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 7, 1996
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 (or for such shorter period
that registrant was required to file such reports), 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 11,
1996.
Class A Common Stock 235,945,613
Class B Common Stock 232,902,364
Page 1 of 25
The Exhibit index is located on page 14.
FOOD LION, INC.
INDEX TO FORM 10-Q
September 7, 1996
PAGE
NUMBER
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the 12 and 36 weeks
ended September 7, 1996 and September 9, 1995 3-4
Balance sheets as of September 7, 1996,
December 30, 1995 and September 9, 1995 5
Statements of Cash Flows for the 36 weeks
ended September 7, 1996 and September 9, 1995 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 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
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-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
<TABLE>
STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended September 7, 1996 and September 9, 1995
(Dollars in thousands except per share data)
September 7, 1996 September 9, 1995 12 WEEKS
(A) (B) (A) (B)
% %
<S> <C> <C> <C> <C>
Net sales $2,124,390 $1,913,982 100.00 100.00
Cost of goods sold 1,662,329 1,515,690 78.25 79.19
Gross profit 462,061 398,292 21.75 20.81
Selling and administrative expenses 322,498 282,575 15.18 14.77(1)
Interest expense 19,197 14,980 0.90 0.78(1)
Depreciation 38,370 33,519 1.81 1.75(1)
380,065 331,074 17.89 17.30
Income before income taxes 81,996 67,218 3.86 3.51
Provision for income taxes 31,978 26,215 1.51 1.37
Net income $ 50,018 $ 41,003 2.35 2.14
Earnings per share $ 0.11 $ 0.09
Dividends per share $ 0.03 $ 0.02
Weighted average number
of shares outstanding
Class A 235,731,888 241,997,345
Class B 233,182,364 238,893,281
Total 468,914,252 480,890,626
(1) Included a 0.21%, 0.14% and a 0.06% adjustment for Selling and Administrative 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-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FOOD LION, INC.
<TABLE>
STATEMENTS OF INCOME
(Unaudited)
For the 36 Weeks ended September 7, 1996 and September 9, 1995
(Dollars in thousands except per share data)
September 7, 1996 September 9, 1995 36 WEEKS
(C) (D) (C) (D)
% %
<S> <C> <C> <C> <C>
Net sales $6,233,257 $5,675,452 100.00 100.00
Cost of goods sold 4,915,927 4,503,631 78.87 79.35
Gross profit 1,317,330 1,171,821 21.13 20.65
Selling and administrative expenses 907,896 825,790 14.56 14.55
Interest expense 57,840 52,545 0.93 0.93
Depreciation 113,340 100,517 1.82 1.77
SFAS No. 121 charge 9,640 0.15
1,088,716 978,852 17.46 17.25
Income before income taxes 228,614 192,969 3.67 3.40
Provision for income taxes 89,159 75,569 1.43 1.33
Net income $ 139,455 $ 117,400 2.24 2.07
Earnings per share $ 0.30 $ 0.24
Dividends per share $ 0.08 $ 0.07
Weighted average number
of shares outstanding
Class A 236,208,081 243,404,900
Class B 234,578,183 239,290,086
Total 470,786,264 482,694,986
</TABLE>
-4-
FOOD LION, INC.
BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
September 7, 1996 December 30, 1995 September 9, 1995
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 149,448 $ 70,035 $ 172,929
Receivables 137,869 127,995 145,014
Inventories 886,842 881,021 799,944
Prepaid expenses and other 79,343 73,362 74,107
Total current assets 1,253,502 1,152,413 1,191,994
Property, at cost, less accumulated depreciation 1,568,221 1,492,852 1,393,074
Total assets $2,821,723 $2,645,265 $2,585,068
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable, trade $ 413,764 $ 363,571 $ 353,652
Accrued expenses 362,235 316,569 323,876
Capital lease obligations - current 16,962 15,032 10,505
Other liabilities - current 3,591 3,523 3,850
Income taxes payable __________ __________ ____18,924
Total current liabilities 796,552 698,695 710,807
Long-term debt 314,689 355,300 355,300
Capital lease obligations 411,717 372,645 319,900
Deferred income taxes 44,120 44,120 46,190
Deferred compensation 779 726 644
Other liabilities 93,385 71,269 67,772
Total liabilities 1,661,242 1,542,755 1,500,613
Shareholders' Equity:
Class A non-voting common stock, $.50 par value 117,915 119,255 120,493
Class B voting common stock, $.50 par value 116,451 118,313 119,229
Retained earnings 926,115 864,942 844,733
Total shareholders' equity 1,160,481 1,102,510 1,084,455
Total liabilities and shareholders' equity $2,821,723 $2,645,265 $2,585,068
</TABLE>
-5-
FOOD LION, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the 36 Weeks ended September 7, 1996 and September 9, 1995
(Dollars in thousands)
36 Weeks
September 7, 1996 September 9, 1995
Cash flows from operating activities
Net income $139,455 $117,400
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 113,340 100,517
Gain on disposals of property ( 165) ( 1,554)
SFAS No. 121 charge 9,640
Changes in operating assets and liabilities:
Receivables ( 9,874) ( 4,386)
Inventories ( 5,821) 53,340
Prepaid expenses and other ( 5,981) ( 6,202)
Accounts payable and accrued expenses 95,859 42,075
Income taxes payable ( 3,245)
Deferred compensation 53 ( 24)
Other liabilities 22,184 10,923
Total adjustments 219,235 191,444
Net cash provided by operating activities 358,690 308,844
Cash flows from investing activities
Proceeds from disposal of property 18,682 11,642
Capital expenditures (163,211) (126,651)
Net cash used in investing activities (144,529) (115,009)
Cash flows from financing activities
Net payments under short-term borrowings ( 20,000)
Principal payments under capital lease obligations ( 12,653) ( 7,453)
Principal payments on long-term debt ( 40,000) ( 25)
Proceeds from issuance of common stock 1,525 26
Repurchase of common stock ( 44,344) ( 25,539)
Dividends paid ( 39,276) ( 34,784)
Net cash used in financing activities (134,748) ( 87,775)
Net increase in cash and cash
equivalents 79,413 106,060
Cash and cash equivalents at beginning
of period 70,035 66,869
Cash and cash equivalents at end of period $149,448 $172,929
-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 30, 1995 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 7, 1996 September 9, 1995
Interest (net of amounts
capitalized)* $54,091 $49,489
Income taxes 90,472 78,821
*Interest capitalized 944 1,564
Capital lease obligations for stores of $71,776 and $27,846
were incurred in the 36 week period of 1996 and 1995,
respectively. Capital lease retirements of $18,121 and $4,173
were recorded in the 36 week period of 1996 and 1995,
respectively.
The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to
be cash equivalents.
During the third quarter additional Class A common stock of
77,341 shares were issued upon the conversion of $611 of long-
term debt.
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 36 weeks ended September 7, 1996
compared to 12 and 36 weeks ended September 9, 1995)
Net sales increased 11.0% and 9.8% for the quarter and year to date,
respectively. Same store sales increased 6.7% for the quarter and 6.0%
year to date. Sales were positively impacted by successful marketing
programs such as the Company's relationship with the National
Association for Stock Car Auto Racing ("NASCAR") and continued
category management efforts, along with the renovation and expansion of
older stores, as well as the conversion of most stores to 24-hour service.
As discussed in Food Lion's 1995 Annual Report, the Company's Southwest
market is generating positive cash flow, but is still not profitable.
Food Lion will continue to evaluate the performance of all corporate
assets, including those in the Southwest, and if the Company's efforts
to improve the Southwest market are not successful, the Company is
prepared to make a decision regarding continued operations in that
market area.
The 1996 business plan includes opening at least 50 new stores (up to
17 of these replacing older stores) and renovating approximately 120
existing stores. As of the end of the third quarter, the Company had
opened 19 new stores (offsetting five older units), closed three stores
and renovated 65 existing stores. In addition to the planned openings,
the Company acquired the assets of Food Fair of North Carolina, Inc. in
the first quarter which contributed nine additional stores, resulting
in a total of 1,093 stores operating at the end of the third quarter
this year compared with 1,048 stores at the end of the third quarter
last year.
Gross profits increased 0.94% of sales for the quarter and 0.48% of
sales year to date due to increases in the grocery, market, perishable
and deli-bakery departments. Gross profits were positively impacted by
increased customer traffic in the fresh departments (market and deli),
areas that command a higher gross profit. Also contributing to the
increase in the deli-bakery department was a 23.3% increase in the
number of stores with deli-bakeries (816 stores this year at the end of
the third quarter compared to 662 stores last year at the end of the
third quarter). The Company's continued emphasis on the private label
program (currently 15% of total sales versus 12% of total sales last
year) has also contributed to the gross profit increase. Also
positively impacting gross profits is the Company's conversion to 24-
hour operations. The Company has noted that shoppers that trade with
Food Lion during the extended hours are purchasing items that command a
higher gross profit, such as snacks, chilled drinks, packs of
cigarettes, etc.
For the quarter, selling and administrative expenses increased 0.41% of
sales primarily due to increases in store rent and estimated losses
accrued for costs associated with recent hurricanes that impacted many
-8-
of the Company's market areas. Store rent included a provision accrued
for future store closings of $12.7 million or 0.60% of sales.
Offsetting these increases were decreases (as a percentage of sales) in
certain variable costs such as salaries, supplies, benefits and repairs
as the Company controlled these costs during periods of strong sales
performance. Year to date, selling and administrative expenses
increased 0.01% of sales.(1)
Interest expense increased 0.12% of sales during the quarter primarily
due to an increase in the number of stores with capital leases (423
this year compared to 364 last year) offset by a decrease in interest
resulting from the repurchase of Note Purchase Agreements totaling
$40.0 million during the second quarter this year. (1)
Depreciation increased 0.06% of sales and 0.05% of sales for the
quarter and year to date, respectively, primarily due to remodeling of
stores and new store openings since third quarter last year.(1)
During the first quarter of 1996, Food Lion implemented Financial
Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of" (SFAS No. 121). The implementation of SFAS No. 121
created a non-operating, non-cash charge against first quarter earnings
of $9.6 million to properly reflect the carrying value of the Company's
assets. Excluding the SFAS No. 121 charge, earnings per share were
$0.31 as of September 7, 1996.
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 1996, the
Company has charged $71.0 million against the provision , 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
7, 1996, the Company had made no additional adjustments to the
realizable value of the properties. The Company believes the provision
is adequate at this time and will continue to monitor and evaluate the
provision to make necessary adjustments.
(1)Last year the third quarter included a 0.21%, 0.14%, 0.06% of sales
adjustment for selling and administrative expenses, interest expense
and depreciation, respectively, to adjust for the misclassification of
certain leases as capital rather than operating in the first two
quarters of 1995. Year to date is correct as reported.
-9-
Liquidity and Capital Resources
Cash provided by operating activities totaled $358.7 million for the 36
weeks ended September 7, 1996 compared with $308.8 million for the same
period last year. The increase in 1996 was primarily a factor of increased
net income along with an increase in payables and costs related to future
planned store closings, offset by changes in the comparative levels of
inventory.
Capital expenditures totaled $163.2 million for the 36 weeks ended
September 7, 1996 compared with $126.7 million for the same period in
1995. The increase is primarily the result of equipment costs for
renovations and new stores along with costs associated with the Food
Fair acquisition during 1996. The Company opened twelve new stores and
renovated 24 existing stores during the third quarter of 1996. For the
year, Food Lion plans to open a total of at least 50 new stores and
renovate 120 stores. The majority of the new stores will be opened under
conventional leasing arrangements and, as a result, the impact on liquidity
of owning stores will be insignificant in 1996.
Significant cash capital expenditures currently estimated for the remainder
of 1996 are as follows:
Store expansion and new store construction $32 million
Equip new and renovated stores $52 million
Land costs $ 1 million
Capital expenditures for 1996 will be financed through funds generated from
operations, existing bank and credit lines, and 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 7, 1996 and
September 9, 1995.
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 as
of September 7, 1996 and September 9, 1995.
Additional short-term committed 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. Borrowings during the quarter were as follows (see table
below):
-10-
$30.5 million Short-term Committed Lines
1996 1995
Outstanding borrowings at end
of third quarter 0 0
Average borrowings $ 3.0 million 0
Maximum amount outstanding $24.0 million 0
Daily weighted average interest rate 5.543% N/A
Periodic short-term borrowings under informal credit arrangements,
which are available to the Company at the discretion of the lender.
Borrowings for the quarter were as follows (see table below):
Informal Credit Lines
1996 1995
Outstanding borrowings at end
of third quarter 0 0
Average borrowings $ 3.7 million 0
Maximum amount outstanding $20.0 million 0
Daily weighted average interest rate 5.543% N/A
During the third quarter of 1996, the Company expended $5.7 million for the
purchase of Class A and Class B shares, as part of the Company's stock
repurchase plans. The Company purchased 45,000 shares of Class A stock
during the quarter at an average price of $8.25 per share, and 650,000
shares of Class B stock at an average price of $8.21 per share. Additional
purchases may be made in the open market under the current program which
began May, 1996 as deemed in the best interest of shareholders. Since the
inception of the original plan began in May, 1995, 8,687,615 Class A shares
and 6,668,750 Class B shares have been repurchased at a total cost of $95.3
million.
-11-
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has had no significant developments related to
legal matters since the Item 1 disclosure included in the
Company's Form 10Q filed on July 30, 1996 for the quarter
ended June 15, 1996.
Item 2. Change in Securities
This item is not applicable.
Item 3. Defaults Upon Senior Securities
This item is not applicable.
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 7, 1996.
-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 16,1996 BY: Carol M. Herndon
Carol M. Herndon
Corporate Controller
Principal Accounting Officer
-13-
EXHIBIT INDEX
SEQ.Page
EXHIBIT # DESCRIPTION No.
10 Employee Severance Agreement 15-22
11 Computation of Earnings per Share 23
27 Financial Data Schedule 24-25
-14-
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except Years Ended
per share amounts)
September 7, 1996 September 9,1995
PRIMARY
NET INCOME $139,455 $117,400
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 470,786 482,695
STOCK OPTIONS 387 0
471,173 482,695
PRIMARY EARNINGS PER SHARE (*) $ .2960 $ .2432
FULLY DILUTED
NET INCOME $139,455 $117,400
ELIMINATION OF INTEREST EXPENSE,
NET OF RELATED TAX EFFECT,
APPLICABLE TO 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2003 2,420 2,422
ADJUSTED INCOME APPLICABLE TO
COMMON STOCK $141,875 $119,822
WEIGHTED AVERAGE COMMON
SHARES AND OTHER COMMON
STOCK EQUIVALENTS:
COMMON STOCK OUTSTANDING 470,786 482,695
STOCK OPTIONS 622 0
SHARES ISSUABLE UPON
CONVERSION OF 5% CONVERTIBLE
SUBORDINATED DEBENTURES DUE
2003 (AS OF DATE OF ISSUE
JUNE 14, 1993) 14,480 14,557
485,888 497,252
FULLY DILUTED EARNINGS PER SHARE (*) $ .2920 $ .2410
(*) NOTE: Dilution is less than 3%. Therefore, common stock equivalents
have been excluded from the total weighted average common shares.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income and the
Consolidated 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-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-7-1996
<CASH> 149448
<SECURITIES> 0
<RECEIVABLES> 137869
<ALLOWANCES> 0
<INVENTORY> 886842
<CURRENT-ASSETS> 1253502
<PP&E> 2474852
<DEPRECIATION> 906631
<TOTAL-ASSETS> 2821723
<CURRENT-LIABILITIES> 796552
<BONDS> 314689
0
0
<COMMON> 234366
<OTHER-SE> 926115
<TOTAL-LIABILITY-AND-EQUITY> 2821723
<SALES> 6233257
<TOTAL-REVENUES> 6233257
<CGS> 4915927
<TOTAL-COSTS> 4915927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57840
<INCOME-PRETAX> 228614
<INCOME-TAX> 89159
<INCOME-CONTINUING> 139455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139455
<EPS-PRIMARY> .30
<EPS-DILUTED> 0
</TABLE>
EMPLOYMENT SEVERANCE AGREEMENT
AND MUTUAL RELEASE
Food Lion, Inc. (the "Company") and Dan A. Boone (the
"Executive") social security number ###-##-#### hereby agree as
follows:
1. Purpose of Severance Agreement and Release.
A. The parties recognize that during his 14 years of
employment with the Company, theExecutive has performed valuable
service to the Company in a confidential capacity. By virtue of
his responsibilities during his employment, the Executive has acquired
valuable proprietary information of a sensitive and confidential nature
pertaining tothe Company's business operations, trade secrets, its strategies
and plans,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 August 26, 1996 (the "termination date").
B. On August 26, 1996, 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 $4,144.39 for the period beginningAugust 26, 1996, and
ending February 28, 1998, payable on regular biweekly pay periods
during this term. However, at any time during the period
August 26, 1997, through February 28, 1998, in which Executive is
employed, or receives any compensation for services, then the weekly
payment due to the Executive shall be reduced by the lesser of
fifty percent of his current weekly salary or the weekly
compensation he receives. Executive shall give notice to the
Company, through the Vice President of Human Resources, of any
such employment or compensation for services at
least 21 days in advance or as promptly as is reasonably
possible. These payments shall be subject to all
legally required state and federal tax deductions and
withholdings.
2. The Company will pay the net amount of $5,000 toward
outplacement services.
3. The Executive will be paid accrued vacation pay for
three weeks and three (3) days.
B. The Executive 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 August 27, 1996, 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 in the
amount of one hundred forty thousand dollars ($140,000.00) (the
"Loan") owed by the Executive to the Company pursuant to the
Company's Low Interest Loan Plan (the "Plan") . The Executive
agrees to repay the full outstanding balance on or before January
31, 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
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
February 28, 1998, 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
relating to the nature and character of the Company's business
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 are otherwise antithetical to the
Company's lawful interests. In recognition of these legitimate
interests, the Executive agrees that:
A. The Executive agrees that from August 26, 1996 until
February 28, 1998, he will not compete with the Company, directly
or indirectly, by acting either individually or as an advisor,
representative, agent, employee, partner, shareholder, investor,
consultant, or in any other similar capacity, on behalf of any
other person, partnership, corporation or other business in the
retail grocery industry, which shall include warehouse membership
clubs selling groceries or other retail formats selling food
products, (but which shall not include manufacturers of food
products not engaged in the retail 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 a violation of
this Paragraph.
B. The Executive agrees not to act in the capacities set
forth in Paragraph 8(A) for entities operating in North Carolina,
South Carolina, Virginia, Tennessee, Georgia, Florida, Maryland,
Delaware, Kentucky, West Virginia, Pennsylvania, Texas, Oklahoma,
and Louisiana.
C. From August 27, 1996 to February 28, 1998, 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 solicit or 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 tojurisdiction 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 day 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:
Lester C. Nail
Vice President of Legal Affairs
2110 Executive Drive
Post Office Box 1330
Salisbury, NC 28145-1330
and
Dan A. Boone
250 Ikerd Drive
Concord, NC 28025
17. Death of Executive.
In the event of the death of the Executive prior to February
28, 1998, 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.
FOOD LION, INC.
Dated: September 6, 1996 By:Eugene R. McKinley
Eugene R. McKinley
Vice President -- Human
Resources
EXECUTIVE
Dated: September 5,1996 By: Dan A. Boone
Dan A. Boone
Exhibit A
September 12, 1996
MEMO TO: VICE PRESIDENTS
Food Lion announced today that Dan Boone, Chief Financial
Officer, has left the company, effective August 26, 1996. Dan
has been with Food Lion for 14 years, serving for the past six
years as CFO. He was a member of the Board of Directors from
1991- 1994.
Food Lion Chairman and CEO, Tom Smith, praised Dan for his
contributions to the growth and success of the company and wished
him success in his future endeavors. Until a successor is named,
the Finance department, which has reported through Boone to Bill
McCanless, Senior Vice President of Administration and Chief
Administrative Officer, will report directly to McCanless.
Food Lion is one of the nation's ten largest supermarket
chains, serving nine million customers per week. The company and
its 72,000 employees offer Extra Low Prices and More at 1,093
supermarkets in 14 states.
Best regards,
EXTRA LOW PRICES AND MORE
TOM E. SMITH
