SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 9, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........to...........
Commission File number 0-6080
FOOD LION, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0660192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1330, 2110 Executive Drive Salisbury, NC 28145-1330
(Address of principal executive office) (Zip Code)
(704) 633-8250
(Registrant's telephone number)
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 and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
Outstanding shares of common stock of the Registrant as of October
13, 1995.
Class A Common Stock 240,577,659
Class B Common Stock 238,442,114
Page 1 of 29
The Exhibit index is located on page 14.
FOOD LION, INC.
INDEX TO FORM 10-Q
SEPTEMBER 9, 1995
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the 12 and 36
weeks ended September 9, 1995 and September
10, 1994 3-4
Balance sheets as of September 9, 1995,
December 31, 1994 and September 10, 1994 5
Statements of Cash Flows for the 36 weeks
ended September 9, 1995 and September 10, 1994 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security
Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
-2-
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended September 9, 1995 and September 10, 1994
(Dollars in thousands except per share data)
September 9, 1995 September 10, 1994 12 WEEKS
(A) (B) (A) (B)
% %
<S> <C> <C> <C> <C>
Net sales $1,913,982 $1,849,806 100.00 100.00
Cost of goods sold 1,515,690 1,474,395 79.19 79.71
Gross profit 398,292 375,411 20.81 20.29
Selling and administrative expenses 282,575 262,031 14.77(1) 14.16
Interest expense 14,980 21,496 0.78(1) 1.16
Depreciation 33,519 31,465 1.75(1) 1.70
331,074 314,992 17.30 17.02
Income before income taxes 67,218 60,419 3.51 3.27
Provision for income taxes 26,215 23,866 1.37 1.29
Net income $ 41,003 $ 36,553 2.14 1.98
Earnings per share $ 0.09 $ 0.08
Dividends per share $ 0.02 $ 0.02
Weighted average number
of shares outstanding
Class A 241,997,345 244,135,824
Class B 238,893,281 239,571,114
Total 480,890,626 483,706,938
(1) Includes a 0.21%, 0.14% and a 0.06% adjustment for Selling and
Adm. Expenses, Interest Expense and Depreciation,
respectively, to correct an accounting misclassification made
in earlier periods of 1995. The 36 week data is
correct as reported.
</TABLE>
-3-
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
STATEMENTS OF INCOME
(Unaudited)
For the 36 Weeks ended September 9, 1995 and September 10, 1994
(Dollars in thousands except per share data)
September 9, 1995 September 10, 1994 36 WEEKS
(C) (D) (C) (D)
% %
<S> <C> <C> <C> <C>
Net sales $5,675,452 $5,475,732 100.00 100.00
Cost of goods sold 4,503,631 4,367,311 79.35 79.76
Gross profit 1,171,821 1,108,421 20.65 20.24
Selling and administrative expenses 825,790 779,213 14.55 14.23
Interest expense 52,545 63,164 0.93 1.16
Depreciation 100,517 96,609 1.77 1.76
978,852 938,986 17.25 17.15
Income before income taxes 192,969 169,435 3.40 3.09
Provision for income taxes 75,569 66,926 1.33 1.22
Net income $ 117,400 $ 102,509 2.07 1.87
Earnings per share $ 0.24 $ 0.21
Dividends per share $ 0.07 $ 0.07
Weighted average number
of shares outstanding
Class A 243,404,900 244,135,799
Class B 239,290,086 239,571,114
Total 482,694,986 483,706,913
</TABLE>
-4-
<TABLE>
FOOD LION, INC.
BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 9, 1995 December 31, 1994 September 10, 1994
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 168,419 $ 66,869 $ 337,233
Receivables 145,014 140,628 100,948
Inventories 804,557 855,712 805,029
Prepaid expenses and other 78,616 67,905 54,522
Total current assets 1,196,606 1,131,114 1,297,732
Property, at cost, less accumulated depreciation 1,402,650 1,356,673 1,324,342
Total assets $2,599,256 $2,487,787 $2,622,074
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable -- $ 20,000 --
Accounts payable, trade $ 353,652 344,595 $ 343,465
Accrued expenses 346,565 298,024 291,300
Long-term debt - current -- 25 75
Capital lease obligations - current 10,505 9,122 7,621
Other liabilities - current 3,850 3,293 3,411
Income taxes payable 18,924 22,169 31,284
Total current liabilities 733,496 697,228 677,156
Long-term debt 355,300 355,300 569,300
Capital lease obligations 319,900 304,963 295,882
Deferred income taxes 46,190 46,190 36,587
Deferred compensation 644 668 714
Other liabilities 59,271 56,085 54,448
Total liabilities 1,514,801 1,460,434 1,634,087
Shareholders' Equity:
Class A non-voting common stock, $.50 par value 122,073 122,071 122,068
Class B voting common stock, $.50 par value 119,786 119,786 119,786
Additional capital 360 337 309
Retained earnings 867,775 785,159 745,824
1,109,994 1,027,353 987,987
Less treasury stock at cost;
4,273,115 shares 25,539
Total shareholders' equity 1,084,455 1,027,353 987,987
Total liabilities and shareholders' equity $2,599,256 $2,487,787 $2,622,074
</TABLE>
-5-
FOOD LION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the 36 Weeks ended September 9, 1995 and September 10, 1994
(Dollars in thousands)
36 Weeks
September 9, 1995 September 10, 1994
Cash flows from operating activities
Net income $117,400 $102,509
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 100,517 96,609
Gain on disposals of property ( 456) ( 81)
Changes in operating assets and liabilities:
Receivables ( 4,386) 9,004
Inventories 51,155 124,109
Prepaid expenses and other ( 10,711) ( 206)
Accounts payable and accrued expenses 57,598 45,347
Income taxes payable ( 3,245) 21,177
Deferred compensation ( 24) 143
Other liabilities 3,743 ( 4,830)
Total adjustments 194,191 291,272
Net cash provided by operating activities 311,591 393,781
Cash flows from investing activities
Proceeds from disposal of property 4,386 2,330
Capital expenditures ( 126,651) ( 57,217)
Net cash used in investing activities ( 122,265) ( 54,887)
Cash flows from financing activities
Net payments under short-term borrowings ( 20,000) ( 10,007)
Principal payments under capital lease obligations( 7,453) ( 5,486)
Principal payments on long-term debt ( 25) ( 158)
Proceeds from issuance of common stock 25 22
Purchase of treasury stock ( 25,539)
Dividends paid ( 34,784) ( 32,098)
Net cash used in financing activities ( 87,776) ( 47,727)
Net increase in cash and cash
equivalents 101,550 291,167
Cash and cash equivalents at beginning
of period 66,869 46,066
Cash and cash equivalents at end of period $168,419 $337,233
-6-
Notes to Financial Statements (Dollars in thousands)
1) Basis of Presentation:
The accompanying financial statements are presented in
accordance with the requirements of Form 10-Q and, consequently,
do not include all the disclosures normally required by
generally accepted accounting principles or those normally made
in the Annual Report on Form 10-K of Food Lion, Inc. (the
"Company"). Accordingly, the reader of this Form 10-Q should
refer to the Company's Form 10-K for the year ended December 31,
1994 for further information.
The financial information has been prepared in accordance
with the Company's customary accounting practices and has not
been audited. In the opinion of management, the financial
information includes all adjustments consisting of normal
recurring accruals necessary for a fair presentation of interim
results.
2) Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
September 9, 1995 September 10,1994
Interest (net of amounts $49,489 $53,049
capitalized)*
Income taxes 78,821 45,685
*Interest capitalized 1,564 580
Capital lease obligations for stores of $27,846 and $17,760
were incurred in the 36 week period of 1995 and 1994,
respectively. Capital lease retirements of $4,173 and $17,420
were recorded in the 36 week period of 1995 and 1994,
respectively.
The Company considers all highly liquid investment
instruments purchased with an original maturity of three months
or less to be cash equivalents.
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 36 weeks ended September 9, 1995
compared to 12 and 36 weeks ended September 10, 1994)
Net sales increased 3.5% and 3.6% for the quarter and year to
date, respectively. Same store sales increased 1.7% for the
quarter and 2.8% year to date.
As of the end of the third quarter, the Company had opened 12 new
stores and renovated 72 existing stores, adding approximately
1,400,000 square feet. The 1995 business plan includes opening 50
new stores (15 of these openings will replace older Food Lion
locations) and renovating 120 existing stores, which includes
adding deli/bakeries and additional selling space to most of these
stores.
Gross profits increased 0.52% of sales for the quarter and 0.41%
of sales year to date due to increases in the perishable, deli and
grocery departments which continue to experience improved gross
profits. The sales mix has been altered to accommodate better
selection of products requested by customers. In addition, the
number of stores with deli-bakery departments has increased 23.2%
(654 stores this year compared to 531 stores last year),
contributing to the increased deli-bakery department gross profit.
The growth of Food Lion's private label program (representing 12%
of total sales) is positively impacting gross profits in the
grocery department.
For the quarter and year to date, selling and administrative
expenses increased 0.40% of sales and 0.32% of sales,
respectively, due to increases in rent, supplies and benefits.(1)
As mentioned above, the Company continues to add deli-bakery
departments to its operations (654 stores with deli-bakeries TY
vs. 531 a year ago). Although the deli-bakery department commands
a high gross margin, the operation of this department is costly as
it includes additional expenses related to rent, supplies,
salaries and maintenance. Store supply costs
were affected by the increasing cost of paper and plastic bags,
and benefits increased due to rising medical costs. Store rent
increased year to date due to a provision accrued for 1995 store
closings (older units to be replaced by new Food Lion locations,
see above). The Company will continue to incur expenses at a
level higher than historical levels in an effort to support new
initiatives the Company believes are helping to increase sales.
-8-
Interest expense decreased 0.24% of sales for the quarter and
0.23% of sales year to date due to the prepayment of the senior
note agreement totaling $214 million in the fourth quarter of 1994
and increased capitalized interest resulting from the expansion of
the Greencastle, Pennsylvania distribution center.(1)
Depreciation increased 0.11% of sales for the quarter and 0.01% of
sales year to date due to the additional leasehold improvements
resulting from increased renovations to existing stores.(1)
At year end 1993, the Company established a pre-tax charge of
$170.5 million (approximately $104 million after tax) to cover
management's best estimate of the costs associated with closing 88
underperforming stores in 1994. During the first six months of 1994,
the Company closed 84 of these stores (a decision was made in early 1994 to
keep four stores open). As of the end of the third quarter 1995, the
Company has charged $26.3 million against the provision (including
$6.6 million during the third quarter), primarily as a result of
the payment of remaining rent obligations on leased stores, and
the disposition of store inventory and property. As of September
9, 1995, the Company had made no additional adjustments to the
realizable value of the properties. As efforts to dispose of
store properties continue, the Company will monitor and evaluate
the provision to make necessary adjustments. As previously
disclosed, the Company is realizing the anticipated benefit of
these store closings in the current year. These store closings
have positively impacted pre-tax earnings by approximately $20
million through the third quarter.
(1) Excludes a 0.21%, 0.14%, and 0.06% of sales adjustment for
selling and administrative expenses, interest expense, and
depreciation, respectively, made in the third quarter of 1995 to
adjust for the misclassification of certain leases as capital
rather than operating in the first two quarters of 1995.
Including the third quarter adjustment, selling and administrative
expenses increased 0.61%, interest expense decreased 0.38%, and
depreciation increased 0.05%, as a percentage of sales, compared
to the third quarter of 1994.
-9-
Liquidity and Capital Resources
Cash provided by operating activities totaled $311.6 million for
the 36 weeks ended September 9, 1995 compared with $393.8 million
for the same period last year. This decrease is due primarily to a
change in the comparative levels of inventory TY compared to LY. Capital
expenditures totaled $126.7 million for the 36 weeks ended
September 9, 1995 compared with $57.2 million for the same period
in 1994. The increase is primarily due to additional construction
costs and equipment associated with the expansion of the
Greencastle, Pennsylvania distribution center, increased costs for
store renovations/expansions and construction of company-owned
stores.
During the third quarter of 1995, the Company opened four new
stores and renovated 31 existing stores. The Company plans to
open 38 new stores in the remaining months of 1995 (13 of these
openings will replace older Food Lion locations). The majority of
these stores will be opened under conventional leasing
arrangements and, as a result, the impact on liquidity of owning
stores will be insignificant. The Company also plans to renovate
48 existing stores in the remaining months of 1995.
Significant cash capital expenditures currently estimated for the
remainder of 1995 are as follows:
Construction-renovations and new store openings $15 million
Equipment-renovations and new store openings $10 million
For the foreseeable future, the Company's cash capital
expenditures will be financed through funds generated from
operations and with existing bank and credit lines, along with
other debt, if necessary.
The Company will consider the possibility of sale-leaseback
transactions on certain free-standing, company-owned stores in the
future if advantageous opportunities are presented by potential
lessors.
The Company maintains the following bank and credit lines:
$250 million commercial paper program under which no
borrowings were outstanding during the third quarter or as of
September 9, 1995 and September 10, 1994.
-10-
A revolving credit facility with a syndicate of commercial
banks providing $350 million in committed lines of credit. This
facility will expire in November, 1999. There were no borrowings
against these lines during the third quarter or as of September 9,
1995.
Additional short-term lines of credit totaling $30.5 million.
These lines of credit are available when needed. The Company is
not required to maintain compensating balances and borrowings may
occur periodically. The Company had no borrowings under these
lines during the third quarter or as of September 9, 1995.
Periodic short-term borrowings under informal credit
arrangements, which are available to the Company at the discretion
of the lender. As of September 9, 1995 and September 10, 1994,
there were no outstanding borrowings under these informal credit
arrangements.
As of September 9, 1995, the Company had expended $25.5 million
for the purchase of Class A and Class B shares, under its program
to repurchase up to $100 million of the Company's outstanding
shares. The Company purchased 3,159,115 shares of Class A stock
at an average price of $5.91 per share, and 1,114,000 shares of
Class B stock at an average price of $5.97 per share. Additional
purchases may be made in the open market through April, 1996, as
deemed in the best interest of shareholders.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has had no significant developments related to legal
matters since the Item 1. disclosure previously included in the
Company's Form 10-Q filed on July 27, 1995.
Item 2. Change in Securities
This item is not applicable.
Item 3. Defaults Upon Senior Securities
This item is not applicable.
-11-
Item 4. Submission of Matters to a Vote of Security Holders
This item is not applicable.
Item 5. Other Information
This item is not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10-Employee Severance Agreement
11-Computation of Earnings per Share
27-Financial Data Schedule
(b). The Company did not file a report on Form 8-K for the period
ended September 9, 1995.
-12-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
FOOD LION, INC.
Registrant
DATE: October 19, 1995 BY: Dan A. Boone
Dan A. Boone
Vice President-Finance
Chief Financial Officer
and Secretary
Principal Financial Officer
(Duly Authorized Officer)
-13-
EXHIBIT INDEX
SEQ. PAGE
EXHIBIT # DESCRIPTION NO.
10 Employee Severance Agreement 26
11 Computation of Earnings per Share 27
27 Financial Data Schedule 28-29
-14-
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except
per share amounts)
September 9, 1995 September 10, 1994
PRIMARY
NET INCOME $117,400 $102,509
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 482,695 483,707
STOCK OPTIONS 0 55
482,695 483,762
PRIMARY EARNINGS PER SHARE* $ .2432 $ .2119
FULLY DILUTED
NET INCOME $117,400 $102,509
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 2,422 2,422
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $119,822 $104,931
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 482,695 483,707
STOCK OPTIONS 0 55
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE
JUNE 14, 1993) 14,557 14,557
497,252 498,319
FULLY DILUTED EARNINGS PER SHARE* $ .2410 $ .2106
(*)Note: Dilution is less than 3%. Therefore, common stock equivalents
have been excluded from the total weighted average common shares.
-27-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet, the Statement of Income and the Statement of Cash Flows
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-09-1995
<CASH> 168,419
<SECURITIES> 0
<RECEIVABLES> 145,014
<ALLOWANCES> 0
<INVENTORY> 804,557
<CURRENT-ASSETS> 1,196,606
<PP&E> 2,210,879
<DEPRECIATION> 808,229
<TOTAL-ASSETS> 2,599,256
<CURRENT-LIABILITIES> 733,496
<BONDS> 355,300
<COMMON> 241,859
0
0
<OTHER-SE> 842,596
<TOTAL-LIABILITY-AND-EQUITY> 2,599,256
<SALES> 5,675,452
<TOTAL-REVENUES> 5,675,452
<CGS> 4,503,631
<TOTAL-COSTS> 4,503,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,545
<INCOME-PRETAX> 192,969
<INCOME-TAX> 75,569
<INCOME-CONTINUING> 117,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,400
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 10
EMPLOYMENT SEVERANCE AGREEMENT
AND MUTUAL RELEASE
Food Lion, Inc. (the "Company") and John P. Watkins (the
"Executive") hereby agree as follows:
1. Purpose of Severance Agreement and Release.
A. The parties recognize that during his more than 18
years of employment with the Company, the
Executive has performed valuable service to the Company in a
confidential capacity. By virtue of his responsibilities during
his employment, the Executive has acquired proprietary
information of a sensitive and confidential nature pertaining to
the Company's business operations, trade secrets, its strategies
and plans, particularly in the area of store operations, which, if
disclosed to individuals or entities not employed by the Company, would
materially harm the Company and/or provide an unfair advantage to
its competitors.
B. The purpose of this Employment Severance Agreement and
Mutual Release of Liability (the "Severance Agreement and Release")
is to set forth the terms of the Executive's severance from
employment with the Company, to resolve fully any and all
obligations arising out of his employment and
severance from employment, and to protect the Company's
legitimate interest in maintaining the confidentiality
of information pertaining to its business plans and operations
known to, or possessed by, the Executive.
2. Termination of Employment.
A. The Executive will resign from employment with the
Company effective July 1, 1995 (the "termination date").
B. The Executive will resign from the Board of Directors
of the Company effective July 1, 1995.
C. On July 1, 1995, the Executive shall terminate his
participation in the Profit Sharing Retirement Plan of Food Lion, Inc.
The Executive shall be entitled to receive all vested benefits owing
under the Company's employee benefit plans in which the Executive
is participating as of the date of his resignation to the extent
set forth and specifically provided for by such plans and/or to
the extent otherwise required by law.
3. Consideration.
A. In consideration of the Executive's release of all
claims that may exist against the Company in connection with his
employment as more specifically set forth below in Paragraph 4,
and in consideration of the Executive's compliance with the
obligations set forth below in Paragraphs 7 and 8, and provided
the Executive complies with all other terms and conditions of
this Severance Agreement and Release, the Company agrees that:
1. the Company will pay the Executive his current
weekly salary of $5,348.08 for the period beginning July 2, 1995
and ending April 15, 1997, payable on regular biweekly pay periods during
this term. These payments shall be subject to all legally
required state and federal tax deductions and withholdings.
2. The Company will pay $5,000 toward outplacement
services provided by the firm of Executives choice.
3. The Company will pay the Executive accrued vacation
of two (2) weeks on or before July 13, 1995.
B. The Employee acknowledges that the rights and payments
provided in Paragraph 3(A):
1. represent valuable consideration over and above what he is
otherwise entitled to in connection with the termination of his
employment and that his release of claims in Paragraph 4 and his
agreement to comply with the obligations of paragraphs 7 and 8 of
this Severance Agreement and Release are in return for this
consideration;
2. shall be in lieu of any and all claims for severance pay,
additional wages, bonus, salary, accrued vacation and sick leave
pay or other compensation, or benefits, or claim of
damages he may have as of his termination date other than vested
benefits described in paragraph 2(C) and such rights as Executive
may have to obtain continued insurance coverage under COBRA; and
3. arise solely out of the terms of this Severance Agreement
and Release and are not part of any Company severance pay plan.
C. The Company acknowledges that its promises and releases contained
in this Severance Agreement and Release are for good and valuable consideration.
4. Waiver and Release.
As a material inducement for Executive and Company to enter
this Severance Agreement and Release, each of them hereby
irrevocably and unconditionally releases and forever discharges
the other as detailed below.
A. The Executive releases and forever discharges all
claims he may have against the Company, its subsidiaries
affiliates, parents, predecessors, and all officers, directors,
representatives agents or employees in any manner arising out of
or attributable to his employment with the Company. This release
includes all claims that may have existed on his termination date
relating to the Executive's employment with and termination from
the Company, whether brought by Executive or by a third party on
his behalf, including, but not limited to:
1. discrimination on the basis of age, including claims under
the Age Discrimination in Employment Act as amended, the
Americans with Disabilities Act, or other applicable federal
statutes and other applicable state and local statutes;
2. any claim under any statute, law or regulation, based on any
fact, matter, event or cause, whether known or unknown, arising
out of or relating to the employment relationship between the
Executive and the Company or the Executive's termination
therefrom.
B. The Executive agrees not to institute any legal or
administrative proceeding against the Company or those persons
described in Paragraph 4(A) as to any matter based upon, arising
out of or related to his employment, compensation during his
employment, or termination of his employment with the Company.
C. The Company, on behalf of its officers, directors,
employees, agents, counsel, successors, assigns and related
entities hereby releases and forever discharges Executive, his
heirs, assigns and representatives from any and all claims,
liabilities, damages, costs, and other obligations in any manner
arising out of or attributable to his employment with the
Company, and will indemnify and hold harmless the Executive, his
heirs, assigns and representatives from such claims, except those
claims attributable to the gross negligence or willful misconduct
of the Executive.
D. This Severance Agreement and Release does not waive or
release rights or claims for occurrences after the effective date
of this Severance Agreement and Release. This Severance
Agreement and Release does not preclude the Executive or Company
from filing a lawsuit against the other for purposes of enforcing
rights conferred to each other under this Severance Agreement and
Release.
5. Company Property.
On or before July 1, 1995, the Executive agrees to return
all property belonging to the Company he may possess, or that he
has possessed but has provided to a third party, including, but
not limited to, all original and copies of Company documents,
files, memoranda, notes, computer-readable information(maintained
in disc or any other form) and video or tape recordings of any
kind other than personal materials relating solely to the
Executive. Executive promises that he has not and will not
retain, distribute, or cause to be distributed, any original or
duplicates of any such Company material specified in this
Paragraph.
6. Loans.
The Company and the Executive acknowledges that, as of
the date of this Agreement, there is an outstanding balance of
one hundred sixty thousand, eight hundred seventy-five dollars
($160,875.00) (the "Loan") owed by the Executive to the Company
pursuant to the Company's Low Interest Loan Plan (the "Plan") .
Provided the Executive is in compliance with the terms of this
Agreement, the Company agrees to forgive the outstanding balance
of the loan and all interest accrued thereon as follows: one-
third (1/3) on December 1, 1995, one-third (1/3) on December 1,
1996, and one-third (1/3) on December 1, 1997.
7. Confidentiality.
A. The Executive and Company agree that the existence and
terms of the Severance Agreement and Release are and shall remain
confidential, and further agree not to disclose the existence or
terms of the Severance Agreement and Release to any third party,
except that:
1. the Executive may disclose to his family that he resigned
from the Company and the amount of consideration he received in
connection with his separation and disclose the terms and
conditions of this Severance Agreement and Release to his
attorneys, tax consultants, state and federal authorities or as
may be required by law;
2. the Company may disclose the terms and conditions of this
Severance Agreement and Release as is necessary to carry out the
terms of this Agreement to its managers, officers and board of
directors, insurers, consultants, accountants, attorneys, state
and federal tax authorities, or as may be required by law,
including but not limited to disclosure as may be required in the
Company's proxy statement and as required by SEC public reporting
requirements;
3. the Company and the Employee may disclose to other parties
only that the Executive resigned voluntarily and that the parties
parted amicably; and
4. the Company and the Executive agree that Exhibit A
shall be the sole public statement by
either party concerning Executive's termination
of employment.
B. As described more fully in Paragraph 1(A) of this
Severance Agreement and Release, the Executive acknowledges that
as a result of his employment by the Company, he has acquired
confidential or proprietary information of special value to the
Company. The Executive covenants and agrees:
1. that he shall not, directly or indirectly, orally or in
writing, at any time in the future disclose any information of
the Company as defined in Paragraph 7(B) (2), whether such
information is a trade secret, confidential or proprietary, to
any person, partnership, corporation or other business entity,
except with the written permission of the Company.
2. that for purposes of Paragraph 7(B) (1), the term "any
information of the Company" means all information which relates
to matters such as, but not necessarily limited to, trade
secrets, research and development activities, books and records,
expansion strategies, operational plans or strategies, real
estate strategies, or other processes or strategies, distribution
channels, pricing information and private processes, real estate
site selection, projected store openings or closings, employee
communications, training or development strategies, advice given
by any legal counsel or other consultants retained by the Company
whether or not protected by the attorney-client or work product
privileges.
3. Paragraph 7(B) (1) or (2) shall not be violated by the
disclosure of information which is disclosed pursuant to a court
order or as otherwise required by law, on conditions that notice
of the requirement for such disclosure is given to the Company
before the Executive's making any disclosure and the Executive
cooperates in resisting such disclosure upon reasonable request
by the Company at the Company's expense.
C. The Executive acknowledges that, by virtue of the
responsibilities assigned to him throughout
his employment, in the event he should make any public
statements relating to the Company after
his termination, such statements could be attributed to
the Company or be viewed as authoritative and based on
information to which the Executive had access while employed by
the Company. Accordingly, the Executive agrees that for the period
from the effective date of this Agreement until
December 1, 1997, he will make no public comment in any way
relating to the Company.
8. AGREEMENT NOT TO COMPETE. The Executive acknowledges that
the Company has legitimate business interests in assuring that
the skills and knowledge obtained by the Executive during his
employment with the Company are not converted to the use of
entities in competition with the Company or who are engaged in
activities aimed at damaging the Company's public image or otherwise
antithetical to the Company's lawful interests. In recognition
of these legitimate interests, the Executive agrees that:
A. The Executive agrees that from July 1, 1995 until
December 1, 1997, he will not compete with the Company, directly
or indirectly, by acting either individually or as an advisor,
representative, agent, employee, partner, shareholder, investor,
director, consultant, or in any other similar capacity, on behalf
of any other person, partnership, corporation or other business
in the retail grocery or wholesale grocery industry, which shall
include warehouse membership clubs predominately selling
groceries or other alternate retail formats, selling food
products, (but which shall not include manufacturers of food
products not engaged in the retail or wholesale grocery business,
and shall not include stores of 10,000 square feet or less) in
the geographical area defined in Paragraph 8(B). The Executive's
ownership of not more than one percent (1%) of the stock of any
publicly-held grocery chain shall not be deemed to be a violation
of this Paragraph.
B. The Executive agrees not to act in the capacities set
forth in Paragraph 8(A) for entities operating:
i) in the states of Delaware, Georgia, Kentucky,
Maryland, North Carolina, South Carolina, Tennessee, Virginia, and Florida
(excluding the area south of the line created by the Everglades Parkway
between Naples and Fort Lauderdale);
ii) within a 60 mile radius of the cities Dallas,
Texas and Fort Worth, Texas; within a 30 mile radius of Oklahoma City,
Oklahoma; Shreveport, Louisiana; and Houston, Texas; or within a 15 mile radius
of Abilene, Texas and Wichita Falls, TX;
iii) in the state of Pennsylvania, excluding the area
within a 60 mile radius of Philadelphia, and excluding the area north and
west of the line created by the following highways and as delineated on the
map attached as Exhibit B (Highway 219 from the New York state
border south to its intersection with Interstate Highway 80,
following Highway 80 west to Highway 28 south to its intersection with
Interstate Highway 79; following Highway 79 south to the West Virginia border);
iv) in the state of West Virginia, excluding the area
north and west of the line created by the following highways and as
delineated on the map attached as Exhibit C (Interstate Highway 77
from the Ohio border south to the intersection with Highway 119,
following Highway 119 to the Kentucky border.)
C. From July 1, 1995 until December 1, 1997 the Executive
further agrees not to recruit, solicit or
otherwise contact employees of Food Lion on behalf of any other
entity, either directly or as an agent, in order to induce any
Food Lion employee to accept employment with another entity.
D. In the event the Company ceases to operate in any of
the states included above, then the restriction with respect to
said state shall cease upon the date the Company ceases
operations in said state.
9. ENFORCEMENT. The Executive agrees that he has received
good and valuable consideration for his agreement both to adhere to the
confidentiality provisions of Paragraph 7 and to the non-compete
provisions of Paragraph 8 and that in the event the Company
obtains evidence that Executive has violated Paragraphs 7 or 8 in
any respect, the Company shall have the option to:
A. cease payment of any additional amounts provided for in
Paragraph 3(A) of this Severance Agreement and Release; or
B. obtain temporary and permanent injunctive relief in a
Superior Court of the State of North Carolina to remedy such violation.
The Executive consents to jurisdiction of that court to provide such
injunctive relief. The Executive agrees that failure to comply
with his obligations under Paragraphs 7(B), 7(C), or 8(A), 8(B)
or 8(C) of this Severance Agreement and Release shall constitute
irreparable harm to the Company, without regard to any demonstrable economic
harm to the Company from Executive's breach, and that the appropriate remedy
for partial or total breach of those provisions shall be an interim and
permanent order directing specific performance with each and every term of
this Severance Agreement and Release, with damages resulting
from the breach, and all costs and attorneys fees incurred in
obtaining enforcement of this Severance Agreement
and Release to be awarded to the Company. The Executive further
agrees that in such proceeding, he shall make no assertion of
mitigation in defense to the Company's prayer for injunctive
relief.
10. Acknowledgment of Voluntary Nature of Severance Agreement
and Release.
By signing this Severance Agreement and Release, the
Employee and the Company acknowledge:
A. That each has entered into this Severance Agreement and
Release voluntarily and fully understands all of its terms;
B. That the Executive has been advised and has had the
opportunity to consult with an attorney prior to signing this
Severance Agreement and Release;
C. That the Executive has been given the opportunity to
consider this Severance Agreement and Release for a period of at
least twenty-one (21) days, and, after consulting with his
attorney, has voluntarily and freely executed this Agreement
prior to the expiration of the twenty-one day period, and has
voluntarily and freely waived the right to consider the Agreement
and Release for the full twenty-one day period; and,
D. That the Executive and Company are not relying on any
statement or promise other than as contained in this Severance
Agreement and Release.
11. Assistance.
Upon reasonable notice, the Executive agrees to willingly
give his assistance, including his attendance, where appropriate,
to the Company's defense or prosecution of any existing or future
claims or litigation. The Company will reimburse the Executive
for all reasonable travel expenses incurred by the Executive in
complying with this section. In the event the Executive is no
longer entitled to the payments set forth in Section 3 of this
Agreement, then the Executive shall be compensated at the rate of
$100 per hour for such assistance.
12. Revocation Period.
The Executive understands that he has a seven (7) day period
after signing this Severance Agreement and Release in which to
revoke or rescind his agreement and release of claims, by
informing the Company's President in writing of his decision to
revoke. To be effective, the rescission must be delivered to the
Company's Chief Executive Officer either by hand or by mail
within the seven day period. If sent by mail, the rescission
must be postmarked within the seven day period, properly address
to the Company's Chief Executive Officer, and sent by certified
mail, return receipt requested.
13. Binding Agreement.
A. This Severance Agreement and Release will become
effective and enforceable upon the expiration of the seven day
revocation period referred to in Paragraph 12 (the "effective
date"). The Executive and the Company understand that following
the seven day revocation period, this Severance Agreement and
Release will be final and binding.
B. This Severance Agreement and Release constitutes the
entire agreement of the parties with respect to the subject
matter set forth herein and there are no promises, understandings
or representations, oral or written, other than those set forth
herein.
C. The Executive and the Company promise that, after the
Severance Agreement and Release becomes final and binding, they
will not pursue any claim which has been waived under the
Severance Agreement and Release and will not challenge the
enforceability of the Severance Agreement and Release by filing
or instigating any lawsuit or administrative complaint or
investigation arising out of the Employee's employment or
termination.
14. Law of North Carolina.
This Severance Agreement and Release, having been prepared,
executed and delivered in the State of North Carolina, and shall
be governed by the laws of the State of North Carolina.
15. Severability.
Each provision of this Severance Agreement and Release is
intended to be severable. If any provision, sentence, phrase or
word of this Severance Agreement and Release or the application
thereof to any person or circumstance shall be held invalid or
unenforceable, the remainder of this Severance Agreement and
Release, or the application of such provision, sentence, phrase
or word to persons or circumstances, other than those as to
which it is held invalid, shall not be affected thereby.
16. Notices.
Any notices required or permitted to be given by the parties
shall be given in writing by certified mail, return receipt
requested, or by prepaid telegram, delivered to:
R. William McCanless
Vice President of Legal Affairs
2110 Executive Drive
Post Office Box 1330
Salisbury, NC 28145-1330
and
John P. Watkins
340 Regency Road
Salisbury, NC 28147
17. Death of Executive.
In the event of the death of the Executive prior to December
1, 1997, any payments due under this Severance Agreement and
Release will be made to the beneficiary designated by the
Executive in writing, and, if no beneficiary is designated, to
his Estate. In addition, any remaining principal and accrued
interest on the loan referred in Section 6 shall be deemed
forgiven as of the date of Executive's death.
FOOD LION, INC.
Dated: By:
Eugene R. McKinley
Vice President -- Human Resources
EMPLOYEE
Dated: By:
John P. Watkins
EXHIBIT A
TO WHOM IT MAY CONCERN:
John P. Watkins, Senior Vice President of Operations and
COO, resigned from Food Lion effective July, 1, 1995. John joined
Food Lion June 1, 1977 as a Store Manager Trainee. During his
tenure with the company, John has had responsibility in the Human
Resources Department, Organization Development Department,
Merchandising Department, and Store Operations including
Distribution and Store Planning and Development.
I very much appreciate John's contributions to the growth
and success of the company, including increases in quarterly
sales and earnings during the past five quarters. I am sure his
abilities will be of great value to any venture he is connected
with in the future.
I wish him well in his career.
Best regards,
EXTRA LOW PRICES AND MORE
TOM E. SMITH
President/CEO
EXHIBIT A
June 23, 1995
Contact: Chris Ahearn
(704) 633-8250 ext. 2892
For Immediate Release
FOOD LION APPOINTS NEW CHIEF OPERATING OFFICER
Salisbury, NC-- Food Lion, Inc., has announced that John
Watkins, Chief Operating Officer, will be leaving the company
July 1 to pursue other interests. Watkins has been with the
company for 18 years, serving for the past two years as COO.
"Although I find it difficult to leave Food Lion and the
great people here, I am excited about the chance to pursue
another business opportunity," explained Watkins. His plans will
be announced at a future date.
Food Lion Chairman and CEO, Tom Smith, praised Watkins for
his contributions to the growth and success of the company,
including increases in quarterly sales and earnings during the
past five quarters.
Joe Hall has been appointed Senior Vice President of
Operations and Chief Operating Officer, effective July 1. In his
new position, Mr. Hall will be responsible for the operations of
the company's 1045 supermarkets and nine distribution centers.
A Salisbury native and graduate of Wake Forest University,
Mr. Hall has 20 years of experience in all aspects of the supermarket
industry. He joined Food Lion in 1975 as a
Grocery Buyer and has held increasingly responsible positions in
buying, purchasing, advertising, marketing and merchandising. He
was appointed Vice President of Buying in 1987, and served most
recently as Vice President of Operations for the company's
Central Division.
"Joe has demonstrated outstanding leadership during his
career with Food Lion," said Tom Smith, Food Lion Chairman and
Chief Executive Officer. "In Joe, we have an executive who
understands our company and the supermarket industry. His
appointment will afford us continuity in the things we do well as he works to
develop the new ideas we need to hold on to our leadership
position in the industry for the future."
Food Lion is one of the nation's largest supermarket chains,
offering consumers Extra Low Prices and More in 1045 stores in 14
states.
EXHIBIT B
MAP
EXHIBIT C
MAP
