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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8140
FLEMING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 48-0222760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6301 Waterford Boulevard, Box 26647
Oklahoma City, Oklahoma 73126
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (405) 840-7200
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $2.50 Par Value New York Stock Exchange
Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of the common shares (based upon the closing price
on March 1, 1999 of these shares on the New York Stock Exchange) of Fleming
Companies, Inc. held by nonaffiliates was approximately $283 million.
As of March 2, 1999, 38,400,000 common shares were outstanding.
Documents Incorporated by Reference
A portion of Part III has been incorporated by reference from the
registrant's proxy statement in connection with its annual meeting of
shareholders to be held on May 19, 1999.
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PART I
ITEM 1. BUSINESS
GENERAL
Fleming Companies, Inc. ("Fleming" or the "company") began operations in 1915
in Topeka, Kansas as a small food wholesaler. Today, Fleming's food
distribution operation ("food distribution") is one of the largest food and
general merchandise distributors in the United States supplying supermarkets
and smaller grocery stores in 42 states. Fleming's retail food operation
("retail food") is a major food retailer in the United States, operating more
than 280 supermarkets in 15 states.
Business Strategy. At the end of 1998, Fleming completed a comprehensive
study of all facets of its operations and employed a new chairman and chief
executive officer. The study resulted in a strategic plan to be implemented
over the next two years that will fundamentally shift Fleming's business by
more clearly focusing on core strategic assets in its food distribution and
retail food segments. The strategic plan involves three key strategies to
restore sales and earnings growth: focus resources to improve performance,
build sales and revenues more aggressively in our wholesale business and
company-owned retail stores, and reduce overhead and operating costs to
improve profitability system-wide.
The three strategies are further defined in the following four major
initiatives:
Consolidate food distribution operations. We have announced that seven food
distribution operating units will be divested. The divestiture of these
seven operating units has the potential to optimize other food distribution
operations and more effectively and efficiently support the company's retail
customers. During 1998, the company completed the divestiture of two
operating units, El Paso, TX and Portland, OR and by mid-1999, five
additional operating units, Houston, TX; Huntingdon, PA; Laurens, IA;
Johnson City, TN; and Sikeston, MO will be divested. The customers at six of
the seven operating units will be transferred and serviced primarily by the
operating units located in Nashville, TN; Memphis, TN; Massillon, OH;
Lincoln, NE; Kansas City, MO; La Crosse, WI; and Garland and Lubbock, TX.
During 1998, the Portland operating unit was sold to Associated Grocers of
Seattle (AG) as part of the formation of a joint venture marketing company
known as AG/Fleming.
Grow food distribution. The strategic growth in food distribution will
consist of the implementation of an aggressive new business development
program that will leverage the power of Fleming's consolidated food
distribution operations to earn a greater share of business from existing
customers and to attract new customers. The growth strategies for each
targeted market are based on detailed market-by-market studies completed
during 1998 and the competitive advantages anticipated from the
consolidations.
Improve retail food performance. In company-owned retail food operations,
the company will concentrate on further developing the top-performing chains
and groups which include Baker's(TM), Rainbow Foods(R) and
Sentry(R) Foods/SuPeRSaVeR(TM). This includes the divestiture of the Hyde
Park Market(TM) chain which consists of 10 stores in Florida and the
Consumers Food & Drug(TM) chain which consists of 21 stores headquartered in
Missouri. To strengthen the top-performing retail food operations, the
company will spend additional capital for new store development and
remodels.
Reduce overhead expenses. To support improved operating efficiency, overhead
expenses will be reduced. Staff functions at all levels of the organization
will be examined and appropriately reset to reflect the configuration of the
food distribution and retail food segments.
As part of the ongoing process of evaluating strategic options, the company
will continue to review the performance of all operating units.
Fleming generated net sales of $15.1 billion, $15.4 billion and $16.5 billion
for 1998, 1997 and 1996, respectively. As a result of a $668 million pre-tax
charge
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related to the strategic plan, the net loss for fiscal 1998 was $511 million.
Fleming's businesses generated net earnings of $32 million (before strategic
plan charges), $25 million and $27 million for fiscal 1998, 1997 and 1996,
respectively. Additionally, the company generated net cash flows from
operations of $149 million, $113 million and $328 million for the same
periods, respectively, before payments related to the strategic plan. The
combined businesses generated $421 million, $454 million and $435 million of
adjusted EBITDA for fiscal 1998, 1997 and 1996, respectively. "Adjusted
EBITDA" is earnings before extraordinary items, interest expense, income
taxes, depreciation and amortization, equity investment results and one-time
adjustments (e.g., strategic plan charges and specific litigation charges).
FOOD DISTRIBUTION SEGMENT
The food distribution segment sells food and non-food products to retail
grocers and offers a variety of retail support services to
independently-owned and company-owned retail food stores. Net sales for the
food distribution segment were $11.5 billion for fiscal 1998, excluding sales
to the retail food segment. Sales to the retail food segment totaled $2.1
billion during 1998.
Customers Served. During 1998 the food distribution segment served a wide
variety of retail stores located in 42 states. The segment's customers range
from small convenience outlets to large supercenters with the format of the
retail stores being a function of size and marketing approach. The segment
serves customers operating as conventional supermarkets (averaging
approximately 23,000 total square feet), superstores (supermarkets of 30,000
square feet or more), supercenters (a combination of discount store and
supermarket encompassing 110,000 square feet or more), warehouse stores
("no-frills" operations of various large sizes), combination stores (which
have a high percentage of non-food offerings) and convenience stores
(generally under 4,000 square feet and offering only a limited assortment of
products).
The company also licenses or grants franchises to retailers to use certain
registered trade names such as Piggly Wiggly(R), Food 4 Less(R) (a registered
servicemark of Food 4 Less Supermarkets, Inc.), Sentry(R) Foods, Super 1
Foods(R), Festival Foods(R), Jubilee Foods(R), Jamboree Foods(R),
MEGAMARKET(R), Shop 'N Kart(R), American Family(R), Big Star(R), Big T(R),
Buy for Less(R), County Pride Markets(R), Buy Way(R), Pic-Pac(R), Shop N
Bag(R), Super Save(R), Super Duper(R), Super Foods(TM), Super Thrift(R),
Thriftway(R), and Value King(R).
The company is working to encourage independents and small chains to join one
of the Fleming Banner Groups to receive many of the same marketing and
procurement efficiencies available to larger chains. The Fleming Banner
Groups are retail stores operating under the IGA(R) (IGA(R) is a registered
trademark/servicemark of IGA, Inc.) or Piggly Wiggly(R) banner or under one
of a number of banners representing a price impact retail format. Fleming
Banner Group stores are owned by customers, many of which license their store
banner from Fleming.
The company's top 10 external customers accounted for approximately 17% of
total company net sales during 1998. No single customer represented more than
3.6% of total company net sales. During 1998, Randall's, the company's
largest customer, announced that it would begin complete self-distribution
during 1999. It is currently expected that Randall's will cease doing
business with Fleming during the second or third quarter of 1999. Also during
1998, Furr's, the company's third largest customer, acquired Fleming's El
Paso operating unit. Furr's is now self-distributing all products excluding
general merchandise which Fleming continues to supply. During early 1999,
United Supermarkets, the company's fourth largest customer, announced that it
will be moving to self-distribution in the year 2000.
Pricing. The food distribution segment uses market research and cost
analyses as a basis for pricing its products and services. In all operating
units, Retail Services are individually and competitively priced. The
company has three marketing programs: FlexMate(TM), FlexPro(TM) and
FlexStar(TM).
The FlexMate(TM) marketing program has a presentation to customers of a
quoted sell price. The quoted sell price is generally a selling price that
includes a mark-up. The FlexMate(TM) marketing program is available as an
option in all operating units for
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grocery, frozen and dairy products. In all operating units, a price plus
mark-up method is applied for meat, produce, bakery goods, delicatessen
products, tobacco supplies, general merchandise and health and beauty care
products. Under FlexMate(TM) a distribution fee is added to the product price
for various product categories. Under some marketing programs, freight
charges are also added to offset in whole or in part Fleming's cost of
delivery services provided. Any cash discounts, certain allowances, and
service income earned from vendors may be retained by the food distribution
segment. This has generally been referred to as the "traditional pricing"
method.
Under FlexPro(TM), grocery, frozen and dairy products are listed at a price
generally comparable to the net cash price paid by the food distribution
segment. Dealer allowances and service income are passed through to the
customer. Service charges are established using the principles of
activity-based pricing modified by market research. Activity-based pricing
attempts to identify Fleming's cost of providing certain services in
connection with the sale of products such as transportation, storage,
handling, etc. Based on these identified costs, and with a view to market
responses, Fleming establishes charges for these activities designed to
recover Fleming's cost and provide the company with a reasonable profit.
These charges are then added to aggregate product price. A fee is also
charged for administrative services provided to arrange and manage certain
allowances and service income offered by vendors and earned by the food
distribution segment and its customers.
FlexStar(TM) is very similar to FlexPro(TM), but generally uses a less
complex presentation for distribution service charges by using
customer-specific average charges. This averaging mechanism lessens the
volatility of charges to the retailer but does not permit the retailer to
manage his own product costs as fully as with FlexPro(TM).
Fleming Brands. Fleming Brands are store brands which include both private
labels and controlled labels. Private labels are offered only in stores
operating under specific banners (which may or may not be controlled by
Fleming). Controlled labels are Fleming-owned brands which are offered to all
food distribution customers. Fleming Brands are targeted to three market
segments: premium, national quality and value. Each Fleming Brand offers
consumers high quality products within each pricing tier. Fleming-controlled
labels include: Living Well(TM) and Nature's Finest(R), which are premium
brands; BestYet(R), SuperTru(R) and Marquee(R), which are national quality
brands; and Rainbow(R), Fleming's value brand. Fleming offers two private
labels, IGA(R) and Piggly Wiggly(R), which are national quality brands.
Fleming shares the benefit of reduced acquisition costs of store brand
products with its customers, permitting both the food distribution segment
and the retailer to earn higher margins from the sale of Fleming Brands.
Retail Services. Retail Services are being separately marketed, priced and
delivered. Retail Services marketing and sales personnel look for
opportunities to cross-sell additional retail services as well as other food
distribution segment products to their customers. The company offers
consulting, administrative and information technology services to its food
distribution segment customers (including retail food segment operating
units) and non-customers.
Consulting Services. Retailers may call upon Fleming consultants to provide
professional advice regarding most facets of retail operations. Consulting
services include the following:
Advertising. Fleming believes its advertising service group is one of the
largest retail food advertising agencies in the United States, offering full
service advertising production, media buying services, assistance in
promotional development and execution, and marketing consultation.
Development. This retail service uses the latest technology in market
analysis, surveys and store development techniques to assist retailers in
finding new locations, expanding or remodeling existing locations, as well
as gaining operations productivity in existing physical plants.
Pricing. Fleming consultants involve retailers directly in pricing their own
products through pricing strategy development programs utilizing market
surveys and new technology.
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Store Operations. Consultants offer assistance in perishables quality
control and standards monitoring, audit training, general supermarket
management, store operations analysis, shrink control and supervision task
outsourcing.
Insurance. Professional consultants are available for reviewing, pricing
and coordinating retail insurance portfolios.
Administrative Services. A retailer may use administrative services provided
by Fleming to outsource functions being performed internally or to install
new programs which are not feasible for the retailer to develop:
Education. Fleming operates retail food education facilities for both
hands-on and classroom training. Among the retail education services
provided are training for all levels of store managers and employees,
including selling skills, general management and perishables department
training, strategic planning and computer based training.
Financial. Fleming helps retailers track their financial performance by
providing full accounting services, operating statements, payroll and
accounts payable systems and tax return preparation. Additionally, it
assists retailers in establishing and managing money order programs,
pre-paid phone card programs and coupon redemption programs.
Category Management. Inventory control programs are being used to more
effectively manage product selection, and to provide instant retail shelf
management, perpetual inventory and computer-assisted ordering capability.
Promotion. Numerous promotional tools are offered to assist retail operators
in improving store traffic, such as frequent shopper programs, kiosk use and
instant savings programs; continuity programs such as games, premium
catalogs, etc.; and controlled markdown programs.
Information Technology Systems. Fleming has invested heavily in creating new
information technology products that offer retailers a competitive systems
edge:
Technology. These services include POS equipment purchasing and leasing
programs with the three largest vendors of scanning equipment; electronic
payment systems; credit/debit/EBT; direct store delivery and receiving
systems; electronic shelf labels; in-store file managers; and total store
technology solutions.
VISIONET(R). The company's proprietary interactive electronic information
network gives retailers access to inventory information, financial data,
vendor promotions, retail support services and on-line ordering.
Facilities and Transportation. At the end of 1998 the food distribution
segment operated 31 full-line food product supply centers which are
responsible for the distribution of national brands and Fleming Brands,
including groceries, meat, dairy and delicatessen products, frozen foods,
produce, bakery goods and a variety of related food and non-food items. Six
general merchandise and specialty food operating units distribute health and
beauty care items and other items of general merchandise and specialty foods.
Two operating units serve convenience stores. All facilities are equipped
with modern material handling equipment for receiving, storing and shipping
large quantities of merchandise. Upon the completion of the divestiture of
the 5 operating units scheduled during 1999, the food distribution segment
will operate 26 full-line food operating units.
The food distribution segment's food and general merchandise operating units
comprise more than 19 million square feet of warehouse space. Additionally,
the food distribution segment rents, on a short-term basis, approximately 4
million square feet of off-site temporary storage space. Upon the completion
of the divestiture of the 5 operating units scheduled during 1999, the food
distribution segment facilities in operation will comprise approximately 17
million square feet of warehouse space and will continue to rent
approximately 4 million square feet of off-site temporary storage space.
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Transportation arrangements and operations vary by distribution center and
may vary by customer. Some customers prefer to handle product delivery
themselves, others prefer the company to deliver products, and still others
ask the company to coordinate delivery with a third party. Accordingly, many
distribution centers operate a truck fleet to deliver products to customers,
and several centers also engage dedicated contract carriers to deliver
products. The company increases the utilization of its truck fleet by
backhauling products from suppliers and others, thereby reducing the number
of empty miles traveled. To further increase its fleet utilization, the
company has made its truck fleet available to other firms on a for-hire
carriage basis.
Capital Invested in Customers. As part of its services to retailers, the
company provides capital to certain customers by extending credit for
inventory purchases, by becoming primarily or secondarily liable for store
leases, by leasing equipment to retailers, by making secured loans and by
making equity investments in customers:
- Extension of Credit for Inventory Purchases. Customary trade credit terms
are usually the day following statement date for customers on FlexPro(TM)
or FlexStar(TM) and up to seven days for other marketing plan customers.
- Store and Equipment Leases. The company leases stores for sublease to
certain customers. At year-end 1998, the company was the primary lessee of
more than 700 retail store locations subleased to and operated by
customers. Fleming also leases a substantial amount of equipment to
retailers.
- Secured Loans and Lease Guarantees. Loans are approved by the company's
business development committee following written approval standards. The
company makes loans to customers primarily for store expansions or
improvements. These loans are typically secured by inventory and store
fixtures, bear interest at rates above the prime rate, and are for terms
of up to 10 years. During fiscal years 1997 and 1996, the company sold,
with limited recourse, $29 million and $35 million, respectively, of notes
evidencing such loans. No loans were sold in 1998. The company believes
its loans to customers are illiquid and would not be investment grade if
rated. From time to time, the company also guarantees the lease
obligations of certain of its customers.
- Equity Investments. The company has equity investments in strategic
multi-store customers, which it refers to as Joint Ventures, and in
smaller operators, referred to as Equity Stores. Certain Equity Store
participants may retain the right to purchase the company's investment
over a five to ten year period. Many of the customers in which the company
has equity investments are highly leveraged, and the company believes its
equity investments are highly illiquid.
In making credit and investment decisions, Fleming considers many factors,
including estimated return on capital, risk and the benefits to be derived.
At year-end 1998, Fleming had loans outstanding to customers totaling $115
million ($27 million of which were to retailers in which the company had an
equity investment) and equity investments in customers totaling $5 million.
The company also has investments in customers through direct financing
leases, lease guarantees, operating leases or credit extensions for inventory
purchases. The present values of the company's obligations under direct
financing leases and lease guarantees were $172 million and $56 million,
respectively, at year-end 1998. Fleming's credit loss expense from
receivables as well as from investments in customers was $23 million in 1998,
$24 million in 1997 and $27 million in 1996. See "Investments and Notes
Receivable" and "Lease Agreements" in the notes to the consolidated financial
statements.
RETAIL FOOD SEGMENT
Retail food segment supermarkets are operated as 14 distinct local chains or
groups in 15 states, under 13 banners, each with local management and
localized marketing skills. The retail food segment supermarkets also share
certain common administrative and support systems which are centrally
monitored and administered
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for increased efficiencies. At year-end 1998, the retail food segment owned
and operated more than 280 supermarkets with an aggregate of approximately
11.5 million square feet of retail space. The retail food segment's
supermarkets are all served by food distribution segment operating units. Net
sales of the retail food segment were $3.6 billion in fiscal 1998.
Formats of retail food segment supermarkets vary from price impact stores to
conventional supermarkets. All retail food segment supermarkets are designed
and equipped to offer a broad selection of both national brands as well as
Fleming Brands at attractive prices while maintaining high levels of service.
Most supermarket formats have extensive produce sections and complete meat
departments, together with one or more specialty departments such as in-store
bakeries, delicatessens, seafood departments or floral departments. Specialty
departments generally produce higher gross margins per selling square foot
than general grocery sections.
The retail food segment's supermarkets are operated through the following
local trade names:
ABCO Foods(TM). Located in Phoenix and Tucson, ABCO(TM) operates 54 stores,
of which a majority are "Desert Market" format conventional supermarkets,
averaging 36,200 square feet.
Baker's(TM). Located primarily in Omaha, Nebraska and Oklahoma City,
Oklahoma, Baker's(TM) operates 22 stores which are primarily superstores in
format with a value-pricing strategy. Baker's(TM) stores average 53,500
square feet.
Boogaarts(R) Food Stores. There are 24 Boogaarts stores, 22 in Kansas and 2
in Nebraska, with an average size of 16,300 square feet. They are
conventional supermarkets with a competitive-pricing strategy.
Consumers Food & Drug(TM). Headquartered in Springfield, Missouri, Consumers
operates 21 combination stores in Missouri, Arkansas and Kansas, with an
average of 42,800 square feet. Consumers employs a competitive-pricing
strategy. As a result of Fleming's strategic plan, Consumers will be
divested.
Hyde Park Market(TM). Located in south Florida, primarily in Miami, there
are 10 Hyde Park Market(TM) stores with an average size of 20,200 square
feet. The stores are operated as conventional supermarkets with a
value-pricing strategy. As a result of Fleming's strategic plan, Hyde Park
will be divested.
New York Retail. The two groups consist of 21 Jubilee Foods(R) stores and 4
Market Basket(TM) stores, operating in western New York and Pennsylvania.
These stores are conventional supermarkets with a competitive-pricing
strategy. The Jubilee Foods(R) stores average 25,200 square feet and the
Market Basket(TM) stores average 9,300 square feet in size.
Penn Retail. This group is made up of 19 conventional supermarkets with a
competitive-pricing strategy. It includes Festival Foods(R) and Jubilee
Foods(R) operating primarily in Pennsylvania with several located in
Maryland. The average size is approximately 36,600 square feet.
Rainbow Foods(R). With 41 stores in Minnesota, primarily Minneapolis/St.
Paul, and Wisconsin, Rainbow Foods operates in a large-combination format,
with a price impact pricing strategy. "Price impact" stores seek to minimize
the retail price of goods by a reduced variety of product offerings, lower
levels of customer services and departments, low overhead and minimal decor
and advertising. The average store size for Rainbow Foods is 58,700 square
feet.
RichMar. Fleming owns a 90% equity interest in RichMar, which operates 8
Food 4 Less(R) supermarkets in California. They are operated as price impact
stores and average 51,700 square feet per store.
Sentry(R) Foods/SuPeRSaVeR(TM). Located in Wisconsin, these two groups
include 13 Sentry(R) Foods stores, which are conventional-format
supermarkets with an average size of 34,500 square feet, and 23
SuPeRSaVeR(TM) stores, which are price impact stores with a
lowest-in-the-area pricing strategy. SuPeRSaVeR(TM) stores average over
62,300 square feet.
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Thompson Food Basket(R). Located in Illinois and Iowa, these 13 stores
average 31,400 square feet and are operated as conventional supermarkets
with a competitive-pricing strategy.
University Foods. University Foods is a group of 5 Food 4 Less(R)
supermarkets in the Salt Lake City area, with an average size of 56,600
square feet. The supermarkets use a price impact pricing strategy. Fleming
owned a majority interest in this group for a number of years, and in early
1997 acquired the remaining interest.
Fleming retail food segment supermarkets provide added purchasing power as
they enable Fleming to commit to certain promotional efforts at the retail
level. The company, through its owned supermarkets, is able to retain many of
the promotional savings offered by vendors in exchange for volume increases.
Additional information regarding the company's two operating segments is
contained in "Segment Information" in the notes to the consolidated financial
statements which are included in Item 8 of this report.
PRODUCTS
The food distribution segment and the retail food segment supply Fleming's
customers with a full line of national brands and Fleming Brands, including
groceries, meat, dairy and delicatessen products, frozen foods, produce,
bakery goods and a variety of general merchandise, health and beauty care and
other related items. During 1998 the average number of stock keeping units
("SKUs") carried in full-line food distribution operating units was
approximately 14,200 including approximately 2,300 perishable products.
General merchandise and specialty food operating units carried an average of
approximately 19,500 SKUs. Food and food-related product sales account for
over 90 percent of the company's consolidated sales. During each of the last
three fiscal years, the company's product mix as a percentage of product
sales was approximately 55% groceries, 40% perishables and 5% general
merchandise.
SUPPLIERS
Fleming purchases its products from numerous vendors and growers. As a large
customer, Fleming is able to secure favorable terms and volume discounts on
many of its purchases, leading to lower unit costs. The company purchases
products from a diverse group of suppliers and believes it has adequate
sources of supply for substantially all of its products.
COMPETITION
The food distribution segment faces intense competition. The company's
primary competitors are regional and local food distributors, national chains
which perform their own distribution (such as The Kroger Co. and Albertson's,
Inc.), and national food distributors (such as SUPERVALU Inc.). The principal
competitive factors include price, quality and assortment of product lines,
schedules and reliability of delivery, and the range and quality of customer
services.
The primary competitors of retail food segment supermarkets and food
distribution segment customers are national, regional and local grocery and
drug chains, as well as independent supermarkets, convenience stores,
restaurants and fast food outlets. Principal competitive factors include
product price, quality and assortment, store location and format, sales
promotions, advertising, availability of parking, hours of operation and
store appeal.
EMPLOYEES
At year-end 1998, the company had approximately 38,900 full-time and
part-time employees, with approximately 11,600 employed by the food
distribution segment, approximately 25,500 by the retail food segment and
approximately 1,800 employed in corporate and other functions.
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Approximately half of the company's associates are covered by collective
bargaining agreements with the International Brotherhood of Teamsters;
Chauffeurs, Warehousemen and Helpers of America; the United Food and
Commercial Workers; the International Longshoremen's and Warehousemen's
Union; and the Retail Warehouse and Department Store Union. Most of such
agreements expire at various times throughout the next five years. The
company believes it has satisfactory relationships with its unions.
RISK FACTORS
All statements other than statements of historical facts included in this
report including, without limitation, statements under the captions "Risk
Factors," "Management's Discussion and Analysis" and "Business," regarding
the company's financial position, business strategy and plans and objectives
of management of the company for future operations, constitute
forward-looking statements. Although the company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Cautionary statements describing important factors that could cause actual
results to differ materially from the company's expectations are disclosed
hereunder and elsewhere in this report. All subsequent written and oral
forward-looking statements attributable to the company or persons acting on
its behalf are expressly qualified in their entirety by such cautionary
statements.
Changing Environment.
The food distribution and retail food segments are undergoing accelerated
change as distributors and retailers seek to lower costs and increase
services in an increasingly competitive environment of relatively static
overall demand. The growing trend of large self-distributing chains to
consolidate to reduce costs and gain effeciencies is an example of this.
Eating away from home and alternative format food stores (such as warehouse
stores and supercenters) have taken market share from traditional supermarket
operators, including independent grocers, many of whom are Fleming customers.
Vendors, seeking to ensure that more of their promotional fees and allowances
are used by retailers to increase sales volume, increasingly direct
promotional dollars to large self-distributing chains. The company believes
that these changes have led to reduced sales, reduced margins and lower
profitability among many of its customers and, consequently, at the company
itself. Failure to implement the company's strategies, developed in response
to these changing market conditions, could have a material adverse effect on
the company.
Sales Declines.
Net sales have declined each year since 1995 and the company anticipates that
net sales for 1999 will be lower than for 1998. See Item 7. Management's
Discussion and Analysis. Although Fleming is taking steps to reverse sales
declines and to enhance its overall profitability (see -General), no
assurance can be given that the company will be successful in these efforts.
Leverage.
The company has substantial indebtedness in relation to its shareholders'
equity. The degree to which the company is leveraged could have important
consequences including the following: (i) the company's ability to obtain
other financing in the future may be impaired; (ii) a substantial portion of
the company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness; and (iii) a high degree of
leverage may make the company more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures. Fleming's ability to
make scheduled payments on or refinance its indebtedness depends on its
financial and operating performance, which may fluctuate significantly from
quarter to quarter and is subject to prevailing economic conditions and to
financial, business and other factors beyond the company's control.
If Fleming is unable to generate sufficient cash flow to meet its debt
obligations, the company may be required to renegotiate the payment terms or
refinance all or a portion of its indebtedness, to sell assets or to obtain
additional financing. If Fleming could not satisfy its obligations related to
such indebtedness, substantially all of the company's long-term debt could be
in default and could be declared immediately due and payable. There can be no
assurance that the company
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could repay all such indebtedness in such event.
The company's credit agreement and the indentures for certain of its
outstanding indebtedness contain numerous restrictive covenants which limit
the discretion of the company's management with respect to certain business
matters. These covenants place significant restrictions on, among other
things, the ability of the company and its subsidiaries to incur additional
indebtedness, to create liens or other encumbrances, to pay dividends, to
make certain payments, investments, loans and guarantees and to sell or
otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity which is not wholly owned by the company.
Competition.
The food distribution segment is in a highly competitive market. The company
faces competition from local, regional and national food distributors on the
basis of price, quality and assortment, schedules and reliability of
deliveries and the range and quality of services provided. The company also
competes with retail supermarket chains that provide their own distribution
functions, purchasing directly from producers and distributing products to
their supermarkets for sale to the consumer. Consolidation of distribution
operations may produce even stronger competition for the food distribution
segment.
In its retail food segment, Fleming competes with other food outlets on the
basis of price, quality and assortment, store location and format, sales
promotions, advertising, availability of parking, hours of operation and
store appeal. Traditional mass merchandisers have gained a growing foothold
in food marketing and distribution with alternative store formats, such as
warehouse stores and supercenters, which depend on concentrated buying power
and low-cost distribution technology. Market share of stores with alternative
formats is expected to continue to grow in the future. Retail consolidations
not only produce stronger competition in the retail food segment, but may
also result in declining sales in the food distribution segment due to
customers being acquired by self-distributing chains.
To meet the challenges of a rapidly changing and highly competitive
environment, the company must maintain operational flexibility and
effectively implement its strategies across many market segments. The
company's failure to successfully respond to these competing pressures or to
implement its strategies effectively could have a material adverse effect on
the company.
Certain Litigation.
Fleming is involved in substantial litigation which exposes the company to
material loss contingencies. See Item 7. Management's Discussion and
Analysis-Contingencies, Item 3. Legal Proceedings and "Litigation Charges"
and "Contingencies" in the notes to the consolidated financial statements.
Year-2000 Compliance.
The company relies on numerous computer software systems and micro processors
which were initially designed without an ability to correctly recognize 2000
as a valid year. See Item 7. Management's Discussion and
Analysis-Contingencies. Failure to ensure that the company's computer systems
are year-2000 compliant could have a material adverse effect on the company's
operations. Failure of the company's suppliers or its customers to become
year-2000 compliant might also have a material adverse impact on the
company's operations.
Potential Losses From Investments in Retailers.
The company provides subleases and extends loans to and makes investments in
many of its retail customers, often in conjunction with the establishment of
long-term supply contracts. Loans to customers are generally not investment
grade and, along with equity investments in customers, are highly illiquid.
The company also makes investments in customers through direct financing
leases, lease guarantees, operating leases, credit extensions for inventory
purchases and the recourse portion of notes sold evidencing such loans. See
"-Capital Invested in Customers", Item 7. Management's Discussion and
Analysis, and Fleming's consolidated financial statements and the notes
thereto included elsewhere in this report. The company also invests in real
estate to assure market access or to secure supply points. See "Lease
Agreements" in the notes to the consolidated financial statements. Although
<PAGE>
the company has strict credit policies and applies cost/benefit analyses to
loans to and investments in customers, there can be no assurance that credit
losses from existing or future investments or commitments will not have a
material adverse effect on the company's results of operations or financial
condition.
ITEM 2. PROPERTIES
The following table sets forth facilities information with respect to
Fleming's Food Distribution segment.
<TABLE>
<CAPTION>
Approximate
Square Feet Owned or
Location ( in 000's) Leased
<S> <C> <C>
Food Distribution
Altoona, PA (1) 172 Owned
Buffalo, NY 417 Leased
Ewa Beach, HI 196 Leased
Fresno, CA 326 Owned
Garland, TX 1,180 Owned
Geneva, AL 345 Leased
Houston, TX (3) 662 Leased
Huntingdon, PA (3) 253 Owned
Johnson City, TN (3) 298 Owned
Kansas City, KS 929 Leased
La Crosse, WI 907 Owned
Lafayette, LA 437 Owned
Laurens, IA (3) 368 Owned
Lincoln, NE 304 Leased
Lubbock, TX 400 Owned
Marshfield, WI (1) 157 Owned
Massillon, OH 815 Owned
Memphis, TN 765 Owned
Miami, FL 764 Owned
Milwaukee, WI 600 Owned
Minneapolis, MN 480 Owned
Nashville, TN 734 Leased
North East, MD (2) 128 Owned
Oklahoma City, OK 410 Leased
Peoria, IL 325 Owned
Philadelphia, PA (2) 832 Leased
Phoenix, AZ 912 Owned
Sacramento, CA 719 Owned
Salt Lake City, UT 433 Owned
San Antonio, TX 514 Leased
Sikeston, MO (3) 571 Owned
Superior, WI 371 Owned
Warsaw, NC 334 Owned/Leased
York, PA 450 Owned
17,508
General Merchandise Group
Dallas, TX 262 Owned/Leased
King of Prussia, PA 377 Leased
La Crosse, WI 163 Owned
Memphis, TN 339 Owned/Leased
Sacramento, CA 294 Leased
Topeka, KS 179 Leased
1,614
<PAGE>
Outside Storage
Outside storage facilities -
typically rented on a
short-term basis. 4,425
Total for Food Distribution 23,547
</TABLE>
(1) Food distribution includes two convenience store divisions.
(2) Comprise the Philadelphia distribution operation.
(3) Locations being divested as part of the strategic plan.
The following table sets forth general information with respect to Fleming's
retail food segment. These retail stores are primarily leased.
<TABLE>
<CAPTION>
Retail Chain Location Number Approximate Combined
or Group of Stores of Stores Square Feet
(in 000's)
<S> <C> <C> <C>
ABCO Foods AZ 54 1,954
Baker's NE,OK 22 1,177
Boogaarts KS,NE 24 393
Jubilee Foods NY,PA 25 631
Market Basket NY,PA 4 37
Consumers (4) MO,AR,KS 21 900
Penn Retail PA,MD 19 760
Hyde Park Market (4) FL 10 202
Rainbow Foods MN,WI 41 2,408
Sentry Foods WI 13 449
SuPeRSaVeR WI 23 1,433
Thompson Food Basket IL,IA 13 409
RichMar CA 8 414
University Foods UT 5 283
---- ------
Total for Retail Food 282 11,450
</TABLE>
(4) Chains being divested as part of the strategic plan.
Fleming's corporate offices are located in Oklahoma City, Oklahoma in leased
office space totaling approximately 356,000 square feet.
Fleming owns and leases other significant assets, such as inventories,
fixtures and equipment, capital leases, etc., which are reflected in the
company's consolidated balance sheets which are included in Item 8 of this
report.
For information regarding lease commitments and long-term debt relating to
properties or other assets, see "Lease Agreements" and "Long-term Debt" in
the notes to the consolidated financial statements which are included in Item
8 of this report.
ITEM 3. LEGAL PROCEEDINGS
The following describes various pending legal proceedings to which Fleming is
subject. For additional information see "Litigation Charges" and
"Contingencies" in the notes to the consolidated financial statements which
are included in Item 8 of this report.
(1) Class Action Suits. In 1996, the company and certain of its present and
former officers and directors (Robert E. Stauth, R. Randolph Devening, Harry
L. Winn, Kevin J. Twomey and Donald N. Eyler) were named as defendants in
nine purported class action suits filed by certain stockholders (Kenneth
Steiner, Lawrence B. Hollin, Ronald T. Goldstein, General Telcom Money
Purchase Plan & Trust, Bright Trading, Inc., City of Philadelphia, Gerald
Pindus, Charles Hinton and Lawrence M. Wells, among others) and one purported
class action suit filed by a noteholder (Robert
<PAGE>
Mark), each in the U.S. District Court for the Western District of Oklahoma
(Mr. Devening was not named in the noteholder case). In 1997, the court
consolidated the stockholder cases as City of Philadelphia, et al. v. Fleming
Companies, Inc., et al. (the noteholder case was also consolidated, but only
for pre-trial purposes). During 1998 the noteholder case was dismissed and
during 1999 the consolidated case was also dismissed, each without prejudice.
The court has given the plaintiffs the opportunity to restate their claims.
The complaint filed in the consolidated cases asserts liability for the
company's alleged failure to properly account for and disclose the contingent
liability created by the David's litigation and by the company's alleged
"deceptive business practices." The plaintiffs claim that these alleged
practices led to the David's litigation and to other material contingent
liabilities, caused the company to change its manner of doing business at
great cost and loss of profit, and materially inflated the trading price of
the company's common stock. The company denies each of these allegations.
The plaintiffs seek undetermined but significant damages.
In 1997, the company won a declaratory judgment in the U.S. District Court
for the Western District of Oklahoma against certain of its insurance
carriers regarding policies issued to Fleming for the benefit of its officers
and directors ("D&O policies"). On motion for summary judgment, the court
ruled that the company's exposure, if any, under the class action suits is
covered by D&O policies written by the insurance carriers (aggregating $60
million in coverage) and that the "larger settlement rule" will be applicable
to the case. According to the trial court, under the larger settlement rule a
D&O insurer is liable for the entire amount of coverage available under a
policy even if there is some overlap in the liability created by the insured
individuals and the uninsured corporation. If a corporation's liability is
increased by uninsured parties beyond that of the insured individuals, then
that portion of the liability is the sole obligation of the corporation. The
court also held that allocation is not available to the insurance carriers as
an affirmative defense. The insurance carriers have appealed.
(2) Derivative Suits. In October 1996, certain of the company's present and
former officers and directors (Robert E. Stauth, Harry L. Winn, Jr., Kevin J.
Twomey, Archie R. Dykes, Carol B. Hallett, Edward C. Joullian III, John A.
McMillan, Guy A. Osborn, Howard H. Leach, R.D. Harrison (subsequently
dismissed), Lawrence M. Jones, R. Randolph Devening, Donald N. Eyler, E. Dean
Werries and James E. Stuard), were named as defendants in a purported
shareholder's derivative suit in the U.S. District Court for the Western
District of Oklahoma (Cauley, et al. v. Stauth, et al.). Plaintiffs'
complaint contains allegations that the defendant breached their respective
fiduciary duties to the company and were variably responsible for causing the
company to (i) become "involved with" Premium Sales Corporation and its
illegal course of business resulting in a $20 million settlement paid by
Fleming; (ii) "systematically misrepresent and overstate" the cost of company
products, resulting in litigation by David's Supermarkets (which was settled
by the company for $20 million), and others, and ultimately leading to the
class action suits discussed above; and (iii) fail to meet its disclosure
obligations under the law resulting in the class action lawsuits and
increased borrowing costs, loss of customers and loss of market value.
In another purported shareholder derivative action filed in October 1996 in
the U.S. District Court for the Western District of Oklahoma (Rosenberg v.
Stauth, et al.), the plaintiff sued the same and additional present and
former officers and directors (E. Stephen Davis, Thomas L. Zaricki, Gerald G.
Austin and Glenn E. Mealman). In this case, the plaintiff alleged the
defendants caused the company to (i) violate certain sale agreements with
David's Supermarkets resulting in the David's litigation, (ii) fail to
disclose to the investing public the risks associated with the David's
litigation, (iii) violate certain sale agreements with Megafoods (a former
customer) in a manner similar to that alleged by David's Supermarkets, and
(iv) defraud persons who invested in the Premium-related entities resulting
in litigation.
Plaintiffs sought damages from the defendants on behalf of Fleming in excess of
<PAGE>
$50,000, forfeiture by the defendants of their salaries and other
compensation for the period in which they allegedly breached their fiduciary
duties, retention of all monies held by the company as deferred compensation
or otherwise on behalf of the defendants as a constructive trust for the
benefit of the company, and attorney's fees and costs. On September 30, 1997,
both derivative suits were dismissed, without prejudice, for failure to make
demand on the company's Board of Directors prior to instigating the
litigation. With the leave of the court, plaintiffs filed an amended
complaint in October 1998. On November 4, 1998, a special committee of
Fleming's Board of Directors filed a motion to intervene in the case and
requested ninety days within which to elect to assume control of the case.
The motion is currently pending.
(3) Tobacco Cases. In August 1996, Richard E. Ieyoub, Attorney General of the
State of Louisiana, brought an action in the 14th Judicial District Court of
Louisiana against The American Tobacco Company and numerous defendants
including the company. The suit sought recovery of state health-care and
related expenditures allegedly caused by tobacco products. In 1998, the case
was settled (without liability to Fleming) and releases delivered pending
final court approval.
Notices of suit or intention to sue have been filed by 27 individuals in the
Court of Common Pleas of Philadelphia County, and by 3 individuals in the
Court of Common Pleas of Dauphin County, Pennsylvania; one individual brought
suit in the Circuit Court of Shelby County, Tennessee; one individual brought
suit in the Tenth Judicial District Court for the Parish of Natchitoches,
Louisiana; and one individual brought suit in the 38th Judicial District
Court, Cameron Parish, Louisiana. Each case named as co-defendants at least
one major manufacturer of tobacco products and the company or a current or
former company subsidiary, among others. With respect to each case, the
company is being indemnified and defended by a substantial third-party
co-defendant.
Pursuant to a tolling agreement among the parties, all of the cases which
were already pending in Pennsylvania (save two) were dismissed in 1998
without prejudice and may be refiled at a later date.
(4) Don's United Super (and related cases). In 1998, the company and two
retired executives were named in a suit filed in the United States District
Court for the Western District of Missouri by approximately 20 current and
former customers of the company (Don's United Super, et al. v. Fleming, et
al.). Plaintiffs operate retail grocery stores in the St. Joseph and Kansas
City metropolitan areas. Six plaintiffs who were parties to supply contracts
containing arbitration clauses were permitted to withdraw from the case.
Previously, two cases had been filed in the same court (R&D Foods, Inc. et
al. v. Fleming, et al. and Robandee United Super, Inc. et al. v. Fleming, et
al.) by 10 customers, some of whom are plaintiffs in the Don's case. The
earlier two cases, which principally seek an accounting of the company's
expenditure of certain joint advertising funds, have been consolidated. All
causes of action in these cases have been stayed pending the arbitration of
the causes of action relating to supply contracts containing arbitration
clauses.
The Don's suit alleges product overcharges, breach of contract,
misrepresentation, fraud, and RICO violations and seeks recovery of actual,
punitive and treble damages and a declaration that certain contracts are
voidable at the option of the plaintiffs. Damages have not been quantified.
However, with respect to some plaintiffs, the time period during which the
alleged overcharges took place exceeds 25 years and the company anticipates
that the plaintiffs will allege substantial monetary damages.
In October 1998, a group of 14 retailers (ten of whom had been or are
currently plaintiffs in the Don's case and/or the Robandee case whose claims
were sent to arbitration or stayed pending arbitration) filed a new action
against the company and two former officers, one of whom was a director, in
the Western District of Missouri (Coddington Enterprises, Inc. et al. v. Dean
Werries, et al.). The plaintiffs assert claims virtually identical to those
set forth in the Don's complaint and have not quantified damages.
(5) Storehouse Markets. In 1998, the company and one of its associates were
named
<PAGE>
in a suit filed in the United States District for the District of Utah by
three current and former customers of the company (Storehouse Markets, Inc.,
et al. v. Fleming Companies, Inc., et al.). The plaintiffs' allege product
overcharges, fraudulent misrepresentation, fraudulent nondisclosure and
concealment, breach of contract, breach of duty of good faith and fair
dealing and RICO violations and seek declaration of class action status and
recovery of actual, punitive and treble damages. Damages have not been
quantified.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the company as of March 1, 1999:
<TABLE>
<CAPTION>
Year
First Became
Name (age) Present Position An Officer
<S> <C> <C>
Mark S. Hansen (44) Chairman and
Chief Executive Officer 1998
William J. Dowd (56) President and Chief Operating
Officer 1995
E. Stephen Davis (58) Executive Vice President-
Food Distribution 1981
David R. Almond (58) Senior Vice President-
General Counsel and Secretary 1989
Mark K. Batenic (50) Senior Vice President-Sales and
Business Development, Food
Distribution 1994
Scott M. Northcutt (37) Senior Vice President-Human Resources 1999
Dixon E. Simpson (56) Senior Vice President-Retail
Services 1993
Nancy E. Del Regno (46) Vice President-Communications
and Public Affairs 1995
John M. Thompson (57) Vice President-Treasurer and
Assistant Secretary 1982
Kevin J. Twomey (48) Vice President-Controller 1995
</TABLE>
No family relationship exists among any of the executive officers listed
above.
Executive officers are elected by the Board of Directors for a term of one
year beginning with the annual meeting of shareholders held in April or May
of each year.
Each of the executive officers has been employed by the company or its
subsidiaries for the preceding five years except for Messrs. Hansen, Dowd and
Northcutt and Ms. Del Regno.
Mr. Hansen joined the company in his present position in November 1998. From
1997 until joining the company, he was Chairman and Chief Executive Officer
of SAM's Club, a division of Wal-Mart Stores, Inc. From 1989 to 1997, he
served in multiple capacities at PETsMART, Inc., including President and
Chief Executive Officer.
Mr. Dowd joined the company in his present position in July 1995. From 1994
until joining the company, he was Senior Vice President-Operations at Cott
Corporation, a
<PAGE>
producer of retailer-branded soft drinks. From 1991 to 1994, Mr. Dowd was
Executive Vice President for Kraft General Foods' KGF Service Company.
Mr. Northcutt joined the company in his present position in January 1999.
From 1997 until joining the company, he was Vice President-People Group at
SAM's Club, a division of Wal-Mart Stores, Inc. From 1988 to 1996, he served
as Vice President-Human Resources and later as Vice President-Store
Operations at Dollar General Corporation.
Ms. Del Regno joined the company in her present position in February 1995.
She was with PepsiCo Food Systems where she was Senior Communications Manager
from 1988 to 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Fleming common stock is traded on the New York, Chicago and Pacific stock
exchanges. The ticker symbol is "FLM". As of February 23, 1999, the 38.4
million outstanding shares were owned by 15,700 shareholders of record and
approximately 9,400 beneficial owners whose shares are held in street name by
brokerage firms and financial institutions. According to the New York Stock
Exchange Composite Transactions tables, the high and low prices of Fleming
common stock during each calendar quarter of the past two years are shown
below.
<TABLE>
<CAPTION>
1998 1997
Quarter High Low High Low
<S> <C> <C> <C> <C>
First $20.63 $13.44 $18.75 $15.75
Second 19.69 17.19 20.38 15.50
Third 17.25 11.63 19.50 15.75
Fourth 12.25 9.13 18.94 13.38
</TABLE>
Cash dividends on Fleming common stock have been paid for 82 consecutive
years. Dividends are generally declared on a quarterly basis with holders as
of the record date being entitled to receive the cash dividend on the payment
date. Record and payment dates are normally as shown below:
<TABLE>
<CAPTION>
Record Dates: Payment Dates:
<S> <C>
February 20 March 10
May 20 June 10
August 20 September 10
November 20 December 10
</TABLE>
Cash dividends of $.02 per share were paid on or near each of the above four
payment dates in 1997 and 1998.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In millions, except
per share amounts) 1998(a) 1997(b) 1996(c) 1995(d) 1994(e)
<S> <C> <C> <C> <C> <C>
Net sales $15,069 $15,373 $16,487 $17,502 $15,724
Earnings (loss) before
extraordinary charge (511) 39 27 42 56
Net earnings (loss) (511) 25 27 42 56
Diluted net earnings (loss)
per common share before
extraordinary charge (13.48) 1.02 .71 1.12 1.51
Diluted net earnings (loss)
per share (13.48) .67 .71 1.12 1.51
Total assets 3,491 3,924 4,055 4,297 4,608
Long-term debt
<PAGE>
and capital
leases 1,503 1,494 1,453 1,717 1,995
Cash dividends declared
per common share .08 .08 .36 1.20 1.20
</TABLE>
See Item 3. Legal Proceedings, notes to consolidated financial statements and
the financial review included in Items 7. and 8.
(a) The results in 1998 reflect an impairment/restructuring charge with
related costs totaling $668 million ($543 million after-tax or $14.33
per share) related to the company's newly adopted strategic plan.
(b) The results in 1997 reflect a charge of $19 million ($9 million
after-tax or $.24 per share) related to the settlement of a lawsuit
against the company. 1997 also reflected an extraordinary charge of $22
million ($13 million after-tax or $.35 per share) related to the
recapitalization program.
(c) Results in 1996 include a charge of $20 million ($10 million
after-tax or $.26 per share) related to the settlement of two related
lawsuits against the company.
(d) In 1995, management changed its estimates with respect to the
general merchandising portion of the 1993 reengineering plan and
reversed $9 million ($4 million after-tax or $.12 per share) of the
related provision.
(e) The results in 1994 reflect the July 1994 acquisition of Scrivner Inc.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The company's performance for the past three years was disappointing and
concerning. In early 1998 the Board of Directors and senior management began
an extensive strategic planning process that evaluated all aspects of the
business. With the help of a consulting firm, the evaluation and planning
process was completed in eight months. On November 30, 1998, a new chairman
and chief executive officer was employed and on December 6, 1998, a new
strategic plan was approved and implementation efforts began. The strategic
plan involves three key strategies to restore sales and earnings growth:
focus resources to improve performance, build sales and revenues more
aggressively in our wholesale business and company-owned retail stores, and
reduce overhead and operating costs to improve profitability system-wide.
The three strategies are further defined in the following four major
initiatives:
- Consolidate food distribution operations. This initially
requires divestiture of seven operating units - two in 1998 and
five in 1999. Although there will be some loss in sales, many
of the customers at these seven operating units will be
transferred and serviced by remaining operating units.
Transferring customer business to a higher volume, better
utilized facility benefits the customer with better product
variety and improved buying opportunities. The company
benefits with better coverage of fixed expenses. Although the
divestitures will proceed as quickly as practical, the company
is very sensitive to customer requirements and will pace the
divestitures to meet those requirements. The capital returned
from the divestitures will be reinvested in the business.
- Grow food distribution sales aggressively. Higher volume,
better-utilized food distribution operations and the dynamics of
the market place represent an opportunity for sales growth. The
improved efficiency and effectiveness of the remaining food
distribution operations enhance their competitiveness and the
company intends to capitalize on these improvements. Growth is
expected from increasing the amount of sales with existing
customers and attracting new customers.
<PAGE>
- Improve retail food performance. This not only requires
divestiture of under-performing company-owned retail chains or
groups but also requires increased investments in market leading
chains or groups. New stores and remodels are expected to improve
performance. Improved performance is also expected from the market
leading chains through adoption of best practices.
- Reduce overhead expense. Overhead will be reduced at both the
corporate and operating unit levels through organization and
process changes. In addition, several initiatives to reduce
complexity in business systems are underway. These initiatives are
expected to reduce costs and improve the company's profitability
and competitiveness.
Implementation of the strategic plan will take approximately two years. A two
year time frame design accomodates the company's limited resources and
customers' seasonal marketing requirements. Additional expenses will continue
for some time beyond two years because certain disposition related costs can
only be expensed when incurred.
A pre-tax expense of $668 million was recorded in 1998 related to the strategic
plan. Only $74 million of the expense is expected to require cash expenditures.
The remaining $594 million of the expense consisted of noncash items. The total
$668 million expense consisted of:
- Impairment of assets of $590 million. The impairment components
were $372 million for goodwill and $218 million for other
long-lived assets. The strategic plan process included a
detailed study of current and projected cash flows. This new
information combined with the recent loss of significant
customers and a Food Distributors International (FDI) study on
changes in the food industry were impairment indicators that
prompted the charge.
- Restructuring charges of $63 million. The restructuring
charges consisted primarily of severance, lease liabilities and
pension withdrawal liabilities.
- Other disposition related costs of $15 million. These costs
consist primarily of professional fees, inventory valuation
adjustments and other costs.
After tax, the expense was $543 million in 1998 or $14.33 loss per share.
Additional pre-tax expense of approximately $114 million is expected over the
next two years as implementation of the strategic plan continues.
Approximately $75 million of these future expenses are expected to require
cash expenditures. The remaining $39 million of the future expense relates to
noncash items. These future expenses will consist primarily of severance,
real estate-related divestiture expenses, pension withdrawal liabilities and
other costs expensed when incurred.
The expected benefits of the plan are improved earnings and increased sales.
Based on management's plan, earnings are expected to improve every year
approaching one percent of net sales and exceed $3 per share by the year
2003. Sales are also expected to increase, but the growth will not be evident
in 1999 and 2000 because of the previously announced loss of three
significant customers.
Under the plan being implemented, the company has assessed the strategic
significance of all operating units. Further, the current performance of
several operating units with strategic significance needs improvement and the
strategic plan should result in their improved performance. However, in the
event that improvement is not forthcoming, additional divestitures will be
considered.
RESULTS OF OPERATIONS
Set forth in the following table is information regarding the company's net
sales and certain components of earnings expressed as a percent of sales
which are referred to in the accompanying discussion:
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales 100.00 % 100.00 % 100.00 %
Gross margin 9.79 9.31 8.99
Less:
Selling and administrative 8.47 7.76 7.73
Interest expense 1.07 1.06 .99
Interest income (.24) (.30) (.29)
Equity investment results .08 .11 .11
Litigation charges .05 .14 .12
Impairment/restructuring charge 4.33 - -
Total expenses 13.76 8.77 8.66
Earnings (loss) before taxes (3.97) .54 .33
Taxes on income (loss) (.58) .29 .17
Earnings (loss) before
extraordinary charge (3.39) .25 .16
Extraordinary charge - .09 -
Net earnings (loss) (3.39)% .16 % .16 %
</TABLE>
1998 and 1997
Net Sales. Sales for 1998 decreased by $.3 billion, or 2%, to $15.07 billion
from $15.37 billion for 1997.
Net sales for the food distribution segment were $11.5 billion in 1998
compared to $11.9 billion in 1997. The loss of sales from Furr's as well as
the prospective loss of sales from Randall's and United moving to
self-distribution will result in sales comparisons to prior periods being
negative for some time.
Retail food segment sales were $3.6 billion in 1998 compared to $3.5 billion
in 1997. The increase in sales was due primarily to new stores added in 1998.
This was offset partially by a decrease in same store sales in 1998 compared
to 1997 of 3.6% and closing non-performing stores.
The company measures inflation using data derived from the average cost of a
ton of product sold by the company. For 1998, food price inflation was 2.1%,
compared to 1.3% in 1997.
Gross Margin. Gross margin for 1998 increased by $44 million, or 3%, to $1.48
billion from $1.43 billion for 1997, and increased as a percentage of net
sales to 9.79% from 9.31% for 1997. The increase was due, in part, to an
overall increase in the retail food segment, which has the better margins of
the two segments, and the impact of gains from dispositions that occurred in
1997, but not in 1998. Gross margin also reflects favorable adjustments for
closed stores due to better-than-expected lease buyouts. These increases in
gross margin were partly offset by costs relating to the strategic plan in
1998 primarily relating to inventory valuation adjustments. Product handling
expenses, consisting of warehouse, transportation and building expenses, were
lower as a percentage of net sales in 1998 compared to 1997, reflecting
continued productivity improvements.
Selling and Administrative Expenses. Selling and administrative expenses for
1998 increased by $82 million, or 7%, to $1.28 billion from $1.19 billion for
1997, and increased as a percentage of net sales to 8.47% for 1998 from 7.76%
in 1997. The increase was partly due to increased operating expense in the
retail food segment. Selling expense was higher than the previous year as the
company continues to work at reversing recent sales declines. The increase
was also partly due to costs relating to the strategic plan.
The company has a significant amount of credit extended to certain customers
through various methods. These methods include customary and extended credit
terms for inventory purchases and equity investments in and secured and
unsecured loans to certain customers. Secured loans generally have terms up
to ten years.
Credit loss expense is included in selling and administrative expenses and
for 1998
<PAGE>
decreased by approximately $1 million to $23 million from $24 million for
1997. Credit loss expense has consistently improved over the last few years
due to lower sales, tighter credit practices and reduced emphasis on credit
extensions to and investments in customers. Although the company plans to
continue these ongoing credit practices, it is not expected that the credit
loss expense will remain at the levels experienced in 1998 and 1997.
Operating earnings for the food distribution segment decreased by $24
million, or 8%, to $259 million from $283 million for 1997, and decreased as
a percentage of food distribution net sales to 2.26% from 2.38%. 1998
operating earnings were adversely affected by inventory valuation adjustments
and other costs related to the strategic plan as well as lower sales.
Operating earnings for the retail food segment decreased by $18 million, or
23%, to $62 million from $80 million for 1997, and decreased as a percentage
of retail food sales to 1.73% from 2.31%. Operating earnings for the retail
food segment were adversely affected primarily by a 3.6% decrease in
same-store sales and by higher labor costs.
Corporate expenses decreased in 1998 compared to 1997 due to lower incentive
compensation, which was partially offset by severance expense and
professional fees under the strategic plan as well as an increase in the LIFO
charge.
Interest Expense. Interest expense in 1998 was $1 million lower than 1997 due
primarily to a reduction of interest accruals relating to a favorable
settlement of tax assessments. Without this reduction, interest expense in
1998 would have been $2 million greater than 1997 due to higher average
fixed-rate debt balances.
The company's derivative agreements consist of simple "floating-to-fixed
rate" interest rate swaps. For 1998, interest rate hedge agreements
contributed $4.3 million of interest expense compared to $7.2 million in
1997, or $2.9 million lower. This was due to a lower average amount of
notional principal of debt referenced by the hedge agreements. For a
description of these derivatives see Item 7A. Quantitative and Qualitative
Disclosures About Market Risk and "Long-Term Debt" in the notes to the
consolidated financial statements.
Interest Income. Interest income for 1998 was $10 million lower than 1997 due
to lower average balances and interest rates for the company's notes
receivable and investment in direct financing leases.
Equity Investment Results. The company's portion of operating losses from
equity investments for 1998 decreased by approximately $5 million to $12
million from $17 million for 1997. The reduction in losses is due to improved
results of operations in certain of the underlying equity investments.
Litigation Charges. In October 1997, the company began paying Furr's $800,000
per month as part of a settlement agreement which ceased in October 1998.
Payments to Furr's totaled $7.8 million in 1998. In the first quarter of
1997, the company expensed $19.2 million in settlement of the David's
litigation. See "Litigation Charges" in the notes to the consolidated
financial statements.
Impairment/Restructuring Charge. In December 1998, the company announced the
implementation of a strategic plan designed to improve the competitiveness of
the retailers the company serves and improve the company's performance by
building stronger operations that can better support long-term growth. The
pre-tax charge recorded in 1998 for the plan was $668 million. After tax, the
expense was $543 million in 1998 or $14.33 loss per share. The $114 million
of costs relating to the strategic plan not yet charged against income will
be recorded over the next 2 years at the time such costs are accruable.
Taxes On Income. The effective tax rate for 1998 is 14.6% versus 58.0% for
1997. The 1998 effective rate is low due primarily to the impairment of
non-deductible goodwill written off as part of the strategic plan. The
presentation of the 1997 tax is split by reflecting a tax benefit at the
statutory rate of 40% for the extraordinary charge and reflecting the balance
of the tax amount on the taxes on income line. See "Taxes on Income" in the
notes to the consolidated financial
<PAGE>
statements.
Extraordinary Charge From Early Retirement of Debt. During 1997, the company
undertook a recapitalization program which culminated in an $850 million
senior secured credit facility and the sale of $500 million of senior
subordinated notes. The recapitalization program resulted in an extraordinary
charge of $13.3 million, after income tax benefits of $8.9 million, or $.35
per share, in the company's third quarter 1997. Almost all of the charge
represents a non-cash write-off of unamortized financing costs related to
debt which was prepaid.
Certain Accounting Matters. In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133 - Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and is effective for fiscal
years beginning after June 15, 1999. The company will adopt SFAS No. 133 by
the required effective date. The company has not determined the impact on
its financial statements from adopting the new standard.
Other. Several factors negatively affecting earnings in 1998 are likely to
continue for the near term. Management believes that these factors include
lower sales and operating losses in certain company-owned retail stores.
1997 and 1996
Net Sales. Sales for 1997 decreased by $1.1 billion, or 7%, to $15.37
billion from $16.49 billion for 1996.
Net sales for the food distribution segment were $11.9 billion in 1997
compared to $12.8 billion in 1996. Several factors, none of which are
individually material, adversely affected food distribution's net sales
including: an increasingly competitive environment, stricter credit
practices, and unfavorable media related to adverse litigation.
Retail food segment sales were $3.5 billion in 1997 compared to $3.7 billion
in 1996. Retail food segment sales generated by the same stores in 1997
compared to 1996 decreased by 3.4%. The decrease was attributable, in part to
new stores opened by competitors in some markets and aggressive marketing
initiatives by certain competitors.
For 1997, food price inflation was 1.3%, compared to 2.3% in 1996.
Gross Margin. Gross margin for 1997 decreased by $51 million, or 3%, to $1.43
billion from $1.48 billion for 1996, but increased as a percentage of net
sales to 9.31% from 8.99% for 1996. The decrease in dollars followed the
decline in sales. The increase in gross margin percentage was due to improved
gross margins in both segments of the business brought about by numerous
margin improvement initiatives. The company also achieved food distribution
productivity increases during 1997 of 3.9%.
Selling and Administrative Expenses. Selling and administrative expenses for
1997 decreased by $79 million, or 6%, to $1.19 billion from $1.27 billion for
1996, but increased as a percentage of net sales to 7.76% for 1997 from 7.73%
in 1996. The decrease in dollars was principally due to improvements in
operating efficiencies for company-owned stores and reductions in
administrative and support functions offset in part by an increase in
incentive compensation expense. The increase as a percentage of net sales is
the result of the rate of sales decline being greater than the rate of
expense reduction.
Credit loss expense for 1997 decreased by approximately $3 million to $24
million from $27 million for 1996. Tighter credit practices and reduced
emphasis on credit extensions to and investments in customers have resulted
in less exposure and a decrease in credit loss expense.
Operating earnings for the food distribution segment decreased by $19
million, or
<PAGE>
6%, to $283 million from $302 million for 1996, and decreased as a percentage
of food distribution sales to 2.38% from 2.36%. 1998 operating earnings were
adversely affected by lower sales, offset in part by improved gross margins,
expense controls and lower credit loss expense.
Operating earnings for the retail food segment increased by $30 million, or
60%, to $80 million from $50 million for 1996, and decreased as a percentage
of retail food sales to 2.31% from 1.35%. Operating earnings for the retail
food segment were positively affected in 1997 by improved gross margins and
effective expense control, which were partially offset by lower sales.
Corporate expenses decreased in 1997 compared to 1996 due to improvements in
managing staff expenses.
Interest Expense. Interest expense remained unchanged for 1997 compared to
1996 at $163 million. Lower average debt levels in 1997 compared to 1996
caused interest expense to decline, but this was offset in the last half of
1997 due to interest rates on the new senior subordinated notes being higher
than the rates on the refinanced debt.
The company's derivative agreements consisted of simple "floating-to-fixed
rate" interest rate caps and swaps. For 1997, interest rate hedge agreements
contributed $7.2 million of interest expense compared to $9.6 million in
1996, or $2.4 million lower, primarily due to a lower average amount of
notional principal of debt referenced by interest rate hedges.
Interest Income. Interest income for 1997 was $47 million compared to $49
million in 1996. The company's investment in direct financing leases
decreased from 1996 to 1997 thereby decreasing interest income. Further in
1997 and 1996 the company sold (with limited recourse) $29 million and $35
million respectively, of notes receivable which also reduced interest income.
Equity Investment Results. The company's portion of operating losses from
equity investments for 1997 decreased by approximately $1 million to $17
million from $18 million for 1996. The reduction in losses is due to improved
results of operations in certain of the underlying equity investments.
Litigation Charges. In October 1997, the company began paying Furr's $800,000
per month as part of a settlement agreement which ceased in October 1998.
Payments to Furr's totaled $1.7 million in 1998. In the first quarter of
1997, the company expensed $19.2 million ($9 million after-tax or $.24 per
share) in settlement of the David's litigation. In the first quarter of 1996,
the company accrued $7.1 million as the result of a jury verdict regarding
the David's case. In the second quarter of 1996, the accrual was reversed
following the vacation of the judgment resulting from the jury verdict, and a
new accrual for $650,000 was established. In the third quarter of 1996, the
company accrued $20 million ($10 million after-tax or $.26 per share) related
to an agreement reached to settle the Premium lawsuits.
Taxes On Income. The effective tax rate for 1997 is 58.0% versus 51.1% for
1996. The presentation of the 1997 tax is split by reflecting a tax benefit
at the statutory rate of 40% for the extraordinary charge and reflecting the
balance of the tax amount on the taxes on income line. The 1996 effective
rate was lower than the 1997 rate due primarily to favorable resolutions of
tax assessments in 1996.
Extraordinary Charge From Early Retirement of Debt. During 1997, the company
undertook a recapitalization program which culminated in an $850 million
senior secured credit facility and the sale of $500 million of senior
subordinated notes. The recapitalization program resulted in an extraordinary
charge of $13.3 million, after income tax benefits of $8.9 million, or $.35
per share, in the company's third quarter ended October 4, 1997. Almost all
of the charge represents a non-cash write-off of unamortized financing costs
related to debt which was prepaid.
LIQUIDITY AND CAPITAL RESOURCES
Set forth below is certain information regarding the company's capital
structure at the end of fiscal years 1998 and 1997:
<PAGE>
<TABLE>
<CAPTION>
Capital Structure (In millions) 1998 1997
<S> <C> <C> <C> <C>
Long-term debt $1,185 55.5% $1,175 44.3%
Capital lease obligations 381 17.8 388 14.6
Total debt 1,566 73.3 1,563 58.9
Shareholders' equity 570 26.7 1,090 41.1
Total capital $2,136 100.0% $2,653 100.0%
</TABLE>
Note: The above table includes current maturities of long-term debt and
current obligations under capital leases.
Long-term debt was $10 million higher at year-end 1998 compared to 1997
because cash requirements for capital expenditures, the net increase in
working capital, business acquisitions, fundings of notes receivable and
other items exceeded cash provided from operations, sales of assets,
collections on notes receivable and the decrease in cash. Capital lease
obligations were $7 million lower because repayments exceeded leases added
for new retail stores.
The debt-to-capital ratio at year-end 1998 was 73.3% up from 58.9% at
year-end 1997. The significant increase is due to the reduction in
shareholders' equity caused by the expense related to the strategic plan.
Operating activities generated $141 million of net cash flows for 1998
compared to $113 million for 1997. The difference was due essentially to an
increase in accounts payable offset in part by higher accounts receivable and
lower cash earnings. Working capital was $307 million at year-end 1998, a
decrease from $340 million at year-end 1997. The current ratio decreased to
1.24 to 1, from 1.29 to 1 at year-end 1997.
Capital expenditures were $200 million in 1998, an increase of $71 million
compared to 1997. Total capital expenditures in 1999 are expected to be
approximately $200 million. The company's strategic plan involves the
divesting of a number of food distribution and retail food facilities and
other assets, and focusing resources in the remaining food distribution and
retail food operations. The company intends to increase its retail operations
by making investments in its existing stores and by adding approximately 20
stores per year for the foreseeable future. Acquisitions of supermarket
chains or groups or other food distribution operations will be made only on a
selective basis.
Over the next few years, the implementation of the strategic plan is expected
to result in fewer, higher-volume, more efficient food distribution operating
units; fewer and more profitable retail food stores; reduced overhead
expenses; and substantial increases in net earnings. Cash costs related to
the implementation and completion of these initiatives (on a pre-tax basis)
were $10 million in 1998, and are estimated to be $54 million in 1999, $42
million in 2000, and $43 million thereafter. Management believes working
capital reductions, proceeds from the sale of assets, and increased earnings
related to the successful implementation of the strategic plan are expected
to provide substantially more than enough cash flow to cover these
incremental costs.
The company makes investments in and loans to certain retail customers. Net
investments and loans decreased $31 million in 1998, from $168 million to
$137 million, due in part to the impairment and restructuring charge
applicable to these accounts as well as to a reduced level of investment in
these assets by the company.
In 1998, the company's primary sources of liquidity were cash flows from
operating activities, borrowings under its credit facility, and the sale of
certain assets and investments. The company's principal sources of capital,
excluding shareholders' equity, are banks and other lenders and lessors.
The company's credit facility consists of a $600 million revolving credit
facility, with a final maturity of July 25, 2003, and a $250 million
amortizing term loan, with a final maturity of July 25, 2004. Up to $300
million of the revolver may be
<PAGE>
used for issuing letters of credit, and borrowings and letters of credit
issued under the credit facility may be used for general corporate purposes.
Outstanding borrowings and letters of credit are secured by a first priority
security interest in the accounts receivable and inventories of the company
and its subsidiaries and in the capital stock of or other equity interests
owned by the company in its subsidiaries. In addition, the credit facility is
guaranteed by substantially all company subsidiaries. See "Long-Term Debt" in
the notes to the consolidated financial statements. The stated interest rate
on borrowings under the credit agreement is equal to a referenced index rate,
normally the London interbank offered interest rate ("LIBOR"), plus a margin.
The level of the margin is dependent on credit ratings on the company's
senior secured bank debt.
The credit agreement and the indentures under which other company debt
instruments were issued contain customary covenants associated with similar
facilities. The credit agreement currently contains the following more
significant financial covenants: maintenance of a fixed charge coverage ratio
of at least 1.7 to 1, based on adjusted earnings, as defined, before
interest, taxes, depreciation and amortization and net rent expense;
maintenance of a ratio of inventory-plus-accounts receivable to funded bank
debt (including letters of credit) of at least 1.4 to 1; and a limitation on
restricted payments, including dividends. Covenants contained in the
company's indentures under which other company debt instruments were issued
are generally less restrictive than those of the credit agreement. The
company is in compliance with all financial covenants under the credit
agreement and its indentures.
The credit facility may be terminated in the event of a defined change in
control. Under the company's indentures, noteholders may require the company
to repurchase notes in the event a defined change of control coupled with a
defined decline in credit ratings.
At year-end 1998, borrowings under the credit facility totaled $224 million
in term loans and $89 million of revolver borrowings, and $80 million of
letters of credit had been issued. Letters of credit are needed primarily for
insurance reserves associated with the company's normal risk management
activities. To the extent that any of these letters of credit would be drawn,
payments would be financed by borrowings under the revolver.
At year-end 1998, the company would have been allowed to borrow an additional
$431 million under the revolving credit facility contained in the credit
agreement based on actual borrowings and letters of credit outstanding. Under
the company's most restrictive borrowing covenant, which is the fixed charge
coverage ratio contained in the credit agreement, $35 million of additional
annualized fixed charges could have been incurred.
On December 7, 1998, Standard & Poor's rating group ("S&P") announced it had
placed its BB corporate credit rating, BB- senior unsecured debt rating, B+
subordinated debt rating, and BB+ bank loan rating for the company on
CreditWatch with negative implications. The CreditWatch listing followed the
company's December 7, 1998 announcement of its new strategic plan. S&P said
that its action reflected its concern and opinion that, despite the positive
moves included in the new strategic plan, it would be difficult for Fleming
to restore measures of earnings and cash flow protection to levels
appropriate for the current rating.
On December 8, 1998, Moody's Investors Service ("Moody's") announced it had
confirmed its credit ratings of the company and had changed its rating
outlook from stable to negative following the company's December 7, 1998
announcement of its new strategic plan. Moody's confirmed its Ba3 senior
secured bank agreements rating, B1 senior unsecured sinking fund debentures,
medium-term notes, senior notes, and issuer rating, and B3 senior
subordinated unsecured notes rating. In addition, Moody's said failure of the
company to achieve cost reductions or operational disruptions from the
execution of the new strategic initiatives could negatively impact financial
returns and exert downward pressure on the ratings.
Dividend payments in 1998 were $0.08 per share, or $3 million, which was the
same per share and total amount as in 1997. The credit agreement and the
indentures for the $500 million of senior subordinated notes limit restricted
payments, including dividends, to $70 million at year-end 1998, based on a
formula tied to net earnings
<PAGE>
and equity issuances.
For the foreseeable future, the company's principal sources of liquidity and
capital are expected to be cash flows from operating activities and the
company's ability to borrow under its credit agreement. In addition, lease
financing may be employed for new retail stores and certain equipment.
Management believes these sources will be adequate to meet working capital
needs, capital expenditures (including expenditures for acquisitions, if
any), strategic plan implementation costs and other capital needs for the
next 12 months.
CONTINGENCIES
From time to time the company faces litigation or other contingent loss
situations resulting from owning and operating its assets, conducting its
business or complying (or allegedly failing to comply) with federal, state
and local laws, rules and regulations which may subject the company to
material contingent liabilities. In accordance with applicable accounting
standards, the company records as a liability amounts reflecting such
exposure when a material loss is deemed by management to be both "probable"
and "quantifiable" or "reasonably estimable." Furthermore, the company
discloses material loss contingencies in the notes to its financial
statements when the likelihood of a material loss has been determined to be
greater than "remote" but less than "probable." Such contingent matters are
discussed in "Contingencies" in the notes to the consolidated financial
statements. An adverse outcome experienced in one or more of such matters, or
an increase in the likelihood of such an outcome, could have a material
adverse effect on the company. Also see Item 3. Legal Proceedings.
Fleming has numerous computer systems which were developed employing six
digit date structures (i.e., two digits each for month, day and year). Where
date logic requires the year 2000 or beyond, such date structures may produce
inaccurate results. Management has implemented a program to comply with
year-2000 requirements on a system-by-system basis including both information
technology (IT) and non-IT systems (e.g., microcontrollers). Fleming's plan
includes extensive systems testing and is expected to be substantially
completed by the third quarter of 1999. Code for the company's largest and
most comprehensive system, FOODS, has been completely remediated, reinstalled
and tested. Based on these tests, the company believes FOODS and the related
systems which run the company's distribution system will be year-2000 ready
and in place at all food distribution operating units. At year-end 1998, the
company was substantially complete with the replacement and upgrading
necessary to make its nearly 5,000 PCs year-2000 ready. Although the company
believes contingency plans will not be necessary based on progress to date,
contingency plans have been developed for each critical system. The content
of the contingency plans varies depending on the system and the assessed
probability of failure and such plans are modified periodically based on
remediation and testing. The alternatives include reallocating internal
resources, obtaining additional outside resources, implementing temporary
manual processes or temporarily rolling back internal clocks. Although the
company is developing greater levels of confidence regarding its internal
systems, failure to ensure that the company's computer systems are year-2000
compliant could have a material adverse effect on the company's operations.
The company is also assessing the status of its vendors' and customers'
year-2000 readiness through meetings, discussions, notices and
questionnaires. Vendor and customer responses and feedback are varied and in
some cases inconclusive. Accordingly, the company believes the most likely
worst case scenerio could be customers' failure to serve and retain consumers
resulting in a negative impact on the company's sales. Failure of the
company's suppliers or its customers to become year-2000 compliant might also
have a material adverse impact on the company's operations.
Program costs to comply with year-2000 requirements are being expensed as
incurred. Total expenditures to third parties in 1997 through completion in
1999 are not expected to exceed $10 million, none of which is incremental.
Through the end of 1998, these third party expenditures totaled approximately
$7 million. To compensate for the dilutive effect on results of operations,
the company has delayed
<PAGE>
other non-critical development and support initiatives. Accordingly, the
company expects that annual information technology expenses will not differ
significantly from prior years.
FORWARD-LOOKING INFORMATION
This report includes statements that (a) predict or forecast future events or
results, (b) depend on future events for their accuracy, or (c) embody
assumptions which may prove to have been inaccurate, including the company's
ability to successfully achieve the goals of its strategic plan and reverse
sales declines, cut costs and improve earnings; the company's assessment of
the probability and materiality of losses associated with litigation and
other contingent liabilities; the company's ability to develop and implement
year-2000 systems solutions; the company's ability to expand portions of its
business or enter new facets of its business; and the company's expectations
regarding the adequacy of capital and liquidity. These forward-looking
statements and the company's business and prospects are subject to a number
of factors which could cause actual results to differ materially including
the: risks associated with the successful execution of the company's
strategic business plan; adverse effects of the changing industry environment
and increased competition; continuing sales declines and loss of customers;
exposure to litigation and other contingent losses; failure of the company to
achieve necessary cost savings; failure of the company, its vendors or its
customers to develop and implement year-2000 system solutions; and the
negative effects of the company's substantial indebtedness and the
limitations imposed by restrictive covenants contained in the company's debt
instruments. These and other factors are described in this report under Item
1. Business -- Risk Factors and in other periodic reports available from the
Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company's exposure to pricing risk in the financial markets consists of
changes in interest rates related to its investment in notes receivable, the
balance of debt obligations outstanding, and derivatives employed to hedge
interest rate changes on variable rate debt. The company does not use foreign
currency exchange rate forward contracts or commodity contracts and does not
have any material foreign currency exposure. The company does not use
financial instruments or derivatives for any trading purposes. Fleming uses
derivatives, currently consisting of simple floating-to-fixed interest rate
swap transactions, to hedge its exposure to changing interest rates for its
variable interest rate debt obligations.
In the normal course of business Fleming carries notes receivable because the
company makes long-term loans to certain retail customers (see "Investments
and Notes Receivable" in the notes to the consolidated financial statements).
A portion of the notes receivable carries a variable interest rate, which is
based on a prime rate index published in a major financial publication and is
reset quarterly. The remaining portion carries fixed interest rates
negotiated with each retail customer. No derivatives have been employed to
hedge the company's exposure to variable interest rates on notes receivable
primarily because these notes are considered to be a partial hedge for debt
with variable interest rates.
In order to help maintain liquidity and finance business operations, Fleming
obtains long-term credit commitments from banks and other financial
institutions under which term loans and revolving loans are made. Such loans
carry variable interest rates based on the London interbank offered interest
rate ("LIBOR") plus a borrowing margin for different interest periods, such
as one week, one month, and other periods up to one year. To assist in
managing its debt maturities and diversify its sources of debt capital,
Fleming also uses long-term debt which carries fixed interest rates.
Fleming management maintains a written policy statement which governs its
financial risk management activities including the use of financial
derivatives. The policy statement says that the company will engage in a
financial risk management process to manage its defined exposures to
uncertain future changes in interest rates and foreign exchange rates which
impact net earnings. The primary purpose of this
<PAGE>
process is to control and limit the volatility of net earnings according to
pre-established targets for exposure to such changes in a manner which does
not result in unreasonable or unmanageable additional risks or expense. The
financial risk management process works under the oversight of a special
management group to ensure certain policy objectives are achieved. Such
objectives include, and are not limited to, the following: to act in
accordance with authority granted by resolution of the Board of Directors,
which specifically permits the use of derivatives to hedge interest rate or
foreign exchange rate risks and which prohibits the use of derivatives for
the purpose of speculation; to define and measure the company's financial
risks associated with interest and foreign exchange rates as well as with
derivatives instruments to be used for hedging; and to establish exposure
targets and to manage performance against those targets.
Changes in interest rates may have a material impact on Fleming's interest
expense and interest income, as well as to the fair values for its investment
in notes receivable, outstanding debt obligations and financial derivatives
used. The table below presents a summary of the categories of Fleming's
financial instruments according to their respective interest rate profiles.
For notes receivable, the table shows the principal amount of cash the
company expects to collect each year according to the scheduled maturities,
as well as the average interest rates applicable to such maturities. For debt
obligations, the table shows the principal amount of cash the company expects
to pay each year according to the scheduled maturities, as well as the
average interest rates applicable to such maturities. For derivatives, the
table shows when the notional principal contracts terminate.
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT RATES) SUMMARY OF FINANCIAL INSTRUMENTS
AT 12/26/98 MATURITIES OF PRINCIPAL BY FISCAL YEAR
FAIR VALUE 1999 2000 2001 2002 2003 THEREAFTER
<S> <C> <C> <C> <C> <C> <C> <C>
NOTES RECEIVABLE WITH VARIABLE INTEREST RATES
Principal receivable $72.0 $11.4 $11.4 $10.2 $8.7 $7.4 $22.9
Average variable rate receivable 10.6% Based on the referenced Prime Rate plus a margin
NOTES RECEIVABLE WITH FIXED INTEREST RATES
Principal receivable $50.8 $11.4 $5.1 $2.8 $2.1 $1.9 $27.5
Average fixed rate receivable 5.2% 2.4% 3.9% 4.6% 5.2% 6.0% 6.8%
DEBT WITH VARIABLE INTEREST RATES
Principal payable $313.3 $24.9 $34.9 $34.9 $39.9 $128.9 $49.9
Average variable rate payable 6.8% Based on LIBOR plus a margin
DEBT WITH FIXED INTEREST RATES
Principal payable $845.7 $16.2 $36.7 $302.7 $10.5 $5.5 $500.4
Average fixed rate payable 10.3% 7.4% 6.6% 10.6% 8.9% 9.1% 10.6%
VARIABLE-TO-FIXED RATE SWAPS
Amount payable $9.5 $ - $250.0 (not payable)
Average fixed rate payable 7.2% 7.2% 7.2%
Average variable rate receivable 5.2% Based on LIBOR
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) 1. Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
<PAGE>
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 19,
1999. Information concerning Executive Officers of the company is included in
Part I herein which is incorporated in this Part III by reference.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 19, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 19, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 19, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. Financial Statements: Page Number
<S> <C>
- Consolidated Statements of Earnings For the years ended
December 26, 1998, December 27, 1997, and December 28, 1996
- Consolidated Balance Sheets At December 26, 1998, and
December 27, 1997
- Consolidated Statements of Cash Flows For the years ended
December 26, 1998, December 27, 1997, and December 28, 1996
- Consolidated Statements of Shareholders' Equity For the
years ended December 26, 1998, December 27, 1997, and
December 28, 1996
- Notes to Consolidated Financial Statements For the years
ended December 26, 1998, December 27, 1997, and December 28,
1996
- Independent Auditors' Report
- Quarterly Financial Information (Unaudited)
</TABLE>
Consolidated Statements of Operations
For the years ended December 26, 1998, December 27, 1997, and December 28,
1996 (In thousands, except per share amounts)
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales $15,069,335 $15,372,666 $16,486,739
Costs and expenses (income):
Cost of sales 13,594,241 13,941,838 15,004,715
Selling and administrative 1,276,312 1,194,570 1,273,999
Interest expense 161,581 162,506 163,466
Interest income (36,736) (46,638) (49,122)
Equity investment results 11,622 16,746 18,458
Litigation charges 7,780 20,959 20,650
Impairment/restructuring charge 652,737 - -
Total costs and expenses 15,667,537 15,289,981 16,432,166
Earnings (loss) before taxes (598,202) 82,685 54,573
Taxes on income (loss) (87,607) 43,963 27,887
Earnings (loss) before extraordinary charge (510,595) 38,722 26,686
Extraordinary charge from early retirement
of debt (net of taxes) - (13,330) -
Net earnings (loss) $ (510,595) $ 25,392 $ 26,686
Earnings (loss) per share:
Basic and diluted before extraordinary charge $(13.48) $1.02 $.71
Extraordinary charge - (.35) -
Basic and diluted net earnings (loss) $(13.48) $ .67 $.71
Weighted average shares outstanding:
Basic 37,887 37,803 37,774
Diluted 37,887 37,862 37,777
</TABLE>
Sales to customers accounted for under the equity method were approximately
$0.6 billion, $0.9 billion and $1.0 billion in 1998, 1997 and 1996,
respectively.
See notes to consolidated financial statements.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At December 26, 1998, and December 27, 1997
(In thousands)
Assets 1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,967 $ 30,316
Receivables, net 450,905 334,278
Inventories 984,287 1,018,666
Other current assets 146,757 111,730
Total current assets 1,587,916 1,494,990
Investments and notes receivable 119,468 150,221
Investment in direct financing leases 177,783 201,588
Property and equipment:
Land 49,494 57,746
Buildings 408,739 426,302
Fixtures and equipment 663,724 652,039
Leasehold improvements 225,010 234,805
Leased assets under capital leases 207,917 227,894
1,554,884 1,598,786
Less accumulated depreciation and amortization (734,819) (648,943)
Net property and equipment 820,065 949,843
Deferred income taxes 51,497 -
Other assets 154,524 164,295
Goodwill, net 579,579 963,034
<PAGE>
Total assets $3,490,832 $3,923,971
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 945,475 $ 831,339
Current maturities of long-term debt 41,368 47,608
Current obligations under capital leases 21,668 21,196
Other current liabilities 272,573 254,454
Total current liabilities 1,281,084 1,154,597
Long-term debt 1,143,900 1,127,311
Long-term obligations under capital leases 359,462 367,068
Deferred income taxes - 61,425
Other liabilities 136,455 123,898
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value, authorized -
100,000 shares, issued and outstanding -
38,542 and 38,264 shares 96,356 95,660
Capital in excess of par value 509,602 504,451
Reinvested earnings 23,155 536,792
Accumulated other comprehensive income:
Cumulative currency translation adjustment - (4,922)
Additional minimum pension liability (57,133) (37,715)
Accumulated other comprehensive income (57,133) (42,637)
Less ESOP note (2,049) (4,594)
Total shareholders' equity 569,931 1,089,672
Total liabilities and shareholders' equity $3,490,832 $3,923,971
</TABLE>
Receivables include $5 million and $17 million in 1998 and 1997, respectively,
due from customers accounted for under the equity method.
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the years ended December 26, 1998, December 27, 1997, and December 28,
1996 (In thousands)
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(510,595) $ 25,392 $ 26,686
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation and amortization 185,368 181,357 187,617
Credit losses 23,498 24,484 26,921
Deferred income taxes (117,239) 40,301 (5,451)
Equity investment results 11,622 16,746 18,458
Impairment/restructuring and
related charges 668,027 - -
Cash payments on impairment/restructuring
and related charges (7,522) - -
Cost of early debt retirement - 22,227 -
Consolidation and restructuring reserve
activity (4,708) (12,724) (2,865)
Change in assets and liabilities,
excluding effect of acquisitions:
Receivables (156,822) (41,347) (13,955)
Inventories 6,922 31,315 150,524
Accounts payable 114,136 (117,219) (45,666)
<PAGE>
Other assets and liabilities (67,243) (53,116) (15,368)
Other adjustments, net (4,365) (4,448) 612
Net cash provided by
operating activities 141,079 112,968 327,513
Cash flows from investing activities:
Collections on notes receivable 38,076 59,011 64,028
Notes receivable funded (28,946) (37,537) (66,298)
Notes receivable sold - 29,272 34,980
Businesses acquired (30,225) (9,572) -
Proceeds from sale of businesses 32,277 13,093 13,300
Purchase of property and equipment (200,211) (129,386) (128,552)
Proceeds from sale of
property and equipment 17,056 15,845 15,796
Investments in customers (1,009) (1,694) (365)
Proceeds from sale of investments 3,529 4,970 15,020
Other investing activities 6,141 1,895 6,843
Net cash used in
investing activities (163,312) (54,103) (45,248)
Cash flows from financing activities:
Proceeds from long-term borrowings 170,000 914,477 171,000
Principal payments on long-term debt (159,651) (982,982) (356,685)
Principal payments on
capital lease obligations (13,356) (20,102) (19,622)
Sale of common stock under
incentive stock and
stock ownership plans 4,830 593 2,195
Dividends paid (3,048) (3,007) (13,447)
Other financing activities (891) (1,195) (6,465)
Net cash used in
financing activities (2,116) (92,216) (223,024)
Net increase (decrease) in cash
and cash equivalents (24,349) (33,351) 59,241
Cash and cash equivalents,
beginning of year 30,316 63,667 4,426
Cash and cash equivalents,
end of year $ 5,967 $ 30,316 $ 63,667
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
For the years ended December 26, 1998, December 27, 1997, and December 28, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Capital Other
Common Stock in excess Reinvested Comprehensive Comprehensive ESOP
Total Shares Amount of par value Earnings Income Income Note
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $1,083,322 37,716 $94,291 $501,474 $501,214 $(4,549) $(9,108)
Comprehensive income
Net earnings 26,686 26,686 $ 26,686
Other comprehensive income, net of tax
Currency translation
adjustment (net of $0 taxes) (151) (151) (151)
Minimum pension liability
adjustment (net of $16,619 of taxes) (24,897) (24,897) (24,897)
Comprehensive income $ 1,638
Incentive stock and stock ownership plans 2,324 82 203 2,121
Cash dividends, $.36 per share (13,492) (13,492)
ESOP note payments 2,166 2,166
Balance at December 28, 1996 1,075,958 37,798 94,494 503,595 514,408 (29,597) (6,942)
Comprehensive income
Net earnings 25,392 25,392 $ 25,392
Other comprehensive income, net of tax
Currency translation
adjustment (net of $0 taxes) (222) (222) (222)
Minimum pension liability
adjustment (net of $8,556 of taxes) (12,818) (12,818) (12,818)
Comprehensive income $ 12,352
Incentive stock and stock ownership plans 2,022 466 1,166 856
Cash dividends, $0.08 per share (3,008) (3,008)
ESOP note payments 2,348 2,348
Balance at December 27, 1997 1,089,672 38,264 95,660 504,451 536,792 (42,637) (4,594)
Comprehensive income
Net loss (510,595) (510,595) $(510,595)
Other comprehensive income, net of tax
Currency translation
adjustment (net of $0 taxes) 4,922 4,922 4,922
Minimum pension liability
adjustment (net of $12,914 of taxes) (19,418) (19,418) (19,418)
Comprehensive income $(525,091)
Incentive stock and stock ownership plans 5,847 279 696 5,151
Cash dividends, $0.08 per share (3,042) (3,042)
ESOP note payments 2,545 2,545
Balance at December 26, 1998 $ 569,931 38,543 $96,356 $509,602 $ 23,155 $(57,133) $(2,049)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
For the years ended December 26, 1998, December 27, 1997, and December 28,
1996
Summary of Significant Accounting Policies
Nature of Operations: The company markets food and related products and
offers retail services to supermarkets in 42 states. The company also
operates more than 280 company-owned stores in several geographic areas. The
company's activities encompass two major businesses: food distribution and
company-owned retail food operations. Food and food-related product sales
account for over 90 percent of the company's consolidated sales. No one
customer accounts for 3.6 percent or more of consolidated sales.
Fiscal Year: The company's fiscal year ends on the last Saturday in December.
Basis of Presentation: The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include
all subsidiaries. Material intercompany items have been eliminated. The
equity method of accounting is usually used for investments in certain
entities in which the company has an investment in common stock of between
20% and 50% or such investment is temporary. Under the equity method,
original investments are recorded at cost and adjusted by the company's share
of earnings or losses of these entities and for declines in estimated
realizable values deemed to be other than temporary.
Reclassifications: Certain reclassifications have been made to prior year
amounts to conform to current year classifications.
Basic and Diluted Net Earnings (Loss) Per Share: Both basic and diluted
earnings per share are computed based on net earnings (loss) divided by
weighted average shares as appropriate for each calculation subject to
anti-dilution limitations.
Taxes on Income: Deferred income taxes arise from temporary differences
between financial and tax bases of certain assets and liabilities.
Cash and Cash Equivalents: Cash equivalents consist of liquid investments
readily convertible to cash with an original maturity of three months or
less. The carrying amount for cash equivalents is a reasonable estimate of
fair value.
Receivables: Receivables include the current portion of customer notes
receivable of $17 million in 1998 and $18 million in 1997. Receivables are
shown net of allowance for doubtful accounts of $28 million in 1998 and $19
million in 1997. The company extends credit to its retail customers located
over a broad geographic base. Regional concentrations of credit risk are
limited. Interest income on impaired loans is recognized only when payments
are received.
Inventories: Inventories are valued at the lower of cost or market. Grocery
and certain perishable inventories, aggregating approximately 70% of total
inventories in 1998 and 1997 are valued on a last-in, first-out (LIFO)
method. The cost for the remaining inventories is determined by the first-in,
first-out (FIFO) method. Current replacement cost of LIFO inventories was
greater than the carrying amounts by approximately $44 million and $36
million at year-end 1998 and 1997, respectively. In 1998, the liquidation of
certain LIFO layers related to business closings decreased cost of products
sold by approximately $3 million.
Property and Equipment: Property and equipment are recorded at cost or, for
leased assets under capital leases, at the present value of minimum lease
payments. Depreciation, as well as amortization of assets under capital
leases, is based on
<PAGE>
the estimated useful asset lives using the straight-line method. The
estimated useful lives used in computing depreciation and amortization are:
buildings and major improvements - 20 to 40 years; warehouse, transportation
and other equipment - 3 to 10 years; and data processing equipment and
software - 3 to 7 years.
Goodwill: The excess of purchase price over the fair value of net assets of
businesses acquired is amortized on the straight-line method over periods not
exceeding 40 years. Goodwill is shown net of accumulated amortization of $176
million and $189 million in 1998 and 1997, respectively.
Impairment: Asset impairments are recorded when the carrying amount of assets
are not recoverable. Impairment is assessed and measured, by asset type, as
follows: notes receivable - fair value of the collateral for each note; and,
long-lived assets, goodwill and other intangibles - estimate of the future
cash flows expected to result from the use of the asset and its eventual
disposition aggregated to the operating unit level for food distribution and
chain or group level for retail food.
Financial Instruments: Interest rate hedge transactions and other financial
instruments are utilized to manage interest rate exposure. The methods and
assumptions used to estimate the fair value of significant financial
instruments are discussed in the "Investments and Notes Receivable" and
"Long-term Debt" notes.
Stock-Based Compensation: The company applies APB Opinion No. 25 -
Accounting for Stock Issued to Employees and related Interpretations in
accounting for its plans.
Comprehensive Income: Comprehensive income is reflected in the Consolidated
Statements of Shareholders' Equity. Other comprehensive income is comprised
of foreign currency translation adjustments and minimum pension liability
adjustments. The cumulative effect of other comprehensive income is reflected
in the Shareholders' Equity section of the Consolidated Balance Sheets.
Pension and Other Postretirement Benefits: In 1998, the company adopted SFAS
No. 132-Employers' Disclosures about Pensions and Other Postretirement
Benefits ("SFAS No 132"). SFAS No. 132 revises the disclosure requirements
for pensions and other postretirement benefit plans.
Impairment/Restructuring Charge and Related Costs
In December 1998, the company announced the implementation of a strategic
plan designed to improve the competitiveness of the retailers the company
serves and improve the company's performance by building stronger operations
that can better support long-term growth ("strategic plan"). The strategic
plan consists of four major initiatives:
- Consolidate food distribution operations. This initially
requires divestiture of seven operating units - two in 1998 and
five in 1999. Although there will be some loss in sales, many
of the customers at these seven operating units will be
transferred and serviced by remaining operating units.
Transferring customer business to a higher volume, better
utilized facility benefits the customer with better product
variety and improved buying opportunities. The company benefits
with better coverage of fixed expenses.
- Grow food distribution sales aggressively. Higher volume,
better-utilized food distribution operations and the dynamics of
the market place represent an opportunity for sales growth. The
improved efficiency and effectiveness of the remaining food
distribution operations enhances their competitiveness and the
company intends to capitalize on these improvements.
- Improve retail food performance. This not only requires
divestiture of under-performing company-owned retail chains or
groups, but also requires increased investments in market leading
chains or groups.
- Reduce overhead expense. Overhead will be reduced at both the
corporate and operating unit levels through organization and
process changes. In addition, several initiatives to reduce
complexity in business systems are underway. These initiatives
should reduce costs and improve the company's profitability and
competitiveness.
<PAGE>
The total pre-tax charge of the strategic plan is presently estimated at $782
million. The pre-tax charge recorded in 1998 was $668 million ("1998 charge")
of which $661 million was recorded in the fourth quarter. The remaining $7
million was recorded in previous quarters which have been reclassified to be
consistent with year-end reporting. After tax, the expense was $543 million
in 1998 or $14.33 loss per share. The $114 million of costs relating to the
strategic plan not yet charged against income will be recorded over the next
2 years at the time such costs are accruable.
The $668 million charge was included on several lines of the 1998 Consolidated
Statements of Operations as follows: $9 million was included in cost of sales
and was primarily related to inventory valuation adjustments; $6 million was
included in selling and administrative expense as disposition related costs
recognized on a periodic basis; and the remaining $653 million was included in
the impairment/restructuring charge line. The 1998 charge consisted of the
following components:
- Impairment of assets of $590 million. The impairment
components were $372 million for goodwill and $218 million
for other long-lived assets.
- Restructuring charges of $63 million. The restructuring
charges consisted primarily of severance, lease liabilities and
pension withdrawal liabilities.
- Other disposition and related costs of $15 million. These costs
consist primarily of professional fees, inventory valuation
adjustments and other costs.
The 1998 charge relates to the company's segments as follows: $491 million
relates to the food distribution segment and $153 million relates to the
retail food segment with the balance relating to corporate overhead expenses.
The 1998 charge included amounts related to workforce reductions as follows:
<TABLE>
<CAPTION>
($'s in thousands) Amount Headcount
<S> <C> <C>
1998 Charge $25,441 1,430
Terminations (3,458) (170)
Ending Liability $21,983 1,260
</TABLE>
Additionally, the 1998 charge included amounts related primarily to lease
obligations totaling approximately $38 million that will be reduced over the
expected remaining lease terms.
Asset impairments were recognized in accordance with SFAS No. 121 -
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, and such assets were written down to their estimated fair
values based on estimated proceeds of operating units to be sold or
discounted cash flow projections. The operating costs of operating units to
be sold or closed are treated as normal operations during the period they
remain in use. Salaries, wages and benefits of employees at these operating
units are charged to operations during the time such employees are actively
employed. Depreciation expense is continued for assets that the company is
unable to remove from operations.
Litigation Charges
Furr's Supermarkets, Inc. ("Furr's") filed suit against the company in 1997
claiming it was overcharged for products. During 1997, Fleming and Furr's
reached an agreement dismissing all litigation between them. Pursuant to the
settlement, Furr's purchased Fleming's El Paso product supply center in 1998,
together with related inventory and equipment. As part of the settlement,
Fleming paid Furr's $1.7 million in 1997 and $7.8 million in 1998 as a refund
of fees and charges.
<PAGE>
The company was sued by David's Supermarkets, Inc. ("David's") in 1993 for
allegedly overcharging for products. In 1996, judgment was entered against
the company for $211 million; the judgment was subsequently vacated and a new
trial granted. At the end of 1996 the company had an accrual of $650,000. The
company denied the plaintiff's allegations; however, to eliminate the
uncertainty and expense of protracted litigation, the company paid $19.9
million to the plaintiff in April 1997 in exchange for dismissal, with
prejudice, of all plaintiff's claims against the company, resulting in a
charge to first quarter 1997 earnings of $19.2 million.
In 1996, the company recorded a charge of $20 million for the settlement,
which occurred in 1997, of two related lawsuits involving an allegedly
fraudulent scheme conducted by a failed grocery diverter, Premium Sales
Corporation.
Extraordinary Charge
During 1997, the company undertook a recapitalization program which
culminated in an $850 million senior secured credit facility and the sale of
$500 million of senior subordinated notes. The recapitalization program
resulted in an extraordinary charge of $13.3 million, after income tax
benefits of $8.9 million, or $.35 per share. Almost all of the charge
represents a non-cash write-off of unamortized financing costs related to
debt which was prepaid. See the "Long-term Debt" note for further discussion
of the recapitalization program.
Per Share Results
The following table sets forth the basic and diluted per share computations
for income (loss) before extraordinary charge.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1998 1997 1996
<S> <C> <C> <C>
Numerator:
Basic and diluted earnings (loss)
before extraordinary charge $(510,595) $38,722 $26,686
Denominator:
Weighted average shares for
basic earnings per share 37,887 37,803 37,774
Effect of dilutive securities:
Employee stock options - 21 3
Restricted stock compensation - 38 -
Dilutive potential common shares - 59 3
Weighted average shares for
diluted earnings per share 37,887 37,862 37,777
Basic and diluted earnings (loss) per share
before extraordinary charge $(13.48) $1.02 $.71
</TABLE>
The company did not reflect 172,000 weighted average potential shares for the
1998 diluted calculation because they would be antidilutive. Options to
purchase 2.4 million shares of common stock at a weighted average exercise
price of $19.37 per share were outstanding during 1997, but were not included
in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
Segment Information
The company derives over 90% of its net sales and operating profits from the
sale of
<PAGE>
food and food-related products. Further, over 90% of the company's assets are
based in and net sales derived from 42 states and no single customer amounts
to 3.6% or more of net sales for any of the years reported. Considering the
customer types and the processes for meeting the needs of customers, senior
management manages the business as two segments: food distribution and
company-owned retail food operations.
The food distribution segment represents the aggregation of retail services
and the distribution and marketing of the following products: food, general
merchandise, health and beauty care, and Fleming Brands. The aggregation is
based primarily on the common customer base and the interdependent marketing
and distribution efforts.
The company's senior management utilizes more than one measurement and
multiple views of data to assess segment performance and to allocate
resources to the segments. However, the dominant measurements are consistent
with the company's consolidated financial statements and, accordingly, are
reported on the same basis herein. Interest expense, interest income, equity
investments, corporate expenses, other unusual charges and income taxes are
managed separately by senior management and those items are not allocated to
the business segments. Intersegment transactions are reflected at cost.
The following table sets forth the composition of the segment's and total
company's net sales, operating earnings, depreciation and amortization,
capital expenditures and identifiable assets.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
<S> <C> <C> <C>
Net Sales
Food distribution $13,561 $13,864 $14,904
Intersegment elimination (2,081) (1,950) (2,123)
Net food distribution 11,480 11,914 12,781
Retail food 3,589 3,459 3,706
Total $15,069 $15,373 $16,487
Operating Earnings
Food distribution $ 259 $283 $302
Retail food 62 80 50
Corporate (122) (127) (144)
Total operating earnings 199 236 208
Interest expense (161) (162) (163)
Interest income 37 47 49
Equity investment results (12) (17) (18)
Litigation charges (8) (21) (21)
Impairment/restructuring charge (653) - -
Earnings (loss) before taxes $(598) $ 83 $ 55
Depreciation and Amortization
Food distribution $107 $105 $107
Retail food 61 55 56
Corporate 17 21 25
Total $185 $181 $188
Capital Expenditures
Food distribution $ 81 $ 51 $ 59
Retail food 118 77 50
Corporate 1 1 20
Total $200 $129 $129
<PAGE>
Identifiable Assets
Food distribution $2,502 $2,864 $3,048
Retail food 683 708 627
Corporate 306 352 380
Total $3,491 $3,924 $4,055
</TABLE>
Taxes on Income
Components of taxes on income are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 23,896 $(4,761) $24,729
State 5,737 (474) 8,609
Total current 29,633 (5,235) 33,338
Deferred:
Federal (94,254) 32,519 (4,388)
State (22,986) 7,782 (1,063)
Total deferred (117,240) 40,301 (5,451)
Taxes on income $(87,607) $35,066 $27,887
</TABLE>
Taxes on income in the above table includes a tax benefit of $8,897,000 in
1997 which is reported net in the extraordinary charge from the early
retirement of debt in the consolidated statements of operations.
Deferred tax expense (benefit) relating to temporary differences includes the
following components:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Depreciation and amortization $ (64,132) $(4,818) $(12,561)
Inventory (6,839) (6,228) (6,586)
Capital losses 251 (357) (2,494)
Asset valuations and reserves 9,302 22,498 13,567
Equity investment results (403) 821 526
Credit losses (7,825) 23,184 3,995
Lease transactions (34,718) (757) (1,298)
Associate benefits 3,200 2,727 (478)
Note sales (217) (1,843) 315
Acquired loss carryforwards - - 1,616
Other (15,859) 5,074 (2,053)
Deferred tax expense (benefit) $(117,240) $40,301 $ (5,451)
</TABLE>
Temporary differences that give rise to deferred tax assets and liabilities
as of year-end 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C> <C>
Deferred tax assets:
Depreciation and amortization $ 76,175 $ 9,171
Asset valuations and
reserve activities 34,238 39,126
Associate benefits 111,591 93,454
Credit losses 21,656 16,368
Equity investment results 9,196 8,440
<PAGE>
Lease transactions 48,340 14,067
Inventory 31,328 22,168
Acquired loss carryforwards 4,997 4,987
Capital losses 4,549 4,798
Other 29,865 17,350
Gross deferred tax assets 371,935 229,929
Less valuation allowance (4,929) (4,920)
Total deferred tax assets 367,006 225,009
Deferred tax liabilities:
Depreciation and amortization 114,878 112,007
Equity investment results 2,867 2,514
Lease transactions 1,551 1,996
Inventory 54,835 52,513
Associate benefits 33,809 25,385
Asset valuations and reserve activities 6,565 2,151
Note sales 3,418 3,412
Prepaid expenses 3,421 3,887
Capital losses 1,090 -
Other 31,703 38,429
Total deferred tax liabilities 254,137 242,294
Net deferred tax asset (liability) $112,869 $(17,285)
</TABLE>
The change in net deferred asset/liability from 1997 to 1998 is allocated
$117.2 million to deferred income tax benefit and $12.9 million benefit to
stockholders' equity.
The valuation allowance relates to $4.9 million of acquired loss
carryforwards that, if utilized, will be reversed to goodwill in future
years. Management believes it is more likely than not that all other deferred
tax assets will be realized.
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 6.8 7.9 9.0
Acquisition-related differences 12.3 14.5 6.1
Other (.4) .6 1.0
Effective rate on operations 53.7% 58.0% 51.1%
Impairment/restructuring and related charges (39.1) - -
Effective rate after impairment/
restructuring and related charges 14.6% 58.0% 51.1%
</TABLE>
Investments and Notes Receivable
Investments and notes receivable consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Investments in and advances
to customers $30,371 $52,019
Notes receivable from customers 71,751 75,759
Other investments and receivables 17,346 22,443
Investments and notes receivable $119,468 $150,221
</TABLE>
<PAGE>
Investments and notes receivable are shown net of reserves of $27 million and
$25 million in 1998 and 1997, respectively.
The company extends long-term credit to certain retail customers. Loans are
primarily collateralized by inventory and fixtures. Interest rates are above
prime with terms up to 10 years. The carrying amount of notes receivable
approximates fair value because of the variable interest rates charged on
certain notes and because of the allowance for credit losses.
The company's impaired notes receivable (including current portion) are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Impaired notes with related allowances $55,031 $16,002
Credit loss allowance on impaired notes (26,260) (10,194)
Impaired notes with no related allowances 366 1,000
Net impaired notes receivable $29,137 $ 6,808
</TABLE>
Average investments in impaired notes were as follows: 1998-$59 million;
1997-$13 million; and 1996-$21 million.
Activity in the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $43,848 $49,632 $53,404
Charged to costs and expenses 23,498 24,484 26,921
Uncollectible accounts written off,
net of recoveries (20,114) (32,655) (35,693)
Asset impairment - 2,387 5,000
Balance, end of year $47,232 $43,848 $49,632
</TABLE>
The company sold certain notes receivable at face value with limited recourse
during 1997 and 1996. The outstanding balance at year-end 1998 on all notes
sold is $43 million, of which the company is contingently liable for $9
million should all the notes become uncollectible.
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
10.625% senior notes due 2001 $ 300,000 $ 300,000
10.5% senior subordinated notes due 2004 250,000 250,000
- -
10.625% senior subordinated notes due 2007 250,000 250,000
Term loans, due 1999 to 2004,
average interest rate of 7.0% and 7.3% 224,269 249,731
Revolving credit, average interest
rates of 6.5% and 7.1%, due 2003 89,000 30,000
Medium-term notes, due 1999 to 2003,
average interest rates of 7.2% and 7.3% 69,000 89,000
Mortgaged real estate notes and other debt,
net of asset sale proceeds escrow,
varying interest rates from 4% to
14.4%, due 2001 to 2005 2,999 6,188
1,185,268 1,174,919
Less current maturities (41,368) (47,608)
Long-term debt $1,143,900 $1,127,311
</TABLE>
<PAGE>
Five-year Maturities: Aggregate maturities of long-term debt for the next
five years are as follows: 1999-$41 million; 2000-$72 million; 2001-$338
million; 2002-$51 million; and 2003-$135 million.
The 10.625% $300 million senior notes were issued in 1994 and mature December
15, 2001. The senior notes are unsecured senior obligations of the company,
ranking the same as all other existing and future senior indebtedness and
senior in right of payment to the subordinated notes. The senior notes are
effectively subordinated to secured senior indebtedness of the company with
respect to assets securing such indebtedness, including loans under the
company's senior secured credit facility. The senior notes are guaranteed by
substantially all of the company's subsidiaries (see -Subsidiary Guarantee of
Senior Notes below).
The senior subordinated notes consists of two issues: $250 million of 10.5%
Notes due December 1, 2004 and $250 million of 10.625% Notes due July 31,
2007. The subordinated notes are general unsecured obligations of the
company, subordinated in right of payment to all existing and future senior
indebtedness of the company, and senior to or of equal rank with all future
subordinated indebtedness of the company. The company currently has no other
subordinated indebtedness outstanding.
The company's $850 million senior secured credit facility consists of a $600
million revolving credit facility, with a final maturity of July 25, 2003,
and a $250 million amortizing term loan, with a maturity of July 25, 2004. Up
to $300 million of the revolver may be used for issuing letters of credit.
Borrowings and letters of credit issued under the new credit facility may be
used for general corporate purposes and are secured by a first priority
security interest in the accounts receivable and inventories of the company
and its subsidiaries and in the capital stock or other equity interests owned
by the company in its subsidiaries. In addition, this credit facility is
guaranteed by substantially all company subsidiaries. The stated interest
rate on borrowings under the credit agreement is equal to a referenced index
interest rate, normally the London interbank offered interest rate ("LIBOR"),
plus a margin. The level of the margin is dependent on credit ratings on the
company's senior secured bank debt.
The credit agreement and the indentures under which other company debt
instruments were issued contain customary covenants associated with similar
facilities. The credit agreement currently contains the following more
significant financial covenants: maintenance of a fixed charge coverage ratio
of at least 1.7 to 1, based on adjusted earnings, as defined, before
interest, taxes, depreciation and amortization and net rent expense;
maintenance of a ratio of inventory-plus-accounts receivable to funded bank
debt (including letters of credit) of at least 1.4 to 1; and a limitation on
restricted payments, including dividends, up to $70 million at year-end 1998,
based on a formula tied to net earnings and equity issuances. Under the
credit agreement, new issues of certain kinds of debt must have a maturity
after January 2005. Covenants contained in the company's indentures under
which other company debt instruments were issued are generally less
restrictive than those of the credit agreement. The company is in compliance
with all financial covenants under the credit agreement and its indentures.
The credit facility may be terminated in the event of a defined change of
control. Under the company's indentures, noteholders may require the company
to repurchase notes in the event of a defined change of control coupled with
a defined decline in credit ratings.
At year-end 1998, borrowings under the credit facility totaled $224 million
in term loans and $89 million of revolver borrowings, and $80 million of
letters of credit had been issued. Letters of credit are needed primarily for
insurance reserves associated with the company's normal risk management
activities. To the extent that any of these letters of credit would be drawn,
payments would be financed by borrowings under the credit agreement.
<PAGE>
At year-end 1998, the company would have been allowed to borrow an additional
$431 million under the revolving credit facility contained in the credit
agreement based on the actual borrowings and letters of credit outstanding.
Under the company's most restrictive borrowing covenant, which is the fixed
charges coverage ratio contained in the credit agreement, $35 million of
additional fixed charges could have been incurred. The company's credit
agreement and indentures limit restricted payments, including dividends, to
$70 million at year-end 1998, based on a defined formula.
Medium-term Notes: Between 1990 and 1993, the company registered $565 million
in medium-term notes. During that period, a total of $275 million was issued.
The company has no plans to issue additional medium-term notes at this time.
Credit Ratings: On December 7, 1998, Standard & Poor's rating group ("S&P")
announced it had placed its BB corporate credit rating, BB- senior unsecured
debt rating, B+ subordinated debt rating, and BB+ bank loan rating for the
company on CreditWatch with negative implications. The CreditWatch listing
followed the company's December 7, 1998 announcement of its new strategic
plan.
On December 8, 1998, Moody's Investors Service ("Moody's") announced it had
confirmed its credit ratings of the company and had changed its rating
outlook from stable to negative following the company's December 7, 1998
announcement of its new strategic plan. Moody's confirmed its Ba3 senior
secured bank agreements rating, B1 senior unsecured sinking fund debentures,
medium-term notes, senior notes, and issuer rating, and B3 senior
subordinated unsecured notes rating.
Average Interest Rates: The average interest rate for total debt (including
capital lease obligations) before the effect of interest rate hedges was
10.1% for 1998, versus 10.6% in 1997. Including the effect of interest rate
hedges, the interest rate of debt was 10.4% and 11.1% at the end of 1998 and
1997, respectively.
Interest Expense: Components of interest expense are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Interest costs incurred:
Long-term debt $123,054 $121,356 $122,859
Capital lease obligations 37,542 36,414 35,656
Other 1,589 5,922 5,055
Total incurred 162,185 163,692 163,570
Less interest capitalized (604) (1,186) (104)
Interest expense $161,581 $162,506 $163,466
</TABLE>
Derivatives: The company enters into interest rate hedge agreements with the
objective of managing interest costs and exposure to changing interest rates.
The classes of derivative financial instruments used have included interest
rate swaps and caps. The company's policy regarding derivatives is to engage
in a financial risk management process to manage its defined exposures to
uncertain future changes in interest rates which impact net earnings.
Strategies for achieving the company's objectives have resulted in the
company maintaining interest rate swap agreements covering $250 million
aggregate principal amount of floating rate indebtedness at year-end 1998.
The agreements all mature in 2000. The counterparties to these agreements are
three major U.S. and international financial institutions.
The interest rate applicable to most of the company's floating rate
indebtedness is equal to LIBOR, plus a margin. The average fixed interest
rate paid by the company on the interest rate swaps at year-end 1998 was
7.22%, covering $250 million of floating rate indebtedness. The interest rate
swap agreements, which were implemented through three counterparty banks, and
which had an average remaining life of 1.4 years at year-end 1998, provide
for the company to receive substantially the same LIBOR that the company pays
on its floating rate indebtedness.
<PAGE>
The notional amounts of interest rate swaps did not represent amounts
exchanged by the parties and are not a measure of the company's exposure to
credit or market risks. The amounts exchanged are calculated on the basis of
the notional amounts and the other terms of the hedge agreements. Notional
amounts are not included in the consolidated balance sheet.
The company believes its exposure to potential loss due to counterparty
nonperformance is minimized primarily due to the relatively strong credit
ratings of the counterparty banks for their unsecured long-term debt (A- or
higher from S&P or A3 or higher from Moody's) and the size and diversity of
the counterparty banks. The hedge agreements are subject to market risk to
the extent that market interest rates for similar instruments decrease and
the company terminates the hedges prior to maturity.
Fleming's financial risk management policy requires that any interest rate
hedge agreement be matched to designated interest-bearing assets or debt
instruments. All of the company's hedge agreements have been matched to its
floating rate indebtedness. At year-end 1998, the company's floating rate
indebtedness consisted of the term loans and revolver loans under the credit
agreement.
Accordingly, all outstanding swaps are matched swaps and the settlement
accounting method is employed. Derivative financial instruments are reported
in the balance sheet where the company has made or received a cash payment
upon entering into or terminating the transaction. The carrying amount is
amortized over the shorter of the initial life of the hedge agreement or the
maturity of the hedged item. The company had a financial basis of zero and
$0.3 million at year-end 1998 and 1997, respectively. In addition, accrued
interest payable or receivable for the interest rate agreements is included
in the balance sheet. Payments made or received under interest rate swap
agreements are included in interest expense.
Fair Value of Financial Instruments: The fair value of long-term debt was
determined using valuation techniques that considered market prices for
actively traded debt, and cash flows discounted at current market rates for
management's best estimate for instruments without quoted market prices. At
year-end 1998, the carrying value of debt was higher than the fair value by
$26 million, or 2.2% of the carrying value. At year-end 1997, the carrying
value of debt was lower than the fair value by $44 million, or 3.7% of the
carrying value. The fair value of notes receivable is comparable to the
carrying value because of the variable interest rates charged on certain
notes and because of the allowance for credit losses.
For derivatives, the fair value was estimated using termination cash values.
At year-end 1998 and 1997, interest rate hedge agreement values would
represent an obligation of $9 million.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
- -Accounting for Derivative Instruments and Hedging Activities ("SFAS No
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and is effective for fiscal years beginning after June
15, 1999. The company will adopt SFAS No. 133 by the required effective date.
The company has not yet determined the impact on its financial statements
from adopting the new standard.
Subsidiary Guarantee of Senior Notes: The senior notes are guaranteed by all
direct and indirect subsidiaries of the company (except for certain
inconsequential subsidiaries), all of which are wholly-owned. The guarantees
are joint and several, full, complete and unconditional. There are currently
no restrictions on the ability of the subsidiary guarantors to transfer funds
to the company in the form of cash dividends, loans or advances. Financial
statements for the subsidiary guarantors are not presented herein because the
operations and financial position of such subsidiaries are not material.
The summarized financial information, which includes allocations of material
corporate-related expenses, for the combined subsidiary guarantors may not
necessarily be indicative of the results of operations or financial position
had the subsidiary guarantors been operated as independent entities.
<PAGE>
<TABLE>
<CAPTION>
(In millions) 1998 1997
<S> <C>
Current assets $30 $33
Noncurrent assets $52 $80
Current liabilities $14 $14
Noncurrent liabilities $7 $6
<CAPTION>
(In millions) 1998 1997 1996
<S> <C> <C> <C>
Net sales $362 $379 $298
Costs and expenses $393 $388 $314
Net (loss) $(10) $(4) $(8)
</TABLE>
The 1998 loss includes impairment/restructuring and other costs related to
the strategic plan totaling $19 million pre-tax ($15 million after-tax).
Lease Agreements
Capital And Operating Leases: The company leases certain distribution
facilities with terms generally ranging from 20 to 35 years, while lease
terms for other operating facilities range from 1 to 15 years. The leases
normally provide for minimum annual rentals plus executory costs and usually
include provisions for one to five renewal options of five years each.
The company leases company-owned store facilities with terms generally
ranging from 15 to 20 years. These agreements normally provide for contingent
rentals based on sales performance in excess of specified minimums. The
leases usually include provisions for one to four renewal options of two to
five years each. Certain equipment is leased under agreements ranging from
two to eight years with no renewal options.
Accumulated amortization related to leased assets under capital leases was
$70 million and $71 million at year-end 1998 and 1997, respectively.
Future minimum lease payment obligations for leased assets under capital
leases as of year-end 1998 are set forth below:
<TABLE>
<CAPTION>
(In thousands) Lease
Years Obligations
<S> <C>
1999 $ 30,709
2000 29,692
2001 29,147
2002 28,122
2003 27,939
Later 266,813
Total minimum lease payments 412,422
Less estimated executory costs (165)
Net minimum lease payments 412,257
Less interest (204,632)
Present value of net minimum lease payments 207,625
Less current obligations (9,956)
Long-term obligations $197,669
</TABLE>
Future minimum lease payments required at year-end 1998 under operating
leases that have initial noncancelable lease terms exceeding one year are
presented in the following table:
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Facility Facilities Equipment Equipment Net
Years Rentals Subleased Rentals Subleased Rentals
<S> <C> <C> <C> <C> <C>
1999 $ 146,551 $ (58,122) $16,310 $ (839) $103,900
2000 131,866 (48,588) 10,463 (570) 93,171
2001 121,790 (41,500) 4,644 ( 62) 84,872
2002 114,659 (36,621) 2,213 - 80,251
2003 102,638 (27,352) 158 - 75,444
Later 544,372 (95,464) 49 - 448,957
Total lease
payments $1,161,876 $(307,647) $33,837 $(1,471) $886,595
</TABLE>
The following table shows the composition of total annual rental expense
under noncancelable operating leases and subleases with initial terms of one
year or greater:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Minimum rentals $178,294 $192,698 $208,250
Contingent rentals 1,971 2,002 1,874
Less sublease income (71,269) (82,509) (88,014)
Rental expense $108,996 $112,191 $122,110
</TABLE>
Direct Financing Leases: The company leases retail store facilities with
terms generally ranging from 15 to 20 years which are subsequently subleased
to customers. Most leases provide for a percentage rental based on sales
performance in excess of specified minimum rentals. The leases usually
contain provisions for one to four renewal options of five years each. The
sublease to the customer is normally for an initial five year term with
automatic five-year renewals at Fleming's discretion, which corresponds to
the length of the initial term of the prime lease.
The following table shows the future minimum rentals receivable under direct
financing leases and future minimum lease payment obligations under capital
leases in effect at year-end 1998:
<TABLE>
<CAPTION>
(In thousands) Lease Rentals Lease
Years Receivable Obligations
<S> <C> <C>
1999 $ 34,966 $ 28,278
2000 32,327 27,095
2001 29,989 25,931
2002 28,478 25,763
2003 27,047 25,315
Later 170,865 162,579
Total minimum lease payments 323,672 294,961
Less estimated executory costs (877) (872)
Net minimum lease payments 322,795 294,089
Less interest (128,176) (120,584)
Present value of net minimum
lease payments 194,619 173,505
Less current portion (16,836) (11,712)
Long-term portion $177,783 $161,793
</TABLE>
Contingent rental income and contingent rental expense are not material.
Shareholders' Equity
The company offers a Dividend Reinvestment and Stock Purchase Plan which
provides shareholders the opportunity to automatically reinvest their
dividends in common stock at a 5% discount from market value. Shareholders
also may purchase shares at market value by making cash payments up to $5,000
per calendar quarter. Such
<PAGE>
programs resulted in issuing 33,000 and 29,000 new shares in 1998 and 1997,
respectively.
The company's employee stock ownership plan (ESOP) established in 1990 allows
substantially all associates to participate. In 1990, the ESOP entered into a
note with a bank to finance the purchase of the shares. In 1994, the company
paid off the note and received a note from the ESOP. The ESOP will repay to
the company the remaining loan balance with proceeds from company
contributions. The receivable from the ESOP is presented as a reduction of
shareholders' equity.
The company makes contributions to the ESOP based on fixed debt service
requirements of the ESOP note. Such contributions were approximately $2.5
million in 1998 and $2 million per year in 1997 and 1996. Dividends used by
the ESOP for debt service and interest and compensation expense recognized by
the company were not material.
The company issues shares of restricted stock to key employees under plans
approved by the stockholders. Performance goals and periods of restriction
are established for each award.
The fair value of the restricted stock at the time of the grant is recorded
as unearned compensation - restricted stock which is netted against capital
in excess of par within shareholders' equity. Compensation is amortized to
expense when earned. During 1998, the company granted 32,000 shares of
restricted stock with a weighted average grant date fair value of $300,000.
At year-end 1998, 166,000 shares remained available for award under all plans.
Information regarding restricted stock balances is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Awarded restricted shares outstanding 420 638
Unearned compensation - restricted stock $6,199 $11,887
</TABLE>
The company may grant stock options to key employees through unrestricted
non-qualified stock option plans. The stock options have a maximum term of 10
years and have time and/or performance based vesting requirements. At
year-end 1998, there were 116,000 shares available for grant under the
unrestricted stock option plans. Stock option transactions are as follows:
<TABLE>
<CAPTION>
(Shares in thousands) Shares Weighted Average Price Range
Exercise Price
<S> <C> <C> <C>
Outstanding, year-end 1995 1,887 $28.06 $19.44 - 42.13
Granted 1,005 $16.67 $16.38 - 19.75
Canceled and forfeited (261) $29.07 $24.81 - 42.13
Outstanding, year-end 1996 2,631 $23.93 $16.38 - 42.13
Granted 80 $17.58 $17.50 - 18.13
Exercised (8) $16.38 $16.38 - 16.38
Canceled and forfeited (437) $28.48 $16.38 - 42.13
Outstanding, year-end 1997 2,266 $22.65 $16.38 - 38.38
Granted 550 $10.18 $9.72 - 18.19
Exercised (3) $16.38 $16.38 - 16.38
Canceled and forfeited (403) $25.40 $16.38 - 37.06
Outstanding, year-end 1998 2,410 $19.35 $9.72 - 38.38
</TABLE>
Information regarding options outstanding at year-end 1998 is as follows:
<TABLE>
<CAPTION>
All Options
(Shares in thousands) Outstanding Currently
Options Exercisable
<S> <C>
Option price $29.75 - $38.38:
Number of options 145 145
Weighted average exercise price $37.08 $37.08
Weighted average remaining life in years 1
<PAGE>
Option price $19.44 - $28.38:
Number of options 897 402
Weighted average exercise price $24.71 $24.37
Weighted average remaining life in years 5
Option price $9.72 - $18.19:
Number of options 1,368 431
Weighted average exercise price $13.96 $16.52
Weighted average remaining life in years 9
</TABLE>
In the event of a change of control, the company may accelerate the vesting
and payment of any award or make a payment in lieu of an award.
The company applies APB Opinion No. 25 - Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans. Total
compensation cost recognized in income for stock based employee compensation
awards was $3,160,000, $1,493,000 and $71,000 for 1998, 1997 and 1996,
respectively. If compensation cost had been recognized for the stock-based
compensation plans based on fair values of the awards at the grant dates
consistent with the method of SFAS No. 123 - Accounting for Stock-Based
Compensation, reported net earnings (loss) and earnings (loss) per share,
both before extraordinary charge, would have been $(511.7) million and
$(13.48) for 1998, $37.9 million and $1.00 for 1997 and $26.5 million and
$.70 for 1996, respectively. The weighted average fair value on the date of
grant of the individual options granted during 1998, 1997 and 1996 was
estimated at $4.82, $8.81 and $12.56, respectively.
Significant assumptions used to estimate the fair values of awards using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1998, 1997 and 1996 are: risk-free interest rate - 4.50% to
7.00%; expected lives of options - 10 years; expected volatility - 30% to
50%; and expected dividend yield of 0.5% to 0.8%.
Associate Retirement Plans and Postretirement Benefits
The company sponsors pension and postretirement benefit plans for
substantially all non-union and some union associates.
Benefit calculations for the company's defined benefit pension plans are
primarily a function of years of service and final average earnings at the
time of retirement. Final average earnings are the average of the highest
five years of compensation during the last 10 years of employment. The
company funds these plans by contributing the actuarially computed amounts
that meet funding requirements. Substantially all the plans' assets are
invested in listed securities, short-term investments, bonds and real estate.
The company also has unfunded nonqualified supplemental retirement plans for
selected associates.
The company offers a comprehensive major medical plan to eligible retired
associates who meet certain age and years of service requirements. This
unfunded defined benefit plan generally provides medical benefits until
Medicare insurance commences.
The following table provides a reconciliation of benefit obligations, plan
assets and funded status of the plans mentioned above.
<TABLE>
<CAPTION>
Other
(In thousands) Pension Benefits Postretirement Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in benefit obligation:
Balance at beginning
of year $350,993 $304,723 $16,441 $19,628
Service cost 12,981 11,359 139 137
Interest cost 25,334 23,525 1,052 1,185
<PAGE>
Plan participants'
contributions - - 851 775
Actuarial gain/loss 50,009 32,826 2,932 (410)
Amendments 1,132 - - -
Benefits paid (21,892) (25,292) (4,911) (4,874)
SFAS #88 curtailment 47 3,852 - -
Balance at end of year $418,604 $350,993 $16,504 $16,441
Change in plan assets:
Fair value at beginning
of year $262,484 $236,661 $ - $ -
Actual return on assets 31,415 28,007 - -
Employer contribution 44,532 23,108 4,911 4,874
Benefits paid (21,892) (25,292) (4,911) (4,874)
Fair value at end of year $316,539 $262,484 $ - $ -
Funded status $(102,065) $(88,509) $(16,504) $(16,441)
Unrecognized actuarial loss 127,984 93,262 3,781 848
Unrecognized prior
service cost 1,481 704 - -
Unrecognized net transition
asset (588) (856) - -
Net amount recognized $ 26,812 $ 4,601 $(12,723) $(15,593)
Amounts recognized in the
consolidated balance sheet:
Prepaid benefit cost $ - $ 4,129 $ - $ -
Accrued benefit liability (69,714) (62,817) (12,723) (15,593)
Intangible asset 1,304 399 - -
Accumulated other
comprehensive income 95,222 62,890 - -
Net amount recognized $26,812 $ 4,601 $(12,723) $(15,593)
</TABLE>
The following year-end assumptions were used for the plans mentioned above.
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Discount rate
(weighted average) 6.50% 7.00% 6.50% 7.00%
Expected return on
plan assets 9.50% 9.50% - -
Rate of compensation
increase 4.00% 4.00% - -
</TABLE>
Net periodic pension and other postretirement benefit costs include the
following components:
<TABLE>
<CAPTION>
Other
(In thousands) Pension Benefits Postretirement Benefits
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Service cost $12,981 $11,359 $11,109 $ 139 $ 137 $ 147
Interest cost 25,334 23,525 21,506 1,052 1,185 1,443
Expected return on
plan assets (25,234) (28,008) (22,986) - - -
Amortization of
actuarial loss 9,105 11,533 11,169 - (44) -
Amortization of prior
service cost 354 549 731 - - -
Amortization of net
transition asset (268) (220) (220) - - -
Cost of termination
benefits - - - - 15 -
Net periodic benefit
cost $22,272 $18,738 $21,309 $1,191 $1,293 $1,590
</TABLE>
<PAGE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $419 million, $385 million, and
$317 million, respectively, as of December 26, 1998 and $351 million, $319
million, and $262 million, respectively, as of December 27, 1997.
For measurement purposes in 1998 and 1997, a 9% annual rate of increase in
the per capita cost of covered medical care benefits was assumed. In both
1998 and 1997, the rate for 1999 was assumed to remain at 9%, then decrease
to 5% by the year 2007 and 2005, respectively, then remain level.
The effect of one-percentage point increase in assumed medical cost trend
rates would have increased the accumulated postretirement benefit obligation
as of December 31, 1998 from $16.5 to $17.4 million, and increased the total
of the service cost and interest cost components of the net periodic cost
from $1.19 million to $1.25 million. The effect of one-percentage point
decrease in assumed medical cost trend rates would have decreased the
accumulated postretirement benefit obligation as of December 31, 1998 from
$16.5 to $15.7 million, and decreased the total of the service cost and
interest cost components of the net periodic cost from $1.19 million to $1.14
million.
In some of the retail operations, contributory profit sharing plans are
maintained by the company for associates who meet certain types of employment
and length of service requirements. Company contributions under these defined
contribution plans are made at the discretion of the Board of Directors and
totaled $3 million in 1998 and $4 million in both 1997 and 1996.
Certain associates have pension and health care benefits provided under
collectively bargained multiemployer agreements. Expenses for these benefits
were $80 million, $81 million and $84 million for 1998, 1997 and 1996,
respectively.
Facilities Consolidation and Restructuring
In 1993, the company recorded a charge of $108 million for facilities
consolidations, reengineering, impairment of retail-related assets and
elimination of regional operations. Components of the charge provided for
severance costs, impaired property and equipment, product handling and
damage, and impaired other assets. Four food distribution operating units
were closed and one additional facility was to be closed as part of the
facilities consolidation plan. Most impaired retail-related assets have been
disposed or subleased. Regional operations have been eliminated. In 1995,
management changed its estimates with respect to the general merchandising
operations portion of the reengineering plan and reversed $9 million of the
related reserve. In 1998, an eight-month study of all facets of the company's
operations was undertaken by the Board of Directors, senior management and an
outside consulting firm. A decision made early in this study was to reverse
the remaining reserve related to the one additional facility that was to be
closed.
Facilities consolidation and restructuring reserve activities are:
<TABLE>
<CAPTION>
Reengineering/ Consolidation
Severance Costs/Asset
(In thousands) Total Costs Impairments
<S> <C> <C> <C>
Balance, year-end 1993 $85,521 $25,136 $60,385
Expenditures and write-offs (31,142) (2,686) (28,456)
Balance, year-end 1994 54,379 22,450 31,929
Credited to income (8,982) - (8,982)
Expenditures and write-offs (24,080) (6,690) (17,390)
Balance, year-end 1995 21,317 15,760 5,557
Expenditures and write-offs (2,865) (2,642) (223)
<PAGE>
Balance, year-end 1996 18,452 13,118 5,334
Expenditures and write-offs (12,724) (10,846) (1,878)
Balance, year-end 1997 5,728 2,272 3,456
Credited to income (3,700) - (3,700)
Expenditures and write-offs (1,008) (2,272) 1,264
Balance, year-end 1998 $1,020 $ - $1,020
Supplemental Cash Flows Information
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Acquisitions:
Fair value of assets acquired $32,080 $9,572
Less:
Liabilities assumed or created (1,792) -
Existing company investment (63) -
Cash paid, net of cash acquired $30,225 $9,572 -
Cash paid during the year for:
Interest, net of
amounts capitalized $182,449 $179,180 $152,846
Income taxes, net of refunds $23,822 $30,664 $32,291
Direct financing leases
and related obligations $9,349 $5,092 $17,062
Property and equipment
additions by capital leases $70,684 $28,990 $11,111
</TABLE>
Contingencies
In accordance with applicable accounting standards, the company records a
charge reflecting contingent liabilities (including those associated with
litigation matters) when management determines that a material loss is
"probable" and either "quantifiable" or "reasonably estimable." Additionally,
the company discloses material loss contingencies when the likelihood of a
material loss is deemed to be greater than "remote" but less than "probable."
Set forth below is information regarding certain material loss contingencies:
Class Action Suits.
In 1996, the company and certain of its present and former officers and
directors were named as defendants in nine purported class action suits filed
by certain stockholders and one purported class action suit filed by a
noteholder. In 1997, the court consolidated the stockholder cases (the
noteholder case was also consolidated, but only for pre-trial purposes).
During 1998 the noteholder case was dismissed and during 1999 the
consolidated case was also dismissed, each without prejudice. The court has
given the plaintiffs the opportunity to restate their claims.
The complaint filed in the consolidated cases asserts liability for the
company's alleged failure to properly account for and disclose the contingent
liability created by the David's litigation and by the company's alleged
"deceptive business practices." The plaintiffs claim that these alleged
practices led to the David's litigation and to other material contingent
liabilities, caused the company to change its manner of doing business at
great cost and loss of profit, and materially inflated the trading price of
the company's common stock. The company denies each of these allegations. The
plaintiffs seek undetermined but significant damages. However, if the
district court ruling described below is upheld, Fleming believes the
litigation will not have a material adverse effect on the company.
In 1997, the company won a declaratory judgment against certain of its
insurance carriers regarding policies issued to Fleming for the benefit of
its officers and
<PAGE>
directors ("D&O policies"). On motion for summary judgment, the court ruled
that the company's exposure, if any, under the class action suits is covered
by D&O policies written by the insurance carriers (aggregating $60 million in
coverage) and that the "larger settlement rule" will be applicable to the
case. According to the trial court, under the larger settlement rule a D&O
insurer is liable for the entire amount of coverage available under a policy
even if there is some overlap in the liability created by the insured
individuals and the uninsured corporation. If a corporation's liability is
increased by uninsured parties beyond that of the insured individuals, then
that portion of the liability is the sole obligation of the corporation. The
court also held that allocation is not available to the insurance carriers as
an affirmative defense. The insurance carriers have appealed.
Tru Discount Foods.
Fleming brought suit in 1994 on a note and an open account against its former
customer, Tru Discount Foods. The case was initially referred to arbitration
but later restored to the trial court; Fleming appealed. In 1997, the
defendant amended its counter claim against the company alleging fraud,
overcharges for products and violations of the Oklahoma Deceptive Trade
Practices Act. In 1998, the appellate court reversed the trial court and
directed that the matter be sent again to arbitration. Although Tru Discount
Foods has not quantified damages, it has made demand in the amount of $8
million. Management is unable to predict the ultimate outcome of this matter.
However, an unfavorable outcome could have a material adverse effect on the
company.
Don's United Super (and related cases).
In 1998, the company and two retired executives were named in a suit filed by
approximately 20 current and former customers of the company (Don's United
Super, et al. v. Fleming, et al.). Plaintiffs operate retail grocery stores
in the St. Joseph and Kansas City metropolitan areas. Six plaintiffs who were
parties to supply contracts containing arbitration clauses were permitted to
withdraw from the case.
Previously, two cases had been filed in the same court (R&D Foods, Inc. et
al. v. Fleming, et al. and Robandee United Super, Inc. et al. v. Fleming, et
al.) by 10 customers, some of whom are plaintiffs in the Don's case. The
earlier two cases, which principally seek an accounting of the company's
expenditure of certain joint advertising funds, have been consolidated. All
causes of action in these cases have been stayed pending the arbitration of
the causes of action relating to supply contracts containing arbitration
clauses.
The Don's suit alleges product overcharges, breach of contract,
misrepresentation, fraud, and RICO violations and seeks recovery of actual,
punitive and treble damages and a declaration that certain contracts are
voidable at the option of the plaintiffs. Damages have not been quantified.
However, with respect to some plaintiffs, the time period during which the
alleged overcharges took place exceeds 25 years and the company anticipates
that the plaintiffs will allege substantial monetary damages.
In October 1998, a group of 14 retailers (ten of whom had been or are
currently plaintiffs in the Don's case and/or the Robandee case whose claims
were sent to arbitration or stayed pending arbitration) filed a new action
against the company and two former officers, one of whom was a director
(Coddington Enterprises, Inc. et al. v. Dean Werries, et al.). The plaintiffs
assert claims virtually identical to those set forth in the Don's complaint
and have not quantified damages.
The company intends to vigorously defend its interests in these cases.
Although management is currently unable to predict the ultimate outcome of
this litigation, based upon the plaintiffs' allegations, an unfavorable
outcome could have a material adverse effect on the company.
Storehouse Markets.
In 1998, the company and one of its associates were named in a suit filed by
three current and former customers of the company (Storehouse Markets, Inc.,
et al. v. Fleming Companies, Inc., et al.). The plaintiffs allege product
overcharges, fraudulent misrepresentation, fraudulent nondisclosure and
concealment, breach of contract, breach of duty of good faith and fair
dealing and RICO violations and seek declaration of class action status and
recovery of actual, punitive and treble
<PAGE>
damages. Damages have not been quantified. However, the company anticipates
that the plaintiffs will seek substantial monetary damages. The company
intends to vigorously defend its interests in this case but is currently
unable to predict the ultimate outcome. Based upon the plaintiffs'
allegations, an unfavorable outcome could have a material adverse effect on
the company.
Y2K.
The company utilizes numerous computer systems which were developed employing
six digit date structures (i.e., two digits each for the month, day and
year). Where date logic requires the year 2000 or beyond, such date
structures may produce inaccurate results. Management has implemented a
program to comply with year-2000 requirements on a system-by-system basis.
Fleming's plan includes extensive systems testing and is expected to be
substantially completed by the third quarter of 1999. Although the company is
developing greater levels of confidence regarding its internal systems,
failure to ensure that the company's computer systems are year-2000 compliant
could have a material adverse effect on the company's operations. In
addition, failure of the company's customers or vendors to become year-2000
compliant could also have a material adverse effect on the company's
operations.
Program costs to comply with year-2000 requirements are being expensed as
incurred. Through the end of 1998, total expenditures to third parties were
approximately $7 million.
Other.
The company's facilities and operations are subject to various laws,
regulations and judicial and administrative orders concerning protection of
the environment and human health, including provisions regarding the
transportation, storage, distribution, disposal or discharge of certain
materials. In conformity with these provisions, the company has a
comprehensive program for testing, removal, replacement or repair of its
underground fuel storage tanks and for site remediation where necessary. The
company has established reserves that it believes will be sufficient to
satisfy the anticipated costs of all known remediation requirements.
The company and others have been designated by the U.S. Environmental
Protection Agency ("EPA") and by similar state agencies as potentially
responsible parties under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state laws, as
applicable, with respect to EPA-designated Superfund sites. While liability
under CERCLA for remediation at such sites is generally joint and several
with other responsible parties, the company believes that, to the extent it
is ultimately determined to be liable for the expense of remediation at any
site, such liability will not result in a material adverse effect on its
consolidated financial position or results of operations. The company is
committed to maintaining the environment and protecting natural resources and
human health and to achieving full compliance with all applicable laws,
regulations and orders.
The company is a party to various other litigation and contingent loss
situations arising in the ordinary course of its business including: disputes
with customers and former customers; disputes with owners and former owners
of financially troubled or failed customers; disputes with employees and
former employees regarding labor conditions, wages, workers' compensation
matters and alleged discriminatory practices; disputes with insurance
carriers; tax assessments and other matters, some of which are for
substantial amounts. However, the company does not believe any such action
will result in a material adverse effect on the company.
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders
Fleming Companies, Inc.
We have audited the accompanying consolidated balance sheets of Fleming
Companies, Inc. and subsidiaries as of December 26, 1998, and December 27,
1997, and the related consolidated statements of operations, cash flows, and
shareholders' equity for each of the three years in the period ended December
26, 1998. Our audits also included the financial statement schedule listed in
the index at item 14. These financial statements and financial statement
schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Fleming Companies,
Inc. and subsidiaries at December 26, 1998, and December 27, 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 26, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 18, 1999
<PAGE>
Quarterly Financial Information
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Net sales $4,567,126 $3,505,943 $3,438,766 $3,557,500 $15,069,335
Costs and expenses (income):
Cost of sales 4,118,032 3,158,295 3,108,993 3,208,921 13,594,241
Selling and administrative 371,546 290,025 290,875 323,866 1,276,312
Interest expense 51,202 35,861 37,348 37,170 161,581
Interest income (11,305) (8,308) (8,559) (8,564) (36,736)
Equity investment results 3,589 3,248 2,669 2,116 11,622
Litigation charges 2,954 2,216 2,215 395 7,780
Impair/restructuring charge (267) 916 6,038 646,050 652,737
Total costs and expenses 4,535,751 3,482,253 3,439,579 4,209,954 15,667,537
Earnings (loss) before taxes 31,375 23,690 (813) (652,454) (598,202)
Taxes on income (loss) 16,105 10,051 1,512 (115,275) (87,607)
Net earnings (loss) $ 15,270 $ 13,639 $ (2,325) $ (537,179) $ (510,595)
Basic and diluted net
income (loss) per share $.40 $.36 $(.06) $ (14.11) $(13.48)
Dividends paid per share $.02 $.02 $.02 $.02 $.08
Weighted average shares outstanding:
Basic 37,804 37,859 38,039 38,084 37,887
Diluted 37,972 38,027 38,039 38,084 37,887
<PAGE>
<CAPTION>
1997 First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Net sales $4,752,031 $3,550,654 $3,453,261 $3,616,720 $15,372,666
Costs and expenses (income):
Cost of sales 4,319,349 3,219,989 3,131,023 3,271,477 13,941,838
Selling and administrative 363,716 274,878 272,826 283,150 1,194,570
Interest expense 48,822 36,223 39,084 38,377 162,506
Interest income (14,354) (10,940) (11,116) (10,228) (46,638)
Equity investment results 4,078 3,239 3,710 5,719 16,746
Litigation charges 19,218 - - 1,741 20,959
Total costs and expenses 4,740,829 3,523,389 3,435,527 3,590,236 15,289,981
Earnings before taxes 11,202 27,265 17,734 26,484 82,685
Taxes on income 5,938 14,450 8,214 15,361 43,963
Earnings before
extraordinary charge 5,264 12,815 9,520 11,123 38,722
Extraordinary charge - - 13,330 - 13,330
Net earnings $ 5,264 $ 12,815 $ (3,810) $ 11,123 $ 25,392
Earnings per share:
Basic and diluted before
extraordinary charge $.14 $.34 $.25 $.29 $1.02
Extraordinary charge - - $.35 - $.35
Basic and diluted net earnings $.14 $.34 $(.10) $.29 $.67
Dividends paid per share $.02 $.02 $.02 $.02 $.08
Weighted average shares outstanding:
Basic 37,801 37,804 37,804 37,804 37,803
Diluted 37,810 37,829 37,840 37,970 37,862
</TABLE>
The first three quarters of 1998 have been restated to reclassify certain
expenses related to the strategic plan in the impairment/restructuring charge
line. The fourth quarter of 1998 includes a charge of $661 million ($539 million
after income tax benefit or $14.17 per share) related to the company's strategic
plan.
The first quarter of 1997 includes a charge of $19 million ($9 million after
income tax benefits or $.24 per share) reflecting the settlement of the David's
litigation. The third quarter of 1997 reflects an extraordinary charge of $22
million ($13 million after income tax benefits or $.35 per share) related to the
recapitalization program.
The first quarter of both years consists of 16 weeks; all other quarters are 12
weeks.
(a) 2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
(a) 3. (c) Exhibits:
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporation by
Number Reference to
<S> <C> <C>
3.1 Certificate of Incorporation Exhibit 4.1 to
Form S-8 dated
September 3, 1996
3.2 By-Laws Exhibit 3.2 to Form
10-K for year ended
December 27, 1997
<PAGE>
4.0 Credit Agreement, dated as of Exhibit 4.16 to Form
July 25, 1997, among Fleming 10-Q for quarter ended
Companies, Inc., the Lenders party July 12, 1997
thereto, BancAmerica Securities,
Inc., as syndication agent, Societe
Generale, as documentation agent and
The Chase Manhattan Bank, as
administrative agent
4.1 Security Agreement dated as of Exhibit 4.17 to Form
July 25, 1997, between Fleming 10-Q for quarter ended
Companies, Inc., the company July 12, 1997
subsidiaries party thereto and
The Chase Manhattan Bank, as
collateral agent
4.2 Pledge Agreement, dated as of Exhibit 4.18 to Form
July 25, 1997, among Fleming 10-Q for quarter ended
Companies, Inc., the company July 12, 1997
subsidiaries party thereto and
The Chase Manhattan Bank, as
collateral agent
4.3 Guarantee Agreement among the Exhibit 4.19 to Form
company subsidiaries party thereto 10-Q for quarter ended
and The Chase Manhattan Bank, as July 12, 1997
collateral agent
4.4 Indenture dated as of Exhibit 4.9 to
December 15, 1994, among Fleming, Form 10-K for year
the Subsidiary Guarantors named ended December 31,
therein and Texas Commerce Bank 1994
National Association, as Trustee,
Regarding $300 million of 10 5/8%
Senior Notes
4.5 Indenture, dated as of July 25, 1997, Exhibit 4.20 to Form
among Fleming Companies, Inc., the 10-Q for quarter ended
Subsidiary Guarantors named therein July 12, 1997
and Manufacturers and Traders Trust
Company, as Trustee, regarding
10 5/8% Senior Subordinated Notes
due 2007
4.6 Indenture, dated as of July 25, 1997, Exhibit 4.21 to Form
among Fleming Companies, Inc., the 10-Q for quarter ended
Subsidiary Guarantors named therein July 12, 1997
and Manufacturers and Traders Trust
Company regarding 10 1/2% Senior
Subordinated Notes due 2004
4.7 First Amendment, dated as of October Exhibit 4.8 to Form
5, 1998, to Credit Agreement dated 10-Q for quarter ended
July 25, 1997 October 3, 1998
4.8 Agreement to furnish copies of
other long-term debt instruments
10.0 Dividend Reinvestment and Exhibit 28.1 to
Stock Purchase Plan, as Registration
amended Statement No.
33-26648 and
Exhibit 28.3
to Registration
Statement No.
33-45190
<PAGE>
10.1* 1985 Stock Option Plan Exhibit 28(a) to
Registration
Statement No.
2-98602
10.2* Form of Award Agreement for Exhibit 10.6 to
1985 Stock Option Plan (1994) Form 10-K for year
ended December 25,
1993
10.3* 1990 Stock Option Plan Exhibit 28.2 to
Registration
Statement No.
33-36586
10.4* Form of Award Agreement for Exhibit 10.8 to
1990 Stock Option Plan (1994) Form 10-K for year
ended December 25,
1993
10.5* Form of Restricted Stock Award Exhibit 10.5 to
Agreement for 1990 Stock Option Form 10-K for year
Plan (1997) ended December 27,
1997
10.6* Fleming Management Incentive Exhibit 10.4 to
Compensation Plan Registration
Statement No.
33-51312
10.7* Amended and Restated Supplemental Exhibit 10.10 to
Retirement Plan Form 10-K for year
ended December 31,
1994
10.8* Form of Amended and Restated Exhibit 10.11 to
Supplemental Retirement Form 10-K for year
Income Agreement ended December 31,
1994
10.9* Form of Amended and Restated Exhibit 10.13 to
Severance Agreement between the Form 10-K for year
Registrant and certain of its ended December 31,
officers 1994
10.10* Fleming Companies, Inc. 1996 Exhibit A to
Stock Incentive Plan dated Proxy Statement
February 27, 1996 for year ended
December 30, 1995
10.11* Form of Restricted Award Agreement Exhibit 10.12 to
for 1996 Stock Incentive Plan (1997) Form 10-K for year
ended December 27,
1997
10.12* Phase III of Fleming Companies, Exhibit 10.17 to
Inc. Stock Incentive Plan Form 10-K for year
ended December 25,
1993
10.13* Amendment No. 1 to the Exhibit 10.16 to
Fleming Companies, Inc. 1996 Form 10-K for year
Stock Incentive Plan ended December 28,
1996
<PAGE>
10.14* Supplemental Income Trust Exhibit 10.20 to
Form 10-K for year
ended December 31,
1994
10.15* First Amendment to Fleming Exhibit 10.19 to
Companies, Inc. Supplemental Form 10-K for year
Income Trust ended December 28,
1996
10.16* Form of Employment Agreement Exhibit 10.20 to
between Registrant and certain Form 10-K for year
of the employees ended December 31,
1994
10.17* Economic Value Added Incentive Exhibit A to Proxy
Bonus Plan Statement for year
ended December 31,
1994
10.18* Agreement between the Exhibit 10.24 to
Registrant and Form 10-K for year
William J. Dowd ended December 30,
1995
10.19* Amended and Restated Exhibit 10.23 to
Supplemental Retirement Form 10-K for year
Income Agreement for ended December 28,
Robert E. Stauth 1996
10.20* Supplemental Retirement Exhibit 10.24 to
Income Agreement of Fleming Form 10-K for year
Companies, Inc. And William ended December 28,
J. Dowd 1996
10.21* Executive Past Service Benefit Exhibit 10.23 to
Plan (November 1997) Form 10-K for year
ended December 27,
1997
10.22* Form of Agreement for Executive Exhibit 10.24 to
Past Service Benefit Plan Form 10-K for year
(November 1997) ended December 27,
1997
10.23* Executive Deferred Compensation Exhibit 10.25 to
Plan (November 1997) Form 10-K for year
ended December 27,
1997
10.24* Executive Deferred Compensation Exhibit 10.26 to
Trust (November 1997) Form 10-K for year
ended December 27,
1997
10.25* Form of Agreement for Executive Exhibit 10.27 to
Deferred Compensation Plan (November Form 10-K for year
1997) ended December 27,
1997
10.26 Fleming Companies, Inc. Associate Exhibit 10.28 to
Stock Purchase Plan Form 10-K for year
ended December 27,
1997
<PAGE>
10.27 Settlement Agreement between Exhibit 10.25 to Form
Fleming Companies, Inc. and 10-Q for quarter ended
Furr's Supermarkets, Inc. dated October 4, 1997
October 23, 1997
10.28* Form of Amended and Restated Agreement Exhibit 10.30 to Form
for Fleming Companies, Inc. Executive 10-Q for quarter ended
Past Service Benefit Plan October 3, 1998
10.29* Form of Amended and Restated Agreement Exhibit 10.31 to Form
for Fleming Companies, Inc. Executive 10-Q for quarter ended
Deferred Compensation Plan October 3, 1998
10.30* Amended and Restated Supplemental Exhibit 10.32 to Form
Retirement Income Agreement between 10-Q for quarter ended
William J. Dowd and Fleming Companies, October 3, 1998
Inc. dated August 18, 1998
10.31* Form of Amended and Restated Restricted Exhibit 10.33 to Form
Stock Award Agreement under Fleming 10-Q for quarter ended
Companies, Inc. 1996 Stock Incentive October 3, 1998
Plan
10.32* Form of Amended and Restated Non- Exhibit 10.34 to Form
Qualified Stock Option Agreement 10-Q for quarter ended
under the Fleming Companies, Inc. October 3, 1998
1996 Stock Incentive Plan
10.33* First Amendment to Economic Value Added Exhibit 10.36 to Form
Incentive Bonus Plan for Fleming 10-Q for quarter ended
Companies, Inc. October 3, 1998
10.34* Amendment No. 2 to Economic Value Added Exhibit 10.37 to Form
Incentive Bonus Plan for Fleming 10-Q for quarter ended
Companies, Inc. October 3, 1998
10.35* Form of Amendment to Certain Employment Exhibit 10.38 to Form
Agreements 10-Q for quarter ended
October 3, 1998
10.36* Form of First Amendment to Restricted Exhibit 10.39 to Form
Stock Award Agreement for Fleming 10-Q for quarter ended
Companies, Inc. 1996 Stock Incentive October 3, 1998
Plan
<PAGE>
10.37* Settlement and Severance Agreement by Exhibit 10.40 to Form
and between Fleming Companies, Inc. 10-Q for quarter ended
and Robert E. Stauth dated August 28, October 3, 1998
1998
10.38* 1999 Stock Incentive Plan
10.39* Form of Non-Qualified Stock
Option Agreement for 1999
Stock Incentive Plan
10.40* Corporate officer Incentive Plan
10.41* Employment Agreement for Mark Hansen
dated as of November 30, 1998
10.42* Restricted Stock Agreement under
1990 Stock Incentive Plan for Mark
Hansen dated as of November 30, 1998
10.43* Form of Amendment to Employment
Agreement between Registrant and
certain executives dated as of
March 2, 1999
10.44* Amendment No. One to 1990 Stock
Option Plan
10.45* Fleming Companies, Inc. 1990 Stock
Incentive Plan (as amended)
10.46* Fleming Companies, Inc. Amended and
Restated Directors' Compensation
and Stock Equivalent Unit Plan
10.47* Severance Agreement for Thomas L.
Zaricki dated January 29, 1999
10.48* Severance Agreement for Harry L.
Winn, Jr. dated February 22, 1999
12 Computation of ratio of
earnings to fixed charges
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
* Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K:
On November 30, 1998, registrant announced that the Board of Directors
had elected Mark S. Hansen as chairman and chief executive officer.
On December 7, 1998, registrant announced the approval of the strategic
plan by the Board of Directors.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Fleming has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 12th day of March
1999.
FLEMING COMPANIES, INC.
MARK S. HANSEN
By: Mark S. Hansen
Chairman and
Chief Executive Officer
(Principal executive and
financial officer)
KEVIN TWOMEY
By: Kevin Twomey
Senior Vice President - Controller
(Principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 12th day of March 1999.
MARK S. HANSEN JACK W. BAKER * HERBERT M. BAUM *
Mark S. Hansen Jack W. Baker Herbert M. Baum
(Chairman of the Board) (Director) (Director)
ARCHIE R. DYKES * CAROL B. HALLETT * EDWARD C. JOULLIAN III *
Archie R. Dykes Carol B. Hallett Edward C. Joullian III
(Director) (Director) (Director)
GUY A. OSBORN * DAVID A. RISMILLER *
Guy A. Osborn Alice M. Peterson David A. Rismiller
(Director) (Director) (Director)
DAVID R.ALMOND
David R. Almond
(Attorney-in-fact)
*A Power of Attorney authorizing David R. Almond to sign the Annual Report on
Form 10-K on behalf of each of the indicated directors of Fleming Companies,
Inc. has been filed herein as Exhibit 24.
<PAGE>
SCHEDULE II
FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 26, 1998
DECEMBER 27, 1997, AND DECEMBER 28, 1996
(In thousands)
<TABLE>
<CAPTION>
Allowance
for
Credit Losses Current Noncurrent
<S> <C> <C> <C>
BALANCE, December 30, 1995 $53,404 $35,136 $18,268
Charged to costs and expenses 26,921 19,406 7,515
Uncollectible accounts written-off,
less recoveries (35,693) (29,883) (5,810)
Asset Impairment 5,000 - 5,000
BALANCE, December 28, 1996 $49,632 $24,659 $24,973
Charged to cost and expenses 24,484 11,989 12,495
Uncollectible accounts written-off,
less recoveries (32,655) (17,636) (15,019)
Asset impairment 2,387 - 2,387
BALANCE, December 27, 1997 $43,848 $19,012 $24,836
Charged to cost and expenses 23,498 9,979 13,519
Uncollectible accounts written-off,
less recoveries (20,114) (9,012) (11,102)
BALANCE, December 26, 1998 $47,232 $19,979 $27,253
</TABLE>
<PAGE>
Exhibit 4.8
INSTRUMENTS DEFINING THE RIGHTS OF
SECURITY HOLDERS, INCLUDING INDENTURES
The Registrant has various long-term debt agreements which define the rights
of the holders of the related debt securities of the Registrant. The
Registrant agrees to furnish copies of any unfiled debt agreements to the
Commission upon request.
FLEMING COMPANIES, INC.
(Registrant)
KEVIN TWOMEY
Date: March 12, 1999 By Kevin Twomey
Senior Vice President-Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 10.38
FLEMING COMPANIES, INC.
1999 STOCK INCENTIVE PLAN
<PAGE>
FLEMING COMPANIES, INC.
1999 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE I PURPOSE......................................................................................1
Section 1.1 PURPOSE................................................................................1
Section 1.2 ESTABLISHMENT..........................................................................1
Section 1.3 SHARES SUBJECT TO THE PLAN.............................................................1
ARTICLE II DEFINITIONS..................................................................................1
ARTICLE III ADMINISTRATION...............................................................................5
Section 3.1 ADMINISTRATION OF THE PLAN; THE COMMITTEE.................................................5
Section 3.2 COMMITTEE TO MAKE RULES AND INTERPRET PLAN................................................6
ARTICLE IV GRANT OF AWARDS; DIRECTORS' RESTRICTED STOCK AWARDS;
SHARES SUBJECT TO THE PLAN...................................................................6
Section 4.1 COMMITTEE TO GRANT AWARDS TO ELIGIBLE ASSOCIATES..........................................6
Section 4.2 DIRECTORS' RESTRICTED STOCK AWARDS........................................................7
ARTICLE V ELIGIBILITY..................................................................................7
ARTICLE VI STOCK OPTIONS................................................................................8
Section 6.1 GRANT OF OPTIONS..........................................................................8
Section 6.2 CONDITIONS OF OPTIONS.....................................................................8
ARTICLE VII RESTRICTED STOCK AWARDS......................................................................9
Section 7.1 GRANT OF RESTRICTED STOCK AWARDS..........................................................9
Section 7.2 CONDITIONS OF RESTRICTED STOCK AWARDS.....................................................9
ARTICLE VIII ISSUANCE OF DIRECTORS' RESTRICTED STOCK.....................................................10
Section 8.1 ISSUANCE AND NUMBER OF SHARES OF RESTRICTED STOCK........................................10
Section 8.2 RESTRICTED STOCK HELD IN ESCROW; VESTING; FORFEITURE.....................................10
(a) CERTIFICATES.............................................................................10
(b) DIVIDENDS AND VOTING.....................................................................10
(c) VESTING..................................................................................10
(d) THE ACCOUNTANT...........................................................................11
(e) OTHER RESTRICTIONS.......................................................................11
(f) FORFEITURE...............................................................................11
(g) SECURITIES LAWS..........................................................................11
Section 8.3 ESCROW AGENT.............................................................................11
Section 8.4 RESTRICTIONS ON ALIENATION OF BENEFITS. ................................................11
ARTICLE IX SETTLEMENT OF DIRECTORS' RESTRICTED STOCK ACCOUNTS..........................................11
Section 9.1 SETTLEMENT OF RESTRICTED STOCK ACCOUNTS..................................................11
Section 9.2 DISTRIBUTION OF DIRECTORS' RESTRICTED STOCK..............................................11
Section 9.3 BENEFICIARIES............................................................................12
ARTICLE X STOCK ADJUSTMENTS...........................................................................12
</TABLE>
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<TABLE>
<CAPTION>
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ARTICLE XI GENERAL.....................................................................................13
Section 11.1 AMENDMENT OR TERMINATION OF PLAN.......................................................13
Section 11.2 TERMINATION OF EMPLOYMENT; TERMINATION OF SERVICE......................................13
Section 11.3 LIMITED TRANSFERABILITY - OPTIONS......................................................13
Section 11.4 WITHHOLDING TAXES......................................................................14
Section 11.5 DIVIDENDS AND DIVIDEND EQUIVALENTS - AWARDS............................................14
Section 11.6 CHANGE OF CONTROL......................................................................14
Section 11.7 AMENDMENTS TO AWARDS...................................................................14
Section 11.8 REGULATORY APPROVAL AND LISTINGS.......................................................14
Section 11.9 RIGHT TO CONTINUED EMPLOYMENT..........................................................15
Section 11.10 NO RIGHT TO CONTINUE AS A DIRECTOR.....................................................15
Section 11.11 RELIANCE ON REPORTS....................................................................15
Section 11.12 CONSTRUCTION...........................................................................15
Section 11.13 GOVERNING LAW..........................................................................15
</TABLE>
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<PAGE>
ARTICLE I
PURPOSE
SECTION 1.1 PURPOSE. This 1999 Stock Incentive Plan (the "Plan") is
established by Fleming Companies, Inc. (the "Company") to create incentives
which are designed to motivate participants ("Eligible Associates" and "Eligible
Directors") to put forth maximum effort toward the success and growth of the
Company and to enable the Company to attract and retain experienced individuals
who by their position, ability and diligence are able to make important
contributions to the Company's success. Toward these objectives, the Plan
provides for the granting of Options and Restricted Stock Awards to Eligible
Associates (the "Stock Incentive Feature") and the issuance of Directors'
Restricted Stock to Eligible Directors in lieu of his Base Compensation (the
"Directors' Stock Feature") subject to the conditions set forth in the Plan.
SECTION 1.2 ESTABLISHMENT. The Stock Incentive Feature is effective
as of November 30, 1998 and for a period of ten years thereafter. The
Directors' Stock Feature shall be effective July 1, 1999 and for a period of
five and one-half years thereafter. The Plan shall continue in effect until
all matters relating to the payment of Awards and the issuance of Directors'
Restricted Stock and administration of the Plan have been settled.
The Plan shall be approved by the holders of a majority of the
outstanding shares of Common Stock, present, or represented, and entitled to
vote at a meeting called for such purpose, which approval must occur within the
period ending twelve months after the date the Plan is adopted by the Board.
Pending such approval by the shareholders, Awards of Options under the Stock
Incentive Feature may be granted to Eligible Associates, but no such Awards may
be exercised prior to receipt of shareholder approval. In the event shareholder
approval is not obtained within such twelve-month period, all such Awards shall
be void. No Directors' Restricted Stock Awards will be made and no Eligible
Director shall receive shares of Directors' Restricted Stock in lieu of his Base
Compensation until after the shareholders shall have approved the Plan.
SECTION 1.3 SHARES SUBJECT TO THE PLAN. Subject to the limitations set
forth in the Plan, Awards may be made under this Plan for a total of Two Million
Five Hundred Thousand (2,500,000) shares of Common Stock to Eligible Associates
and grants of Two Hundred Thousand (200,000) shares of Directors' Restricted
Stock to Eligible Directors.
ARTICLE II
DEFINITIONS
SECTION 2.1 "Accountant" means the office of the Company's
independent certified public accountant located in the city where the Company's
principal executive offices are located.
SECTION 2.2 "Award" means, individually or collectively, any Option
or Restricted Stock Award granted under the Stock Incentive Feature to an
Eligible Associate by the Committee pursuant to such terms, conditions,
restrictions, and/or limitations, if any, as the Committee may establish by the
Award Agreement or otherwise.
SECTION 2.3 "Award Agreement" means any written instrument that
establishes the terms, conditions, restrictions, and/or limitations applicable
to an Award in addition to those established by this Plan and by the Committee's
exercise of its administrative powers.
SECTION 2.4 "Base Compensation" means the annual retainer paid to
Eligible Directors under the Directors' Plan.
SECTION 2.5 "Beneficiary" shall mean that person or persons
designated by an Eligible Director in accordance with Section 9.3 who may be
entitled to receive such Eligible Director's Directors' Restricted Stock in the
event of the death of the Eligible Director.
<PAGE>
SECTION 2.6 "Board" means the Board of Directors of the Company.
SECTION 2.7 "Change of Control Event" means each of the following:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more (the "Triggering Percentage") of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, in the event the "Incumbent
Board" (as such term is hereinafter defined) pursuant to authority granted in
any rights agreement to which the Company is a party (the "Rights Agreement")
lowers the acquisition threshold percentages set forth in such Rights Agreement,
the Triggering Percentage shall be automatically reduced to equal the threshold
percentages set pursuant to authority granted to the board in the Rights
Agreement; and provided, further, however, that the following acquisitions shall
not constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (x), (y), and
(z) of subsection (c) of this Section 2.7; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, appointment or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for purposes of this definition, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, share exchange, merger or consolidation or acquisition of assets
of another corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (x) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination will beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction will own
the Company through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (y) no Person (excluding any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) will beneficially own, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination, and (z) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination will have been members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of (x) a complete
liquidation or dissolution of the Company or, (y) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition, (A)
more than 50% of, respectively, the
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<PAGE>
then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors will be beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) less than 20% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors will be beneficially owned, directly or indirectly, by
any Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation), except to the extent that such Person owned 20% or
more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities prior to the sale or disposition, and (C) at least a majority of the
members of the board of directors of such corporation will have been members of
the Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such sale or other disposition of assets
of the Company.
SECTION 2.8 "Code" means the Internal Revenue Code of 1986, as
amended. References in the Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to such section and any
regulations under such section.
SECTION 2.9 "Committee" shall have the meaning set forth in Section
3.1.
SECTION 2.10 "Common Stock" means the common stock, par value $2.50
per share, of the Company, and after substitution, such other stock as shall be
substituted therefor as provided in Article X.
SECTION 2.11 "Company" means Fleming Companies, Inc., an Oklahoma
corporation.
SECTION 2.12 "Compensation Committee" means the Compensation and
Organization Committee of the Board.
SECTION 2.13 "Controller" means the controller of the Company duly
elected by the Board.
SECTION 2.14 "Date of Grant" means the date on which the granting of
an Award to an Eligible Associate is authorized by the Committee or such later
date as may be specified by the Committee in such authorization.
SECTION 2.15 "Directors' Plan" means the Amended and Restated
Directors' Compensation and Stock Equivalent Unit Plan adopted by the Board in
February 1997.
SECTION 2.16 "Directors' Restricted Stock" means shares of Common
Stock which an Eligible Director has earned as provided in Article VIII of the
Plan.
SECTION 2.17 "Directors' Restricted Stock Account" shall mean the
account of an Eligible Director established with the Escrow Agent under the
Escrow.
SECTION 2.18 "Directors' Restricted Stock Award" shall mean the
issuance of Directors' Restricted Stock under Article VIII of the Plan.
SECTION 2.19 "Directors' Stock Feature" shall have the meaning set
forth in Section 1.1.
SECTION 2.20 "Eligible Associate" means any key associate of the
Company or a Subsidiary.
SECTION 2.21 "Eligible Director" means any member of the Board who is
also not an associate of the
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<PAGE>
Company.
SECTION 2.22 "Escrow" means that separate arrangement under which
Directors' Restricted Stock will be held pending distribution to the Eligible
Director on Vesting or as otherwise provided in the Plan.
SECTION 2.23 "Escrow Agent" means the Secretary.
SECTION 2.24 "Exchange Act" means the Securities Exchange Act of
1934, as amended.
SECTION 2.25 "Executive Officer Participants" means Participants who
are subject to the provisions of Section 16 of the Exchange Act.
SECTION 2.26 "Fair Market Value" means (A) during such time as the
Common Stock is listed upon the New York Stock Exchange or other exchanges or
the NASDAQ/National Market System, the average of the highest and lowest sales
prices of the Common Stock as reported by such stock exchange or exchanges or
the NASDAQ/National Market System on the day for which such value is to be
determined, or if no sale of the Common Stock shall have been made on any such
stock exchange or the NASDAQ/National Market System that day, on the next
preceding day on which there was a sale of such Common Stock or (B) during any
such time as the Common Stock is not listed upon an established stock exchange
or the NASDAQ/National Market System, the mean between dealer "bid" and "ask"
prices of the Common Stock in the over-the-counter market on the day for which
such value is to be determined, as reported by the National Association of
Securities Dealers, Inc.
SECTION 2.27 "Fiscal Year" means a year comprised of 13 Periods
ending on the last Saturday in December in each such year.
SECTION 2.28 "GAAP" means Generally Accepted Accounting Principles.
SECTION 2.29 "Incentive Stock Option" means an Option within the
meaning of Section 422 of the Code.
SECTION 2.30 "Net Earnings From Operations" means the net sales of
the Company for the period or duration of the determination, calculated in
accordance with GAAP, as applied by the Company on a consistent basis, MINUS the
total costs and expenses for such period determined in accordance with GAAP, as
applied by the Company on a consistent basis, excluding extraordinary items of
revenue and expense and excluding revenue and expense items related to strategic
plan implementation.
SECTION 2.31 "Non-Executive Officer Participants" means Participants
who are not subject to the provisions of Section 16 of the Exchange Act.
SECTION 2.32 "Nonqualified Stock Option" means an Option which is not
an Incentive Stock Option.
SECTION 2.33 "Option" means an Award granted under Article VI of the
Plan and includes both Nonqualified Stock Options and Incentive Stock Options to
purchase shares of Common Stock.
SECTION 2.34 "Participant" means an Eligible Associate of the Company
or a Subsidiary to whom an Award has been granted by the Committee under the
Stock Incentive Feature or an Eligible Director who is entitled to receive
Directors' Restricted Stock under the Directors' Stock Feature.
SECTION 2.35 "Period" means any of 13 periods in any Fiscal Year,
each containing four weeks, as established by the Company for accounting
purposes.
SECTION 2.36 "Plan" means Fleming Companies, Inc. 1999 Stock
Incentive Plan.
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<PAGE>
SECTION 2.37 "Regular Award Committee" means a committee comprised of
the Company's chief executive officer and the Company's senior executive officer
for human resources.
SECTION 2.38 "Restricted Stock Award" means an Award granted to an
Eligible Associate under Article VII of the Plan.
SECTION 2.39 "Secretary" means the corporate secretary of the Company
duly elected by the Board.
SECTION 2.40 "Stock Incentive Feature" shall have the meaning set
forth in Section 1.1.
SECTION 2.41 "Subsidiary" shall have the same meaning set forth in
Section 424 of the Code.
SECTION 2.42 "Termination of Service" means termination of service as
a Director under any of the following circumstances:
(1) Where the Eligible Director voluntarily resigns or
retires;
(2) Where the Eligible Director is not re-elected (or
elected in the case of an appointed director) to the
Board by the shareholders; or
(3) Where the Eligible Director dies or is unable to
serve as a Director by reason of disability.
SECTION 2.43 "Vest" or "Vesting" or "Vested" shall have the meaning
set forth in Section 8.2(c).
ARTICLE III
ADMINISTRATION
SECTION 3.1 ADMINISTRATION OF THE PLAN; THE COMMITTEE. For purposes
of administration, the Stock Incentive Feature shall be deemed to consist of two
separate stock incentive plans, a "Non-Executive Officer Participant Plan" which
is limited to Non-Executive Officer Participants and an "Executive Officer
Participant Plan" which is limited to Executive Officer Participants. Except for
administration and the category of Eligible Associates eligible to receive
Awards under the Stock Incentive Feature, the terms of the Non-Executive Officer
Participant Plan and the Executive Officer Participant Plan are identical.
The Non-Executive Officer Participant Plan shall be administered by
both the Regular Award Committee and the Compensation Committee. The Regular
Award Committee may only act within guidelines established by the Compensation
Committee. The Executive Officer Participant Plan and the Directors' Stock
Feature shall be administered by the Compensation Committee. With respect to the
Non-Executive Officer Participant Plan and to decisions relating to
Non-Executive Officer Participants, including the grant of Awards, the term
"Committee" shall mean both the Regular Award Committee and the Compensation
Committee; and with respect to the Executive Officer Participant Plan and to
decisions relating to the Executive Officer Participants, including the granting
of Awards, and with respect to any decisions relating to the administration of
the Directors' Stock Feature, the term "Committee" shall mean only the
Compensation Committee.
Unless otherwise provided in the by-laws of the Company or the
resolutions adopted from time to time by the Board establishing the Committee,
the Board may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board. The Committee shall hold
-5-
<PAGE>
meetings at such times and places as it may determine. A majority of the members
of the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present or acts reduced to
or approved in writing by a majority of the members of the Committee shall be
the valid acts of the Committee.
Subject to the provisions of the Plan, the Committee shall have
exclusive power to:
(a) Select the Eligible Associates to participate in the Stock
Incentive Feature and determine the eligibility of Directors to be Eligible
Directors and to participate in the Directors' Stock Feature.
(b) Determine the time or times when Awards will be made.
(c) Determine the form of an Award, whether an Option or a
Restricted Stock Award, the number of shares of Common Stock subject to the
Award, all the terms, conditions (including performance requirements),
restrictions and/or limitations, if any, of an Award, including the time and
conditions of exercise or vesting, and the terms of any Award Agreement, which
may include the waiver or amendment of prior terms and conditions or
acceleration or early vesting or payment of an Award under certain circumstances
determined by the Committee.
(d) Determine whether Awards will be granted singly or in
combination.
(e) Accelerate the vesting, exercise or payment of an Award and
the award of Directors' Restricted Stock or the performance period of an Award
when such action or actions would be in the best interest of the Company.
(f) Take any and all other action it deems necessary or advisable
for the proper operation or administration of the Plan.
SECTION 3.2 COMMITTEE TO MAKE RULES AND INTERPRET PLAN. The Committee
in its sole discretion shall have the authority, subject to the provisions of
the Plan, to establish, adopt, or revise such rules and regulations and to make
all such determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's interpretation of
the Plan or any Awards or the issuance of Directors' Restricted Stock and all
decisions and determinations by the Committee with respect to the Plan shall be
final, binding, and conclusive on all parties.
ARTICLE IV
GRANT OF AWARDS; DIRECTORS' RESTRICTED STOCK AWARDS;
SHARES SUBJECT TO THE PLAN
SECTION 4.1 COMMITTEE TO GRANT AWARDS TO ELIGIBLE ASSOCIATES. The
Committee may, from time to time, grant Awards to one or more Eligible
Associates, provided, however, that:
(a) Subject to Article X, the aggregate number of shares of
Common Stock made subject to the Award of Options to any Eligible Associate in
any Fiscal Year of the Company may not exceed 275,000.
(b) Subject to Article X, in no event shall more than 300,000
shares of Common Stock subject to the Plan be awarded to Eligible Associates as
Restricted Stock Awards (the "Restricted Stock Award Limit").
(c) Any shares of Common Stock related to Awards which terminate
by expiration, forfeiture, cancellation or otherwise without the issuance of
shares of Common Stock or are exchanged in the Committee's
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<PAGE>
discretion for Awards not involving Common Stock, shall be available again for
grant under the Plan and shall not be counted against the Restricted Stock Award
Limit.
(d) Common Stock delivered by the Company in payment of any Award
under the Plan may be authorized and unissued Common Stock or Common Stock held
in the treasury of the Company.
(e) The Committee shall, in its sole discretion, determine the
manner in which fractional shares arising under this Plan shall be treated.
(f) The Compensation Committee shall from time to time establish
guidelines for the Regular Award Committee regarding the grant of Awards to
Eligible Associates.
(g) Separate certificates representing Common Stock to be
delivered to an Eligible Associate Participant upon the exercise of any Option
will be issued to such Participant.
SECTION 4.2 DIRECTORS' RESTRICTED STOCK AWARDS. The issuance of
Director's Restricted Stock to Eligible Directors under Article VIII shall be
automatic, provided, however, that:
(a) Subject to Article X, in no event shall more than 200,000
shares of Common Stock subject to the Plan be issued to Eligible Director
Participants as Directors' Restricted Stock.
(b) Any Directors' Restricted Stock Award which is forfeited for
any reason including failure to Vest shall be available again for grant under
the Plan as Directors' Restricted Stock.
(c) Common Stock delivered by the Company as Directors'
Restricted Stock may be authorized and unissued Common Stock or Common Stock
held in the treasury of the Company.
(d) Separate certificates representing Directors' Restricted
Stock shall be delivered to the Eligible Directors upon Vesting.
ARTICLE V
ELIGIBILITY
Subject to the provisions of the Plan, the Committee shall, from time
to time, select from the Eligible Associates those to whom Awards shall be
granted and shall determine the type or types of Awards to be made and shall
establish in the related Award Agreements the terms, conditions, restrictions
and/or limitations, if any, applicable to the Awards in addition to those set
forth in the Plan and the administrative rules and regulations issued by the
Committee.
Each Eligible Director shall be entitled to receive Directors'
Restricted Stock under Article VIII of the Plan. If an Eligible Director
subsequently becomes an associate (employee) of the Company (or any Subsidiary),
but does not incur a Termination of Service, such Director shall (a) continue to
be a Participant for Directors' Restricted Stock previously issued and (b) cease
eligibility with respect to all future issuance of Directors' Restricted Stock.
ARTICLE VI
STOCK OPTIONS
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<PAGE>
SECTION 6.1 GRANT OF OPTIONS. The Committee may, from time to time,
subject to the provisions of the Plan and such other terms and conditions as it
may determine, grant Options to Eligible Associates. These Options may be
Incentive Stock Options or Nonqualified Stock Options, or a combination of both.
Each grant of an Option shall be evidenced by an Award Agreement executed by the
Company and the Eligible Associate Participant, and shall contain such terms and
conditions and be in such form as the Committee may from time to time approve,
subject to the requirements of Section 6.2.
SECTION 6.2 CONDITIONS OF OPTIONS. Each Option so granted shall be
subject to the following conditions:
(a) EXERCISE PRICE. As limited by Section 6.2(e) below, each
Option shall state the exercise price which shall be set by the Committee at the
Date of Grant; provided, however, no Option shall be granted at an exercise
price which is less than the Fair Market Value of the Common Stock on the Date
of Grant.
(b) FORM OF PAYMENT. The exercise price of an Option may be paid
(i) in cash or by check, bank draft or money order payable to the order of the
Company; (ii) by delivering shares of Common Stock having a Fair Market Value on
the date of payment equal to the amount of the exercise price; or (iii) a
combination of the foregoing. In addition to the foregoing, any Option granted
under the Plan may be exercised by a broker-dealer acting on behalf of an
Eligible Associate Participant if (A) the broker-dealer has received from the
Eligible Associate Participant or the Company a notice evidencing the exercise
of such Option and instructions signed by the Eligible Associate Participant
requesting the Company to deliver the shares of Common Stock subject to such
Option to the broker-dealer on behalf of the Eligible Associate Participant and
specifying the account into which such shares should be deposited, (B) adequate
provision has been made with respect to the payment of any withholding taxes due
upon such exercise or, in the case of an Incentive Stock Option, upon the
disposition of such shares and (C) the broker-dealer and the Eligible Associate
Participant have otherwise complied with Section 220.3(e)(4) of Regulation T, 12
CFR, Part 220 and any successor rules and regulations applicable to such
exercise.
(c) EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable, in whole or in such installments and at such times, and shall
expire at such time, as shall be provided by the Committee in the Award
Agreement. Exercise of an Option shall be by written notice to the Secretary two
business days in advance of such exercise stating the election to exercise in
the form and manner determined by the Committee. Every share of Common Stock
acquired through the exercise of an Option shall be deemed to be fully paid at
the time of exercise and payment of the exercise price.
(d) OTHER TERMS AND CONDITIONS. Among other conditions that may
be imposed by the Committee, if deemed appropriate, are those relating to (i)
the period or periods and the conditions of exercisability of any Option; (ii)
the minimum periods during which Participants must be employed by the Company or
its Subsidiaries, or must hold Options before they may be exercised; (iii) the
minimum periods during which shares acquired upon exercise must be held before
sale or transfer shall be permitted; (iv) conditions under which such Options or
shares may be subject to forfeiture; (v) the frequency of exercise or the
minimum or maximum number of shares that may be acquired at any one time and
(vi) the achievement by the Company of specified performance criteria.
(e) SPECIAL RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS.
Options issued in the form of Incentive Stock Options shall, in addition to
being subject to all applicable terms, conditions, restrictions and/or
limitations established by the Committee, comply with the requirements of
Section 422 of the Code, including, without limitation, the requirement that the
exercise price of an Incentive Stock Option not be less than 100% of the Fair
Market Value of the Common Stock on the Date of Grant, the requirement that each
Incentive Stock Option, unless sooner exercised, terminated or cancelled, expire
no later than 10 years from its Date of Grant, and the requirement that the
aggregate Fair Market Value (determined on the Date of Grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year (under this Plan or any
other plan of the Company or any Subsidiary) not exceed $100,000.
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<PAGE>
(f) APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Stock pursuant to Options will be used for general
corporate purposes.
(g) SHAREHOLDER RIGHTS. No Participant shall have a right as a
shareholder with respect to any share of Common Stock subject to an Option prior
to purchase of such shares of Common Stock by exercise of the Option.
ARTICLE VII
RESTRICTED STOCK AWARDS
SECTION 7.1 GRANT OF RESTRICTED STOCK AWARDS. The Committee may,
from time to time, subject to the provisions of the Plan and such other terms
and conditions as it may determine, grant a Restricted Stock Award to any
Eligible Associate. Restricted Stock Awards shall be awarded in such number and
at such times during the term of the Plan as the Committee shall determine. Each
Restricted Stock Award may be evidenced in such manner as the Committee deems
appropriate, including, without limitation, a book-entry registration or
issuance of a stock certificate or certificates, and by an Award Agreement
setting forth the terms of such Restricted Stock Award.
SECTION 7.2 CONDITIONS OF RESTRICTED STOCK AWARDS. The grant of a
Restricted Stock Award shall be subject to the following:
(a) RESTRICTION PERIOD. In addition to any vesting conditions
determined by the Committee, including, but not by way of limitation, the
achievement by the Company of specified performance criteria, vesting of each
Restricted Stock Award shall require the holder to remain in the employment of
the Company or a Subsidiary for a prescribed period (a "Restriction Period").
The Committee shall determine the Restriction Period or Periods which shall
apply to the shares of Common Stock covered by each Restricted Stock Award or
portion thereof; provided, however, all Restricted Stock Awards shall have a
minimum Restriction Period of at least one year from the Date of Grant. At the
end of the Restriction Period, assuming the fulfillment of any other specified
vesting conditions, the restrictions imposed by the Committee shall lapse with
respect to the shares of Common Stock covered by the Restricted Stock Award or
portion thereof. The Committee may, in its sole discretion, modify or accelerate
the vesting of a Restricted Stock Award under such circumstances as it deems
appropriate.
(b) RESTRICTIONS. The holder of a Restricted Stock Award may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the
shares of Common Stock represented by the Restricted Stock Award during the
applicable Restriction Period. The Committee shall impose such other
restrictions and conditions on any shares of Common Stock covered by a
Restricted Stock Award as it may deem advisable including, without limitation,
restrictions under applicable Federal or state securities laws, and may legend
the certificates representing Restricted Stock to give appropriate notice of
such restrictions.
(c) RIGHTS AS SHAREHOLDERS. During any Restriction Period, the
Committee may, in its discretion, grant to the holder of a Restricted Stock
Award all or any of the rights of a shareholder with respect to the shares,
including, but not by way of limitation, the right to vote such shares and to
receive dividends. If any dividends or other distributions are paid in shares of
Common Stock, all such shares shall be subject to the same restrictions on
transferability as the shares of Restricted Stock with respect to which they
were paid.
ARTICLE VIII
ISSUANCE OF DIRECTORS' RESTRICTED STOCK
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SECTION 8.1 ISSUANCE AND NUMBER OF SHARES OF RESTRICTED STOCK. Each
Eligible Director shall receive annually, in lieu of the cash annual retainer
and the stock equivalent units payable for services to be rendered by him as
a Director of the Company under the Directors' Plan, an award of shares of
Company Common Stock with the attributes and restrictions as provided in the
Plan (the "Directors' Restricted Stock"). There shall be credited to the
Directors' Restricted Stock Account (i) on or about July 1, 1999 1,750 shares
of Directors' Restricted Stock for the year 1999 and (ii) 3,500 shares of
Directors' Restricted Stock on or about the 15th day of March of each
calendar year for a period of 5 years thereafter. Persons who become Eligible
Directors during the term of the Directors' Stock Feature by appointment of
the Board or election by the shareholders shall receive an award of their pro
rata share of Directors' Restricted Stock on or about the 15th day of March
next succeeding such appointment or election, determined by multiplying 3,500
by a fraction the numerator of which is the number of days remaining in the
year of appointment or election and the denominator of which is 365 except
for the year 1999. For the year 1999, persons who become Eligible Directors
prior to July 1, 1999 shall be an Eligible Director for all purposes under
the Directors Stock Feature. Persons who become Eligible Directors on or
after July 1, 1999 and prior to January 1, 2000 shall receive an award of
their pro rata share of Directors' Restricted Stock determined by multiplying
1,750 by a fraction the numerator of which is the number of days remaining in
the year 1999 from such appointment or election, and the denominator of which
is 182. Each award of Directors' Restricted Stock shall contain such terms,
restrictions, attributes and conditions as set forth in Section 8.2.
SECTION 8.2 RESTRICTED STOCK HELD IN ESCROW; VESTING; FORFEITURE.
The Committee shall cause a certificate to be delivered to the Escrow Agent
(appointed pursuant to Section 8.3 below) registered in the name of the
Eligible Director for the total number of shares of Directors' Restricted
Stock represented by his award in accordance with the following terms,
attributes and conditions:
(a) CERTIFICATES. Any such certificate shall be legended to
indicate that the shares of Directors' Restricted Stock represented by such
certificate are subject to the terms and conditions of the Plan.
(b) DIVIDENDS AND VOTING. All Directors' Restricted Stock held by
the Escrow Agent shall constitute issued and outstanding shares of Common Stock
of the Company for all corporate purposes, and the Eligible Director shall
receive all cash dividends thereon and shall have the right to vote such shares
provided that the right to receive such dividends and to vote such shares shall
forthwith terminate with respect to unvested shares of Directors' Restricted
Stock of any Eligible Director whose grant has been forfeited as provided in
this Plan.
(c) VESTING. With respect to each Eligible Director, shares of
Directors' Restricted Stock held by the Escrow Agent shall fully vest and be
nonforfeitable on the date which is five years from the date of the award if
the Company's Net Earnings From Operations for the 13 full Periods preceding
the date of such determination exceed the Company's Net Earnings From
Operations for Fiscal Year 1998 by at least 10%, such date being herein
sometimes referred to as the date the shares of Directors' Restricted Stock
"Vest" or "Vesting" occurs or shares of Directors' Restricted Stock become
"Vested." Provided, however, with the consent of the Committee following
request by an Eligible Director, the Vesting of shares of Directors'
Restricted Stock may be accelerated in whole or in part to the date of an
Eligible Director's Termination of Service if the Company's Net Earnings
From Operations for the 13 full Periods preceding his Termination of Service
exceed the Company's Net Earnings From Operations for Fiscal Year 1998 by at
least 10%. As such Directors' Restricted Stock shall Vest in accordance with
this Plan, the Escrow Agent shall deliver to such Participant or his
respective Beneficiary (in the case of the Eligible Director's death)
certificates representing such Vested shares of Directors' Restricted Stock
as provided in Section 9.2. As a condition precedent to delivering a
certificate representing shares of Directors' Restricted Stock to the Escrow
Agent, the Committee may require each Eligible Director to deliver to the
Escrow Agent a duly executed irrevocable stock power or powers (in blank)
covering the Directors' Restricted Stock represented by such certificate.
(d) THE ACCOUNTANT. The Controller of the Company shall determine
the Net Earnings From Operations whenever the occasion for such determination is
required. Any Eligible Director, however, may request the Committee to engage
the Accountant to verify the Controller's determination whose verification or
independent
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determination, as the case may be, shall be conclusive and binding on the
Company, the Committee and the Eligible Directors.
(e) OTHER RESTRICTIONS. In addition to Vesting, while Directors'
Restricted Stock is held in Escrow and until such Directors' Restricted Stock
has become fully Vested, it shall also be subject to the restrictions set forth
in Section 8.4 of the Plan.
(f) FORFEITURE. Shares of Directors' Restricted Stock which
are not Vested in accordance with Section 8.2(c) shall be forfeited and will
again become subject to the terms of the Directors' Stock Feature.
Certificates representing unvested shares of Directors' Restricted Stock held
by the Escrow Agent for the benefit of any Eligible Directors whose grant (to
the extent then unvested) has been forfeited shall be returned (together with
the related stock power) by the Escrow Agent to the Company.
(g) SECURITIES LAWS. The Company shall have no liability to
issue any Directors' Restricted Stock hereunder unless such Directors'
Restricted Stock and issuance thereof comply with all applicable federal or
state securities laws and all other applicable laws.
SECTION 8.3 ESCROW AGENT. The Secretary is hereby designated as the
Escrow Agent for the Escrow. The Committee shall have the power to remove the
Secretary from the position of Escrow Agent and to appoint a substitute or
successor Escrow Agent. The out-of-pocket expenses of the Escrow Agent shall be
paid by the Company subject to approval of the Committee. The Escrow Agent shall
not be entitled to any fees or commission for such services. The Escrow Agent
shall not incur liability for any action taken pursuant to the Plan or any
issuance of Directors' Restricted Stock made thereunder so long as the Escrow
Agent acts in good faith in accordance with the instructions of the Committee.
The Escrow Agent shall disburse all cash dividends he receives to the Eligible
Directors and shall hold the Directors' Restricted Stock until the stock has
Vested and he is directed by the Committee to deliver such certificates to the
Eligible Director.
SECTION 8.4 RESTRICTIONS ON ALIENATION OF BENEFITS. Directors'
Restricted Stock Awards shall not be subject in any manner to garnishment,
attachment, anticipation, alienation, sale, transfer, assignment, gift, pledge,
encumbrance, disposition, hypothecation, levy, execution or the claims of
creditors, either voluntarily or involuntarily, as long as such award has not
vested. Any attempt to so garnish, attach, anticipate, alienate, sell, transfer,
assign, gift, pledge, encumber, dispose, hypothecate, levy or execute on the
same such Directors' Restricted Stock shall be null and void, and neither shall
such benefits or beneficial interests be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person to whom such benefits
or funds are payable.
ARTICLE IX
SETTLEMENT OF DIRECTORS' RESTRICTED STOCK ACCOUNTS
SECTION 9.1 SETTLEMENT OF RESTRICTED STOCK ACCOUNTS. When an Eligible
Director's Directors' Restricted Stock is Vested, the Company will settle an
Eligible Directors' Restricted Stock Account in the manner described in Section
9.2 as soon as administratively feasible.
SECTION 9.2 DISTRIBUTION OF DIRECTORS' RESTRICTED STOCK. Each
Eligible Director shall specify at the time he becomes an Eligible Director
(or in the case of the current Eligible Directors on or prior to July 1,
1999) the name and address of his Beneficiary as required by Section 9.3,
which may be changed by the Eligible Directors upon notice to the Committee.
Upon Vesting of any shares of Directors' Restricted Stock and upon direction
from the Committee, the Escrow Agent shall cause any restrictive legend to be
removed from the certificates of Vested Directors' Restricted Stock and new
certificates issued in accordance with federal and state securities laws to
the Eligible Director (or his Beneficiary).
SECTION 9.3 BENEFICIARIES. Each Eligible Director may designate, on a
form provided by the Committee,
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one or more Beneficiaries to receive his shares of Directors' Restricted Stock
described in Section 8.1 in the event of such Eligible Director's death. The
Company may rely upon the beneficiary designation last filed with the Committee,
provided that such form was executed by the Eligible Director or his legal
representative and filed with the Committee prior to the Eligible Director's
death.
ARTICLE X
STOCK ADJUSTMENTS
In the event that the shares of Common Stock, as presently
constituted, shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
(whether by reason of merger, consolidation, recapitalization, reclassification,
stock split, combination of shares or otherwise), or if the number of such
shares of Common Stock shall be increased through the payment of a stock
dividend, or a dividend on the shares of Common Stock or rights or warrants to
purchase securities of the Company shall be made, then there shall be
substituted for or added to each share available under and subject to the Plan,
and each share theretofore appropriated or thereafter subject or which may
become subject to any Award or any Directors' Restricted Stock Award under the
Plan, the number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed or for which each such
share shall be exchanged or to which each such share shall be entitled, as the
case may be, on a fair and equivalent basis in accordance with the applicable
provisions of Section 424 of the Code; provided, however, with respect to
Options, in no such event will such adjustment result in a modification of any
Option as defined in Section 424(h) of the Code. In the event there shall be any
other change in the number or kind of the outstanding shares of Common Stock, or
any stock or other securities into which the Common Stock shall have been
changed or for which it shall have been exchanged, then if the Committee shall,
in its sole discretion, determine that such change equitably requires an
adjustment in the shares available under and subject to the Plan, or in any
Award, or any Directors' Restricted Stock Award theretofore granted or which may
be granted under the Plan, such adjustments shall be made in accordance with
such determination, except that no adjustment of the number of shares of Common
Stock available under the Plan or to which any Award or any Directors'
Restricted Stock Award relates that would otherwise be required shall be made
unless and until such adjustment either by itself or with other adjustments not
previously made would require an increase or decrease of at least 1% in the
number of shares of Common Stock available under the Plan or to which any Award
or any Directors' Restricted Stock Award relates immediately prior to the making
of such adjustment (the "Minimum Adjustment"). Any adjustment representing a
change of less than such minimum amount shall be carried forward and made as
soon as such adjustment together with other adjustments required by this Article
X and not previously made would result in a Minimum Adjustment. Notwithstanding
the foregoing, any adjustment required by this Article X which otherwise would
not result in a Minimum Adjustment shall be made with respect to shares of
Common Stock relating to any Award or any Directors' Restricted Stock Award
immediately prior to exercise, payment or settlement of such Award.
No fractional shares of Common Stock or units of other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share.
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ARTICLE XI
GENERAL
SECTION 11.1 AMENDMENT OR TERMINATION OF PLAN. The Board may alter,
suspend or terminate the Plan at any time. In addition, the Board may, from time
to time, amend the Plan in any manner, but may not without shareholder approval
adopt any amendment which would increase the aggregate number of shares of
Common Stock available under the Plan (except by operation of Article X) or
materially modify the requirements as to eligibility of Eligible Associates or
Eligible Directors for participation in the Plan.
SECTION 11.2 TERMINATION OF EMPLOYMENT; TERMINATION OF SERVICE. If an
Eligible Associate's employment with the Company or a Subsidiary terminates for
a reason other than death, disability, retirement, or any approved reason, all
unexercised, unearned, and/or unpaid Awards, including, but not by way of
limitation, Awards earned, but not yet paid, all unpaid dividends and dividend
equivalents, and all interest, if any, accrued on the foregoing shall be
cancelled or forfeited, as the case may be, unless the Eligible Associate's
Award Agreement provides otherwise. The Committee shall (i) determine what
events constitute disability, retirement, or termination for an approved reason
for purposes of the Plan, and (ii) determine the treatment of a Participant
under the Plan in the event of his or her death, disability, retirement, or
termination for an approved reason. The Committee shall also determine the
method, if any, for accelerating the vesting or exercisability of any Options,
or providing for the exercise of any unexercised Options in the event of an
Eligible Associate's death, disability, retirement, or termination for an
approved reason. In the event an Eligible Associate's employment is terminated
due to retirement in accordance with the Company's retirement policies, unless
the Eligible Associate's Award Agreement provides otherwise, the Eligible
Associate shall have a period of three years following his date of retirement to
exercise any Nonqualified Stock Options which are otherwise exercisable on his
date of retirement.
In the event of a Termination of Service by an Eligible Director,
the provisions of Section 8.2 of the Plan shall control. The Committee shall
determine in its sole discretion when an Eligible Director has voluntarily
resigned or retired or is unable to serve as a Director by reason of disability.
SECTION 11.3 LIMITED TRANSFERABILITY - OPTIONS. The Committee may, in
its discretion, authorize all or a portion of the Nonqualified Stock Options to
be granted under this Plan to be on terms which permit transfer by the
Participant to (i) the ex-spouse of the Participant pursuant to the terms of a
domestic relations order, (ii) the spouse, children or grandchildren of the
Participant ("Immediate Family Members"), (iii) a trust or trusts for the
exclusive benefit of such immediate Family Members, or (iv) a partnership in
which such Immediate Family Members are the only partners. In addition (x) there
may be no consideration for any such transfer, (y) the stock option agreement
pursuant to which such Nonqualified Stock Options are granted must be approved
by the Committee, and must expressly provide for transferability in a manner
consistent with this paragraph, and (z) subsequent transfers of transferred
Nonqualified Stock Options shall be prohibited except as set forth below in this
Section 11.3. Following transfer, any such Nonqualified Stock Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of Section 11.2 hereof
the term "Participant" shall be deemed to refer to the transferee. The events of
termination of employment of Section 11.2 hereof shall continue to be applied
with respect to the original Participant, following which the Nonqualified Stock
Options shall be exercisable by the transferee only to the extent, and for the
periods specified in Section 11.2 hereof. No transfer pursuant to this Section
11.3 shall be effective to bind the Company unless the Company shall have been
furnished with written notice of such transfer together with such other
documents regarding the transfer as the Committee shall request. In addition,
subject to the foregoing provisions of this Section 11.3, Awards shall be
transferable only by will or the laws of descent and distribution; however, no
such transfer of an Award by the Participant shall be effective to bind the
Company unless the Company shall have been furnished with written notice of such
transfer and an authenticated copy of the will and/or such other evidence as the
Committee may deem necessary to establish the validity of the transfer and the
acceptance by the transferee of the terms and conditions of such Award.
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SECTION 11.4 WITHHOLDING TAXES. Unless otherwise paid by the
Participant, the Company shall be entitled to deduct from any payment under the
Plan, regardless of the form of such payment, the amount of all applicable
income and employment taxes required by law to be withheld with respect to such
payment or may require the Participant to pay to it such tax prior to and as a
condition of the making of such payment. In accordance with any applicable
administrative guidelines it establishes, the Committee may allow a Participant
or an Eligible Director to pay the amount of taxes required by law to be
withheld from an Award or Directors' Restricted Stock Award by (i) directing the
Company to withhold from any payment of the Award or Directors' Restricted Stock
Award a number of shares of Common Stock having a Fair Market Value on the date
of payment equal to the amount of the required withholding taxes or (ii)
delivering to the Company previously owned shares of Common Stock having a Fair
Market Value on the date of payment equal to the amount of the required
withholding taxes.
SECTION 11.5 DIVIDENDS AND DIVIDEND EQUIVALENTS - AWARDS. The
Committee may choose, at the time of the grant of any Award or any time
thereafter up to the time of payment of such Award, to include as part of such
Award an entitlement to receive dividends or dividend equivalents subject to
such terms, conditions, restrictions, and/or limitations, if any, as the
Committee may establish. Dividends and dividend equivalents granted hereunder
shall be paid in such form and manner (i.e., lump sum or installments), and at
such time as the Committee shall determine. All dividends or dividend
equivalents which are not paid currently may, at the Committee's discretion,
accrue interest.
SECTION 11.6 CHANGE OF CONTROL. Awards granted under the Plan to any
Eligible Associate may, in the discretion of the Committee, provide that such
Awards shall be immediately vested, fully earned and exercisable upon the
occurrence of a Change of Control Event. Directors' Restricted Stock Awards
shall immediately vest upon the occurrence of a Change of Control Event without
the action or intervention of the Committee.
SECTION 11.7 AMENDMENTS TO AWARDS. The Committee may at any time
unilaterally amend the terms of any Award Agreement, whether or not presently
exercisable or vested, to the extent it deems appropriate; provided, however,
that any such amendment which is adverse to the Participant shall require the
Participant's consent.
SECTION 11.8 REGULATORY APPROVAL AND LISTINGS. The Company shall use
its best efforts to file with the Securities and Exchange Commission as soon as
practicable following approval by the shareholders of the Company of the Plan as
provided in Section 1.2 of the Plan, and keep continuously effectively, a
Registration Statement on Form S-8 with respect to shares of Common Stock
subject to Awards and Directors' Restricted Stock Awards hereunder.
Notwithstanding anything contained in this Plan to the contrary, the Company
shall have no obligation to issue or deliver certificates representing shares of
Common Stock under this Plan prior to:
(a) the obtaining of any approval from, or satisfaction of any
waiting period or other condition imposed by, any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or advisable;
(b) the admission of such shares to listing on the stock exchange
on which the Common Stock may be listed; and
(c) the completion of any registration or other qualification of
such shares under any state or Federal law or ruling of any governmental body
which the Committee shall, in its sole discretion, determine to be necessary or
advisable.
SECTION 11.9 RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan
shall not give any Eligible Associate any right to remain in the employ of the
Company or any Subsidiary. The Company or, in the case of employment with a
Subsidiary, the Subsidiary reserves the right to terminate any Eligible
Associate at any time. Further, the adoption of this Plan shall not be deemed to
give any Eligible Associate or any other individual any right to be selected as
a Participant or to be granted an Award.
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<PAGE>
SECTION 11.10 NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in
this Plan will confer upon an Eligible Director any right to continue to serve
as a Director.
SECTION 11.11 RELIANCE ON REPORTS. Each member of the Committee and
each member of the Board shall be fully justified in relying or acting in good
faith upon any report made by the independent public accountants of the Company
and its Subsidiaries and upon any other information furnished in connection with
the Plan by any person or persons other than himself. In no event shall any
person who is or shall have been a member of the Committee or of the Board be
liable for any determination made or other action taken or any omission to act
in reliance upon any such report or information or for any action taken,
including the furnishing of information, or failure to act, if in good faith.
SECTION 11.12 CONSTRUCTION. Masculine pronouns and other words of
masculine gender shall refer to both men and women. The titles and headings of
the sections in the Plan are for the convenience of reference only, and in the
event of any conflict, the text of the Plan, rather than such titles or
headings, shall control.
SECTION 11.13 GOVERNING LAW. The Plan shall be governed by and
construed in accordance with the laws of the State of Oklahoma except as
superseded by applicable Federal law.
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Exhibit 10.39
FLEMING COMPANIES, INC.
1999 STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------
NON-QUALIFIED STOCK OPTION AGREEMENT
- --------------------------------------------------------------------------------
Name: ______________ Grant Date: _______, ____
Option Price: $_____________ Exercise Date: _______, ____ - __%
Shares Granted: ______________ _______, ____ - __%
Expiration Date: ______________ _______, ____ - __%
_______, ____ - __%
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE FLEMING COMPANIES, INC.
1999 STOCK INCENTIVE PLAN
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement"),
made as of this ___ day of _________, ____, at Oklahoma City, Oklahoma by and
between __________________ (hereinafter referred to as the "Participant", and
Fleming Companies, Inc. (hereinafter referred to as the "Company"):
W I T N E S S E T H:
WHEREAS, the Participant is a an "Eligible Associate" of the Company,
as such term is defined in the Plan, and it is important to the Company that the
Participant be encouraged to remain in the employ of the Company; and
WHEREAS, in recognition of such facts, the Company desires to provide
to the Participant an opportunity to purchase shares of the common stock of the
Company, as hereinafter provided, pursuant to the "Fleming Companies, Inc. 1999
Stock Incentive Plan" (the "Plan"), which is incorporated herein.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for good and valuable consideration, the Participant and the
Company hereby agree as follows:
1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant
Nonqualified Stock Options (the "Stock Options") to purchase all or any part of
an aggregate of _______ shares of Common Stock under and subject to the terms
and conditions of this Option Agreement and the Plan, which is incorporated
herein by reference and made a part hereof for all purposes. All capitalized
terms used in this Option Agreement shall have the same meaning ascribed to them
in the Plan unless specifically denoted otherwise. The purchase price per share
for each share of Common Stock to be purchased hereunder shall be $______ (the
"Option Price").
2. TIMES OF EXERCISE OF STOCK OPTION. After, and only after, the
conditions of Section 8 hereof have been satisfied, the Participant shall be
eligible to exercise that portion of his Stock Options pursuant to the schedule
set forth hereinafter. If the Participant's employment with the Company (or of
any one or more of the Subsidiaries of the Company) remains full-time and
continuous at all times prior to any of the "Exercise Dates" set forth in this
Section 2, then the Participant shall be entitled, subject to the applicable
provisions of the Plan and this Option Agreement having been satisfied, to
exercise on or after the applicable Exercise Date, on a cumulative basis, the
number of shares of Stock determined by multiplying the aggregate number of
shares set forth in Section 1 of this Option Agreement by the designated
percentage set forth below.
<PAGE>
<TABLE>
<CAPTION>
Percent of Stock
Exercise Dates Option Exercisable
- -------------- ------------------
<S> <C>
On or After _______, ____ 25%
On or After _______, ____ 50%
On or After _______, ____ 75%
On or After _______, ____ 100%
</TABLE>
3. TERM OF STOCK OPTION. Except as provided for in Section 4 of this
Option Agreement, none of the Stock Options shall be exercisable more than ten
years from the Date of Grant (the "Option Period").
4. SPECIAL RULES WITH RESPECT TO STOCK OPTIONS. With respect to the
Stock Options, the following special rules shall apply:
(a) EXERCISE OF EXERCISABLE STOCK OPTIONS ON TERMINATION OF
EMPLOYMENT. Except as provided to the contrary in Section 4(d) of this Option
Agreement, if a Participant's employment with the Company or a Subsidiary is
terminated during the Option Period for any reason other than death, he may
exercise all or any portion of the Stock Options which are otherwise exercisable
on the date of such termination at any time within three months from the date of
termination; provided, however, that if the Participant should die during such
three month period, the rights of his personal representative shall be as set
forth in Section 4(b) of this Stock Option Agreement.
(b) EXERCISE OF EXERCISABLE STOCK OPTIONS ON TERMINATION OF
EMPLOYMENT DUE TO DEATH. If a Participant's employment with the Company or a
Subsidiary is terminated during the Option Period due to his death, the personal
representative of the deceased Participant may exercise all or any portion of
the Stock Options which are otherwise exercisable on the date of death within 12
months from the date of death.
(c) ACCELERATION OF OTHERWISE UNEXERCISABLE STOCK OPTIONS ON
TERMINATION OF EMPLOYMENT. The Committee, in its sole discretion, may determine
that upon termination of the employment of a Participant any and all Stock
Options shall become automatically fully vested and immediately exercisable by
the Participant or his personal representative as the case may be for whatever
period following such termination as the Committee shall so decide.
(d) ACCELERATION OF OPTIONS UPON CHANGE OF CONTROL. Upon the
2
<PAGE>
occurrence of a Change of Control Event, any and all Stock Options will become
automatically fully vested and immediately exercisable with such acceleration to
occur without the requirement of any further act by either the Company or the
Participant.
(e) EXERCISE OF EXERCISABLE STOCK OPTIONS ON TERMINATION OF
EMPLOYMENT DUE TO RETIREMENT. If a Participant's employment with the Company
or a Subsidiary is terminated due to retirement in accordance with the
Company's retirement policies, the Participant shall have a period of three
years following his date of retirement to exercise the Stock Options which are
otherwise exercisable on his date of retirement.
5. NON-TRANSFERABILITY OF STOCK OPTIONS. Except as provided in Section
11.3 of the Plan regarding certain limited transferability of Stock Options with
the Committee's approval, Stock Options shall be transferable only by will or
the laws of descent and distribution; however, no such transfer of the Stock
Options by the Participant shall be effective to bind the Company unless the
Company shall have been furnished with written notice of such transfer and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee of the terms and conditions of such Option.
6. EMPLOYMENT. So long as the Participant shall continue to be a
full-time and continuous employee of the Company or a Subsidiary, the Stock
Options shall not be affected by any change of duties or position. Nothing in
the Plan or in this Option Agreement shall confer upon the Participant any right
to continue in the employ of the Company, or any of the Subsidiaries, or
interfere in any way with the right of the Company or any of the Subsidiaries to
terminate such Participant's employment at any time.
7. METHOD OF EXERCISING STOCK OPTION.
(a) PROCEDURES FOR EXERCISE. The manner of exercising the Stock
Options shall be by written notice to the Company at least two days before the
date the Stock Option, or part thereof, is to be exercised, and in any event
prior to the expiration of the Option Period. Such notice shall state the
election to exercise the Stock Options and the number of shares of Common Stock
with respect to that portion of the Stock Options being exercised, and shall be
signed by the person or persons so exercising the Stock Options. The notice
shall be accompanied by payment of the full purchase price of such shares, in
which event the Company shall deliver a certificate or certificates representing
such shares to the person or persons entitled thereto as soon as practicable
after the notices shall be received.
(b) FORM OF PAYMENT. Payment for shares of Common Stock purchased
under this Option Agreement shall be made in full by the Participant in any
manner specified in Section 6.2(b) of the Plan. No Common Stock shall be issued
to the Participant until the Company receives full payment for the Common Stock
purchased under the Stock Options which shall include any required state and
federal withholding taxes. Withholding taxes may be paid by Participant in any
manner specified in Section 11.4 the Plan.
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(c) FURTHER INFORMATION. In the event the Stock Options are
exercised, pursuant to the foregoing provisions of this Section 7, by any person
or persons other than the Participant in the event of the death of the
Participant, such notice shall also be accompanied by appropriate proof of the
right of such person or persons to exercise the Stock Options. The notice so
required shall be given by personal delivery to the Secretary of the Company or
by registered or certified mail, addressed to the Company at 6301 Waterford
Boulevard, Oklahoma City, Oklahoma 73118, and it shall be deemed to have been
given when it is so personally delivered or when it is deposited in the United
States mail in an envelope addressed to the Company, as aforesaid, properly
stamped for delivery as a registered or certified letter.
8. SECURITIES LAW RESTRICTIONS; SHAREHOLDER APPROVAL OF THE PLAN. Stock
Options shall be exercised and Common Stock issued only upon (i) compliance with
the Securities Act of 1933, as amended (the "Act"), and any other applicable
securities law, or pursuant to an exemption therefrom and (ii) approval by the
shareholders of the Company of the Plan at the 1999 Annual Meeting of
Shareholders.
9. NOTICES. All notices or other communications relating to the Plan and
this Option Agreement as it relates to the Participant shall be in writing and
shall be mailed (U.S. Mail) by the Company to the Participant at the then
current address as maintained by the Company or such other address as the
Participant may advise the Company in writing.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
duly executed by its officers thereunto duly authorized, and the Participant has
hereunto set his hand and seal, all on the day and year first above written.
COMPANY: FLEMING COMPANIES, INC., an
Oklahoma corporation
By
------------------------------------------------
Scott M. Northcutt, Senior Vice President -
Human Resources
PARTICIPANT:
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FLEMING COMPANIES, INC.
CORPORATE OFFICER INCENTIVE PLAN
(Adopted January 19, 1999)
<PAGE>
FLEMING COMPANIES, INC.
CORPORATE OFFICER INCENTIVE PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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ARTICLE I Name and Purpose of Plan. . . . . . . . . . . . . 1
1.1 Name of Plan . . . . . . . . . . . . . . . 1
1.2 Purpose. . . . . . . . . . . . . . . . . . 1
ARTICLE II Definitions and Construction. . . . . . . . . . . 1
2.1 Definitions. . . . . . . . . . . . . . . . 1
2.2 Construction . . . . . . . . . . . . . . . 4
ARTICLE III Participation . . . . . . . . . . . . . . . . . . 4
3.1 Selection for Participation. . . . . . . . 4
3.2 Relationship to Change of
Control Agreements . . . . . . . . . . . . 4
ARTICLE IV Determination of Awards . . . . . . . . . . . . . 4
4.1 Determination. . . . . . . . . . . . . . . 4
4.2 Committee to Establish Targets . . . . . . 5
ARTICLE V Payment of Awards . . . . . . . . . . . . . . . . 5
5.1 Date of Payment of Awards. . . . . . . . . 5
5.2 Certain Terminations of
Employment . . . . . . . . . . . . . . . . 5
5.3 Forfeiture, Reduction and
Elimination of Awards. . . . . . . . . . . 5
5.4 Awards Exceeding IRS Limits. . . . . . . . 6
ARTICLE VI General Benefit Provisions. . . . . . . . . . . . 6
6.1 No Trust . . . . . . . . . . . . . . . . . 6
6.2 Withholding for Income and
Employment Taxes . . . . . . . . . . . . . 6
</TABLE>
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6.3 No Interest on Awards. . . . . . . . . . . 6
6.4 Payments by the Company or
Subsidiary . . . . . . . . . . . . . . . . 7
6.5 Payment in Event of Death. . . . . . . . . 7
6.6 Restriction on Alienation
of Awards. . . . . . . . . . . . . . . . . 7
6.7 Expenses . . . . . . . . . . . . . . . . . 7
6.8 No Prior Right or Offer. . . . . . . . . . 7
6.9 No Continued Employment. . . . . . . . . . 7
6.10 No Vested Rights . . . . . . . . . . . . . 7
6.11 No Part of Other Benefits. . . . . . . . . 7
6.12 Other Plans. . . . . . . . . . . . . . . . 8
ARTICLE VII Provisions Relating to Participants . . . . . . . 8
7.1 Information Required of
Participants . . . . . . . . . . . . . . . 8
7.2 Benefits Payable to Incompetents . . . . . 8
ARTICLE VIII Administration. . . . . . . . . . . . . . . . . . 8
8.1 The Committee Shall Administer
the Plan . . . . . . . . . . . . . . . . . 8
8.2 Claims Procedure . . . . . . . . . . . . . 8
8.3 Review Procedure . . . . . . . . . . . . . 9
8.4 Records and Reports. . . . . . . . . . . . 9
8.5 Rules and Decisions. . . . . . . . . . . . 9
ARTICLE IX Amendment and Termination . . . . . . . . . . . . 9
9.1 Right to Amend Plan. . . . . . . . . . . . 9
9.2 Right to Terminate Plan. . . . . . . . . . 9
ARTICLE X Miscellaneous Provisions. . . . . . . . . . . . . 10
10.1 Articles and Section Titles
and Headings . . . . . . . . . . . . . . . 10
10.2 Laws of Oklahoma to Govern . . . . . . . . 10
10.3 Effective Date of Plan;
Shareholder Approval . . . . . . . . . . . 10
</TABLE>
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FLEMING COMPANIES, INC.
CORPORATE OFFICER INCENTIVE PLAN
FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the
Fleming Companies, Inc. Corporate Officer Incentive Plan upon the following
terms and conditions:
ARTICLE I
NAME AND PURPOSE OF PLAN
1.1 NAME OF PLAN. This Plan shall be hereafter known as the
FLEMING COMPANIES, INC. CORPORATE OFFICER INCENTIVE PLAN.
1.2 PURPOSE. The purpose of the Plan is to provide the Key
Associates who are selected to be Participants under the Plan an incentive to
motivate and financially reward such individuals by providing the opportunity to
earn a bonus if certain Targets are met. The general objective of the Plan is
to establish intense focus upon those performance criteria which are most
critical to the Company's success in 1999 and thereafter. Certain primary goals
of the Plan are to (i) attain substantial improvement in Sales, (ii) improve
Earnings, (iii) provide a concrete and understandable linkage between
performance, rewards and share value creation for the Company's stockholders,
and (iv) encourage team work. The Plan is not an "employee benefit plan" under
the Employee Retirement Security Act of 1974, as amended.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following capitalized words and
phrases appear in this instrument, they shall have the respective meanings set
forth below unless a different context is clearly expressed herein.
(a) ANNIVERSARY DATE: The words "Anniversary Date" shall
mean the last Saturday of December which is end of each Year of the Company.
(b) AWARD: The word "Award" shall mean, with respect to
any Participant, the amount of bonus calculated in accordance with Section 4.1
hereof.
(c) BENEFICIARY: The word "Beneficiary" shall mean that
person designated by the Participant pursuant to Section 6.5 hereof.
(d) BASE SALARY: The words "Base Salary" shall mean the
Participant's base salary as determined by the Committee for each Year of the
Plan adjusted for salary merit increases or any salary decreases occurring
during such Year.
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(e) BOARD: The word "Board" shall mean the Board of
Directors of the Company.
(f) CODE: The word "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(g) COMMITTEE: The word "Committee" shall mean the
Compensation and Organization Committee appointed by the Board which in
accordance with Article VIII herein will administer the Plan.
(h) COMPANY: The word "Company" shall mean Fleming
Companies, Inc., or its successor.
(i) DISABILITY: The word "Disability" shall have the
meaning set forth in the Company's Long Term Disability Plan.
(j) EARNINGS: The word "Earnings" shall mean, for the Year
of determination of an Award, the consolidated gross revenues of the Company
(excluding Extraordinary Revenue Items) computed in accordance with GAAP,
consistently applied, from which shall be deducted an amount for such period
equal to the aggregate of all consolidated expenses and other charges for such
period (excluding Extraordinary Charge Items) and income taxes for such period
computed in accordance with GAAP, consistently applied.
(k) EARNINGS PER SHARE: The words "Earnings Per Share"
shall mean, for the Year of determination of an Award, Earnings divided by the
weighted average shares outstanding for a fully diluted earnings per share
calculation as determined in accordance with GAAP consistently applied.
(l) EFFECTIVE DATE: The words "Effective Date" shall mean
December 27, 1998.
(m) EMPLOYER: The word "Employer" shall mean the Company
or any Subsidiary.
(n) EXTRAORDINARY CHARGE ITEMS: The words "Extraordinary
Charge Items" shall mean for the Year of determination of an Award: (i) expense
items and other charges as determined extraordinary in accordance with GAAP,
consistently applied, as shall appear on the consolidated earnings statements of
the Company for such Year; and (ii) expense items and other charges the
Committee considers non-operating and by nature unusual or infrequent.
(o) EXTRAORDINARY REVENUE ITEMS: The words "Extraordinary
Revenue Items" shall mean for the Year of determination of an Award: (i)
revenue items determined as extraordinary in accordance with GAAP, consistently
applied, as shall appear on the consolidated
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earnings statements of the Company, and (ii) revenue items the Committee
considers non-operating and by nature unusual or infrequent.
(p) GAAP: "GAAP" shall mean Generally Accepted Accounting
Principles.
(q) KEY ASSOCIATE: The words "Key Associate" shall mean
any full time employee of the Company or a Subsidiary who holds the position of
Chairman, Chief Executive Officer, President, Executive Vice President, Senior
Vice President or Vice President or any other associate who is an officer of the
Company or a Subsidiary and who is selected for participation in the Plan.
(r) PARTICIPANT: The word "Participant" shall mean a Key
Associate who has been selected for participation in the Plan by the Committee.
(s) PLAN: The word "Plan" shall mean the "Fleming
Companies, Inc. Corporate Officer Incentive Plan" as set forth in this
instrument, and as hereafter amended from time to time.
(t) RETIREMENT: The word "Retirement" means the date that
a Participant terminates employment in accordance with the Company's retirement
policy after (i) attaining the age of at least 55 years and (ii) earning at
least 10 years of employment service. Years of employment service will be
determined by the Committee in their sole discretion on a reasonable and
consistent basis for all Participants.
(u) SALES: The word "Sales" shall mean for the Year of
determination of an Award (i) MINUS (ii) where (i) is consolidated net sales of
the Company as determined in accordance with GAAP consistently applied and (ii)
is the sum of amounts included in (i) that represent bill-through sales,
selected drop ship sales, selected direct store delivery sales, fees charged
customers, transportation related fees and revenues, and miscellaneous revenues
and income.
(v) SUBSIDIARY: The word "Subsidiary" shall mean any
corporation consolidated with Company under GAAP.
(w) TARGETS: The word "Targets" shall mean those
performance goals established each Year by the Committee which require
predetermined levels of Earnings Per Share, Sales and Earnings be met before an
Award will be earned and payable. Targets for Sales and Earnings will consist
of a threshold Target, middle Target and maximum Target.
(x) YEAR: The word "Year" shall mean the fiscal year of
the Company.
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2.2 CONSTRUCTION. The masculine gender, wherever appearing in the
Plan, shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. Any word appearing herein in the plural shall
include the singular, where appropriate, and likewise the singular shall include
the plural, unless the context clearly indicates to the contrary.
ARTICLE III
PARTICIPATION
3.1 SELECTION FOR PARTICIPATION. A Key Associate must be selected
by the Committee to be a Participant based on criteria determined by the
Committee, which may include the Key Associate's overall job level and his
ability to impact financial results of the Company or any Subsidiary. The
Committee may add or remove Key Associates from the group of Participants at any
time during each Year in its sole discretion.
3.2 RELATIONSHIP TO CHANGE OF CONTROL AGREEMENTS. If a
Participant is a party to an employment agreement with the Company which is
effective upon a "change of control" as such term is defined in the agreement
(the "Change of Control Agreement"), any provision of this Plan which would
result in a loss or reduction of an Award shall be subject to and superseded by
the applicable provisions of the Change of Control Agreement.
ARTICLE IV
DETERMINATION OF AWARDS
4.1 DETERMINATION.
(a) AWARD. For each Year, the Committee will determine the
amount of each Participant's Award by selecting a designated percentage of
the Participant's Base Salary which will be the amount which may be earned as
an Award for such Year if the middle level Targets for the Year are met. The
designated percentage of Base Salary may not be the same for each
Participant. Awards will be determined by performance of the Company based
on Earnings Per Share, Sales and Earnings. The Committee shall select the
applicable Targets for each Year. Participants will have their Awards for
each such Year based upon the same Targets.
(b) CALCULATION OF AWARD. For any Participant to be
entitled to an Award, the Target level of Earnings Per Share for the applicable
Year first must be attained or exceeded. Once the Target for Earnings Per Share
for such Year has been achieved, then the
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Award will be weighted based on Sales and Earnings, as such weighting is
determined each Year by the Committee.
4.2 COMMITTEE TO ESTABLISH TARGETS. The Committee in its sole and
absolute discretion shall establish the Targets for each Year as well as any
threshold level, middle level and maximum level within each Target. If the
actual results for Sales or Earnings for a Year are between specified Target
levels, the Committee shall interpolate the value of any Award on an arithmetic
proportionate basis between such Targets. The determination of the Targets for
one Year may or may not be applicable for any following Year. Further, it is
the intent of the Company and the Committee that this Plan, the Awards and the
Targets satisfy the requirements of Section 162(m) of the Code. Accordingly,
the Committee will makes its determination as to the Targets and all other
applicable provisions of the Plan as are necessary in order to attempt to have
the Plan, the Awards and the Targets meet the requirements of Section 162(m) of
the Code.
ARTICLE V
PAYMENT OF AWARDS
5.1 DATE OF PAYMENT OF AWARDS. Payment of Awards shall be made,
in cash, as soon as practicable following the Anniversary Date of the Year which
relates to the Award.
5.2 CERTAIN TERMINATIONS OF EMPLOYMENT. Subject to Section 5.3
of the Plan, if, prior to the end of the year for which he would have
otherwise qualified for an Award, a Participant's employment with the
Employer is terminated due to death, Disability, Retirement or elimination
of his position with the Employer ("Approved Termination Events"), any Award
which would otherwise have been paid for such Year assuming the Participant
continued in the employ of the Employer for such Year, will be prorated based
on the number of completed months of employment during the Year of the
occurrence of the Approved Termination Event; and, payment will be made in
accordance with the terms of this Plan.
5.3 FORFEITURE, REDUCTION AND ELIMINATION OF AWARDS. Unless the
Committee otherwise determines, if, prior to the end of the Year for which he
would have otherwise qualified for an Award, a Participant's employment with
the Company is terminated for any reason other than the occurrence of an
Approved Termination Event, the Participant, his Beneficiary and any other
person will forfeit any interest which the Participant had in the Award. The
Committee has the right, in its sole and absolute discretion, to reduce or
eliminate any Award to any Participant in the event the Committee determines
that amounts to be paid under the Award are excessive or are not warranted.
While the Committee has the right to eliminate or reduce any Award, the
Committee does not have the right to increase any Award or change the Targets
which have been set for a particular Year except to the extent any Award is
increased because of the exclusion of any Extraordinary Charge Items as
determined by the Committee.
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5.4 AWARDS EXCEEDING IRS LIMITS. The Committee has the right to
determine if any Award (or portion thereof) exceeds the limit as established
under Section 162(m) of the Code so if paid it would not be deductible to the
Company for federal income tax purposes (the "Excess Amount"). If the Committee
makes this determination, the Committee may determine that such Excess Amount
shall be paid to the affected Participant (i) as provided under this Plan, (ii)
in a Year during which payment of such Excess Amount to the Participant would
not result in the payment of an Excess Amount, or (iii) as rapidly as possible
following the termination of employment of such Participant but made in a manner
which does not result in an Excess Amount being paid. The Committee may or may
not, in its sole discretion, credit interest with respect to any Excess Amounts
if payment is deferred.
ARTICLE VI
GENERAL BENEFIT PROVISIONS
6.1 NO TRUST. No action under this Plan by the Company, its Board
or the Committee shall be construed as creating a trust, escrow or other secured
or segregated fund in favor of the Participant or any other persons otherwise
entitled to his Award. The status of the Participant and any other person
entitled to his Award with respect to any liabilities assumed by the Company or
any Subsidiary hereunder shall be solely those of unsecured creditors of the
Company or such Subsidiary. Any asset acquired or held by the Company or any
Subsidiary in connection with liabilities assumed by it hereunder, shall not be
deemed to be held under any trust, escrow or other secured or segregated fund
for the benefit of the Participant or any other person entitled to his Award or
to be security for the performance of the obligations of the Company or any
Subsidiary, but shall be, and remain, a general, unpledged, unrestricted asset
of the Company or such Subsidiary at all times subject to the claims of general
creditors of the Company.
6.2 WITHHOLDING FOR INCOME AND EMPLOYMENT TAXES. Since all
amounts to be paid under the Plan to a Participant are to be considered as
compensation paid for services rendered by the Participant, the Company shall
comply with all federal and state laws and regulations respecting the
withholding, deposit and payment of any income, employment or other taxes
relating to any payments made under this Plan, and all Awards shall be subject
to and reduced by the amount of such taxes.
6.3 NO INTEREST ON AWARDS. Unless determined by the Committee
under Section 5.4 hereof, all Awards to be paid hereunder will be paid without
interest or investment earnings of any kind whatsoever.
6.4 PAYMENTS BY THE COMPANY OR SUBSIDIARY. The payments required
to fund the cost of the Awards provided by the Plan shall be made solely by the
Company or any Subsidiary whose Key Associates are participating in the Plan.
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6.5 PAYMENT IN EVENT OF DEATH. In the event of the death of a
Participant, the Participant's Award, if earned as provided in Section 5.2
above, shall be paid to the Beneficiary designated by the Participant on a form
provided by the Committee, who is (i) an individual or a trust established for
the benefit of an individual, and (ii) living on the date of the Participant's
death, and if there is no Beneficiary then living, the benefit will be paid to
the estate of the Participant and payment shall be made in a single lump sum.
While a Participant is employed by the Employer, the Participant may change his
Beneficiary by delivering to the Committee a properly executed form designating
a new Beneficiary.
6.6 RESTRICTION ON ALIENATION OF AWARDS. No right or benefit
under this Plan or under any Award shall be subject to anticipation, alienation,
sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be void. No
right or benefit hereunder shall in any manner be liable for or subject to the
debts, contracts, liabilities, or torts of the person entitled to such benefit.
6.7 EXPENSES. All expenses and costs in connection with adoption
and administration of the Plan shall be borne by the Company.
6.8 NO PRIOR RIGHT OR OFFER. No Key Associate shall have any
contractual or other right to participate in the Plan until he is selected for
participation by the Committee. No Award to any Participant in any Year shall
be deemed to create a right to receive any Award or to participate in the Plan
in any subsequent Year.
6.9 NO CONTINUED EMPLOYMENT. Neither the establishment of the
Plan nor the grant of an Award under the Plan shall be deemed to constitute an
express or implied contract of employment of any Participant for any period of
time or in any way abridge the rights of the Company to determine the terms and
conditions of employment or to terminate the employment of any Key Associate at
any time.
6.10 NO VESTED RIGHTS. Except as expressly provided herein, no Key
Associate or any other person shall have any claim or right (legal, equitable,
or otherwise) to any Award, allocation or distribution of any right, title or
vested interest in any amounts, and no officer or employee of the Company or any
Subsidiary or any other person shall have any authority to make representations
or agreements to the contrary.
6.11 NO PART OF OTHER BENEFITS. The benefits provided in this Plan
shall not be deemed a part of any other benefit provided by the Company or any
Subsidiary to its Key Associates. The Company assumes and shall have no
obligation to Participants except as expressly provided in the Plan. This Plan
is a complete statement of the terms and conditions of the Plan.
6.12 OTHER PLANS. Nothing contained herein shall limit the
Company's power to grant other bonuses to Key Associates regardless of their
participation in the Plan.
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ARTICLE VII
PROVISIONS RELATING TO PARTICIPANTS
7.1 INFORMATION REQUIRED OF PARTICIPANTS. Payment of Awards shall
be made as provided in this Plan and no formal claim shall be required therefor.
7.2 BENEFITS PAYABLE TO INCOMPETENTS. Any benefits payable
hereunder to a minor or other person under legal disability may be made, at the
discretion of the Committee, (i) directly to such person, or (ii) to a parent,
spouse, relative by blood or marriage, or the legal representative of such
person. The Committee shall not be required to see to the application of any
such payment, and the payee's receipt shall be a full and final discharge of the
Committee's responsibility hereunder.
ARTICLE VIII
ADMINISTRATION
8.1 THE COMMITTEE SHALL ADMINISTER THE PLAN. A member of the
Committee may not be eligible to become a Participant in the Plan. The
Committee shall have the power where consistent with the general purpose and
intent of the Plan to (i) establish Targets, (ii) modify the requirements of the
Plan to conform with the law or to meet special circumstances not anticipated or
covered in the Plan, (iii) suspend or discontinue the Plan, (iv) establish
policies and (v) adopt rules and regulations and prescribe forms for carrying
out the purposes and provisions of the Plan. The Committee shall have the
authority to interpret and construe the Plan, and determine all questions
arising under the Plan in its sole discretion. Any interpretation, decision or
determination made by the Committee shall be final, binding and conclusive. A
majority of the Committee shall constitute a quorum, and an act of the majority
of the members present at any meeting at which a quorum is present shall be the
act of the Committee.
8.2 CLAIMS PROCEDURE. The Committee shall in its sole discretion
make all determinations as to the right of any person to benefits under the
Plan. If any request for a benefit is wholly or partially denied, the Committee
shall notify the person requesting the benefits, in writing, of such denial,
including in such notification the following information:
(a) the specific reason or reasons for such denial;
(b) the specific references to the pertinent Plan
provisions upon which the denial is based;
(c) a description of any additional material and
information which may be needed to clarify the request, including an explanation
of why such information is required; and
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(d) an examination of this Plan's review procedure with
respect to denial of benefits.
8.3 REVIEW PROCEDURE. Any Participant or Beneficiary whose claim
has been denied in accordance with Section 8.2 above may appeal to the Committee
for review of such denial by making a written request therefor within 60 days of
receipt of the notification of such denial. Such Participant or Beneficiary may
examine documents pertinent to the review and may submit to the Committee
written issues and comments. Within 60 days after receipt of the request for
review, the Committee shall communicate to the claimant, in writing, its
decision, and the communication shall set forth the reason or reasons for the
decision and specific references to those Plan provisions upon which the
decision is based.
8.4 RECORDS AND REPORTS. The Committee shall exercise such
authority and responsibility as it deems appropriate in order to comply with
governmental laws and regulations.
8.5 RULES AND DECISIONS. The Committee may adopt such rules as it
deems necessary, desirable, or appropriate. When making a determination or
calculation, the Committee shall be entitled to rely upon information furnished
by a Participant, the Employer, the accountants of the Company or the legal
counsel of the Company.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 RIGHT TO AMEND PLAN. The Plan may be amended by the Committee
from time to time in any respect whatsoever. Any amendments may be made
retroactively which in the judgment of the Committee are necessary or advisable.
9.2 RIGHT TO TERMINATE PLAN. The Committee expressly reserves the
right to terminate this Plan in whole or in part at any time. The Company shall
determine a proposed date of termination, and the Committee shall notify the
Participants.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 ARTICLES AND SECTION TITLES AND HEADINGS. The titles and
headings at the beginning of each Article and Section shall not be considered in
construing the meaning of any provisions in this Plan.
10.2 LAWS OF OKLAHOMA TO GOVERN. The provisions of this Plan shall
be construed, administered and enforced according to the laws of the State of
Oklahoma.
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10.3 EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL. This Plan shall
be effective as of the Effective Date subject to approval by the holders of a
majority of the Company's common stock having voting power in person or
represented by proxy at the 1999 annual meeting of shareholders.
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 30, 1998, by and between FLEMING
COMPANIES, INC., an Oklahoma corporation (the "Company") and MARK S. HANSEN
("Executive").
IN CONSIDERATION of the premises and the mutual covenants set forth
below, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ Executive as
the Chairman and Chief Executive Officer of the Company, and Executive hereby
accepts such employment, on the terms and conditions hereinafter set forth.
2. TERM. The period of employment of Executive by the Company
hereunder (the "Employment Period") shall commence on November 30, 1998 (the
"Commencement Date") and shall continue through November 29, 2003. The
Employment Period may be sooner terminated in accordance with Section 6 of this
Agreement.
3. POSITION AND DUTIES. During the Employment Period, Executive
shall report directly to the board of directors of the Company (the "Board").
Executive shall have those powers and duties normally associated with the
positions of Chairman and Chief Executive Officer. Executive shall devote
substantially all of his working time, attention and energies (other than
absences due to illness or vacation) to the performance of his duties for the
Company. Notwithstanding the above, Executive shall be permitted, to the extent
such activities do not interfere with the performance by Executive of his duties
and responsibilities hereunder or violate Sections 10(a), (b) or (c) of this
Agreement, to (i) manage Executive's personal, financial and legal affairs, (ii)
serve on civic or charitable boards or committees and (iii) serve on the board
of directors or other similar governing body of Apple Bee's International,
Swander Pace Capital, Independent Grocers Alliance and Food Distributors
International and, subject to the Board's approval (which approval shall not be
unreasonably withheld), serve on the board of directors or other similar
governing body of any other corporation or other business entity or trade
organization.
4. PLACE OF PERFORMANCE. The principal place of employment of
Executive shall be at the Company's principal executive offices in Oklahoma
City, Oklahoma.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Employment Period the Company
shall pay Executive a base salary at the rate of not less than $750,000 per year
("Base Salary"). Executive's Base Salary shall be paid in approximately equal
installments in accordance with the Company's customary payroll practices.
Executive's Base Salary shall be subject to increase, but not decrease, pursuant
to annual review by the Compensation and Organization Committee of the Board
(the "Compensation Committee"). Such increased Base Salary shall then
constitute the Base Salary for all purposes of this Agreement.
<PAGE>
(b) COMPANY STOCK OPTION. The Company has granted to
Executive, on the Commencement Date, (i) a stock option to purchase 425,750
shares of the common stock of the Company, par value $2.50 per share (the
"Company Stock"), at an exercise price of $9.7188 per share, pursuant to the
Company's 1990 Stock Option Plan, (ii) a stock option to purchase 100,000 shares
of Company Stock at an exercise price of $10.0625 per share, pursuant to the
Company's 1996 Stock Incentive Plan, and (iii) a stock option to purchase
274,250 shares of Company Stock at an exercise price of $9.7188 per share,
pursuant to the Company's Stock Incentive Plan (the "New Plan"), subject to the
receipt of approval of the New Plan by the shareholders of the Company
(collectively, the "Company Options"). The Company shall, at the next annual
meeting of the shareholders of the Company following the Commencement Date,
submit the New Plan, together with the Company's recommendation that its
shareholders approve the New Plan, to its shareholders for their approval and
shall use its reasonable efforts to obtain such shareholder approval. Each of
the Company Options has a scheduled 10-year term and, subject to the terms of
the applicable stock option agreements between the Company and Executive, shall
vest and become exercisable (i) with respect to 25% of the shares of Company
Stock subject to such Company Options on each of the first four anniversaries of
the Commencement Date and (ii) upon the occurrence of a Change of Control (as
such term is defined in that certain Change of Control Employment Agreement,
dated as of the date of this Agreement, between the Company and Executive) with
respect to 100% of the Company Stock subject to Company Options.
(c) ANNUAL BONUS. Commencing in fiscal 1999, Executive
shall have a target annual bonus of 75% of Base Salary and a maximum annual
bonus of 150% of Base Salary, based upon meeting performance goals established
by the Compensation Committee. The performance goals and corresponding bonus
amounts during the Employment Period shall be established by the Compensation
Committee after detailed consultation with Executive.
(d) EXPENSES. The Company shall promptly reimburse
Executive for all reasonable business expenses upon the presentation of
reasonably itemized statements of such expenses in accordance with the Company's
policies and procedures now in force or as such policies and procedures may be
modified with respect to all senior executive officers of the Company. In
addition, the Company shall reimburse Executive for all legal fees and expenses
reasonably incurred by Executive in connection with the negotiation and review
of this Agreement and the agreements contemplated hereby, in an amount not to
exceed $6,000.
(e) VACATION. Executive shall be entitled to the number of
weeks of vacation per year provided to the Company's senior executive officers.
(f) RESTRICTED STOCK GRANT. The Company has granted to
Executive, on the Commencement Date, thirty-two thousand (32,000) shares of
restricted Company Stock (the "Restricted Stock") pursuant to the Company's 1990
Stock Incentive Plan. In connection with the grant of the Restricted Stock,
Executive shall make an election prior to December 30, 1998 to include in gross
income the value of the Restricted Stock on the date of grant pursuant to
Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code").
Upon notification from
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Executive that he has made such election, the Company shall pay to Executive an
additional payment in an amount necessary to cause the net amount of such
payment that is retained by Executive after the calculation and deduction of any
and all federal, state and local income taxes and employment taxes on such
payment to be equal to Executive's income taxes attributable to the Restricted
Stock and Executive's election under Section 83(b) of the Code in connection
with the Restricted Stock.
(g) WELFARE, PENSION AND INCENTIVE BENEFIT PLANS. During
the Employment Period, Executive (and his spouse and dependents to the extent
provided therein) shall be entitled to participate in and be covered under all
the welfare benefit plans or programs maintained by the Company from time to
time for the benefit of its senior executives including, without limitation, all
medical, life, hospitalization, dental, disability, accidental death and
dismemberment and travel accident insurance plans and programs. In addition,
during the Employment Period, Executive shall be eligible to participate in all
pension, retirement, savings and other employee benefit plans and programs
maintained from time to time by the Company for the benefit of its senior
executives or any annual incentive or long-term performance plans.
(h) OFFICES. Executive shall serve, without additional
compensation, as a director or trustee of the Company or any of its wholly-owned
subsidiaries, (and as a member of any committees of the board of directors of
any such entities), and in one or more executive positions of any of such
subsidiaries, provided that Executive is indemnified for serving in any and all
such capacities on a basis no less favorable than is then provided to any other
director of such entity.
(i) RELOCATION. The Company shall purchase the Executive's
current house in, at the Executive's election, Bentonville or Chicago at a
purchase price equal to the greater of its appraised value (as set forth in an
appraisal performed by an appraiser selected by Executive and approved by the
Company) or Executive's invested cost in such house. In addition, the Executive
shall be provided with the Company's standard relocation program for senior
executive officers in order to relocate to Oklahoma City, including travel
costs, temporary housing, moving costs of automobiles and household belongings,
storage costs for up to one year, and any other expenses necessary to
efficiently effect Executive's relocation.
(j) INDEMNIFICATION AND INSURANCE. Executive shall be
indemnified and held harmless by the Company during the term of this Agreement
and following any termination of this Agreement for any reason whatsoever in the
same manner as would any other key management associate of the Company with
respect to acts or omissions occurring prior to the termination of employment of
the Executive under this Agreement. In addition, during the Employment Period
and for a period of five years following the termination of employment of the
Executive under this Agreement for any reason whatsoever, the Executive shall be
covered by a Company-held directors and officers liability insurance policy
covering acts or omissions occurring prior to the termination of employment of
the Executive under this Agreement.
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6. TERMINATION. Executive's employment hereunder may be
terminated during the Employment Period under the following circumstances:
(a) DEATH. Executive's employment hereunder shall terminate
upon his death.
(b) DISABILITY. If, as a result of Executive's incapacity
due to physical or mental illness, Executive shall have been substantially
unable to perform his duties hereunder for an entire period of six (6)
consecutive months, and within thirty (30) days after written Notice of
Termination is given after such six (6) month period, Executive shall not have
returned to the substantial performance of his duties on a full-time basis, the
Company shall have the right to terminate Executive's employment hereunder for
"Disability", and such termination in and of itself shall not be, nor shall it
be deemed to be, a breach of this Agreement.
(c) CAUSE. The Company shall have the right to terminate
Executive's employment for Cause, and such termination shall not be, nor shall
it be deemed to be, a breach of this Agreement. For purposes of this Agreement,
the Company shall have "Cause" to terminate Executive's employment upon:
(i) Executive's conviction of a felony by a federal or
state court of competent jurisdiction; or
(ii) an act or acts of dishonesty taken by Executive
and intended to result in substantial personal enrichment of
Executive at the expense of the Company; or
(iii) Executive's "willful" failure to follow a direct,
reasonable and lawful order from the Board, within the
reasonable scope of Executive's duties, which failure is not
cured within thirty (30) days.
For purposes of this Section 6(c), no act, or failure to act, by Executive shall
be considered "willful" unless done, or omitted to be done, by Executive not in
good faith and without a reasonable belief that the act or omission was in the
best interests of the Company. Cause shall not exist under paragraphs (i), (ii)
or (iii) above unless and until the Company has delivered to Executive a copy of
a resolution duly adopted by not less than three-fourths (3/4ths) of the Board
(excluding Executive) at a meeting of the Board called and held for such purpose
(after reasonable notice to Executive and an opportunity for Executive, together
with his counsel, to be heard before the Board), finding that in the good faith
opinion of the Board, Executive was guilty of the conduct set forth in
paragraphs (i),(ii) or (iii) and specifying the particulars thereof in detail.
(d) GOOD REASON. Executive may terminate his employment for
"Good Reason" by providing Notice of Termination (as defined in Section 7(a)) to
the Company within one hundred and twenty (120) days after Executive has actual
knowledge of the occurrence, without the
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written consent of Executive, of one of the events set forth below. Executive's
Date of Termination for Good Reason shall be fifteen (15) days after Notice of
Termination, unless the basis for Good Reason has been cured by the Company
prior to such date:
(i) the assignment to Executive of duties materially
and adversely inconsistent with Executive's status as Chairman
and Chief Executive Officer of the Company or a material and
adverse alteration in the nature of Executive's duties and/or
responsibilities, reporting obligations, titles or authority;
(ii) a reduction by the Company in Executive's Base
Salary;
(iii) the relocation of the Company's principal
executive offices or Executive's own office location to a
location more than twenty-five (25) miles from Oklahoma City or
the relocation of Executive's office location to a place other
than the Company's principal executive offices (unless such
relocation is pursuant to Executive's recommendation or an
action by the Board concurred in by Executive, as evidenced by
his vote);
(iv) the Company's failure to provide any material
employee benefits due to be provided to Executive (other than
any such failure which affects all senior executive officers);
or
(v) the failure of any successor to the Company to
assume this Agreement pursuant to Section 12(a).
Executive's right to terminate his employment hereunder for Good Reason shall
not be affected by his incapacity due to physical or mental illness.
Executive's continued employment during the one hundred and twenty (120) day
period referred to above in this paragraph (d) shall not constitute consent to,
or a waiver of rights with respect to, any act or failure to act constituting
Good Reason hereunder.
(e) WITHOUT CAUSE. The Company shall have the right to
terminate Executive's employment hereunder without Cause by providing Executive
with a Notice of Termination, and such termination shall not in and of itself
be, nor shall it be deemed to be, a breach of this Agreement.
7. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company or by Executive during the Employment Period (other
than termination pursuant to Section 6(a)) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 13.
For purposes of this Agreement, a "Notice of Termination" shall
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mean a written 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 Executive's
employment under the provision so indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean
(i) if Executive's employment is terminated by his death, the date of his death,
(ii) if Executive's employment is terminated pursuant to Section 6(b), thirty
(30) days after Notice of Termination (provided that Executive shall not have
returned to the substantial performance of his duties on a full-time basis
during such thirty (30) day period), (iii) if Executive's employment is
terminated pursuant to Section 6(d), the date provided in such Section, and (iv)
if Executive's employment is terminated for any other reason, the date on which
a Notice of Termination is given or any later date (within thirty (30) days
after the giving of such notice) set forth in such Notice of Termination.
8. COMPENSATION UPON TERMINATION OR DURING DISABILITY. In the
event Executive is disabled or his employment terminates during the Employment
Period, the Company shall provide Executive with the payments and benefits set
forth below. Executive acknowledges and agrees that the payments set forth in
this Section 8, and the other agreements and plans referenced in this Agreement,
constitute the sole and liquidated damages for termination of his employment
during the Employment Period.
(a) TERMINATION BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR
GOOD REASON. If Executive's employment is terminated by the Company without
Cause or by Executive for Good Reason:
(i) the Company shall pay to Executive (A) his Base
Salary and accrued vacation pay through the Date of
Termination, as soon as practicable following the Date of
Termination, and (B) continued Base Salary (as provided for in
Section 5(a)) for a period of twenty-four (24) months following
the Date of Termination;
(ii) the Company shall maintain in full force and
effect, for the continued benefit of Executive, his spouse and
his dependents for a period of twenty-four (24) months
following the Date of Termination the medical, hospitalization,
dental, and life insurance programs in which Executive, his
spouse and his dependents were participating immediately prior
to the Date of Termination at the level in effect and upon
substantially the same terms and conditions (including without
limitation contributions required by Executive for such
benefits) as existed immediately prior to the Date of
Termination; provided, that if Executive, his spouse or his
dependents cannot continue to participate in the Company
programs providing such benefits, the Company shall arrange to
provide Executive, his spouse and his dependents with the
economic equivalent of such benefits which they otherwise would
have been entitled to receive under such plans and programs
("Continued
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Benefits"); provided, that if Executive becomes reemployed with
another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such
applicable period;
(iii) the Company shall reimburse Executive pursuant to
Section 5(d) for reasonable expenses incurred, but not paid,
prior to such termination of employment; and
(iv) Executive shall be entitled to any other rights,
compensation and/or benefits as may be due to Executive
following such termination to which he is otherwise entitled in
accordance with the terms and provisions of any agreements,
plans or programs of the Company.
(b) CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON. If
Executive's employment is terminated by the Company for Cause or by Executive
(other than for Good Reason):
(i) the Company shall pay Executive his Base Salary
and his accrued vacation pay (to the extent required by law or
the Company's vacation policy) through the Date of Termination,
as soon as practicable following the Date of Termination;
(ii) the Company shall reimburse Executive pursuant to
Section 5(d) for reasonable expenses incurred, but not paid,
prior to such termination of employment, unless such
termination resulted from a misappropriation of Company funds;
and
(iii) Executive shall be entitled to any other rights,
compensation and/or benefits as may be due to Executive
following such termination to which he is otherwise entitled in
accordance with the terms and provisions of any agreements,
plans or programs of the Company.
(c) DISABILITY. During any period that Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness ("Disability Period"), Executive shall continue to receive his full Base
Salary set forth in Section 5(a) until his employment is terminated pursuant to
Section 6(b). In the event Executive's employment is terminated for Disability
pursuant to Section 6(b):
(i) the Company shall pay to Executive (A) his Base
Salary and accrued vacation pay through the Date of
Termination, as soon as practicable following the Date of
Termination, and (B) provide Executive
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with disability benefits pursuant to the terms of the Company's
disability programs;
(ii) the Company shall reimburse Executive pursuant to
Section 5(d) for reasonable expenses incurred, but not paid,
prior to such termination of employment; and
(iii) Executive shall be entitled to any other rights,
compensation and/or benefits as may be due to Executive
following such termination to which he is otherwise entitled in
accordance with the terms and provisions of any agreements,
plans or programs of the Company.
(d) DEATH. If Executive's employment is terminated by his
death:
(i) the Company shall pay in a lump sum to Executive's
beneficiary, legal representatives or estate, as the case may
be, Executive's Base Salary through the Date of Termination;
(ii) the Company shall reimburse Executive's
beneficiary, legal representatives, or estate, as the case may
be, pursuant to Section 5(d) for reasonable expenses incurred,
but not paid, prior to such termination of employment; and
(iii) Executive's beneficiary, legal representatives or
estate, as the case may be, shall be entitled to any other
rights, compensation and benefits as may be due to any such
persons or estate following such termination to which such
persons or estate is otherwise entitled in accordance with the
terms and provisions of any agreements, plans or programs of
the Company.
9. MITIGATION. Executive shall not be required to mitigate
amounts payable under this Agreement by seeking other employment or otherwise,
and there shall be no offset against amounts due Executive under this Agreement
on account of subsequent employment except as specifically provided herein.
10. CONFIDENTIAL INFORMATION, OWNERSHIP OF DOCUMENTS;
NON-COMPETITION.
(a) CONFIDENTIAL INFORMATION. Executive shall hold in a
fiduciary capacity for the benefit of the Company all trade secrets and
confidential information, knowledge or data relating to the Company and its
businesses and investments and its Affiliates, which shall have been obtained by
Executive during Executive's employment by the Company and which is not
generally available public knowledge (other than by acts by Executive in
violation of this Agreement). Except as may be required or appropriate in
connection with his carrying out his duties under this Agree-
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ment, Executive shall not, without the prior written consent of the Company or
as may otherwise be required by law or any legal process, or as is necessary in
connection with any adversarial proceeding against the Company (in which case
Executive shall use his reasonable best efforts in cooperating with the Company
in obtaining a protective order against disclosure by a court of competent
jurisdiction), communicate or divulge any such trade secrets, information,
knowledge or data to anyone other than the Company and those designated by the
Company or on behalf of the Company in the furtherance of its business or to
perform duties hereunder.
(b) REMOVAL OF DOCUMENTS; RIGHTS TO PRODUCTS; OTHER
PROPERTY. All records, files, drawings, documents, models, equipment, and the
like relating to the Company's business and its Affiliates, which Executive has
control over shall not be removed from the Company's premises without its
written consent, unless such removal is in the furtherance of the Company's
business or is in connection with Executive's carrying out his duties under this
Agreement and, if so removed, shall be returned to the Company promptly after
termination of Executive's employment hereunder, or otherwise promptly after
removal if such removal occurs following termination of employment. Executive
shall assign to the Company all rights to trade secrets and other products
relating to the Company's business developed by him alone or in conjunction with
others at any time while employed by the Company. Executive shall also return
to the Company all Company-provided vehicles in his possession or control.
(c) PROTECTION OF BUSINESS. During the Employment Period
and until the second anniversary of Executive's Date of Termination (other than
if such termination is by the Company without Cause or by Executive for Good
Reason), the Executive will not (i) directly or indirectly, alone, in
association with or as a shareholder, principal, agent, partner, officer,
director, employee or consultant of any other organization, engage in the
business of the retail sale or wholesale distribution of food and related
products (including, without limitation, health and beauty care and general
merchandise products and all other products sold to the supermarket industry
(the "Food Distribution Business")) within the Standard Metropolitan Statistical
Areas ("SMSAs") in which the Company or any of its subsidiaries (the "Designated
Entities") are conducting their business operations or actively soliciting
business as of the Date of Termination; provided, however, this Section 10(c)
shall not preclude Executive's employment or other relationship with any
national retail chain engaged in the Food Distribution Business, regardless of
location, such as Kroger, Albertson's, or Safeway; (ii) divert any customer of
the Designated Entities to any entity which is engaged in the Food Distribution
Business in the same SMSA in which the Designated Entities are conducting their
business operations or actively soliciting business as of the Date of
Termination; or (iii) solicit any officer, employee (other than secretarial
staff) or consultant of any of the Designated Entities. Notwithstanding the
preceding sentence, Executive shall not be prohibited from owning less than one
percent (1%) of any publicly traded corporation (or from owning any greater
percentage if such ownership is through a mutual fund or other diversified
investment vehicle in which he has a passive and minority interest), whether or
not such corporation is in the Food Distribution Business. If, at any time, the
provisions of this Section 10(c) shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 10(c) shall be considered divisible and shall
become and be immediately
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amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and Executive agrees that this Section 10(c) as so amended
shall be valid and binding as though any invalid or unenforceable provision had
not been included herein. The parties agree that the duration and geographic
area for which the covenant not to compete set forth in this Section 10(c) is to
be effective are reasonable.
(d) INJUNCTIVE RELIEF. In the event of a breach or
threatened breach of this Section 10, Executive agrees that the Company shall be
entitled to injunctive relief in a court of appropriate jurisdiction to remedy
any such breach or threatened breach, Executive acknowledging that damages would
be inadequate and insufficient.
(e) CONTINUING OPERATION. Except as specifically provided
in this Section 10, the termination of Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 10.
11. ARBITRATION; LEGAL FEES AND EXPENSES. The parties agree that
Executive's employment and this Agreement relate to interstate commerce, and
that any disputes, claims or controversies between Executive and the Company
which may arise out of or relate to the Executive's employment relationship or
this Agreement shall be settled by arbitration. This agreement to arbitrate
shall survive the termination of this Agreement. Any arbitration shall be in
accordance with the Rules of the American Arbitration Association and shall be
undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in
Oklahoma City, Oklahoma unless the parties mutually agree on another location.
The decision of the arbitrator(s) will be enforceable in any court of competent
jurisdiction. The parties agree that punitive, liquidated or indirect damages
shall not be awarded by the arbitrator(s). Nothing in this agreement to
arbitrate, however, shall preclude the Company from obtaining injunctive relief
from a court of competent jurisdiction prohibiting any on-going breaches by
Executive of this Agreement including, without limitation, violations of Section
10. If any contest or dispute shall arise between the Company and Executive
regarding any provision of this Agreement, the Company shall reimburse Executive
for all legal fees and expenses reasonably incurred by Executive in connection
with such contest or dispute, but only if Executive is successful in respect of
one or more of Executive's material claims or defenses brought, raised or
pursued in connection with such contest or dispute. Such reimbursement shall be
made as soon as practicable following the resolution of such contest or dispute
to the extent the Company receives reasonable written evidence of such fees and
expenses.
12. SUCCESSORS BINDING AGREEMENT.
(a) COMPANY'S SUCCESSORS. No rights or obligations of the
Company under this Agreement may be assigned or transferred except that the
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/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
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perform it if no such succession had taken place. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets (by merger, purchase or otherwise) which executes and
delivers the agreement provided for in this Section 12 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) EXECUTIVE'S SUCCESSORS. No rights or obligations of
Executive under this Agreement may be assigned or transferred by Executive other
than his rights to payments or benefits hereunder, which may be transferred only
by will or the laws of descent and distribution. Upon Executive's death, this
Agreement and all rights of Executive hereunder shall inure to the benefit of
and be enforceable by Executive's beneficiary or beneficiaries, personal or
legal representatives, or estate, to the extent any such person succeeds to
Executive's interests under this Agreement. Executive shall be entitled to
select and change a beneficiary or beneficiaries to receive any benefit or
compensation payable hereunder following Executive's death by giving the Company
written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or
other legal representative(s). If Executive should die following his Date of
Termination while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts unless otherwise provided herein shall be
paid in accordance with the terms of this Agreement to such person or persons so
appointed in writing by Executive, or otherwise to his legal representatives or
estate.
13. NOTICE. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered either personally or
by United States certified or registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive:
Mark S. Hansen
Suite F8-602
8912 East Pinnacle Peak Road
Scottsdale, Arizona 85255
With a copy to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: James D. C. Barrall, Esq.
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If to the Company:
Fleming Companies, Inc.
6301 Waterford Boulevard
Oklahoma City, Oklahoma 73126-0647
Attention: General Counsel
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. MISCELLANEOUS. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Executive and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of 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 respective
rights and obligations of the parties hereunder shall survive Executive's
termination of employment and the termination of this Agreement to the extent
necessary for the intended preservation of such rights and obligations.
Executive is hereby required, prior to April 1, 1999, to take a physical
examination (including a drug screen) and deliver to the Company a letter from
the physician performing such physical examination to the effect that Executive
passed the drug screen and that such examination revealed no physical condition
that would prevent Executive from performing his duties to the Company under
this Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Oklahoma without
regard to its conflicts of law principles.
15. VALIDITY. The invalidity or unenforceability of any provision
or provisions 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.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect of such
subject matter. Any prior agreement of the parties hereto in respect of the
subject matter contained herein is hereby terminated and cancelled.
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18. WITHHOLDING. All payments hereunder shall be subject to any
required withholding of Federal, state and local taxes pursuant to any
applicable law or regulation.
19. SECTION HEADINGS. The section headings in this Agreement are
for convenience of reference only, and they form no part of this Agreement and
shall not affect its interpretation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
FLEMING COMPANIES, INC.
By /s/ David R. Almond
-------------------------------------------
David R. Almond, Senior Vice President,
General Counsel and Secretary
/s/ Mark S. Hansen
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Mark S. Hansen
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RESTRICTED STOCK AWARD AGREEMENT FOR
THE FLEMING COMPANIES, INC.
1990 STOCK INCENTIVE PLAN
THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") entered into
as of the 30th day of November, 1998, by and between Fleming Companies, Inc., an
Oklahoma corporation (the "Company"), and Mark S. Hansen (herein referred to as
the "Participant");
W I T N E S S E T H:
WHEREAS, the Participant has entered into an Employment Agreement with
the Company of even date pursuant to which he will serve the Company as Chairman
and Chief Executive Officer (the "Employment Agreement"); and
WHEREAS, the Company has previously adopted the Fleming Companies,
Inc. 1990 Stock Incentive Plan and certain amendments thereto (the "Plan"); and
WHEREAS, pursuant to Section 5(f) of the Employment Agreement, the
Company has awarded the Participant 32,000 shares of Common Stock under the Plan
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants herein contained, the Participant and the Company agree
as follows (all capitalized terms used herein, unless otherwise defined, have
the meaning ascribed to such terms as set forth in the Plan):
1. THE PLAN. The Plan, a copy of which is attached hereto as
Exhibit A, is hereby incorporated by reference herein and made a part hereof for
all purposes, and when taken with this Agreement shall govern the rights of the
Participant and the Company with respect to the Award (as defined below).
2. GRANT OF AWARD. The Company hereby grants to the Participant
an award (the "Award") of Thirty-two Thousand (32,000) shares of Company common
stock, par value $2.50 (the "Stock"), on the terms and conditions set forth
herein and in the Plan.
3. TERMS OF AWARD.
(a) ESCROW OF SHARES. A certificate representing the shares
of Stock subject to the Award (the "Restricted Stock") shall be issued in the
name of the Participant and shall be escrowed with the Secretary of the Company
(the "Escrow Agent") subject to removal of the restrictions placed thereon or
forfeiture pursuant to the terms of this Agreement.
<PAGE>
(b) VESTING. One-half of the shares of Restricted Stock will
vest based on the Participant's continuous employment with the Company through
November 30, 1999 and the remaining one-half of the shares of Restricted Stock
will vest based on the Participant's continuous employment with the Company
through November 30, 2000. In the event the Participant's employment with the
Company is terminated by reason of (i) death, (ii) disability, (iii) without
"Cause" (as such term is define din the Employment Agreement), or (iv) by the
Participant for "Good Reason" (as such term is defined in the Employment
Agreement), then all remaining shares of Restricted Stock (including any
"Accrued Dividends," as such term is hereafter defined) which have not yet been
vested shall immediately vest. Once vested pursuant to the terms of this
Agreement, the Restricted Stock shall be deemed Vested Stock.
(c) VOTING RIGHTS AND DIVIDENDS. The Participant shall have
all of the voting rights attributable to the shares of Restricted Stock issued
to him. Regular quarterly cash dividends declared and paid by the Company with
respect to the shares of Restricted Stock shall be paid to the Participant. Any
extraordinary dividends declared and paid by the Company with respect to the
shares of Restricted Stock ("Accrued Dividends") shall not be paid to the
Participant until such Restricted Stock becomes Vested Stock. Such Accrued
Dividends shall be held by the Company as a general obligation and paid to the
Participant at the time the underlying Restricted Stock becomes Vested Stock.
(d) VESTED STOCK - REMOVAL OF RESTRICTIONS. Upon Restricted
Stock becoming Vested Stock, all restrictions shall be removed from the
certificates representing such Stock and the Secretary of the Company shall
deliver to the Participant certificates representing such Vested Stock free and
clear of all restrictions together with a check in the amount of all Accrued
Dividends attributed to such Vested Stock without interest thereon.
(e) FORFEITURE. In the event the Participant's employment
with the Company is terminated for any reason other than (i) death, (ii)
disability, (iii) without Cause, or (iv) by the Participant for Good Reason
prior to all shares of Restricted Stock becoming Vested Stock, then, all
remaining shares of Restricted Stock which have not yet been vested (including
any Accrued Dividends) shall be absolutely forfeited and the Participant shall
have no further interest therein of any kind whatsoever.
4. CHANGE OF CONTROL.
(a) In the event of a Change of Control, all Restricted Stock
shall become Vested Stock and the Company shall deliver to the Participant
certificates representing the Vested Stock free and clear of all restrictions
together with any Accrued Dividends attributable to such Vested Stock without
interest thereon.
-2-
<PAGE>
(b) The Company shall also pay to the Participant any
Gross-Up Payment determined in accordance with Section 9.2 of the Plan.
5. LEGENDS. The shares of Stock which are the subject of the
Award shall be subject to the following legend:
"THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND
ARE TRANSFERRABLE ONLY IN ACCORDANCE WITH THAT CERTAIN RESTRICTED
STOCK AWARD AGREEMENT FOR THE FLEMING COMPANIES, INC. 1990 STOCK
INCENTIVE PLAN DATED THE 30TH DAY OF NOVEMBER, 1998. ANY ATTEMPTED
TRANSFER OF THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE IN
VIOLATION OF SUCH AGREEMENT SHALL BE NULL AND VOID AND WITHOUT EFFECT.
A COPY OF THE AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF FLEMING
COMPANIES, INC."
6. STOCK POWERS AND THE BENEFICIARY. The Participant hereby
agrees to execute and deliver to the Secretary of the Company a stock power
(endorsed in blank) in the form of Exhibit B hereto covering his Award and
authorizes the Secretary to deliver to the Company any and all shares of
Restricted Stock that are forfeited under the provisions of this Agreement. The
Participant further authorizes the Company to hold as a general obligation of
the Company any Accrued Dividends and to pay such dividends to the Participant
at the time the underlying Restricted Stock becomes Vested Stock. Pursuant to
Section 6.2 of the Plan, the Participant designates his Eligible Spouse as the
Beneficiary under this Agreement.
7. NONTRANSFERABILITY OF AWARD. The Participant shall not have
the right to sell, assign, transfer, convey, dispose, pledge, hypothecate,
burden, encumber or charge any shares of Restricted Stock or Accrued Dividends
held by the Escrow Agent or any interest therein in any manner whatsoever.
8. NOTICES. All notices or other communications relating to the
Plan and this Agreement as it relates to the Participant shall be in writing,
shall be deemed to have been made if personally delivered in return for a
receipt, or if mailed, by regular U.S. mail, postage prepaid, by the Company to
the Participant at the address set forth in Section 13 of the Employment
Agreement.
9. BINDING EFFECT AND GOVERNING LAW. This Agreement shall be (i)
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and assigns except as may be limited by the Plan and (ii)
governed and construed under the laws of the State of Oklahoma.
10. WITHHOLDING. The Company and the Participant shall comply with
all federal and state laws and regulations respecting
-3-
<PAGE>
the withholding, deposit and payment of any income, employment or other taxes
relating to the Award (including Accrued Dividends).
11. AWARD SUBJECT TO CLAIMS OR CREDITORS. The Participant shall
not have any interest in any particular assets of the Company, its parent, if
applicable, or any Subsidiary by reason of the right to earn an Award (including
Accrued Dividends) under the Plan and this Agreement, and the Participant or any
other person shall have only the rights of a general unsecured creditor of the
Company, its parent, if applicable, or a Subsidiary with respect to any rights
under the Plan or this Agreement.
12. CAPTIONS. The captions of specific provisions of this
Agreement are for convenience and reference only, and in no way define,
describe, extend or limit the scope of this Agreement or the intent of any
provision hereof.
13. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, each of which shall be deemed an original for all
purposes, but all of which taken together shall form but one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
"COMPANY" FLEMING COMPANIES, INC., an
Oklahoma corporation
By/s/ David R. Almond
--------------------------------------------------------------
David R. Almond, Senior Vice
President, General Counsel
and Secretary
"PARTICIPANT"
/s/ Mark S. Hansen
----------------------------------
Mark S. Hansen, Participant
-4-
<PAGE>
EXHIBIT A
---------
[Copy of 1990 Stock Incentive Plan. Intentionally Omitted.]
<PAGE>
EXHIBIT B
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Mark S. Hansen, an individual, hereby irrevocably
assigns and conveys to _______________________________, THIRTY-TWO THOUSAND AND
NO/100 (32,000) shares of the Common Capital Stock of Fleming Companies, Inc.,
an Oklahoma corporation, $2.50 par value.
DATED:
----------------------
-----------------------------------
Mark S. Hansen
<PAGE>
FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT dated as of March 2, 1999
(the "Amendment"), is made by and between Fleming Companies, Inc., an Oklahoma
corporation (the "Company"), and _________ an individual (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement dated as of March 2, 1995 which was amended pursuant to the
First Amendment thereto dated as of May 1, 1997, and the Second Amendment
thereto dated as of August 18, 1998 (the "Employment Agreement"); and
WHEREAS, the Company and the Executive mutually desire to amend the
Employment Agreement, and it is to the mutual benefit of the Company and the
Executive to amend the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the Company and the Executive hereby
amend the Employment Agreement as follows:
1. THE AMENDMENTS.
(a) NAME OF AGREEMENT. The name of the Agreement and all
references to the name of the Agreement within the Agreement shall be amended by
deleting the name "Employment Agreement" and replacing it with the name "Change
of Control Employment Agreement."
(b) SECTION 4(b)(ii). Section 4(b)(ii) shall be amended by
deleting it in its entirety and replacing it with the following:
(ii) ANNUAL BONUS. In addition to Base Salary, the
Executive shall be paid, for each fiscal year during the Employment
Period, an annual bonus in cash at least equal to the greater of (x)
the middle target level bonus payable, regardless of whether any
specified targets are met, under the Company's incentive
compensation plan applicable to the Executive for the Executive's
position, on the Effective Date (provided, however, if no middle
target level has been set as of the Effective Date, the middle
target level set for the fiscal year immediately preceding the
Effective date shall be utilized, and (y) the maximum aggregate
bonus paid (under the Company's incentive compensation plan
applicable to the Executive or otherwise) during any of the five
fiscal years immediately preceding the fiscal
<PAGE>
year in which the Effective Date occurs. The greater of the amounts
described in clauses (x) and (y) of this Section 4(b)(ii) shall
hereafter be called the "Annual Bonus."
(c) SECTION 6(d)(i)B. Section 6(d)(i)B. shall be amended by
deleting it in its entirety and replacing it with the following:
B. the product of (i) the Annual Bonus or, if higher, an
amount equal to the middle target level bonus payable, regardless of
whether specified targets are met, under the Company's incentive
compensation plan applicable to the Executive for his position on
the Date of Termination (as applicable, the "Highest Bonus") and
(ii) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination and the
denominator of which is 365; and
(d) SECTION 6(d)(i)C. Section 6(d)(i)C shall be amended by
deleting it in its entirety and replacing it with the following:
C. the product obtained by multiplying 2.99 times the sum of
(i) the Highest Base Salary and (ii) the Highest Bonus; and
2. THE AGREEMENT. The term "Agreement" as used in the Change of
Control Employment Agreement and in this Amendment shall hereafter mean the
Change of Control Employment Agreement as amended by this Amendment. The
Employment Agreement, as amended hereby, shall continue in full force and effect
in accordance with the terms thereof.
3. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Oklahoma.
4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed on the date first written above.
FLEMING COMPANIES, INC., an
Oklahoma corporation
By
--------------------------------------
Mark S. Hansen,
Chairman and Chief Executive
Officer
"COMPANY"
----------------------------------------
, an individual
---------------------
"EXECUTIVE"
-3-
<PAGE>
AMENDMENT NO. 1
TO THE FLEMING COMPANIES, INC.
1990 STOCK OPTION PLAN
WHEREAS, Fleming Companies, Inc. (the "Company") presently has in
existence the Fleming Companies, Inc. 1990 Stock Option Plan (the "Plan"); and
WHEREAS, the Board of Directors believes that the Plan should be
amended to provide the Compensation and Organization Committee flexibility with
respect to the extension of time periods for the exercise of nonqualified stock
options after termination of employment of participants; and
WHEREAS, the Board of Directors of the Company has authorized and
approved this Amendment No. 1 to the Plan at its meeting held on November 30,
1998;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. SECTION 2.1(a). Section 2.1(a) of the Plan is hereby amended to
delete it in its entirety and replace it with the following:
"Stock Options shall be granted by the Committee on the terms and
conditions determined by the Committee. The Committee shall have
the discretion to fix the period (the "Option Period") during which
any Stock Option may be exercised. Stock Options shall not be
transferable except by will or by the laws of descent and
distribution. Stock Options shall be exercisable only by the
Participant while actually employed by the Company or a subsidiary,
except that the Committee may, in its sole discretion, permit a
Participant whose employment with the Company or a subsidiary has
terminated, or his personal representative in the case of the death
of a Participant, to exercise any Stock Option which is otherwise
exercisable at any time specified by the Committee following such
date of termination."
2. SECTION 2.1(c). Section 2.1(c) of the Plan is hereby amended to
delete it in its entirety and replace it with the following:
"The Committee, in its sole discretion, may permit a Participant
whose employment with the Company or a subsidiary is terminated, or
his personal representative in the case of his
<PAGE>
death, to exercise all or any part of the shares subject to Stock
Options on the date of the Participant's death or termination,
notwithstanding the fact that all installments, if any, with respect
to such Stock Options had not accrued on such date, provided that
the Committee, in its sole discretion, shall determine the time
period following the date of termination for such exercise.
Except as provided in this Amendment No. 1, in all other respects
the Plan is hereby ratified and confirmed. The effective date of this Amendment
No. 1 shall be November 30, 1998 and it shall be effective only for nonqualified
stock options granted pursuant to the Plan on or after that date.
-2-
<PAGE>
FLEMING COMPANIES, INC.
1990 STOCK INCENTIVE PLAN (*)
FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the
Fleming Companies, Inc. 1990 Stock Incentive Plan upon the following terms and
conditions:
ARTICLE I
NAME AND PURPOSE OF PLAN
1.1 NAME OF PLAN. This Plan shall be hereafter known as the
FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN.
1.2 PURPOSE. The purpose of the Plan is to provide the Key
Associates who are selected to be Participants under the Plan an incentive to
motivate and financially reward such individuals who contribute to the long term
growth and profitability of the Company with such reward to be based on the
financial performance of the Company, including its Subsidiaries, during
Performances Cycles and on such other criteria including service with the
Company over time as the Committee in its sole discretion shall determine. Key
Associates will have the opportunity to earn their Award with payment to be made
either in cash or in shares of Common Stock which have been subject to certain
restrictions as provided in this Plan.
1.3 TYPE OF PLAN. This Plan shall be considered as a "nonqualified
deferred compensation plan" which is to be sponsored by the Company solely for
the purpose of providing a supplemental income for certain Key Associates who
contribute materially to the continued growth, development and future business
success of the Company. It is the intention of the Company that this Plan and
any Agreements entered into pursuant to the Plan be administered as an unfunded
welfare benefit plan established and maintained for a select group of Key
Associates.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following capitalized words and phrases
appear in this instrument, they shall have the respective meanings set forth
below unless a different context is clearly expressed herein.
- -----------------------
(*) As amended November 1, 1997 and August 18, 1998.
<PAGE>
(a) AGREEMENT: The word "Agreement" shall mean that certain
agreement which will be entered into by and between the Company and
the Participant which represents the Participant's Award for a
particular Performance Cycle as provided in Section 3.3 hereof.
(b) ANNIVERSARY DATE: The words "Anniversary Date" shall
mean the last Saturday of December which is end of the fiscal year of
the Company.
(c) AWARD: The word "Award" shall mean, with respect to any
Participant, the number of Phantom Stock Units or shares of Restricted
Stock granted to the Participant at the beginning of each Performance
Cycle.
(d) BENEFICIARY: The words "Beneficiary" shall mean that
person designated by the Participant pursuant to Section 6.2 hereof
who may be entitled to receive such Participant's Award in the event
of the death of the Participant.
(e) BOARD: The word "Board" shall mean the Board of
Directors of the Company.
(f) CHANGE OF CONTROL: The words "Change of Control" shall
mean the change in the control of the Company as described in Section
9.1 hereof.
(g) CODE: The word "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(h) COMMITTEE: The word "Committee" shall mean the committee
appointed by the Board which in accordance with Article X herein will
administer the Plan and which shall be constituted such that the Plan
complies with Rule 16b-3, or any successor rule, as may be amended
from time to time under the Securities Exchange Act of 1934.
(i) COMMON STOCK: The words "Common Stock" shall mean the
shares of common stock, par value $2.50 per share of the Company.
(j) COMPANY: The word "Company" shall mean Fleming
Companies, Inc., or its successor.
(k) CURRENT MARKET VALUE: The words "Current Market Value"
shall mean the closing price of the Common Stock of the Company as
reported on the New York Stock Exchange as
<PAGE>
of the trading day immediately preceding the date the Award is made.
(l) DISABILITY: The word "Disability" shall mean a physical
or mental condition arising during employment with the Employer
whereby a Participant has become totally and permanently disabled as
defined under the Fleming Companies, Inc. Long-Term Disability Plan.
(m) EFFECTIVE DATE: The words "Effective Date" shall mean
the 1st day of January, 1990 which is the date that this Plan shall be
effective for all purposes.
(n) ELIGIBLE SPOUSE: The words "Eligible Spouse" shall mean
the spouse to whom the Participant is married on his date of death.
(o) EMPLOYER: The word "Employer" shall mean either the
Company or any Subsidiary.
(p) ESCROW: The word "Escrow" shall mean that separate
arrangement under which Restricted Stock will be held pending
distribution to the Participant on the Vesting Date or as otherwise
provided in the Plan.
(q) ESCROW AGENT: The words "Escrow Agent" shall mean the
person or entity who shall administer the Escrow.
(r) KEY ASSOCIATE: The words "Key Associate" shall mean any
full time employee of the Company or a Subsidiary who holds the
position of Chairman, Chief Executive Officer, President, Executive
Vice President, Senior Vice President or Vice President or any other
associate of the Company or a Subsidiary who is selected for
participation in the Plan.
(s) PARTICIPANT: The word "Participant" shall mean a Key
Associate who has been selected by the Committee.
(t) PERFORMANCE CYCLE: The words "Performance Cycle" shall
mean a fixed period of time determined by the Committee over which
Awards may be earned by the Participant.
(u) PERFORMANCE GOALS: The words "Performance Goals" shall
mean those factors, goals and criteria selected by the Committee which
must be met by the Participant during the Performance Cycle in order
for a Partici-
<PAGE>
pant to earn his Award under the Performance Vesting Schedule.
(v) PERFORMANCE VESTING SCHEDULE: The words "Performance
Vesting Schedule" shall mean that schedule selected by the Committee
which shall contain the Performance Goals which must be met during the
applicable Performance Cycle in order for a Participant to become
vested in his Award under the Performance Vesting Schedule.
(w) PHANTOM STOCK UNITS: The words "Phantom Stock Units"
shall mean those monetary units which represent shares of Common Stock
which a Participant may earn as provided in Article V hereof.
(x) PLAN: The word "Plan" shall mean the "Fleming Companies,
Inc. 1990 Stock Incentive Plan," as set forth in this instrument, and
as hereafter amended from time to time.
(y) RESTRICTED STOCK: The words "Restricted Stock" shall mean
those shares of Common Stock which a Participant may earn as provided
in Article V hereof.
(z) RETIREMENT: The word "Retirement" shall mean a
Participant's termination of employment with the Company or a
Subsidiary after attaining the age of 65 years or later or, at the
discretion of the Committee, after attaining the age of 55 years or
later.
(aa) SERVICE VESTING SCHEDULE. The words "Service Vesting
Schedule" shall mean the period of employment service with the
Employer established by the Committee which must be met in order for a
Participant to become vested in his Award under the Service Vesting
Schedule.
(bb) SUBSIDIARY: The word "Subsidiary" shall mean any
corporation with 80% or more of its voting common stock being owned,
directly or indirectly, by the Company.
(cc) VESTING DATE: The words "Vesting Date" shall mean the
date on which a Participant becomes vested in his Award after
satisfying the requirements, if any, of any Performance Vesting
Schedule and/or Service Vesting Schedule; provided, however, that no
Participant may become vested in his Award within six months from date
the Award is granted.
<PAGE>
(dd) YEAR: The word "Year" shall mean the fiscal Year of the
Company.
2.2 CONSTRUCTION: The masculine gender, wherever appearing in the
Plan, shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. Any word appearing herein in the plural shall
include the singular, where appropriate, and likewise the singular shall include
the plural, unless the context clearly indicates to the contrary.
ARTICLE III
PARTICIPATION
3.1 SELECTION FOR PARTICIPATION. In order to be eligible for
participation in the Plan, a Key Associate of the Company must be selected by
the Committee. Selection for participation in the Plan shall be in the sole and
absolute discretion of the Committee.
3.2 PARTICIPATION IN CONSIDERATION FOR FUTURE SERVICES. Selection
of a Key Associate by the Committee for participation in the Plan and the
granting of any Award will be deemed to be for all purposes in consideration of
future services to be rendered by the Key Associate to the Company or its
Subsidiaries.
3.3 AWARD AGREEMENTS. Any Key Associate selected by the Committee
as a Participant, shall, as a condition of participation, execute and return to
the Committee an Agreement evidencing the Key Associate's participation in the
Plan, the amount of his Award and his agreement to the terms and conditions of
the Plan and the Agreement. A separate Agreement will be entered into by the
Company and the Participant for each Performance Cycle.
ARTICLE IV
RESTRICTED STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES OF RESTRICTED STOCK. Shares of Common Stock
subject to Award under this Plan in the form of Restricted Stock rather than
Phantom Stock Units shall not exceed in the aggregate Four Hundred Thousand
(400,000) shares of the Common Stock of the Company. Either authorized and
unissued shares or treasury shares may be subject to Award and delivered
pursuant to the Plan. If any Restricted Stock issued to a Participant is
forfeited as provided in this Plan, the Committee may reissue such Restricted
Stock to Participants.
<PAGE>
4.2 NUMBER OF PHANTOM STOCK UNITS. The number of Phantom Stock
Units which may be awarded under the Plan is subject to the sole discretion of
the Committee. Awards of Phantom Stock Units shall not reduce the number of
Shares of Restricted Stock which may be issued hereunder; and, correspondingly,
the shares of Restricted Stock shall not reduce the number of Phantom Stock
Units which may be awarded hereunder since there is no limitation on the maximum
number of shares of Phantom Stock Units. For all purposes under the Plan, the
value of the shares of Restricted Stock and the Phantom Stock Units will be
based upon the Current Market Value of the Common Stock at the time the Award is
made.
ARTICLE V
THE AWARDS
5.1 AMOUNT OF AWARDS, NUMBER OF UNITS. The Award granted to each
Participant for each Performance Cycle, expressed as a number of Phantom Stock
Units (or shares of Restricted Stock), is determined solely in the discretion of
the Committee. Awards of Restricted Stock will be paid in Common Stock of the
Company; and Awards of Phantom Stock Units will be paid in cash. Each Award of
Restricted Stock shall be calculated in the same manner as Awards of Phantom
Stock Units and shall contain such terms, restrictions and conditions as the
Committee may determine, which terms, restrictions and conditions may or may not
be the same in each case.
5.2 SPECIAL RULES FOR PHANTOM STOCK UNITS. Phantom Stock Units are
granted in the form of Units equivalent to shares of Common Stock. No
certificates shall be issued with respect to such units, but the Company shall
maintain a bookkeeping account in the name of the Participant to which such
units shall relate and such units shall otherwise be treated in a comparable
manner as if the Participant had been awarded shares of Common Stock (except
that no voting rights or other stock ownership rights shall apply to such
units). Each such unit shall represent the right to receive a cash payment of
equivalent value at one time, in the manner and subject to the restrictions set
forth in this Plan. If, during the Performance Cycle, cash dividends or other
cash distributions are paid with respect to shares of Common Stock, the Company
may pay to the Participant in cash an amount equal to the cash dividends or cash
distributions that he would have received if the Phantom Stock Units had been
granted in the form of shares of Common Stock rather than units equivalent
thereto. If, during the Performance Cycle, shares of Common Stock or other
securities or property are distributed with respect to the Common Stock,
additional units equivalent to such shares, securities or property shall be
added to
<PAGE>
the Participant's bookkeeping account as additional units and shall be subject
to forfeiture and all other limitations and restrictions imposed upon the
related units. Upon the expiration of the Performance Cycle or the
occurrence of any other event which may give rise to forfeiture under the Plan,
the Company may defer payment of dividend equivalents on Phantom Stock Units
until a determination is made as to the number of such units, if any, to be
forfeited, and no further dividend equivalents shall be paid with respect to
forfeited units after the date of the forfeiture (regardless of whether the
record date of the dividend is before or after the date of the forfeiture). In
the event of the death of a Participant, the Beneficiary shall have the same
right to receive cash payments equivalent to cash dividends and other cash
distributions with respect to the Phantom Stock Units which are not forfeited as
the Participant would have had if he had survived until payment of the Phantom
Stock Units is made to the Beneficiary pursuant to Subsection 6.2 hereof.
5.3 RESTRICTED STOCK HELD IN ESCROW. The Committee shall cause a
certificate to be delivered to the Escrow Agent (appointed pursuant to Section
5.4 below) registered in the name of the Participant representing the total
number of shares of Restricted Stock represented by his Award and a copy of the
Agreement relating to such Award in accordance with the following:
(a) Any such certificate shall be legended to indicate that
the shares of Restricted Stock represented thereby are subject to the terms and
conditions of the Award and the Plan.
(b) All Restricted Stock held by the Escrow Agent in the
Escrow shall constitute issued and outstanding shares of Common Stock of the
Company for all corporate purposes, and the Participant may, at the discretion
of the Committee, receive all dividends thereon and shall have the right to vote
such shares provided that the right to receive such dividends and to vote such
shares shall forthwith terminate with respect to unvested shares of Restricted
Stock of any Participant whose Award has been forfeited as provided in this
Plan.
(c) While such Restricted Stock is held in Escrow and until
such Restricted Stock has become fully vested on the Vesting Date, it shall be
subject to the restrictions set forth in Section 7.1 of the Plan.
(d) As such Restricted Stock shall vest from time to time in
the Participant in accordance with his Award, the Escrow Agent shall deliver to
such Participant or his respective Beneficiary (in the case of the Participant's
death) certificates
<PAGE>
representing such vested shares of Restricted Stock. As a condition precedent
to delivering a certificate representing shares of Restricted Stock covered by
an Award to the Escrow Agent, the Committee may require the Participant to
deliver to the Escrow Agent a duly executed irrevocable stock power or powers
(in blank) covering the Restricted Stock represented by such certificate.
(e) Certificates representing unvested shares of Restricted
Stock held by the Escrow Agent for the benefit of any Participant whose Award
(to the extent then unvested) has been forfeited shall be returned (together
with the related stock power) by the Escrow Agent to the Company.
(f) The Company shall have no liability to issue any
Restricted Stock hereunder unless such Restricted Stock and issuance thereof
comply with any applicable federal or state securities laws or any other
applicable laws.
(g) Participants may be granted more than one Award. The
granting of an Award shall not affect any outstanding Award previously made to a
Participant under the Plan.
5.4 ESCROW AGENT. An Escrow Agent for the Escrow shall be
appointed by the Committee for such period and upon such terms and conditions as
the Committee deems appropriate. The Committee shall have the power to remove
any person from the position of Escrow Agent and to appoint a substitute or
successor Escrow Agent. The fees and expenses of the Escrow Agent shall be paid
by the Company. The Escrow Agent shall not incur liability for any action taken
pursuant to the Plan or any Award made thereunder so long as the Escrow Agent
acts in good faith in accordance with the instructions of the Committee.
ARTICLE VI
PAYMENT OF AWARD
6.1 PAYMENT OF AWARD.
(a) GENERAL. With respect to each applicable Performance
Cycle, after satisfaction of any Performance Vesting Schedule and/or Service
Vesting Schedule prescribed by the Committee, payment of Awards shall be made as
soon as practicable following the Vesting Date which relates to the Award.
(b) SPECIAL TIME FOR PAYMENT. Notwithstanding the provisions
of Section 6.1(a), in the event of a Change of Control or termination of a
Participant's employment due to death, Retirement or Disability, then, the
Committee may, in its sole
<PAGE>
discretion, accelerate vesting and payment of any Award or take such other
actions as the Committee deems appropriate.
6.2 BENEFICIARY DESIGNATION. In the event of the death of a
Participant during a Performance Cycle, then, the Participant's Award, if any,
shall be paid to the then surviving Beneficiary designated by the Participant on
a form provided by the Committee, and, if there is no Beneficiary then
surviving, such benefits will automatically be paid to the surviving Eligible
Spouse of such Participant, otherwise to the estate of such Participant.
ARTICLE VII
GENERAL BENEFIT PROVISIONS
7.1 RESTRICTIONS ON ALIENATION OF BENEFITS. No right or benefit
under this Plan or the Agreement shall be subject in any manner to garnishment,
attachment, anticipation, alienation, sale, transfer, assignment, gift, pledge,
encumbrance, disposition, hypothecation, levy, execution or the claims of
creditors, either voluntarily or involuntarily, and any attempt to so garnish,
attach, anticipate, alienate, sell, transfer, assign, gift, pledge, encumber,
dispose, hypothecate, levy or execute on the same shall be null and void, and
neither shall such benefits or beneficial interests be liable for or subject to
the debts, contracts, liabilities, engagements or torts of any person to whom
such benefits or funds are payable.
7.2 NO TRUST. Other than as specifically provided in this Plan, no
action under this Plan by the Company, its Board or the Committee shall be
construed as creating a trust, escrow or other secured or segregated fund in
favor of the Participant, his Beneficiary, or any other persons otherwise
entitled to his Award. The status of the Participant and his Beneficiary with
respect to any liabilities assumed by the Company hereunder shall be solely
those of unsecured creditors of the Company who employs such Participant. Any
asset acquired or held by the Company in connection with liabilities assumed by
it hereunder, shall not be deemed to be held under any trust, escrow or other
secured or segregated fund for the benefit of the Participant or his
Beneficiaries or to be security for the performance of the obligations of the
Company or any Subsidiary, but shall be, and remain a general, unpledged,
unrestricted asset of the Company at all times subject to the claims of general
creditors of the Company.
7.3 WITHHOLDING FOR INCOME AND EMPLOYMENT TAXES. Since all amounts
to be paid under the Plan and the related Agreement to a Participant are to be
considered as supplemental compensation paid for services rendered by the
Participant, the Company shall
<PAGE>
comply with all federal and state laws and regulations respecting the
withholding, deposit and payment of any income, employment or other taxes
relating to any payments made under this Plan, and accordingly, all amounts of
Awards shall be subject to and reduced by the amount of such taxes. In the
event a Participant receives payment of Award in the form of Restricted Stock,
then, in such event, with the consent of the Committee, a Participant may elect
to pay any employment or withholding taxes by directing the Company to withhold
a number of shares of Restricted Stock equal to the withholding deposit which is
otherwise required with respect to such income or other employment taxes.
Notwithstanding the withholding of such Restricted Stock, such shares shall
still be considered to be subject to withholding taxes. The additional amount
of tax which is due may be likewise paid either in cash or by the withholding of
additional shares.
7.4 NO INTEREST ON AWARDS. All Awards to be paid hereunder will be
paid without interest or investment earnings of any kind whatsoever except as
otherwise specifically provided in the Plan.
7.5 PAYMENTS BY THE COMPANY OR SUBSIDIARY. The payments required
to fund the cost of the Awards provided by the Plan shall be made solely by the
Company or any Subsidiary whose Key Associates are participating in the Plan.
7.6 ADJUSTMENT ON RECAPITALIZATION. In case of a recapitalization,
stock split, merger, stock dividend, reorganization, combination, liquidation,
or other change in the Common Stock of the Company, the Committee shall make
such adjustment, if any, as it deems appropriate in the number or kind of shares
of Common Stock which remain available under the Plan for further Awards as well
as adjustment to the number of Phantom Stock Units which represent shares of
Common Stock. Unvested shares of Restricted Stock held by the Escrow Agent for
the benefit of a Participant shall participate in any of such events to the same
extent as any other issued and outstanding shares of Common Stock of the
Company, but appropriate adjustments, if required, shall be made by the
Committee, so that after giving effect to the occurrence of any of such events,
the Escrow Agent shall continue to hold such unvested shares and/or any other
securities delivered in respect thereof for the benefit of such Participant to
the extent practicable upon the same terms and conditions of this Plan and of
his Award.
<PAGE>
ARTICLE VIII
PROVISIONS RELATING TO PARTICIPANTS
8.1 INFORMATION REQUIRED OF PARTICIPANTS. Payment of Awards shall
be made as provided in this Plan and no formal claim shall be required therefor;
provided, in the interests of orderly administration of the Plan, the Committee
may make reasonable requests of Participants and Beneficiaries to furnish
information which is reasonably necessary and appropriate to the orderly
administration of the Plan, and, to that limited extent, payments under the Plan
are conditioned upon the Participants and Beneficiaries promptly furnishing
true, full and complete information as the Committee may reasonably request.
8.2 BENEFITS PAYABLE TO INCOMPETENTS. Any benefits payable
hereunder to a minor or other person under legal disability may be made, at the
discretion of the Committee, (i) directly to the said person, or (ii) to a
parent, spouse, relative by blood or marriage, or the legal representative of
the said person. The Committee shall not be required to see to the application
of any such payment, and the payee's receipt shall be a full and final discharge
of the Committee's responsibility hereunder.
8.3 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN. The
establishment and maintenance of the Plan shall not be construed as conferring
any legal rights upon any Participant to the continuation of employment with the
Employer, nor shall the Plan interfere with the rights of the Employer to
discharge any Participant with or without cause.
ARTICLE IX
ACCELERATION OF AWARDS ON CHANGE OF CONTROL
9.1 CHANGE OF CONTROL. In the event that there has been a Change
of Control (as defined hereafter), the Committee, in its sole discretion, may
accelerate the vesting and payment of any Award or may determine that a payment
in lieu of any Award shall be made. For the purpose of this Plan, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more (the "Triggering Percentage") of either (i) the then outstanding
shares of common stock of the Company (the "Outstanding Company Common
<PAGE>
Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, in
the event the "Incumbent Board" (as such term is hereinafter defined) pursuant
to authority granted in any rights agreement to which the Company is a party
(the "Rights Agreement") lowers the acquisition threshold percentages set forth
in such Rights Agreement, the Triggering Percentage shall be automatically
reduced to equal the threshold percentages set pursuant to authority granted to
the board in the Rights Agreement; and provided, further, however, that the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company, or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (x), (y), and (z) of subsection (c) of this Section 9.1; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, appointment or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for purposes of this definition, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, share exchange, merger or consolidation or acquisition of assets
of another corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (x) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination will beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction will own
the Company through one or more subsidiaries)
<PAGE>
in substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (y) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) will beneficially own,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (z) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination will have been members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the shareholders of the Company of (x) a complete
liquidation or dissolution of the Company or, (y) the sale or other disposition
of all or substantially all of the assets of the Company, other than to a
corporation, with respect to which following such sale or other disposition, (A)
more than 50% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors will be beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) less than 20% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors will be
beneficially owned, directly or indirectly, by any Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation),
except to the extent that such Person owned 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities prior to the sale
or disposition, and (C) at least a majority of the members of the board of
directors of such corporation will have been members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such sale or other disposition of assets of the Company.
<PAGE>
9.2 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Plan to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Participant (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Participant with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then,
the Committee may, in its sole discretion, authorize an additional payment (a
"Gross-Up Payment") to the Participant in an amount such that after payment by
the Participant of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Participant retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. In the event the Committee
determines that Gross-Up Payments shall be made to the Participants, the
procedures set forth in Section 9.2(b) through 9.2(d) shall apply.
(b) Subject to the provisions of Subsection 9.2(c) below, all
determinations required to be made under this Section 9.2, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Deloitte & Touche, Oklahoma City, Oklahoma or such other certified public
accounting firm as may be designated by the Participant (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Participant within 15 business days of the receipt of notice from the
Participant that there has been a Payment, or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of Control,
the Participant shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9.2, shall be paid by the Company to the
Participant within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Participant, it shall furnish the Participant with a written opinion that
failure to report the Excise Tax on the Participant's applicable federal
<PAGE>
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Participant. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Subsection 9.2(c) and the Participant
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Participant.
(c) The Participant shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Participant is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Participant shall not pay such claim prior to the expiration of the 30-day
period following the date on which he gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Participant in writing prior to the
expiration of such period that it desires to contest such claim, the Participant
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Participant harmless, on an
after-tax basis, for any
<PAGE>
Excise Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Subsection 9.2(c), the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Participant to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Participant agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however, that
if the Company directs the Participant to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Participant harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Participant with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Participant of an amount
advanced by the Company pursuant to Subsection 9.2(c), the Participant becomes
entitled to receive any refund with respect to such claim, the Participant shall
(subject to the Company's complying with the requirements of Subsection 9.2(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Participant of an amount advanced by the Company pursuant to
Subsection 9.2(c), a determination is made that the Participant shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Participant in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
<PAGE>
ARTICLE X
ADMINISTRATION AND COMMITTEE
10.1 ALLOCATION OF RESPONSIBILITY FOR PLAN ADMINISTRATION. The members
of the Committee shall serve at the pleasure of the Board and shall be the same
as the Compensation and Organization Committee appointed by the Board. Any
member may serve concurrently as a member of any other administrative committee
of any other plan of the Company or any of its affiliates entitling participants
therein to acquire stock, stock options or deferred compensation rights
(including stock appreciation rights). No member of the Board may serve on the
Committee if such member has been eligible, during the year preceding his
appointment, to participate under the Plan or any other plan of the Company or
any of its affiliates entitling participants therein to acquire stock, stock
options or deferred compensation rights (including stock appreciation rights).
A member of the Committee may not be eligible to become a Participant in the
Plan. The Committee shall have the power where consistent with the general
purpose and intent of the Plan to (i) modify the requirements of the Plan to
conform with the law or to meet in special circumstances not anticipated or
covered in the Plan, (ii) suspend or discontinue the Plan, (iii) establish
policies and (iv) adopt rules and regulations and prescribe forms for carrying
out the purposes and provisions of the Plan including the form of any
Agreements. Unless otherwise provided in the Plan, the Committee shall have the
authority to interpret and construe the Plan, and determine all questions
arising under the Plan and any Agreement made pursuant to the Plan. Any
interpretation, decision or determination made by the Committee shall be final,
binding and conclusive. A majority of the Committee shall constitute a quorum,
and an act of the majority of the members present at any meeting at which a
quorum is present shall be the act of the Committee.
10.2 APPOINTMENT OF COMMITTEE. The Plan shall be administered by the
Committee. All usual and reasonable expenses of the Committee incurred in
administering the Plan may be paid in whole or in part by the Company.
10.3 CLAIMS PROCEDURE. The Committee shall make all determinations as to
the right of any Participant or his Beneficiary to an Award. If any request for
a payment is wholly or partially denied, the Committee shall notify the person
requesting the payments, in writing, of such denial, including in such
notification the following information:
(a) the specific reason or reasons for such denial;
<PAGE>
(b) the specific references to the pertinent Plan provisions upon
which the denial is based;
(c) a description of any additional material and information which
may be needed to clarify the request, including an explanation of why such
information is required; and
(d) an examination of this Plan's review procedure with respect to
denial of benefits.
Provided, that any such notice to be delivered to any Participant or Beneficiary
shall be mailed by certified or registered mail and shall be written to the best
of the Committee's ability in a manner that may be understood without legal
counsel.
10.4 REVIEW PROCEDURE. Any Participant or Beneficiary whose claim has
been denied in accordance with Section 10.3 herein may appeal to the Committee
for review of such denial by making a written request therefor within 60 days of
receipt of the notification of such denial, and such Participant or Beneficiary
may examine documents pertinent to the review and may submit to the Committee
written issues and comments. Within 60 days after receipt of the request for
review, the Committee shall communicate to the claimant, in writing, its
decision, and the communication shall set forth the reason or reasons for the
decision and specific reference to those Plan provisions upon which the decision
is based.
10.5 RECORDS AND REPORTS. The Committee shall exercise such authority
and responsibility as it deems appropriate in order to comply with governmental
laws and regulations.
10.6 OTHER COMMITTEE POWERS AND DUTIES. The Committee shall have such
duties and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following:
(a) to construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment of any
Awards hereunder;
(b) to establish the Performance Goals and any other factors
relating to the Performance Vesting Schedule and the Service Vesting
Schedule as such relate to the Awards;
(c) to prepare and distribute, in such manner as the Committee
determines to be appropriate, information explaining the Plan;
<PAGE>
(d) to receive from the Company and from Participants and
Beneficiaries such information as shall be necessary for the proper
administration of the Plan;
(e) to furnish the Company upon request, such reports with respect
to the administration of the Plan as are reasonable and appropriate; and
(f) to appoint and employ individuals and any other agents it
deems advisable, including legal counsel, to assist in the administration
of the Plan and to render advice with respect to any responsibility of the
Committee, or any of its individual members, under the Plan.
10.7 RULES AND DECISIONS. The Committee may adopt such rules as it deems
necessary, desirable, or appropriate. When making a determination or
calculation, the Committee shall be entitled to rely upon information furnished
by a Participant or Beneficiary, the Employer, the accountants of the Company or
the legal counsel of the Company.
ARTICLE XI
AMENDMENT AND TERMINATION
11.1 RIGHT TO AMEND OR ALTER PLAN. The Plan may be amended by the
Company from time to time in any respect whatever by resolution of the Board
adopting such amendment and, if required by applicable law or the rules of any
exchange on which the Common Stock is listed, by the affirmative vote of the
holders of a majority of the shares of Common Stock. Any amendments may be
made, which in the judgment of the Committee are necessary or advisable,
provided that such amendments do not deprive a Participant, without his consent,
of a right to receive his Award hereunder which has been previously vested by
such Participant at the applicable point in time.
11.2 RIGHT TO TERMINATE PLAN. This Plan shall continue until terminated
as provided in this Section 11.2. The Company expressly reserves the right to
terminate this Plan in whole or in part at any time. Unless sooner terminated,
this Plan shall terminate on December 31, 1999 (the "Termination Date").
Provided, if the Company elects to terminate the Plan prior to the Termination
Date, the Company shall determine a proposed date of termination, and the
Committee shall notify the Participants. Provided further, the termination of
the Plan shall not cause a termination of any previously vested Award.
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 ARTICLES AND SECTION TITLES AND HEADINGS. The titles and headings
at the beginning of each Article and Section shall not be considered in
construing the meaning of any provisions in this Plan.
12.2 LAWS OF OKLAHOMA TO GOVERN. The provisions of this Plan shall be
construed, administered and enforced according to the laws of the State of
Oklahoma.
12.3 EFFECTIVE DATE OF PLAN. This Plan shall be effective as of the
Effective Date; provided, however, that it shall be cancelled and of no force
and effect if it has not been approved by the holders of a majority of the
Common Stock of the Company present, or represented, and entitled to vote at a
meeting called for such purposes within six months from the Effective Date.
<PAGE>
FLEMING COMPANIES, INC.
AMENDED AND RESTATED
DIRECTORS' COMPENSATION
AND
STOCK EQUIVALENT UNIT PLAN
ADOPTED: FEBRUARY 25, 1997
<PAGE>
AMENDED AND RESTATED FLEMING COMPANIES, INC.
DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I Name and Purpose of Plan. . . . . . . . . . . . . . . . . . . . 1
1.1 Name of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Type of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Definitions and Construction. . . . . . . . . . . . . . . . . . 1
2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III Participation and Administration. . . . . . . . . . . . . . . . 3
3.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Participation In Consideration for Services . . . . . . . . . . 3
3.3 Administration. . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV Direct Compensation . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Direct Compensation . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Payment of Direct Compensation. . . . . . . . . . . . . . . . . 4
4.3 Committee and Other Fees. . . . . . . . . . . . . . . . . . . . 4
4.4 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V Award of Stock Equivalent Units . . . . . . . . . . . . . . . . 4
5.1 Number of Stock Equivalent Units. . . . . . . . . . . . . . . . 4
5.2 Special Rules for Stock Equivalent Units. . . . . . . . . . . . 5
5.3 Payment of Stock Equivalent Units . . . . . . . . . . . . . . . 5
5.4 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI General Benefit Provisions. . . . . . . . . . . . . . . . . . . 6
6.1 Restrictions on Alienation of Benefits. . . . . . . . . . . . . 6
6.2 No Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Withholding For Income and Employment Taxes . . . . . . . . . . 6
6.4 No Interest on Awards . . . . . . . . . . . . . . . . . . . . . 7
6.5 Payments by the Company . . . . . . . . . . . . . . . . . . . . 7
6.6 Adjustment on Recapitalization. . . . . . . . . . . . . . . . . 7
ARTICLE VII Stockholder Approval; Amendment and Termination . . . . . . . . 7
7.1 Right to Amend or Alter Plan. . . . . . . . . . . . . . . . . . 7
7.2 Reliance on Reports . . . . . . . . . . . . . . . . . . . . . . 7
7.3 Right to Terminate Plan . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . 8
8.1 Articles and Section Titles and Headings. . . . . . . . . . . . 8
8.2 Laws of Oklahoma to Govern. . . . . . . . . . . . . . . . . . . 8
8.3 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
EXHIBITS
Exhibit A - Beneficiary Designation Form
-ii-
<PAGE>
AMENDED AND RESTATED FLEMING COMPANIES, INC.
DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN
FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the
Fleming Companies, Inc. Directors' Compensation and Stock Equivalent Unit Plan
upon the following terms and conditions:
ARTICLE I
NAME AND PURPOSE OF PLAN
1.1 NAME OF PLAN. This Plan shall be hereafter known as the
FLEMING COMPANIES, INC. DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN.
1.2 PURPOSE. The purpose of the Plan is to provide compensation to
Eligible Directors for services rendered and to also provide Eligible Directors
an incentive to motivate and financially reward such Directors who contribute to
the long term growth and profitability of the Company through awards of Stock
Equivalent Units.
1.3 TYPE OF PLAN. This Plan shall be considered as a "compensation
plan" which is to be sponsored by the Company for the purpose of providing a
supplemental income for Eligible Directors who contribute to the continued
growth, development and future business success of the Company.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following capitalized words and phrases
appear in this instrument, they shall have the respective meanings set forth
below unless a different context is clearly expressed herein.
(a) AWARD OR AWARDS: The words "Award" or "Awards" shall
mean Cash Awards and/or Stock Equivalent Units granted to an Eligible Director
pursuant to and in accordance with the terms and provisions of this Plan.
(b) AWARD PERIOD: The words "Award Period" shall mean a
fixed period of time commencing with the date a Stock Equivalent Unit is granted
and ending on the Termination Date.
(c) BENEFICIARY: The words "Beneficiary" shall mean that
person designated by the Eligible Director pursuant to Section 4.4 and Section
5.4 hereof who may be entitled to receive
<PAGE>
such Eligible Director's Direct Compensation and/or Stock Award in the event of
the death of the Eligible Director.
(d) BOARD: The word "Board" shall mean the Board of
Directors of the Company.
(e) CASH AWARD: The words "Cash Award" shall mean the annual
Direct Compensation paid to Eligible Directors.
(f) COMMITTEE: The word "Committee" shall mean the
"Compensation and Organization Committee" of the Company.
(g) COMMON STOCK: The words "Common Stock" shall mean the
shares of common stock of the Company, par value $2.50 per share.
(h) COMPANY: The word "Company" shall mean Fleming
Companies, Inc., an Oklahoma corporation, or its successor.
(i) DIRECT COMPENSATION: The words "Direct Compensation"
shall mean the basic annual fee or annual board retainer, if any, as set forth
in Section 4.1 paid or to be paid in cash during a calendar year to an Eligible
Director as compensation for serving as a member of the Board and excluding any
reimbursement payments for travel to or fee for attendance at or for chairing
meetings.
(j) DIRECTOR: The word "Director" shall mean a member of the
Board.
(k) EFFECTIVE DATE: The words "Effective Date" shall mean
January 1, 1997 which is the date that this Plan shall be effective for all
purposes.
(l) ELIGIBLE SPOUSE: The words "Eligible Spouse" shall mean
the spouse to whom the Eligible Director is married on his date of death.
(m) ELIGIBLE DIRECTOR: The words "Eligible Director" shall
mean a Director who is not an employee of the Company or any subsidiary.
(n) MARKET VALUE: The words "Market Value" shall mean (A)
during such time as the Common Stock is listed upon the New York Stock Exchange
or other exchanges or the NASDAQ/National Market System, the average of the
closing prices of the Common Stock on such stock exchange or exchanges or the
NASDAQ/National Market System on the trading day immediately preceding the day
for which the Market Value is to be determined, or if no sale of the Common
Stock shall have been made on any such stock exchange or the NASDAQ/National
Market System on such day, the next preceding day on which there was a sale of
the Common Stock shall be used to
-2-
<PAGE>
calculate such average or (B) during any such time as the Common Stock is not
listed upon an established stock exchange or the NASDAQ/National Market System,
the mean between dealer "bid" and "ask" prices of the Common Stock in the
over-the-counter market on the day for which such value is to be determined, as
reported by the National Association of Securities Dealers, Inc.
(o) PLAN: The word "Plan" shall mean the "Fleming Companies,
Inc. Amended and Restated Directors' Compensation and Stock Equivalent Unit
Plan," as set forth in this instrument, and as hereafter amended from time to
time.
(p) STOCK EQUIVALENT UNITS: The words "Stock Equivalent
Units" shall mean those monetary units, which may be granted to an Eligible
Director pursuant to Article V, which represent a like number of shares of
Common Stock.
(q) TERMINATION DATE: The words "Termination Date" shall
mean the date on which an Eligible Director ceases to be a member of the Board
for any reason, including, but not limited to, death, disability or retirement.
2.2 CONSTRUCTION: The masculine gender, wherever appearing in the
Plan, shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. Any word appearing herein in the plural shall
include the singular, where appropriate, and likewise the singular shall include
the plural, unless the context clearly indicates to the contrary.
ARTICLE III
PARTICIPATION AND ADMINISTRATION
3.1 PARTICIPATION. All Eligible Directors are automatically
eligible to participate in the Plan.
3.2 PARTICIPATION IN CONSIDERATION FOR SERVICES. Participation in
the Plan will be deemed to be for all purposes in consideration of services
rendered and to be rendered by the Eligible Director to the Company.
3.3 ADMINISTRATION. The Plan shall be administered by the
Committee and the Board shall grant and approve all Awards.
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<PAGE>
ARTICLE IV
DIRECT COMPENSATION
4.1 DIRECT COMPENSATION. The amount of annual Direct Compensation
which may be awarded to Eligible Directors under the Plan is subject to the sole
discretion of the Board; provided, however, in no event shall the amount of
Direct Compensation exceed the sum of $16,000 during any one calendar year.
Nothing contained in this Plan, however, shall restrict the Committee from
recommending and the Board from making awards of all Stock Equivalent Units to
Eligible Directors.
4.2 PAYMENT OF DIRECT COMPENSATION. The annual amount of Direct
Compensation determined by the Board shall be divided into quarterly payments
and paid quarterly on or before each March 31, June 30, September 30 and
December 31 during the term of this Plan.
4.3 COMMITTEE AND OTHER FEES. Commencing on the Effective Date,
and until altered, amended or modified by the Board, the annual committee
attendance fees for Eligible Directors shall not exceed the following:
<TABLE>
<CAPTION>
Fees Amount
---- ------
<S> <C>
Board Attendance Fee (per meeting) $1,000
Committee Attendance Fee (per meeting) 1,000
Committee Chair Attendance Fee - (per meeting) 250
</TABLE>
Fees for attendance at Board and Committee meetings and for acting as chair
shall be paid at the meeting for which the fee is earned.
4.4 BENEFICIARY DESIGNATION. In the event of the death of an
Eligible Director during any year of the Plan, the proportionate part of the
Eligible Directors' Cash Award which has been earned as of the date of such
Eligible Directors' death shall be paid to the then surviving Beneficiary
designated by the Eligible Director on the Beneficiary Designation Form in the
form attached hereto as Exhibit A, and, if there is no Beneficiary so designated
and then surviving, such Cash Award shall automatically be paid to the surviving
Eligible Spouse of such Eligible Director, or otherwise to the estate of such
Eligible Director.
ARTICLE V
AWARD OF STOCK EQUIVALENT UNITS
5.1 NUMBER OF STOCK EQUIVALENT UNITS. Until changed or amended by
the Board, the number of Stock Equivalent Units which may be awarded under the
Plan shall be a minimum of 1,000 Stock
-4-
<PAGE>
Equivalent Units for each calendar year of the Plan; provided, however, that
during each year of the Plan, in addition to the 1,000 Stock Equivalent Units,
the Committee may award additional Stock Equivalent Units in lieu of the Cash
Award or any portion thereof by dividing the selected amount of the Cash Award
by the Market Value of the Common Stock. Stock Equivalent Units shall be paid
on or before October 31 of each year of the term of the Plan. The Award granted
to each Eligible Director, expressed as a number of Stock Equivalent Units,
shall be determined solely in the discretion of the Board. Awards of Stock
Equivalent Units shall be paid in cash and shall be payable only on the
Termination Date. Each grant of Stock Equivalent Units shall contain such
terms, restrictions and conditions as the Committee may recommend and the Board
may determine, which terms, restrictions and conditions may or may not be the
same in each case; provided, however, in no event shall Stock Equivalent Units
be payable at any time other than on the Termination Date.
5.2 SPECIAL RULES FOR STOCK EQUIVALENT UNITS. Stock Equivalent
Units are granted in the form of units equivalent to shares of Common Stock. No
stock certificates shall be issued with respect to such units, however, a
certificate representing the number of Stock Equivalent Units shall be issued to
each Eligible Director who receives a grant of Stock Equivalent Units and the
Company shall maintain a bookkeeping account in the name of the Eligible
Director to which such units shall relate and such units shall otherwise be
treated in a comparable manner as if the Eligible Director had been awarded
shares of Common Stock (except that no voting rights or other stock ownership
rights shall apply to such units). Each such unit shall represent the right to
receive on the Termination Date a cash payment equal to the Market Value on the
Termination Date of the same number of shares of Common Stock in the manner and
subject to the restrictions set forth in this Plan. If, during the Award
Period, cash dividends or other cash distributions are paid with respect to
shares of Common Stock, such amounts shall be credited to the Eligible
Director's bookkeeping account and the Eligible Director shall be entitled to
receive on the Termination Date cash in the same manner as the Stock Equivalent
Units. If, during the Award Period, shares of Common Stock or other securities
or property are distributed with respect to the Common Stock, additional units
equivalent to such shares, securities or property shall be added to the Eligible
Director's bookkeeping account as additional units and shall be subject to all
other limitations and restrictions imposed upon the related units. In the event
of the death of a Eligible Director, the Beneficiary shall have the same right
to receive cash payments and other cash distributions with respect to the Stock
Equivalent Units as the Eligible Director would have had if he had survived.
-5-
<PAGE>
5.3 PAYMENT OF STOCK EQUIVALENT UNITS. Payment of Stock Equivalent
Units shall be made in a single cash payment as soon as practicable following
the Termination Date of the Eligible Director. All Stock Equivalent Units
issued prior to the Effective Date of this Plan shall be subject to and shall be
governed by the terms and provisions hereof.
5.4 BENEFICIARY DESIGNATION. In the event of the death of an
Eligible Director during an Award Period, then, the Eligible Director's Stock
Equivalent Units shall be paid to the then surviving Beneficiary designated by
the Eligible Director on the Beneficiary Designation Form in the form attached
hereto as Exhibit A, and, if there is no Beneficiary then surviving, such
benefits will automatically be paid to the surviving Eligible Spouse of such
Eligible Director, otherwise to the estate of such Eligible Director.
ARTICLE VI
GENERAL BENEFIT PROVISIONS
6.1 RESTRICTIONS ON ALIENATION OF BENEFITS. No right or benefit
pursuant to a Stock Equivalent Unit under this Plan shall be subject in any
manner to garnishment, attachment, anticipation, alienation, sale, transfer,
assignment, gift, pledge, encumbrance, disposition, hypothecation, levy,
execution or the claims of creditors, either voluntarily or involuntarily, and
any attempt to so garnish, attach, anticipate, alienate, sell, transfer, assign,
gift, pledge, encumber, dispose, hypothecate, levy or execute on the same shall
be null and void, and neither shall such benefits or beneficial interests be
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any person to whom such benefits or funds are payable.
6.2 NO TRUST. Other than as specifically provided in this Plan, no
action under this Plan by the Company, the Board or the Committee shall be
construed as creating a trust, escrow or other secured or segregated fund in
favor of the Eligible Director, his Beneficiary, or any other persons otherwise
entitled to his Stock Equivalent Units. The status of the Eligible Director and
his Beneficiary with respect to any liabilities assumed by the Company hereunder
shall be solely those of unsecured creditors of the Company. Any asset acquired
or held by the Company in connection with liabilities assumed by it hereunder,
shall not be deemed to be held under any trust, escrow or other secured or
segregated fund for the benefit of the Eligible Director or his Beneficiaries or
to be security for the performance of the obligations of the Company or any
subsidiary, but shall be, and remain a general, unpledged, unrestricted asset of
the Company at all times subject to the claims of general creditors of the
Company.
-6-
<PAGE>
6.3 WITHHOLDING FOR INCOME AND EMPLOYMENT TAXES. Since all amounts
to be paid under the Plan to an Eligible Director are to be considered as
supplemental compensation paid for services rendered by the Eligible Director,
the Company shall comply with all federal and state laws and regulations
respecting the withholding, deposit and payment of any income, employment or
other taxes relating to any payments made under this Plan, if any, and
accordingly, all amounts of Awards and any other payments made hereunder shall
be subject to and reduced by the amount of such taxes, if any.
6.4 NO INTEREST ON AWARDS. All Awards and any other payments made
hereunder will be paid without interest or investment earnings of any kind
whatsoever except as otherwise specifically provided in the Plan.
6.5 PAYMENTS BY THE COMPANY. The payments required to meet the
cost of the Awards provided by the Plan shall be made solely by the Company.
6.6 ADJUSTMENT ON RECAPITALIZATION. In case of a recapitalization,
stock split, merger, stock dividend, reorganization, combination, liquidation,
or other change in the Common Stock of the Company, the Board shall make such
adjustment to the number of Stock Equivalent Units and in the number of shares
of Common Stock available for award under the Plan which represent shares of
Common Stock to reflect such change in organization.
ARTICLE VII
STOCKHOLDER APPROVAL; AMENDMENT AND TERMINATION
7.1 RIGHT TO AMEND OR ALTER PLAN. The Plan may be amended by the
Company from time to time in any respect whatever by resolution of the Board
adopting such amendment. Amendments may be made, which in the judgment of the
Board are necessary or advisable, provided that such amendments do not deprive
an Eligible Director, without his consent, of a right to receive Awards
hereunder which have been previously granted to the Eligible Director at the
applicable point in time. Provided further, the amendment of the Plan shall not
cause a termination of any previously granted Award.
7.2 RELIANCE ON REPORTS. Each member of the Committee and each
member of the Board shall be fully justified in relying or acting in good faith
upon any report made by the independent public accountants of the Company and
upon any other information furnished in connection with the Plan by any person
or persons other than himself. In no event shall any person who is or shall
have been a member of the Committee or of the Board be liable for any
determination made or other action taken or any omission to act in
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<PAGE>
reliance upon any such report or information or for any action taken, including
the furnishing of information, or failure to act, if in good faith.
7.3 RIGHT TO TERMINATE PLAN. This Plan shall continue until
terminated as provided in this Section 8.5. The Board expressly reserves the
right to terminate this Plan in whole or in part at any time. Unless sooner
terminated, this Plan shall terminate on December 31, 2007. Provided, if the
Board elects to terminate the Plan, the Board shall determine a proposed date of
termination, and shall notify the Eligible Directors. Provided, further, the
termination of the Plan shall not cause a termination of any previously granted
Award.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 ARTICLES AND SECTION TITLES AND HEADINGS. The titles and
headings at the beginning of each Article and Section shall not be considered in
construing the meaning of any provisions in this Plan.
8.2 LAWS OF OKLAHOMA TO GOVERN. The provisions of this Plan shall
be construed, administered and enforced according to the laws of the State of
Oklahoma.
8.3 BINDING EFFECT. This Plan shall be binding upon the Company
and the Eligible Directors and their respective heirs, successors and assigns.
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<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
BENEFICIARY DESIGNATION FORM
AMENDED AND RESTATED FLEMING COMPANIES, INC.
DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN
- --------------------------------------------------------------------------------
Name:
-------------------------------
The Amended and Restated Fleming Companies, Inc. Directors' Compensation and
Stock Equivalent Unit Plan (the "Plan") provides that if you die while you are a
participant in the Plan:
Each of your Cash Awards and Stock Equivalent Units will be paid to the Primary
or Secondary Beneficiary(ies) that you designate below, and, if there is no
Beneficiary (either Primary or Secondary) surviving at your death, such benefits
will automatically be paid to your then surviving spouse, otherwise to your
estate.
You should designate Secondary Beneficiary(ies) in case your Primary
Beneficiary(ies) are not living at the time of your death.
I choose the following person or persons as Beneficiary(ies) to receive, in the
event of my death, all of my accounts in the percentages designated below. I
understand that this designation automatically cancels any previous designations
which I have made and that I may change this designation at any time by signing
another form.
- --------------------------------------------------------------------------------
PRIMARY BENEFICIARY(IES)
- --------------------------------------------------------------------------------
% SHARE
NAME RELATIONSHIP %
------------------------------- ------------------ ----
ADDRESS
-------------------------------------------------------------
STREET CITY STATE ZIP
% SHARE
NAME RELATIONSHIP %
------------------------------- ------------------ ----
ADDRESS
-------------------------------------------------------------
STREET CITY STATE ZIP
If more than one Primary Beneficiary is designated, the share of any Primary
Beneficiary who predeceases you will proportionately increase the share of the
surviving Primary Beneficiary(ies).
- --------------------------------------------------------------------------------
SECONDARY BENEFICIARY(IES)
- --------------------------------------------------------------------------------
% SHARE
NAME RELATIONSHIP %
------------------------------- ------------------ ----
ADDRESS
-------------------------------------------------------------
STREET CITY STATE ZIP
% SHARE
NAME RELATIONSHIP %
------------------------------- ------------------ ----
ADDRESS
-------------------------------------------------------------
STREET CITY STATE ZIP
<PAGE>
If more than one Secondary Beneficiary is designated, the share of any Secondary
Beneficiary who predeceases you will proportionately increase the share of the
surviving Secondary Beneficiary(ies).
SIGNATURE DATE
------------------------------------------- -----------
WITNESS DATE
--------------------------------------------- -----------
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<PAGE>
January 29, 1999
HAND DELIVERY
Thomas L. Zaricki
Dear Tom:
This letter outlines the severance package Fleming is offering you and, along
with the attached General Release, will also reflect our agreement if you decide
to accept this package. This individualized severance package supersedes the
one described in my January 19, 1999 letter, and is the result of our subsequent
discussions.
The terms of your severance package are as follows:
1. SALARY REPLACEMENT. The Company will pay you salary replacement in the
gross amount of one year's base salary at your current annual pay rate of
$283,500 payable in equal installments without regard to whether you have
obtained new employment. The first installment will be paid on the Company's
first regular payday after you return executed copies of this letter agreement
and the General Release referenced hereafter or seven (7) days following that
return date, whichever is later. The remaining installments will be paid
throughout the one year period on the Company's regular paydays.
2. BONUS BANK. The portion of your bonus which has previously been retained
by the Company in a bookkeeping account under the Economic Value Added Incentive
Bonus Plan for Fleming Companies, Inc. and its Subsidiaries (the "EVA Plan") for
potential future payment (the "Bonus Bank") equals $128,733. The Company will
distribute the entire gross amount of your Bonus Bank to you in a lump sum.
This payment will be made seven (7) days after you return executed copies of the
letter agreement and General Release.
3. ACCRUED VACATION. The Company will pay you for 1999 vacation accrued as of
January 1, 1999 and not used.
<PAGE>
-2-
4. "COBRA PREMIUM" REPLACEMENT. You have the right pursuant to COBRA to
continued coverage under the Fleming Companies, Inc. Health Choice Plan (the
"Medical Plan"). The Company will pay you a "COBRA premium" replacement in the
amount of twelve (12) times the monthly COBRA premium for your current level of
coverage under the Medical Plan, plus a "gross up" to offset income taxes, FICA
and any other payroll taxes. You will receive this payment in a lump sum with
the first installment of your salary replacement.
5. PAST SERVICE BENEFIT PLAN. The Company will waive any qualifying
requirements relating to vesting or distribution of the Fleming Companies, Inc.
Executive Past Service Benefit Plan (the "Past Service Plan") applicable to the
award of $274,260 made to you on November 1, 1997. This benefit, plus interest
as provided by the Past Service Plan, will be paid to you in accordance with
the election you have previously made under the terms of the Past Service Plan.
6. RESTRICTED STOCK AWARDS. The Company will waive all qualifying
requirements and accelerate distribution to you of 7,500 shares of restricted
stock (plus any paid dividends attributable to those shares) which were awarded
to you on November 1, 1997, under the Fleming Companies, Inc. 1996 Stock
Incentive Plan (the "1996 SIP"). Of those shares, 2,500 vested by time on
January 1, 1998, 2,500 vested by performance on March 31, 1998, and 2,500 vested
by time on January 1, 1999. Likewise, the Company will waive the qualifying
requirements and accelerate both vesting and distribution of 2,500 additional
shares of restricted stock (plus any paid dividends attributable to those
shares) awarded to you on November 1, 1997 under the 1996 SIP which, but for
your separation from employment with the Company, would have vested on January
1, 2000. Distribution of these restricted shares will be made seven (7) days
after you return the signed letter agreement and General Release. All other
restricted shares or awards which you might have become eligible to receive over
time under the 1996 SIP or any other Fleming plans will be forfeited.
7. AUTOMOBILE. The Company will transfer title to you of the automobile which
you have been driving in connection with Company business seven (7) days after
you return executed copies of the letter agreement and General Release.
8. REIMBURSEMENT OF RELOCATION COSTS. The Company will reimburse you for
costs you may incur prior to December 31, 1999, in connection with a relocation
from your current residence in order to accept new employment to a residence
outside a 75 mile radius of Oklahoma City, Oklahoma, provided that your next
employer does not regularly pay for relocation of new executive-level employees
and provided that such relocation costs are reasonable and would be reimbursed
in connection with the relocation of an executive-level associate pursuant to
the Company's established policies and practices. This reimbursement will be
paid within thirty (30) days after you submit vouchers representing the payment
of the relocation costs to the Company.
<PAGE>
-3-
9. OUTPLACEMENT. The Company will provide you with a "Level One" executive
outplacement package with James Farris & Associates. If you prefer to use a
different outplacement firm, the Company will pay that firm a reasonable fee (up
to 15% of your annual base salary) for whatever substitute outplacement package
you may select.
10. TAXES. Unless otherwise noted, any payments and benefits which are subject
to federal and state income tax withholding, FICA and other payroll taxes will
be reduced by those amounts by the Company.
11. GENERAL RELEASE. You will execute the General Release which is attached
and return it, along with the executed copy of this letter agreement, within
twenty-one (21) days. You will also agree not to attempt to revoke or rescind
the General Release at any time in the future nor commence any action against
Fleming in regard to your prior employment relationship. By signing this
letter, you are representing to the Company that you fully understand the
General Release and will have had an opportunity to seek legal advice regarding
the General Release and the agreement proposed by this letter, if you desire to
do so, before signing it. You are also representing to the Company that between
January 19, 1999, and the date you sign the General Release, you have not
commenced any charge, action or complaint with any court or with the Equal
Employment Opportunity Commission, the United States or Oklahoma Departments of
Labor nor with any other judicial or administrative agency in regard to your
employment relationship or any matters arising out of that relationship.
Finally, you are representing to the Company that you fully understand that any
such filing or commencement shall constitute a rejection by you of the Company's
severance package offered in this letter.
12. CONTINUED LITIGATION ASSISTANCE. You will continue to cooperate with and
assist the Company and its representatives and attorneys as requested with
respect to any litigation, arbitrations or other dispute resolutions by being
available for interviews, depositions and/or testimony in regard to any matters
in which you are or have been involved or with respect to which you have
relevant information. The Company will reimburse you for reasonable expenses
you may incur for travel in connection with this obligation.
13. FUTURE EMPLOYMENT AND CONFIDENTIALITY OF INFORMATION. Except with the
prior written consent of the Company, during the period you are receiving salary
replacement installments from the Company under paragraph 1, you will not be
employed by or otherwise act on behalf of any entity which directly competes
with ABCO Markets, Inc., Baker's Supermarkets, Rainbow Foods or
Sentry/Supersaver; provided that this non-competition obligation is not intended
to preclude an employment or other relationship between you and any national
retail grocery chain, regardless of location. Except with the prior written
consent of the Company, you will not at any time in the future be employed or
otherwise act as an "expert witness" or "consultant" or in any similar capacity
in any litigation, arbitration, regulatory or agency hearing or other
adversarial or investigatory proceeding involving Fleming. Also, except with
the prior written consent of the Company, you will not at any
<PAGE>
-4-
time hereafter make any independent use of or disclose to any other person or
organization any of the Company's confidential, proprietary information or trade
secrets. This shall apply to any information concerning Fleming which is of a
special and unique value and includes, without limitation, both written and
unwritten information relating to operations; business planning and strategies;
litigation strategies; finance; accounting; sales; personnel, salaries and
management; customer names, addresses and contracts; customer requirements;
costs of providing products and service; operating and maintenance costs; and
pricing matters. This shall also apply to any trade secrets of the Company the
protection of which is of critical importance to Fleming and includes, without
limitation, techniques, methods, processes, data and the like. This commitment
of confidentiality shall also apply to the terms of this severance package,
except for discussions with your spouse, your personal attorney and/or
accountants, or as needed to enforce our agreement. Any disclosure by such
individuals shall be deemed a disclosure by you and shall have the same
consequences as a breach of our agreement directly by you.
14. PRESERVING COMPANY NAME. You will not at any time in the future defame,
disparage or make statements which could embarrass or cause harm to the
Company's name and reputation or the names and reputation of any of its
officers, directors or representatives to the Company's current, former or
prospective vendors, customers, professional colleagues, industry organizations,
associates or contractors, to any governmental or regulatory agency or to the
press or media.
15. FORFEITURE. The continued payment by the Company and retention by you of
any payments to be made or benefits provided under this letter agreement shall
be contingent not only on your execution of the General Release described in
paragraph 11, but also on your on-going compliance with your other obligations
under our agreement, including your commitments in paragraphs 12, 13 and 14.
Breach of your obligations at any time in the future shall entitle the Company
to cease all payments to be made or benefits provided under this letter
agreement and shall entitle the Company to immediate reimbursement from you of
any payments you have previously received.
16. ARBITRATION. You and the Company agree that your employment and this
severance package relate to interstate commerce, and that any disputes, claims
or controversies between you and Fleming which may arise out of or relate to our
prior employment relationship or this letter agreement shall be settled by
arbitration. Our agreement to arbitrate shall survive the termination or
rescission of this letter agreement. Any arbitration shall be in accordance
with the Rules of the American Arbitration Association and shall be undertaken
pursuant to the Federal Arbitration Act. Arbitration will be held in Oklahoma
City, Oklahoma unless we mutually agree on another location. The decision of
the arbitrator(s) will be enforceable in any court of competent jurisdiction.
The arbitrator(s) may award costs and attorneys' fees in connection with the
arbitration to the prevailing party; however, in the arbitrator's(s')
discretion, each party may be ordered to bear its/his own
<PAGE>
-5-
costs and attorneys' fees. We agree that punitive, liquidated or indirect
damages shall not be awarded by the arbitrator(s). Nothing in this agreement to
arbitrate, however, shall preclude the Company from obtaining injunctive relief
from a court of competent jurisdiction prohibiting any on-going breaches by you
of your continuing obligations under paragraphs 11, 12, 13 or 14 of this letter
agreement pending arbitration.
The agreement of you and the Company, in the event you execute this letter, will
be in consideration of the mutual promises described above. Also, this letter
and the General Release will constitute the entire agreement between you and
Fleming with respect to your separation from employment and your severance
package.
Please contact me if you have any questions about the severance package. I will
need to know your decision no later than the close of business 21 days from the
date you receive this letter.
Very truly yours,
William J. Dowd
President and Chief Operating Officer
ACCEPTED AND AGREED TO BY:
/s/ Thomas L. Zaricki
- ----------------------------
Thomas L. Zaricki
February 3, 1999
- ----------------------------
Date
<PAGE>
NOTICE. VARIOUS STATE AND FEDERAL LAWS, INCLUDING TITLE VII OF THE CIVIL
RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE AMERICANS WITH
DISABILITIES ACT, THE EMPLOYEE RETIREMENT INCOME SECURITY ACT AND THE VETERANS
REEMPLOYMENT RIGHTS ACT (ALL AS AMENDED FROM TIME TO TIME), PROHIBIT EMPLOYMENT
DISCRIMINATION BASED ON SEX, RACE, COLOR, NATIONAL ORIGIN, RELIGION, AGE,
DISABILITY, ELIGIBILITY FOR COVERED EMPLOYEE BENEFITS OR VETERAN STATUS. THESE
LAWS ARE ENFORCED THROUGH THE EQUAL OPPORTUNITY EMPLOYMENT COMMISSION (EEOC),
UNITED STATES DEPARTMENT OF LABOR AND VARIOUS STATE OR MUNICIPAL FAIR EMPLOYMENT
BOARDS, HUMAN RIGHTS COMMISSIONS OR SIMILAR AGENCIES.
THIS GENERAL RELEASE IS BEING PROVIDED TO YOU IN CONNECTION WITH THE
SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE OUTLINED IN A PROPOSED LETTER
AGREEMENT DATED JANUARY 29, 1999. THE FEDERAL OLDER WORKER BENEFIT PROTECTION
ACT REQUIRES THAT YOU HAVE AT LEAST TWENTY-ONE (21) DAYS, IF YOU WANT IT, TO
CONSIDER WHETHER YOU WISH TO SIGN A RELEASE SUCH AS THIS ONE IN CONNECTION WITH
A SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. YOU HAVE UNTIL THE CLOSE OF
BUSINESS TWENTY-ONE (21) DAYS FROM THE DATE YOU RECEIVE THE JANUARY 29, 1999
LETTER TO MAKE YOUR DECISION. YOU MAY ACCEPT THE SPECIAL, INDIVIDUALIZED
SEVERANCE PACKAGE AT ANY TIME DURING THAT PERIOD. BEFORE EXECUTING THIS GENERAL
RELEASE YOU SHOULD REVIEW IT AND THE PROPOSED LETTER AGREEMENT CAREFULLY AND
CONSULT WITH YOUR ATTORNEY.
YOU MAY REVOKE THIS GENERAL RELEASE WITHIN SEVEN (7) DAYS AFTER YOU SIGN IT
AND IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THAT REVOCATION PERIOD
HAS EXPIRED. IF YOU DO NOT ACCEPT THE SEVERANCE PACKAGE AND SIGN AND RETURN
THIS GENERAL RELEASE WITHIN TWENTY-ONE (21) DAYS, OR IF YOU EXERCISE YOUR RIGHT
TO REVOKE THE GENERAL RELEASE AFTER SIGNING IT, YOU WILL NOT BE ELIGIBLE FOR THE
SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. ANY REVOCATION MUST BE IN WRITING
AND MUST BE RECEIVED BY FLEMING COMPANIES, INC., ATTENTION: DEE JEROME, 6301
WATERFORD BLVD., OKLAHOMA CITY, OK 73126, WITHIN THE SEVEN-DAY PERIOD FOLLOWING
YOUR EXECUTION OF THIS GENERAL RELEASE.
- --------------------------------------------------------------------------------
<PAGE>
GENERAL RELEASE
In consideration of the special, individualized severance package offered
to me by Fleming Companies, Inc. and the separation benefits I will receive as
reflected in a letter dated January 29, 1999 (the "Letter Agreement"), I release
and discharge Fleming Companies, Inc. and its successors, affiliates, parent,
subsidiaries, partners, employees, officers, directors and agents (hereinafter
referred to collectively as the "Company") from all claims, liabilities, demands
and causes of action, known or unknown, fixed or contingent, which I may have or
claim to have against the Company, including any claims arising out of or
relating to my past employment with the Company and the severance of that
relationship, as well as my decision to accept the separation benefits described
in the Letter Agreement, and do hereby covenant not to file a lawsuit to assert
such claims. This includes but is not limited to claims arising under federal,
state, or local laws prohibiting employment discrimination (including the Age
Discrimination in Employment Act), relating to any prior written, oral or
implied contracts pertaining to employment, severance or retirement or growing
out of any legal or equitable restrictions on the Company's rights not to
continue an employment relationship with its employees, but not to include any
claims under the Employee Retirement Income Security Act with regard to vested
rights in any of the Company's qualified retirement plans.
I have carefully reviewed and fully understand all the provisions of the
Letter Agreement, the foregoing Notice and this General Release, which set forth
the entire agreement between me and the Company.
I understand that my receipt of the separation benefits under the Letter
Agreement is dependent on my execution of this General Release, upon my return
to the Company of any Company property within my possession or control and upon
my continued cooperation in providing information necessary for transition and
maintenance of the Company's ongoing business. I also understand that my
receipt and retention of the separation benefits are also contingent on my
continued nondisclosure of the Company's confidential information, including the
terms of my severance package, and that prohibited disclosure of information or
any future defamation, disparaging remarks or statements by me to any third
parties, other associates or the media which could embarrass or cause harm to
the Company's name and reputation or to the name and reputation of its officers,
directors or representatives shall entitle the Company to reimbursement or
retention of any separation benefits I have received or may receive.
I acknowledge that the Company has given me a 21-day period to consider
this General Release and whether to accept the special, individualized severance
package, and that the Company has advised me to seek independent legal advice as
to these matters if I chose to do so. I further acknowledge that I have not
relied upon any representation or statement, oral or written, by the Company not
set forth in those materials and documents.
-2-
<PAGE>
DATED this 3rd day of February, 1999.
/s/ Thomas L. Zaricki
- -------------------- -----------------------------------
(Print Name) Thomas L. Zaricki
- -------------------- -----------------------------------
(Print Name) Witness
-3-
<PAGE>
February 22, 1999
HAND DELIVERY
Harry L. Winn, Jr.
Dear Harry:
This letter outlines the revised severance package Fleming is offering you and
supersedes the package in the letter dated February 17, 1999. This February 22,
1999 letter, along with the attached General Release, will reflect our agreement
if you decide to accept this package.
The terms of your severance package are as follows:
1. SALARY REPLACEMENT. The Company will pay you salary replacement in the
gross amount of one year's base salary at your current annual pay rate of
$334,400 payable in equal installments without regard to whether you have
obtained new employment. The first installment will be paid on the Company's
first regular payday after you return executed copies of this letter agreement
and the General Release referenced hereafter or seven (7) days following that
return date, whichever is later. The remaining installments will be paid
throughout the one year period on the Company's regular paydays.
2. BONUS BANK. The portion of your bonus which has previously been retained
by the Company in a bookkeeping account under the Economic Value Added Incentive
Bonus Plan for Fleming Companies, Inc. and its Subsidiaries (the "EVA Plan") for
potential future payment (the "Bonus Bank") equals $98,841. The Company will
distribute the entire gross amount of your Bonus Bank to you in a lump sum.
This payment will be made seven (7) days after you return executed copies of the
letter agreement and General Release.
3. ACCRUED VACATION. The Company will pay you for 1999 vacation accrued as of
January 1, 1999 and not used.
<PAGE>
-2-
4. "COBRA PREMIUM" REPLACEMENT. You have the right pursuant to COBRA to
continued coverage under the Fleming Companies, Inc. Health Choice Plan (the
"Medical Plan"). The Company will pay you a "COBRA premium" replacement in the
amount of twelve (12) times the monthly COBRA premium for your current level of
coverage under the Medical Plan, plus a "gross up" to offset income taxes, FICA
and any other payroll taxes. You will receive this payment in a lump sum with
the first installment of your salary replacement.
5. PAST SERVICE BENEFIT PLAN. The Company will waive any qualifying
requirements relating to vesting or distribution of the Fleming Companies, Inc.
Executive Past Service Benefit Plan (the "Past Service Plan") applicable to the
award made to you on November 1, 1997. This benefit, plus interest as provided
by the Past Service Plan, equalled approximately $265,592 as of December 31,
1998. It will be paid to you in accordance with the election you have
previously made under the terms of the Past Service Plan.
6. RESTRICTED STOCK AWARDS. The Company will waive all qualifying
requirements and accelerate distribution to you of 22,500 shares of restricted
stock (plus any paid dividends attributable to those shares) which were awarded
to you on November 1, 1997, under the Fleming Companies, Inc. 1996 Stock
Incentive Plan (the "1996 SIP"). Of those shares, 7,500 vested by time on
January 1, 1998, 7,500 vested by performance on March 31, 1998, and 7,500 vested
by time on January 1, 1999. Likewise, the Company will waive the qualifying
requirements and accelerate both vesting and distribution of 7,500 additional
shares of restricted stock (plus any paid dividends attributable to those
shares) awarded to you on November 1, 1997 under the 1996 SIP which, but for
your separation from employment with the Company, would have vested on January
1, 2000. Distribution of these restricted shares will be made seven (7) days
after you return the signed letter agreement and General Release. All other
restricted shares or awards which you might have become eligible to receive over
time under the 1996 SIP or any other Fleming plans will be forfeited.
7. AUTOMOBILE, LAPTOP COMPUTER AND OFFICE ARTWORK. The Company will transfer
title to you of the automobile which you have been driving in connection with
Company business seven (7) days after you return executed copies of the letter
agreement and General Release. The Company will also allow you to keep the
laptop computer you have been using, although we will, of course, expect you to
expunge any of the Company's business information you have downloaded onto it.
The Company also recognizes that the artwork and maps which have been in your
office are your personal property and that you are free to remove those items.
<PAGE>
-3-
8. REIMBURSEMENT OF RELOCATION COSTS. The Company will reimburse you for
costs you may incur in the twelve (12) months following your separation in
connection with relocating your family members and personal possessions from
your current residence to a residence outside a 75 mile radius of Oklahoma City,
Oklahoma in order to accept new employment, provided that your next employer
does not regularly pay for these types of relocation expenses for new
executive-level employees and provided that such relocation costs are reasonable
and would be reimbursed to Fleming associates under the Company's reimbursement
practices regarding personal travel expenses to the new destination and
household goods shipment expenses. This reimbursement will be paid within
thirty (30) days after you submit vouchers representing the payment of these
relocation costs to the Company.
9. OUTPLACEMENT. The Company will provide you with a "Level One" executive
outplacement package with James Farris & Associates. If you prefer to use a
different outplacement firm, the Company will pay that firm a reasonable fee (up
to 15% of your annual base salary) for whatever substitute outplacement package
you may select.
10. TAXES. Unless otherwise noted, any payments and benefits which are subject
to federal and state income tax withholding, FICA and other payroll taxes will
be reduced by those amounts by the Company.
11. GENERAL RELEASE. You will execute the General Release which is attached
and return it, along with the executed copy of this letter agreement, within
twenty-one (21) days of the date you receive this letter. You will also agree
not to attempt to revoke or rescind the General Release at any time in the
future or commence any action against Fleming in regard to your prior employment
relationship. By signing this letter, you are representing to the Company that
you fully understand the General Release and will have had an opportunity to
seek legal advice regarding the General Release and the agreement proposed by
this letter, if you desire to do so, before signing it. You are also
representing to the Company that between the date of this letter and the date
you sign the General Release, you have not commenced any charge, action or
complaint with any court or with the Equal Employment Opportunity Commission,
the United States or Oklahoma Departments of Labor or with any other judicial or
administrative agency in regard to your employment relationship or any matters
arising out of that relationship. Finally, you are representing to the Company
that you fully understand that any such filing or commencement shall constitute
a rejection by you of the Company's severance package offered in this letter.
<PAGE>
-4-
12. CONTINUED LITIGATION ASSISTANCE. You will continue to cooperate with and
assist the Company and its representatives and attorneys as requested with
respect to any litigation, arbitrations or other dispute resolutions by being
available for interviews, depositions and/or testimony in regard to any matters
in which you are or have been involved or with respect to which you have
relevant information. The Company will reimburse you for reasonable expenses
you may incur for travel in connection with this obligation.
13. FUTURE EMPLOYMENT AND CONFIDENTIALITY OF INFORMATION. Except with the
prior written consent of the Company, during the period you are receiving salary
replacement installments from the Company under paragraph 1, you will not be
employed by or otherwise act on behalf of an entity which competes with the
Company in the food distribution or marketing business. Except with the prior
written consent of the Company, you will not at any time in the future be
employed or otherwise act as an expert witness or consultant or in any similar
capacity in any litigation, arbitration, regulatory or agency hearing or other
adversarial or investigatory proceeding involving Fleming. Also, except with
the prior written consent of the Company, you will not at any time hereafter
make any independent use of or disclose to any other person or organization any
of the Company's confidential, proprietary information or trade secrets. This
shall apply to any information concerning Fleming which is of a special and
unique value and includes, without limitation, both written and unwritten
information relating to operations; business planning and strategies; litigation
strategies; finance; accounting; sales; personnel, salaries and management;
customer names, addresses and contracts; customer requirements; costs of
providing products and service; operating and maintenance costs; and pricing
matters. This shall also apply to any trade secrets of the Company the
protection of which is of critical importance to Fleming and includes, without
limitation, techniques, methods, processes, data and the like. This commitment
of confidentiality shall also apply to the terms of this severance package,
except for discussions with your spouse, your personal attorney and/or
accountants, or as needed to enforce our agreement. Any disclosure by such
individuals shall be deemed a disclosure by you and shall have the same
consequences as a breach of our agreement directly by you.
14. PRESERVING COMPANY NAME. You will not at any time in the future defame,
disparage or make statements which could embarrass or cause harm to the
Company's name and reputation or the names and reputation of any of its
officers, directors or representatives to the Company's current, former or
prospective vendors, customers, professional colleagues, industry organizations,
associates or contractors, to any governmental or regulatory agency or to the
press or media.
15. FORFEITURE. The continued payment by the Company and retention by you of
any payments to be made or benefits provided under this letter agreement shall
be contingent not only on your execution of the General Release described in
paragraph 11, but also on your on-going compliance with your other obligations
under our agreement, including your commitments in paragraphs 12, 13 and 14.
Breach of your obligations at any time in the
<PAGE>
-5-
future shall entitle the Company to cease all payments to be made or benefits
provided under this letter agreement and shall entitle the Company to immediate
reimbursement from you of any payments you have previously received.
16. ARBITRATION. You and the Company agree that your employment and this
severance package relate to interstate commerce, and that any disputes, claims
or controversies between you and Fleming which may arise out of or relate to our
prior employment relationship or this letter agreement shall be settled by
arbitration. Our agreement to arbitrate shall survive the termination or
rescission of this letter agreement. Any arbitration shall be in accordance
with the Rules of the American Arbitration Association and shall be undertaken
pursuant to the Federal Arbitration Act. Arbitration will be held in Oklahoma
City, Oklahoma unless we mutually agree on another location. The decision of
the arbitrator(s) will be enforceable in any court of competent jurisdiction.
The arbitrator(s) may award costs and attorneys' fees in connection with the
arbitration to the prevailing party; however, in the arbitrator's(s')
discretion, each party may be ordered to bear its/his own costs and attorneys'
fees. We agree that punitive, liquidated or indirect damages shall not be
awarded by the arbitrator(s). Nothing in this agreement to arbitrate, however,
shall preclude the Company from obtaining injunctive relief from a court of
competent jurisdiction prohibiting any on-going breaches by you of your
continuing obligations under paragraphs 11, 12, 13 or 14 of this letter
agreement pending arbitration.
17. INDEMNIFICATION AND INSURANCE. The Company shall hereafter indemnify you
and hold you harmless in the same manner as it would any other key management
associate of the Company with respect to acts or omissions occurring prior to
your separation from employment. In addition, for a period of five years
following your separation from employment, the Company shall cover you under any
Directors and Officers liability insurance policy which is in effect covering
acts or omissions occurring prior to the termination of your employment to the
same extent it provides such coverage for directors and officers of the Company
at that time.
The agreement of you and the Company, in the event you execute this letter, will
be in consideration of the mutual promises described above. Also, this letter
and the General Release will constitute the entire agreement between you and
Fleming with respect to your separation from employment and your severance
package.
<PAGE>
-6-
Please contact me if you have any questions about the severance package. I will
need to know your decision no later than the close of business twenty-one (21)
days from the date you receive this letter.
Very truly yours,
Mark S. Hansen
Chairman and Chief Executive Officer
DELIVERED BY:
- --------------------------
Signature
- --------------------------
Date
ACCEPTED AND AGREED TO BY:
/s/ Harry L. Winn, Jr.
- --------------------------
Harry L. Winn, Jr.
February 25, 1999
- --------------------------
Date
<PAGE>
NOTICE. VARIOUS STATE AND FEDERAL LAWS, INCLUDING TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE
AMERICANS WITH DISABILITIES ACT, THE EMPLOYEE RETIREMENT INCOME SECURITY ACT AND
THE VETERANS REEMPLOYMENT RIGHTS ACT (ALL AS AMENDED FROM TIME TO TIME),
PROHIBIT EMPLOYMENT DISCRIMINATION BASED ON SEX, RACE, COLOR, NATIONAL ORIGIN,
RELIGION, AGE, DISABILITY, ELIGIBILITY FOR COVERED EMPLOYEE BENEFITS OR VETERAN
STATUS. THESE LAWS ARE ENFORCED THROUGH THE EQUAL OPPORTUNITY EMPLOYMENT
COMMISSION (EEOC), UNITED STATES DEPARTMENT OF LABOR AND VARIOUS STATE OR
MUNICIPAL FAIR EMPLOYMENT BOARDS, HUMAN RIGHTS COMMISSIONS OR SIMILAR AGENCIES.
THIS GENERAL RELEASE IS BEING PROVIDED TO YOU IN CONNECTION WITH THE
SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE OUTLINED IN A PROPOSED LETTER
AGREEMENT DATED FEBRUARY 22, 1999. THE FEDERAL OLDER WORKER BENEFIT PROTECTION
ACT REQUIRES THAT YOU HAVE AT LEAST TWENTY-ONE (21) DAYS, IF YOU WANT IT, TO
CONSIDER WHETHER YOU WISH TO SIGN A RELEASE SUCH AS THIS ONE IN CONNECTION WITH
A SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. YOU HAVE UNTIL THE CLOSE OF
BUSINESS TWENTY-ONE (21) DAYS FROM THE DATE YOU RECEIVE THE FEBRUARY 22, 1999
LETTER AND THIS GENERAL RELEASE TO MAKE YOUR DECISION. YOU MAY ACCEPT THE
SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE AT ANY TIME DURING THAT PERIOD. BEFORE
EXECUTING THIS GENERAL RELEASE YOU SHOULD REVIEW IT AND THE PROPOSED LETTER
AGREEMENT CAREFULLY AND CONSULT WITH YOUR ATTORNEY.
YOU MAY REVOKE THIS GENERAL RELEASE WITHIN SEVEN (7) DAYS AFTER YOU
SIGN IT AND IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THAT REVOCATION
PERIOD HAS EXPIRED. IF YOU DO NOT ACCEPT THE SEVERANCE PACKAGE AND SIGN AND
RETURN THIS GENERAL RELEASE WITHIN TWENTY-ONE (21) DAYS, OR IF YOU EXERCISE YOUR
RIGHT TO REVOKE THE GENERAL RELEASE AFTER SIGNING IT, YOU WILL NOT BE ELIGIBLE
FOR THE SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. ANY REVOCATION MUST BE IN
WRITING AND MUST BE RECEIVED BY FLEMING COMPANIES, INC., ATTENTION: DEE JEROME,
6301 WATERFORD BLVD., OKLAHOMA CITY, OK 73126, WITHIN THE SEVEN-DAY PERIOD
FOLLOWING YOUR EXECUTION OF THIS GENERAL RELEASE.
<PAGE>
GENERAL RELEASE
In consideration of the special, individualized severance package
offered to me by Fleming Companies, Inc. and the separation benefits I will
receive as reflected in a letter dated February 22, 1999 (the "Letter
Agreement"), I release and discharge Fleming Companies, Inc. and its successors,
affiliates, parent, subsidiaries, partners, employees, officers, directors and
agents (hereinafter referred to collectively as the "Company") from all claims,
liabilities, demands and causes of action, known or unknown, fixed or
contingent, which I may have or claim to have against the Company, including any
claims arising out of or relating to my past employment with the Company and the
severance of that relationship, as well as my decision to accept the separation
benefits described in the Letter Agreement, and do hereby covenant not to file a
lawsuit to assert such claims. This includes but is not limited to claims
arising under federal, state, or local laws prohibiting employment
discrimination (including the Age Discrimination in Employment Act), relating to
any prior written, oral or implied contracts pertaining to employment, severance
or retirement or growing out of any legal or equitable restrictions on the
Company's rights not to continue an employment relationship with its employees,
but not to include any claims under the Employee Retirement Income Security Act
with regard to vested rights in any of the Company's qualified retirement plans.
I have carefully reviewed and fully understand all the provisions of
the Letter Agreement, the foregoing Notice and this General Release, which set
forth the entire agreement between me and the Company.
I understand that my receipt of the separation benefits under the
Letter Agreement is dependent on my execution of this General Release, upon my
return to the Company of any Company property within my possession or control
and upon my continued cooperation in providing information necessary for
transition and maintenance of the Company's ongoing business. I also understand
that my receipt and retention of the separation benefits are also contingent on
my continued nondisclosure of the Company's confidential information, including
the terms of my severance package, and that prohibited disclosure of information
or any future defamation, disparaging remarks or statements by me to any third
parties, other associates or the media which could embarrass or cause harm to
the Company's name and reputation or to the name and reputation of its officers,
directors or representatives shall entitle the Company to reimbursement or
retention of any separation benefits I have received or may receive.
I acknowledge that the Company has given me a 21-day period to
consider this General Release and whether to accept the special, individualized
severance package, and that the Company has advised me to seek independent legal
advice as to
-2-
<PAGE>
these matters if I chose to do so. I further acknowledge that I have not relied
upon any representation or statement, oral or written, by the Company not set
forth in those materials and documents.
DATED this 25th day of February, 1999.
/s/ Harry L. Winn, Jr.
- ------------------- ---------------------------------------
(Print Name) Harry L. Winn, Jr.
- ------------------- ---------------------------------
(Print Name) Witness
-3-
<PAGE>
Exhibit 12
FLEMING COMPANIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THE LAST SATURDAY IN DECEMBER
1998 1997 1996 1995 1994
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Earnings:
Pre-tax income (loss) $(598,202) $ 82,685 $ 54,573 $ 85,892 $ 112,337
Fixed charges, net 198,336 200,266 204,527 212,173 148,125
Total earnings (loss) $(399,866) $ 282,951 $ 259,100 $ 298,065 $ 260,462
Fixed charges:
Interest expense $ 161,581 $ 162,506 $ 163,466 $ 175,390 $ 120,071
Portion of rental charges
deemed to be interest 36,328 37,393 40,699 36,456 27,746
Capitalized interest and
debt issuance cost
amortization 604 1,186 104 708 364
Total fixed charges $ 198,513 $ 201,085 $ 204,269 $ 212,554 $ 148,181
Deficiency $ 598,379
Ratio of earnings (loss)
to fixed charges (2.01) 1.41 1.27 1.40 1.76
</TABLE>
"Earnings" consist of income from continuing operations before income taxes
and fixed charges excluding capitalized interest. Capitalized interest
amortized during the respective periods is added back to earnings.
"Fixed charges, net" consist of interest expense, an estimated amount of
rental expense which is deemed to be representative of the interest factor
and amortization of capitalized interest and debt issuance cost.
The pro forma ratio of earnings to fixed charges is omitted as it is not
applicable.
Under the company's long-term debt agreements, "earnings" and "fixed charges"
are defined differently and amounts and ratios differ accordingly.
<PAGE>
Exhibit 21
FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Fleming Companies, Inc. had the following subsidiaries at year-end 1998:
ABCO Holding, Inc. (incorporated in Delaware),*,#
ABCO Markets Inc. (incorporated in Arizona),*
ABCO Realty Corp. (incorporated in Arizona)
American Logistics Group, Inc. (incorporated in Delaware)
Arizona Price Impact, L.L.C. (incorporated in Oklahoma),#
Big W of Florida, Inc. (incorporated in Delaware),*,#
Chouteau Development Company, L.L.C. (incorporated in Oklahoma),#
Fleming Foreign Sales Corporation (incorporated in Barbados)
Fleming International Ltd. (incorporated in Oklahoma)
Fleming Supermarkets of Florida, Inc. (incorporated in Florida)
Fleming Transportation Service, Inc. (incorporated in Oklahoma)
Fleming Wholesale, Inc. (incorporated in Nevada)
Gateway Insurance Agency, Inc. (incorporated in Wisconsin)
LAS, Inc. (incorporated in Oklahoma),*
Northwest Foods, L.L.C. (incorporated in Oklahoma),*
Piggly Wiggly Company (incorporated in Oklahoma)
Progressive Realty, Inc. (incorporated in Oklahoma)
Retail Investments, Inc. (incorporated in Nevada)
Retail Supermarkets, Inc. (incorporated in Texas)
RFS Marketing Services, Inc. (incorporated in Oklahoma)
Richmar Foods, Inc. (incorporated in California)
SAV-U-FOODS, Inc. (incorporated in Oklahoma),*,#
Scrivner Transportation, Inc. (incorporated in Oklahoma),*
Timber Ridge Foods, L.L.C. (incorporated in Oklahoma),*,#
University Foods, Inc. (incorporated in Utah)
* Inactive corporation
# Not 100% owned by Fleming Companies, Inc. or subsidiary.
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in:
(i) Registration Statement No. 2-98602 (1985 Stock Option Plan) on Form
S-8;
(ii) Registration Statement No. 33-36586 (1990 Fleming Stock Option Plan)
on Form S-8;
(iii) Registration Statement No. 33-56241 (Dividend Reinvestment and Stock
Purchase Plan) on Form S-3;
(iv) Registration Statement No. 333-11317 (1996 Fleming Incentive Stock
Option Plan) on Form S-8;
(v) Registration Statement No. 333-35703 (Senior Subordinated Notes) on
Form S-4;
(vi) Registration Statement No. 333-28219 (Associate Stock Purchase Plan)
on Form S-8;
of our report dated February 18, 1999 appearing in this Annual Report on Form
10-K of Fleming Companies, Inc. for the year ended December 26, 1998.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 12, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Fleming Companies, Inc.
(hereinafter the "Company"), hereby severally constitute Mark S. Hansen and
David R. Almond, and each of them severally, our true and lawful attorneys
with full power to them and each of them to sign for us, and in our names as
officers or directors, or both, of the Company, the Annual Report on Form
10-K for the fiscal year ended December 26, 1998, and any and all amendments
thereto, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and to perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, may lawfully do or cause to be done by virtue hereof.
Dated this 2nd day of March, 1999.
Signature Title
MARK S. HANSEN Chairman and Chief Executive
Mark S. Hansen Officer (principal executive
and financial officer)
KEVIN TWOMEY Vice President - Controller
Kevin Twomey (principal accounting officer)
JACK W. BAKER Director
Jack W. Baker
HERBERT M. BAUM Director
Herbert M. Baum
ARCHIE R. DYKES Director
Archie R. Dykes
CAROL B. HALLETT Director
Carol B. Hallett
EDWARD C. JOULLIAN III Director
Edward C. Joullian III
GUY A. OSBORN Director
Guy A. Osborn
Alice M. Peterson Director
DAVID A. RISMILLER Director
David A. Rismiller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR DECEMBER 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> DEC-26-1998
<CASH> 5,967
<SECURITIES> 0
<RECEIVABLES> 478,663
<ALLOWANCES> 27,758
<INVENTORY> 984,287
<CURRENT-ASSETS> 1,587,916
<PP&E> 1,554,884
<DEPRECIATION> 734,819
<TOTAL-ASSETS> 3,490,832
<CURRENT-LIABILITIES> 1,281,084
<BONDS> 1,143,900
96,356
0
<COMMON> 0
<OTHER-SE> 473,575
<TOTAL-LIABILITY-AND-EQUITY> 3,490,832
<SALES> 15,069,335
<TOTAL-REVENUES> 15,069,335
<CGS> 13,594,241
<TOTAL-COSTS> 15,481,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24,484
<INTEREST-EXPENSE> 161,581
<INCOME-PRETAX> (598,202)
<INCOME-TAX> (87,607)
<INCOME-CONTINUING> (510,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (510,595)
<EPS-PRIMARY> (13.48)
<EPS-DILUTED> (13.48)
</TABLE>
