was participating immediately prior to a Change in Control, unless the Optionee is offered
participation in other comparable benefit plans generally available to similarly situated employees
of the Company or its successor after the Change in Control.
(e) Retirement shall mean, retirement of Optionee from active employment with the Company or any
of its Subsidiaries or Affiliates on or after such Optionee having reached the age of 55 and ten
years of service with the Company.
SECTION 15.
Severability
. If any provision of this Agreement is or becomes, or is deemed
to be, invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the option
award, or would disqualify the Plan or the option award under any laws deemed applicable by the
Committee, such provisions shall be construed or deemed amended to conform to the applicable laws,
or if it cannot be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the option award, such provision shall be stricken as
to such jurisdiction, Person or option award, and the remainder of the Plan and option award shall
remain in full force and effect.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first
above written.
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TRACTOR SUPPLY COMPANY
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OPTIONEE:
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By:
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«First_Name» «Middle» «Last_Name»
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Current Address:
Please note changes below
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«Street_Address»
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«City». «State» «Zip»
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Address:
Please print
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7
EXERCISE NOTICE
Exhibit A
Corporate Controller
Tractor Supply Company
200 Powell Place
Brentwood, TN 37027
The undersigned hereby irrevocably elects to exercise the right of purchase represented by the
Stock Option Agreements (the Agreement), dated as of per Exhibit A, for, and to purchase
thereunder, the number of shares of the common stock of Tractor Supply Company (the Common
Stock), as provided for therein and set forth in Exhibit A. The full amount of the option
exercise price shall be paid on the option exercise date, at the time this exercise notice is
received by the Company (unless the Committee exercises its right to cancel the option (or any part
thereof) subject hereto in accordance with Section 3.2 of the Tractor Supply Company 2009 Stock
Incentive Plan (the Plan) and Section 3 of the Agreement). Capitalized terms used but not
otherwise defined herein shall have the respective meanings ascribed to them in the Plan or the
Agreement, as applicable.
Payment of the option exercise price shall be made in full in the form of cash, certified or
official bank check or the equivalent thereof acceptable to the Committee (or if so permitted by
the Committee, (i) by personal check (subject to collection), (ii) by delivery to the Company of an
assignment of the proceeds from the sale of Common Stock acquired upon exercise and an
authorization to the broker or selling agent to pay that amount to the Company or (iii) by delivery
of shares of Common Stock already owned by the undersigned prior to such delivery), or in such
other manner as may be determined by the Committee. The undersigned hereby agrees to provide, if
so requested by the Committee, a written opinion of counsel satisfactory to the Company to the
effect that such assignment of proceeds from such broker or selling agent, or such delivery of
shares of Common Stock already owned by the Optionee, if permitted by the Committee, would not
result in the Optionee incurring any liability under Section 16(b) of the Securities Exchange Act
of 1934 and such other opinions as the Committee may reasonably request.
The undersigned hereby agrees and acknowledges that he has received and reviewed a copy of the
current prospectus relating to the issuance of shares under the Plan and the most recent annual
report to stockholders of the Company.
The undersigned hereby further agrees to be bound by the terms and provisions of the Plan and
the Agreement.
i
Exercise of Stock Options:
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Vested Shares
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Shares To Be
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Grant Date
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Available
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Exercised
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Please issue a certificate or certificates for such shares of Common Stock to me at the address set
forth in the Agreement, or in the name of
at the address listed
below:
(Print)
ii