<PAGE> 1
Rule No. 424(b)(5)
Registration No. 33-49620
PROSPECTUS SUPPLEMENT
(To Prospectus Dated April 16, 1997)
$300,000,000
FOOD LION, INC.
$150,000,000 7.55% NOTES DUE 2007 (FOOD LION LOGO)
$150,000,000 8.05% NOTES DUE 2027
The 7.55% Notes due 2007 (the "Notes due 2007"), which will mature on April 15,
2007 and the 8.05% Notes due 2027 (the "Notes due 2027"), which will mature on
April 15, 2027 (collectively, the "Notes") are being offered by Food Lion, Inc.
(together with its consolidated subsidiaries, "Food Lion" or the "Company").
Interest on the Notes is payable semiannually in arrears on April 15 and October
15 of each year, commencing October 15, 1997.
The Notes due 2007 and the Notes due 2027 each will be redeemable as a whole or
in part, at the option of the Company at any time, at a redemption price equal
to the greater of (i) 100% of the principal amount of each such Note to be
redeemed and (ii) the sum of the present values of the Remaining Scheduled
Payments (as defined herein) thereon discounted to the redemption date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate plus five basis points in the case of the Notes due 2007, and
at the Treasury Rate plus 20 basis points in the case of the Notes due 2027,
plus, in the case of (i) or (ii), accrued interest on the principal amount being
redeemed to the date of redemption. See "Description of Notes -- Certain Terms
of the Notes due 2007; -- Certain Terms of the Notes due 2027."
Each of the Notes will be represented by one or more global securities ("Global
Securities") registered in the name of the nominee of The Depository Trust
Company ("DTC"), as depositary. Beneficial interests in the Global Securities
will be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Except as provided in the
accompanying Prospectus and herein, individual Notes will not be issued. See
"Description of Debt Securities -- Global Debt Securities" in the accompanying
Prospectus and "Description of Notes -- Book Entry System." Settlement for the
Notes will be made in immediately available funds. The Notes will trade in the
Depositary's Same-Day Funds Settlement System, and secondary market trading
activity in the Notes will therefore settle in immediately available funds. See
"Description of Notes -- Delivery and Form; -- Book-Entry System; -- Same-Day
Settlement and Payment."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note due 2007....................... 99.677% .650% 99.027%
Total................................... $149,515,500 $975,000 $148,540,500
Per Note due 2027....................... 99.632% .875% 98.757%
Total................................... $149,448,000 $1,312,500 $148,135,500
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from April 21, 1997 to the date of delivery.
(2) Before deducting expenses payable by the Company estimated to be $200,000 in
the aggregate for all the Notes.
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made in book-entry form through the
facilities of DTC on or about April 21, 1997.
SALOMON BROTHERS INC NATIONSBANC CAPITAL MARKETS, INC.
The date of this Prospectus Supplement is April 16, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
PURCHASES OF THE NOTES TO STABILIZE THEIR MARKET PRICES, PURCHASES OF THE NOTES
TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES MAINTAINED BY THE
UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
STATEMENT REGARDING FORWARD LOOKING INFORMATION
From time to time, information provided by the Company, including written
and oral statements made by its representatives, may contain forward-looking
information as defined in the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as expansion and growth of the
Company's business, future capital expenditures and the Company's business
strategy, are forward-looking statements. In reviewing such information, it
should be kept in mind that actual results may differ materially from those
projected or suggested in such forward-looking information. This forward-looking
information is based on various factors and was derived utilizing numerous
assumptions. Many of these factors have previously been identified in filings or
statements made by or on behalf of the Company.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include: changes in the general economy or in the Company's primary
markets, changes in consumer spending, competitive factors and other factors
affecting the Company's business in or beyond the Company's control. These
factors include changes in the rate of inflation, changes in state or federal
legislation or regulation, adverse determinations with respect to litigation or
other claims, inability to develop new stores or complete remodels as rapidly as
planned, stability of product costs, and uncertainties detailed from
time-to-time in the Company's filings with the Securities and Exchange
Commission, including the Current Report on Form 8-K dated April 7, 1997.
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THE COMPANY
The Company is one of the nation's largest retail food supermarket chains,
delivering products and services to more than nine million customers a week. The
Company's stores, which are operated under the name of "Food Lion" or "Kash n'
Karry," sell a wide variety of groceries, produce, meats, dairy products,
seafood, frozen food, deli/bakery and non-food items such as health and beauty
aids and other household and personal products. The Company offers nationally
and regionally advertised brand name merchandise as well as products
manufactured and packaged under private label for the Company. As of April 2,
1997, the Company operated 1,202 stores in 14 states.
Food Lion was incorporated in North Carolina in 1957 and maintains its
corporate headquarters at 2110 Executive Drive, Salisbury, North Carolina
28145-1330, telephone (704) 633-8250.
RECENT DEVELOPMENTS
On April 3, 1997, the Company announced its consolidated operating results
for the quarter ended March 22, 1997. The Company had net sales of $2.3 billion
and net income of $45.5 million for the quarter ended March 22, 1997, increases
of 13% and 11%, respectively, compared with the quarter ended March 23, 1996.
Earnings per share were $0.10 for the quarter ended March 22, 1997, as compared
to $0.09 for the quarter ended March 23, 1996.
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<PAGE> 4
USE OF PROCEEDS
The net proceeds from the sale of the Notes (approximately $296.5 million)
will be used to refinance the Company's indebtedness, consisting of a revolving
credit facility with $300 million principal amount outstanding as of April 16,
1997 and having a weighted average interest rate of 5.66%. The amounts
outstanding under such revolving credit facility were primarily used in
connection with the acquisition of Kash n' Karry Food Stores, Inc. ("Kash n'
Karry").
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the Company for the fiscal years
ended December 28, 1996, December 30, 1995 and December 31, 1994 was 3.63, 3.47,
and 2.99, respectively. For purposes of computing the ratio of earnings to fixed
charges, "earnings" consists of income before income taxes plus fixed charges.
"Fixed charges" consist of interest expense and one-third of rental expense (the
portion deemed representative of the interest factor).
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<PAGE> 5
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 22, 1997 and as adjusted to give effect to the issuance of the
Notes offered hereby.
<TABLE>
<CAPTION>
MARCH 22, 1997
---------------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT:
Notes payable.......................................... $ 300,000 $ --
Current portion of long-term debt...................... 988 988
Current portion of capital lease obligations........... 21,452 21,452
---------- ----------
Total short-term debt............................. $ 322,440 $ 22,440
---------- ----------
LONG-TERM DEBT:
Long-term debt......................................... $ 220,012 $ 220,012
Notes.................................................. -- 300,000
Convertible subordinated debentures.................... 114,073 114,073
Capital lease obligations.............................. 470,545 470,545
---------- ----------
Total long-term debt.............................. $ 804,630 $1,104,630
---------- ----------
Total debt........................................ $1,127,070 $1,127,070
---------- ----------
SHAREHOLDERS' EQUITY:....................................... $1,245,436 $1,245,436
Total capitalization.............................. $2,372,506 $2,372,506
========== ==========
</TABLE>
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<PAGE> 6
SELECTED FINANCIAL DATA
The selected financial information in the following table for each of the
five years has been derived from the Company's Annual Reports which include
consolidated financial statements that have been audited by Coopers & Lybrand
L.L.P., independent auditors. The selected information should be read in
conjunction with the Company's consolidated financial statements and notes
thereto incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31, JANUARY 1, JANUARY 2,
1996 1995 1994 1994 1993(A)
------------ ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $9,005,932 $8,210,884 $7,932,592 $7,609,817 $7,195,923
Cost of goods sold........... 7,087,177 6,516,637 6,323,693 6,121,274 5,759,534
---------- ---------- ---------- ---------- ----------
Gross profit............ 1,918,755 1,694,247 1,608,899 1,488,543 1,436,389
Selling and administrative
expenses................... 1,325,592 1,191,532 1,129,803 1,096,306 975,111
Depreciation................. 165,286 146,170 139,834 143,042 121,616
Asset impairment reserve..... 9,587 -- -- -- --
---------- ---------- ---------- ---------- ----------
Operating income........ 418,290 356,545 339,262 249,195 339,662
Store closing charge......... -- -- -- 170,500 --
Interest expense............. 80,520 73,484 86,564 72,343 49,057
---------- ---------- ---------- ---------- ----------
Income before income
taxes................. 337,770 283,061 252,698 6,352 290,605
Income taxes................. 131,700 110,700 99,800 2,500 112,600
---------- ---------- ---------- ---------- ----------
Net income.............. $ 206,070 $ 172,361 $ 152,898 $ 3,852 $ 178,005
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets................. $3,488,592 $2,645,265 $2,481,941 $2,503,683 $2,521,492
Working capital.............. 274,509 453,718 438,624 520,201 162,451
Total debt................... 1,237,099 742,977 689,410 888,189 951,307
Shareholders' equity......... 1,215,938 1,102,510 1,027,353 917,554 955,719
FINANCIAL DATA:
Gross margin................. 21.3% 20.6% 20.3% 19.6% 20.0%
Operating income margin...... 4.6 4.3 4.3 3.3 4.7
EBITDA(b)(c)................. $ 603,415 $ 517,689 $ 498,071 $ 402,998 $ 460,298
Capital expenditures......... 283,564 219,905 117,312 159,857 402,327
OTHER DATA:(D)(E)
Comparable store sales....... 5.7% 2.3% 3.3% (2.6%) (0.4%)
Store count(f)............... 1,112 1,073 1,039 1,096 1,012
Total square footage at
year-end................... 32,615 30,056 27,335 28,950 26,428
</TABLE>
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(a) 53-week fiscal year.
(b) Earnings before LIFO, interest, taxes and depreciation. Fiscal year ended
January 1, 1994 earnings adjusted for store closing charge. Fiscal year
ended December 28, 1996 earnings adjusted for asset impairment reserve.
(c) Information derived from, but not specified in, the consolidated financial
statements in the Annual Reports.
(d) Derived from information in the Annual Reports other than the consolidated
financial statements.
(e) Does not include Kash n' Karry.
(f) Number of stores operating at year-end.
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had record sales of $9.0 billion and net earnings of $206.1
million in fiscal 1996, increases of 9.7% and 19.6%, respectively, compared with
fiscal 1995. During 1996, Food Lion opened 55 new stores and acquired nine
additional stores when it purchased the assets of the Food Fair supermarket
chain in Winston Salem, N.C. The Company relocated 22 older stores and closed
three stores, resulting in 1,112 stores operating at the end of the fiscal year
compared with 1,073 stores in 1995. The Company renovated 124 existing Food Lion
stores in 1996, which included expanding square footage and adding deli/bakeries
in most of the stores.
In December of 1996, the Company completed its acquisition of Kash n'
Karry. Kash n' Karry operates 99 supermarkets in Florida and is a wholly-owned
subsidiary of the Company. The transaction was accounted for using the purchase
method of accounting.
SALES
Sales reached a record $9.0 billion for the 52 weeks ended December 28,
1996, compared with $8.2 billion and $7.9 billion for the comparable periods in
1995 and 1994, resulting in annual increases of 9.7%, 3.5% and 4.2%,
respectively. In 1996, the Company recorded a 5.7% increase in same store sales,
or sales for stores open in comparable time periods. Same store sales increases
were 2.3% and 3.3% in 1995 and 1994, respectively.
During 1996, the Company's sales increase resulted from a number of
factors, including its aggressive store renovation strategy, opening of new
stores, conversion to 24-hour operations and several marketing initiatives.
Store renovations continue to boost sales, as 124 existing stores were renovated
to update equipment and properties and, in most locations, to add deli/bakeries.
The Company continued to convert its stores to 24-hour operation in 1996 and, as
a result, 80% of its stores had been converted to 24-hour operation as of
December 28, 1996. As stated under "Results of Operations" above, the Company
opened 55 new stores, acquired nine stores, and closed 25 older stores, a net
increase of 39 stores for 1996 (excluding the Kash n' Karry stores).
During 1996, the Company expanded the MVP Customer program, which rewards
loyal Food Lion shoppers with additional discounts of up to 20% off Food Lion's
Extra Low Prices on a monthly selection of items featured by the program. The
MVP Customer program has been increased to include a wider selection of items,
and the Company plans to link it with additional promotional activity in 1997.
Additionally, the Company expanded its convenience to customers by implementing
debit/credit card processing and no-ID check tender in all of its stores in 1996
and offering 24-hour operations in 80% of its stores.
The 1997 business plan includes opening 55 to 60 new stores (up to 20 of
these replacing older stores) and renovating approximately 100 existing stores.
The Company's growth strategy includes plans to open new stores and renovate
existing stores to maintain a competitive edge in the Company's current markets
and expand by acquisitions, if and when appropriate. In addition, Food Lion will
continue to evaluate its store base and may close stores to take advantage of
relocation opportunities or to eliminate operating losses in underperforming
stores. During 1996, Food Lion's Southwest market, with 61 stores, improved cash
flow and reduced operating losses. The Company continues to monitor sales and
profits in the Southwest market. Food Lion will continue to evaluate the
performance of all corporate assets, including those in the Southwest. Food
Lion's growth strategy is flexible, and the Company will listen to its customers
and revise its strategy accordingly in an effort to provide Extra Low Prices and
More for its customers.
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<PAGE> 8
GROSS PROFIT
In fiscal 1996, gross profit was 21.3% of sales compared with 20.6% and
20.3% in 1995 and 1994, respectively. Gross profit increased by 68 basis points
in 1996 through category management initiatives, increases in private label
sales, and the addition of deli/bakery departments. Category management
initiatives increased gross profit through product analysis, selection and
strategic pricing, contributing to gross profit increases in the grocery,
perishables and fresh departments in 1996. In addition, gross profits were
positively impacted by the Company's private label program, which increased
during the year to approximately 16.0% of total sales, and the number of stores
with deli/bakery departments, which increased to 888 in 1996 from 733 in 1995.
The Company continues to focus on providing customers with quality, freshness
and cleanliness as part of its Extra Low Prices and More philosophy. The
Company's improved gross profit in 1995 was primarily the result of improved
product mix in the higher margin departments of meat, perishables and deli, due
to the Company's focus on quality and freshness and store renovations which
added deli/bakeries.
The LIFO charge, as a percent of sales, decreased gross profit by 0.1% in
1996, 0.2% in 1995 and 0.2% in 1994. FIFO gross profits were 21.4%, 20.8% and
20.5%, respectively, in 1996, 1995 and 1994.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses as a percentage of sales were 14.7%,
14.5% and 14.2% in 1996, 1995, and 1994, respectively. Selling and
administrative expenses were impacted in 1996 by provisions to cover the cost of
planned store closings, expenses related to technology improvements for stores,
and losses resulting from hurricanes Fran and Bertha. The Company is required to
provide for the cost of closing stores as such decisions are finalized. The cost
to close a store averages $500,000 to $900,000. At the end of 1996, Food Lion
had provided for all planned 1997 closings, which includes 18 to 20 relocations
and the closing of 15 underperforming units.
During 1996, the Company also incurred expenses related to technology
improvements, including on-line communications to stores and the extension of
debit/credit card acceptance and no-ID check tender to all stores. The above
increases were offset partially by improved store operating expenses such as
salaries, benefits, supplies and repairs as the Company controlled these costs
during periods of strong sales performance.
Advertising costs increased in 1996 primarily due to additional print media
advertising targeted to certain market areas. In addition, the Company continued
its marketing strategies focusing on enhancing the Company's image through the
Gold Lion Guarantee initiative, which communicates the Company's commitment to
quality, freshness, cleanliness, service and friendliness using the theme Extra
Low Prices and More and the MVP Customer Card program, described under Sales
above. The Company also had two successful promotional campaigns tied in with
NASCAR ("National Association for Stock Car Auto Racing") race events and
participated in other advertising as the "Official Supermarket of NASCAR," a
relationship the Company began in December 1995.
Food Lion's 1996 business plan reflected the Company's commitment to
maintaining its existing store base as 124 store renovations were completed in
1996, compared with 121 in 1995 and 65 in 1994. The Company currently intends to
complete approximately 100 renovations to existing stores in 1997. Store
renovations negatively impact the Company's operating expenses such as rent and
utilities, but add value to customers as demonstrated by sales increases in
renovated stores. Deli/bakery departments, in particular, command a higher gross
margin, but they also include additional expenses related to rent, supplies,
salaries and maintenance. The Company plans to continue an aggressive renovation
program to maintain a quality shopping environment for customers in all Food
Lion stores.
The Company established a pre-tax charge against 1993 earnings of $170.5
million (approximately $104 million after-tax) to cover management's estimate of
the costs associated with the closing of 88 unprofitable store locations. The
Company charged $39.4 million, $31.1 million and $13.0 million, respectively,
during 1996, 1995 and 1994 against the reserve relating to the disposition of
property and
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<PAGE> 9
the payment of remaining rent obligations on leased stores. As of December 28,
1996, the remaining reserve was $87.0 million. The Company realized the total
annual benefit of $30.0 million pre-tax on these store closings in 1996 and 1995
(partial benefit of approximately $24.0 million was realized in 1994).
Management currently believes the remaining reserve is adequate to cover the
costs associated with the disposition of the remaining properties.
The Company believes that expenses related to the customer initiatives
outlined above are effectively increasing sales, and the Company plans to
continue to incur these expenses and others to increase sales and meet customer
needs.
INTEREST EXPENSE
Interest expense as a percent of sales was 0.9% in 1996 and 1995, and 1.1%
in 1994. During the second quarter of 1996, the Company used excess cash to
repurchase $40.0 million in privately issued notes. Offsetting the above,
interest expense on capital leases increased $7.8 million as a result of an
increase in the number of capital leases and lease modifications due to
renovations. Interest expense decreased in 1995 due to the prepayment of three
series of senior unsecured notes totaling approximately $214 million in the
fourth quarter of 1994, and additional capitalized interest as a result of
construction to expand the Greencastle, Pennsylvania distribution center and the
construction of nine Company-owned stores. Interest expense increased in 1994
due to the amortization of rent obligations on the 1994 store closings and lower
capitalized interest as a result of less construction (during 1994, eight
Company-owned stores were constructed compared with 31 Company-owned stores in
1993).
DEPRECIATION EXPENSE
Depreciation expense as a percent of sales was 1.84% in 1996, compared with
1.78% in 1995, and 1.76% in 1994. Depreciation increased in 1996 primarily due
to leasehold improvements resulting from 124 store renovations and depreciation
on leased assets resulting from an increase in the number of capital leases.
During 1996, the Company equipped 55 leased stores and renovated 124 existing
stores. During 1995, the Company constructed and equipped nine stores, equipped
38 leased stores, renovated 121 stores and completed an expansion of its
Greencastle, Pennsylvania distribution center. During 1994, the Company closed
84 underperforming stores, constructed and equipped eight stores, equipped 22
leased stores, renovated 65 existing stores and began construction to expand its
Greencastle, Pennsylvania distribution center.
The Company plans to finance the majority of its store growth in 1997 with
conventional lease arrangements, but will continue to build and own stores in
market areas where leasing is not economically advantageous.
IMPAIRMENT OF ASSETS RESERVE
During the first quarter of 1996, Food Lion adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("FASB No. 121"). This
statement requires companies to record impairments to long-lived assets, certain
identifiable intangibles and related goodwill when events or changing
circumstances make it probable an asset's carrying amount cannot be fully
recovered. In adopting this statement, management considered the expected
operating cash flows along with an estimate of the market value of the assets if
they were sold. The implementation of FASB No. 121 created a non-cash charge
against first quarter earnings of $9.6 million to properly reflect the carrying
value of the Company's assets, using discounted cash flows.
LIFO
The LIFO reserve increased $10.3 million in 1996, as compared with
increases of $15.0 million in 1995 and $16.3 million in 1994. The 1996 increase
was primarily due to increased cost of grocery, frozen
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<PAGE> 10
food and dairy items. In 1995, paper, plastic products and packaging were the
primary contributors to the LIFO increase. During 1994, inflationary coffee
costs were a large part of the LIFO reserve increase.
INCOME TAXES
The provision for income taxes was $131.7 million in 1996, $110.7 million
in 1995 and $99.8 million in 1994. The Company's effective tax rate was 39.0% in
1996, compared with 39.1% in 1995 and 39.5% in 1994. Assuming there are no
additional federal or state income tax rate increases, Food Lion expects the
effective rate for 1997 to be 39.0%.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $315.3 million in 1996, compared
with $330.6 million in 1995 and $389.9 million in 1994. The decrease in 1996 was
due primarily to increased inventory levels and increased receivables. The
decrease in 1995 was primarily due to changes in comparative levels of inventory
as a result of more store openings occurring toward the end of 1995, an increase
in prepaid expenses and a decrease in taxes payable, offset by a decrease in
receivables and an increase in payables. The increase in 1994 was due to
improved earnings, lower inventories achieved by improvement in inventory
management techniques and the closing of underperforming stores in early 1994.
Accounts payable, accrued expenses and income taxes payable increases also
contributed to the increase in cash provided by operating activities in 1994.
Cash flows used in investing activities increased to $377.7 million in
1996, compared with $199.1 million and $112.1 million in 1995 and 1994,
respectively. In December of 1996, Food Lion purchased the stock of Kash n'
Karry for $121.6 million and as of December 28, 1996, the Company had paid $25.7
million to retire a portion of Kash n' Karry's debt.
Capital expenditures increased to $283.6 million in 1996, compared with
$219.9 million in 1995 and $117.3 million in 1994. During 1996, the Company
equipped a total of 55 new stores and renovated 124 existing stores (including
expansions in the majority of these stores) and implemented debit/credit and
on-line communication technology in its stores. During 1995, the Company
constructed nine Company-owned stores, completed 121 store renovations and
completed construction on an expansion of the Greencastle, Pennsylvania
distribution center. During 1994, the Company equipped a total of 30 new stores,
constructed eight Company-owned stores, completed 65 store renovations and began
construction of the expansion of its Greencastle, Pennsylvania distribution
center.
As a result of 64 total store openings (including the acquisition of nine
Food Fair stores) and the closing of 25 stores in 1996, total stores increased
from 1,073 to 1,112. Total store square footage increased 8.5% from 30.1 million
in 1995 to 32.6 million in 1996. The total distribution space owned by the
Company was approximately 10.0 million square feet in 1996, compared with 9.9
million and 9.5 million in 1995 and 1994, respectively.
In 1997, Food Lion plans to continue its three-fold growth plan, which
focuses on a combination of renovations and new store openings, as well as
growth through acquisitions, if and when appropriate. The Company presently
expects to open a total of 55 to 60 new stores and to renovate approximately 100
stores in 1997. The Company anticipates that 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 1997. Significant capital
expenditures currently planned for 1997 include approximately $108 million for
store expansion and new store construction, $123 million to equip new and
renovated stores, and $8 million for land costs. In addition, the Company
anticipates approximately $150 million in capital expenditures over the next
four years for Kash n' Karry store remodels and new store development.
The Company plans to finance capital expenditures for 1997 through funds
generated from operations, existing bank and credit lines, and additional
long-term debt. The Company will consider the
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<PAGE> 11
possibility of sale-leaseback transactions on certain free-standing,
Company-owned stores in the future if advantageous opportunities are presented
by potential lessors.
During 1996, Food Lion expended $44.3 million for the purchase of Class A
and Class B shares, as part of the Company's program to repurchase up to $100
million of its outstanding shares. The Company purchased 3,047,000 shares of
Class A stock at an average price of $5.89 per share, and 3,722,250 shares of
Class B stock at an average price of $7.09 per share. Additional purchases may
be made in the open market under the current program as deemed in the best
interest of shareholders. During 1995, the Company also expended $50.9 million
to purchase 5,640,615 shares of Class A stock at an average price of $5.89 per
share, and 2,946,500 shares of Class B stock at an average price of $5.87 per
share.
DEBT
The Company maintains a revolving credit facility with a syndicate of
commercial banks providing $700.0 million in committed lines of credit. Of this
$700.0 million, $350.0 million will expire on December 15, 1997 and $350.0
million will expire on December 16, 2001. Outstanding borrowings were $250.0
million as of December 28, 1996. During 1996, the Company had average borrowings
of $7.6 million at a daily weighted average interest rate of 6.2% with a maximum
amount outstanding of $250.0 million.
The Company also maintains additional committed lines of credit totaling
$35.0 million which are available when needed. The Company is not required to
maintain compensating balances related to these lines of credit, and borrowings
may occur periodically. The Company had no borrowings outstanding under these
lines at December 28, 1996. During 1996, the Company had average borrowings of
approximately $3 million at a daily weighted average interest rate of 5.4% with
a maximum amount outstanding of approximately $24 million.
The Company has a $250.0 million commercial paper program, of which no
borrowings were outstanding at December 28, 1996, December 30, 1995 and December
31, 1994 nor used during these years.
Finally, the Company has periodic short-term borrowings under informal
credit arrangements, which are available to the Company at the discretion of the
lender (see following table):
<TABLE>
<CAPTION>
1996 1995 1994
Informal Credit Arrangements: ---- ---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Outstanding borrowings at year end.......................... $ 0 $ 0 $20.0
Average borrowings.......................................... 3.0 0.3 2.4
Maximum amount outstanding.................................. 55.0 20.0 20.0
Daily weighted average interest rate........................ 5.5% 6.0% 5.6%
</TABLE>
In 1996, the Company repurchased privately issued notes totaling $40.0
million, which were due on February 1, 1997. During the fourth quarter of 1994,
the Company pre-paid three series of senior unsecured notes totaling
approximately $214 million, which were due from 1998 to 2003 at interest rates
ranging from 7.0% to 8.0%.
The Company has outstanding $114.1 million of 5% convertible subordinated
debentures due 2003. The debentures are convertible into shares of the Company's
Class A non-voting stock at $7.90 per share. As of December 28, 1996, 117,341
shares had been converted. The Company also currently has outstanding two series
of notes in the aggregate amount of $200.3 million.
IMPACT OF INFLATION
During 1996, the impact of inflation on the Company's operating results was
moderate. Inventory and labor, the Company's primary costs, increase with
inflation and, where possible, will be recovered through operating efficiencies
and gross profits.
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<PAGE> 12
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set forth
in the Prospectus, to which description reference is hereby made.
CERTAIN TERMS OF THE NOTES DUE 2007
The Notes due 2007 are a series of the Debt Securities described in the
accompanying Prospectus, will be limited to an aggregate principal amount of
$150,000,000 and will mature on April 15, 2007. Reference should be made to the
accompanying Prospectus for a detailed summary of additional provisions of the
Notes due 2007 and of the Indenture dated as of August 15, 1991 and as
supplemented from time to time (the "Indenture") between the Company and The
Bank of New York, as trustee (the "Trustee"), under which the Notes due 2007
will be issued.
The Notes due 2007 will bear interest at the rate of 7.55% per annum from
April 21, 1997, payable semiannually in arrears on April 15 and October 15 of
each year, commencing October 15, 1997, to the persons in whose names the Notes
due 2007 are registered at the close of business on the preceding April 1 or
October 1, each a record date, as the case may be. Interest will be computed
based on a 360-day year consisting of twelve 30-day months.
The Notes due 2007 will not be subject to any sinking fund.
The Notes due 2007 will be redeemable as a whole or in part, at the option
of the Company at any time, at a redemption price equal to the greater of (i)
100% of the principal amount of each such Note to be redeemed and (ii) the sum
of the present values of the Remaining Scheduled Payments (as hereinafter
defined) thereon discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus five basis points, plus, in either case, accrued interest on the
principal amount being redeemed to the date of redemption.
CERTAIN TERMS OF THE NOTES DUE 2027
The Notes due 2027 are a series of the Debt Securities described in the
accompanying Prospectus, will be limited to an aggregate principal amount of
$150,000,000 and will mature on April 15, 2027. Reference should be made to the
accompanying Prospectus for a detailed summary of additional provisions of the
Notes due 2027 and of the Indenture under which the Notes due 2027 will be
issued.
The Notes due 2027 will bear interest at the rate of 8.05% per annum from
April 21, 1997, payable semiannually in arrears on April 15 and October 15 of
each year, commencing October 15, 1997, to the persons in whose names the Notes
due 2027 are registered at the close of business on the preceding April 1 or
October 1, each a record date, as the case may be. Interest will be computed
based on a 360-day year consisting of twelve 30-day months.
The Notes due 2027 will not be subject to any sinking fund.
The Notes due 2027 will be redeemable as a whole or in part, at the option
of the Company at any time, at a redemption price equal to the greater of (i)
100% of the principal amount of each such Note to be redeemed and (ii) the sum
of the present values of the Remaining Scheduled Payments (as hereinafter
defined) thereon discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 20 basis points, plus, in either case, accrued interest on the
principal amount being redeemed to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
S-12
<PAGE> 13
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with the
Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, (B) if the
Trustee is able to obtain only one Reference Treasury Dealer Quotation from the
Reference Treasury Dealers, such Quotation, or (C) if the Trustee is not able to
obtain any Reference Treasury Dealer Quotations from the Reference Treasury
Dealers, the average of the Reference Treasury Dealer Quotations obtained from
two other Primary Treasury Dealers designated by the Company as Reference
Treasury Dealers for the purpose of determining such Comparable Treasury Price.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
"Reference Treasury Dealer" means each of Salomon Brothers Inc and
NationsBanc Capital Markets, Inc. and their respective successors; provided,
however, that if either of the foregoing shall cease to be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"), the
Company shall substitute therefor another Primary Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to any such Note, the
remaining scheduled payments of the principal thereof to be redeemed and
interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if such redemption date is not an
interest payment date with respect to such Note, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of any such Notes to be
redeemed.
Unless the Company defaults in payment of the redemption price, on and
after the redemption date interest will cease to accrue on such Notes or
portions thereof called for redemption.
DELIVERY AND FORM
Each of the Notes initially will be represented by one or more Global
Securities deposited with DTC and registered in the name of the nominee of DTC,
except as set forth below. Each of the Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof, in book-entry form only.
Unless and until certificated Notes are issued under the limited circumstances
described below, beneficial owners of the Notes shall not be entitled to receive
definitive certificates representing such Notes. So long as DTC or any successor
depositary (collectively, the "Depositary") or its nominee is the registered
holder of the Global Securities, the Depositary, or such nominee, as the case
may be, will be considered to be the sole owner or holder of the Notes for all
purposes of the Indenture.
BOOK-ENTRY SYSTEM
DTC has advised the Company that it is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the
S-13
<PAGE> 14
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations (the
"Participants") and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations (including the Underwriters). Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (the "Indirect Participants"). Beneficial owners
of the Notes that are not Participants or Indirect Participants who desire to
purchase, sell or otherwise transfer ownership of, or other interest in, the
Notes may do so only through Participants and Indirect Participants.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amount of the individual Notes represented by such Global
Security to the accounts of the Participants that are so designated by the
Underwriters (as defined below). Ownership of beneficial interests in such
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such Global
Security or by Participants or persons that hold through Participants. The laws
of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
Payments with respect to the Global Securities will be made by the paying
agent to DTC or any successor depositary, or its nominee. The Company expects
that any such Depositary, or its nominee, upon receipt of any payment of
principal or of interest on the Global Securities will credit the accounts of
its Participants with payments in amounts proportionate to such Participants'
ownership interest in the Global Securities. Beneficial owners of the Notes,
directly or indirectly, will receive distributions of principal and interest in
proportion to their beneficial ownership through the Participants. Consequently,
any payments to beneficial owners of the Notes will be subject to the terms,
conditions and time of payment required by the Depositary, the Participants and
Indirect Participants, as applicable. The Company expects that such payments
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in "street
name." Such payments will be the responsibility of such Participants and
Indirect Participants. Neither the Company, the Trustee, nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Notes or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Notes and is required to receive and
transmit distributions of principal and interest on the Notes. Participants and
Indirect Participants with which beneficial owners of the Notes have accounts
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective beneficial owners of the Notes.
Accordingly, although beneficial owners of the Notes will not possess
certificated Notes, beneficial owners will receive payments and will be able to
transfer their interests.
Since it is anticipated that the only holder of the Notes will be the
Depositary or its nominee, beneficial owners of the Notes will not be recognized
as holders of the Notes under the Indenture unless certificated definitive Notes
are issued. So long as the Notes are represented by the Global Securities,
beneficial owners of the Notes will only be permitted to exercise the rights of
holders of the Notes indirectly through the Participants who in turn will
exercise such rights through the Depositary.
If the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will issue individual Notes in definitive
form in exchange for the Global Securities representing the Notes. In addition,
the Company may at any time and in its sole discretion determine not to have the
Notes represented by
S-14
<PAGE> 15
Global Securities and, in such event, will issue individual Notes in definitive
form in exchange for the Global Securities representing the Notes. Furthermore,
if the Company so specifies with respect to the Notes, an owner of a beneficial
interest in a Global Security representing Notes may, on terms acceptable to the
Company, the Trustee, and the Depositary, receive individual Notes of such
series in exchange for such beneficial interests. In any such instance, an owner
of a beneficial interest in a Global Security will be entitled to physical
delivery of individual Notes of the series represented by such Global Security
equal in principal amount to such beneficial interest and to have such Notes
registered in its name. Individual Notes so issued will be issued as
certificated securities in denominations of $1,000 and integral multiples
thereof.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. So long as the Notes are represented by the Global Securities,
all payments of principal and interest will be made by the Company in
immediately available funds.
The Notes will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Notes will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Notes.
S-15
<PAGE> 16
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
dated April 16, 1997 (the "Underwriting Agreement") among Food Lion and the
Underwriters named below (the "Underwriters"), Food Lion has agreed to sell to
the Underwriters, and each of the Underwriters has severally agreed to purchase,
the principal amount of Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITERS OF THE NOTES DUE 2007 OF THE NOTES DUE 2027
- ------------ --------------------- ---------------------
<S> <C> <C>
Salomon Brothers Inc ............................. $ 75,000,000 $ 75,000,000
NationsBanc Capital Markets, Inc.................. 75,000,000 75,000,000
------------ ------------
Total........................................... $150,000,000 $150,000,000
============ ============
</TABLE>
In the Underwriting Agreement the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the Notes
offered hereby if any Notes are purchased.
Food Lion has been advised by the Underwriters that the Underwriters
propose initially to offer the Notes to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of .40% of the principal
amount of the Notes due 2007 and .50% of the principal amount of the Notes due
2027. The Underwriters may allow, and such dealers may reallow, a concession to
certain other dealers not in excess of .25% of the principal amount of the Notes
due 2007 and .25% of the principal amount of the Notes due 2027. After the
initial public offering, the public offering price and such concessions may be
changed from time to time.
The Notes will not have an established trading market when issued. The
Notes are not listed on any securities exchange. The Underwriters may make a
market in the Notes, but the Underwriters are not obligated to do so and may
discontinue any market-making at any time without notice. There can be no
assurance as to the development or liquidity of a trading market for any Notes.
The Underwriting Agreement provides that Food Lion will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriters
may be required to make in respect thereof.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M under the Securities Exchange Act of 1934, as amended,
pursuant to which such persons may bid for or purchase Notes for the purpose of
stabilizing their market price. The Underwriters also may create a short
position for their respective accounts by selling more Notes in connection with
this offering than they are committed to purchase from the Company, and in such
case may purchase Notes in the open market following completion of this offering
to cover all or a portion of such short position. In addition, Salomon Brothers
Inc, on behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements between the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in this offering) for the account of the Underwriters,
the selling concession with respect to Notes that are distributed in this
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
Certain Underwriters and their affiliates have from time to time provided,
and may in the future provide, investment banking and commercial banking
services to the Company, for which they received or will receive customary fees.
NationsBanc Capital Markets, Inc., one of the Underwriters, is an affiliate
of NationsBank, N.A. which is a co-agent on and a lender under the Company's
$700,000,000 Revolving Credit Facility, dated December 16, 1996 (the "Credit
Facility") and otherwise engages in general financing and banking transactions
with the Company. The Company intends to use the net proceeds of the offering to
repay a
S-16
<PAGE> 17
portion of the loans outstanding under the Credit Facility, and NationsBank,
N.A. will receive its proportionate share (approximately 5%) of such repayment.
See "Use of Proceeds."
LEGAL MATTERS
The validity of the Notes will be passed upon for Food Lion by Akin, Gump,
Strauss, Hauer & Feld, L.L.P., Washington, D.C. and for the Underwriters by
Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated balance sheets as of December 28, 1996 and December 30,
1995 and the related consolidated statements of income, shareholders' equity,
and cash flows and related financial statement schedule for each of the three
fiscal years in the period ended December 28, 1996, incorporated by reference in
this Prospectus, have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P. independent accountants, given on the authority of that
firm as experts in accounting and auditing.
S-17
<PAGE> 18
PROSPECTUS
FOOD LION, INC.
DEBT SECURITIES
WARRANTS TO PURCHASE DEBT SECURITIES
Food Lion, Inc. (together with its consolidated subsidiaries, "Food Lion"
or the "Company") intends to issue from time to time in one or more series its
unsecured debt securities ("Debt Securities") with an aggregate initial public
offering price or purchase price of up to $350,000,000 or the equivalent thereof
in one or more foreign or composite currencies, including the European Currency
Unit ("ECU"). Debt Securities of each series will be offered on terms to be
determined by market conditions. The Company may issue and sell debt warrants
("Debt Warrants") to purchase Debt Securities on terms to be determined at the
time of sale (the Debt Securities and Debt Warrants are herein collectively
referred to as the "Securities"). Securities may be sold for U.S. dollars or for
one or more foreign or composite currencies, and the principal of, premium, if
any, and any interest on Debt Securities may be payable in U.S. dollars or in
one or more foreign or composite currencies. Debt Securities of a series will be
issuable as individual securities in registered form without coupons. Debt
Warrants will be issuable in registered form and may be offered with the Debt
Securities or separately. A Prospectus Supplement accompanying this Prospectus
(a "Prospectus Supplement") will set forth the specific designation, aggregate
principal amount, currency in which the principal, premium, if any, and any
interest are payable, rate (or method of calculation) and time and place of
payment of any interest, authorized denominations, maturity, offering price and
any redemption terms of the Debt Securities; the duration, purchase price,
exercise price, detachability and terms of any Debt Warrants; and any other
specific terms of the Securities in respect of which this Prospectus is being
delivered.
The Securities may be sold by the Company directly, through agents
designated from time to time, through dealers or one or more underwriters, or
through a syndicate of underwriters, managed by one or more underwriters. If
underwriters or agents are involved in any offering of Securities, the names of
the underwriters or agents will be set forth in the applicable Prospectus
Supplement. If an underwriter, agent or dealer is involved in any offering of
Securities, the underwriter's discount, agent's commission or dealer's purchase
price will be set forth in, or may be calculated from the information set forth
in, the applicable Prospectus Supplement, and the net proceeds to the Company
from such offering will be the public offering price of such Securities less
such discount, in the case of an offering through an underwriter, or the
purchase price of such Securities less such commission, in the case of an
offering through an agent, and less, in each case, the other expenses of the
Company associated with the issuance and distribution of such Securities. See
"Plan of Distribution" for specific details.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 16, 1997
<PAGE> 19
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 Madison Street, Suite 400,
Chicago, Illinois 60661; and copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. In addition, the Commission maintains a World
Wide Web site ("http://www.sec.gov") that also contains such reports and other
information filed by the Company. The Company is not required to, and does not,
provide annual reports to holders of its debt securities unless specifically
requested by such a holder.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the Securities. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference: (i) the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1996; (ii) the
Current Report on Form 8-K, dated April 7, 1997; and (iii) the Proxy Statement
for the 1997 Annual Meeting of Shareholders. All documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date hereof and prior to the termination of the offering of the Securities shall
be deemed to be incorporated herein and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, in the accompanying Prospectus Supplement or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of this Prospectus.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon request, a copy of any or all of the documents
described above, other than exhibits to such documents which are not
specifically incorporated by reference in such documents. Written or telephone
requests should be directed to Laura Kendall, Chief Financial Officer, Food
Lion, Inc., 2110 Executive Drive, Salisbury, North Carolina 28145-1330, (704)
633-8250.
References herein to "U.S. dollars," "dollars" or "$" are to the lawful
currency of the United States.
2
<PAGE> 20
THE COMPANY
The Company is one of the nation's largest retail food supermarket chains,
delivering products and services to more than nine million customers a week. The
Company's stores, which are operated under the name of "Food Lion" or "Kash n'
Karry," sell a wide variety of groceries, produce, meats, dairy products,
seafood, frozen food, deli/bakery and non-food items such as health and beauty
aids and other household and personal products. The Company offers nationally
and regionally advertised brand name merchandise as well as products
manufactured and packaged under private label for the Company.
Food Lion was incorporated in North Carolina in 1957 and maintains its
corporate headquarters at 2110 Executive Drive, Salisbury, North Carolina
28145-1330, telephone (704) 633-8250.
USE OF PROCEEDS
Unless and to the extent otherwise indicated in an accompanying Prospectus
Supplement, the Company intends to use the net proceeds from the sale of the
Debt Securities and the Debt Warrants to purchase Debt Securities for general
corporate purposes, which may include the payment of outstanding indebtedness,
the financing of capital expenditures, acquisitions and the purchase and
retirement of the Company's outstanding common stock. When a particular series
of Debt Securities or Debt Warrants to purchase Debt Securities is offered, the
Prospectus Supplement relating thereto will set forth the Company's intended use
of the net proceeds received from the sale of such Debt Securities or Debt
Warrants to purchase Debt Securities.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture dated as of August
15, 1991, and any indentures supplemental thereto (collectively, the
"Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee"). The following statements with respect to the Debt Securities are
summaries of the detailed provisions of the Indenture, a copy of which is filed
as an exhibit to the Registration Statement. References in italics are to
sections of the Indenture. Wherever particular provisions of the Indenture are
referred to, such provisions are incorporated by reference as a part of the
statements made, and the statements are qualified in their entirety by such
reference. As used under this caption, the term "Debt Securities" includes the
debt securities being offered by this Prospectus and all other debt securities
issued from time to time after the date of this Prospectus by the Company under
the Indenture. The description of the Indenture herein is based upon such
Indenture as it will have been most recently supplemented on or about April 21,
1997. Such supplement will have modified certain provisions concerning
restrictions on Sale and Lease-Back Transactions and Events of Default and
certain related definitions with respect to Debt Securities issued on or after
the date hereof. Medium term notes, due from 1999 to 2006, outstanding on the
date of this Prospectus continue to be governed by the provisions of the
Indenture dated as of August 15, 1991.
GENERAL
The Debt Securities will be unsecured obligations of the Company, ranking
equally with all other unsecured and unsubordinated Indebtedness of the Company.
Reference is made to the Prospectus Supplement for the terms of the series of
Debt Securities being offered thereby, including, where applicable: (i) the
title of such Debt Securities; (ii) the limit, if any, upon the aggregate
principal amount of such Debt Securities; (iii) the date or dates on which the
principal and premium, if any, of such Debt Securities are payable; (iv) the
rate or rates, or the method of determination thereof, at which such Debt
Securities will bear interest, if any; the date or dates from which such
interest will accrue; the interest payment dates on which such interest will be
payable and the record dates for the interest payable on such interest payment
dates; (v) whether such Debt Securities are to be issued as Original Issue
Discount Securities (as defined below) and the amount of discount with which
such Debt Securities will be issued; (vi) the place or places where the
principal of, and premium, if any, and any interest on such
3
<PAGE> 21
Debt Securities will be payable; (vii) the price or prices at which, the period
or periods within which and the terms and conditions upon which such Debt
Securities may be redeemed in whole or in part, at the option of the Company,
pursuant to any sinking fund or otherwise; (viii) the obligation, if any, of the
Company to redeem or purchase such Debt Securities pursuant to any sinking fund
or analogous provisions or at the option of a Holder (as defined in the
Indenture) and the price or prices at which and the period or periods within
which and the terms and conditions upon which such Debt Securities will be
redeemed, purchased or repaid, in whole or in part, pursuant to such obligation;
(ix) if other than denominations of $1,000 and any integral multiple thereof,
the denominations in which such Debt Securities will be issuable; (x) if other
than the principal amount, the portion of the principal amount of such Debt
Securities which will be payable upon declaration of acceleration of the
maturity thereon pursuant to the Indenture; (xi) if other than U.S. dollars, the
coin, currency or currencies in which payment of the principal (and premium, if
any) and interest, if any, on such Debt Securities will be payable; (xii) if the
principal (and premium, if any) or interest, if any, on such Debt Securities are
to be payable, at the election of the Company or a Holder, in a coin, currency,
or currencies other than that in which the Debt Securities are stated to be
payable, the period or periods within which, and the terms and conditions upon
which, such election may be made; (xiii) if the amount of payments of principal
(and premium, if any) or interest, if any, on such Debt Securities may be
determined with reference to an index based on a coin or currency other than
that in which the Debt Securities are stated to be payable, the manner in which
such amount will be determined; (xiv) any additional Events of Default provided
for with respect to such Debt Securities; (xv) provisions, if any, for the
defeasance of such Debt Securities; and (xvi) any other terms of such Debt
Securities not inconsistent with the provisions of the Indenture. (Section 2.02)
If the principal of (and premium, if any) or any interest on Debt
Securities of any series are payable in a foreign or composite currency, the
restrictions, elections, federal income tax consequences, specific terms and
other information with respect to such Debt Securities and such currency will be
described in the Prospectus Supplement relating thereto.
One or more series of Debt Securities may be sold at a discount below their
stated principal amount bearing no interest or interest at a rate that at the
time of issuance is below market rates ("Original Issue Discount Securities").
One or more series of Debt Securities may be variable rate debt securities that
may be exchangeable for fixed rate debt securities. Federal income tax
consequences and other special considerations applicable to any such series will
be described in the Prospectus Supplement relating thereto.
Unless otherwise provided in the applicable Prospectus Supplement, the
principal of (and premium, if any) and any interest on Debt Securities will be
payable at the principal corporate trust office of the Trustee at 101 Barclay
Street, 21st Floor, New York, New York 10286; provided, however, that payment of
interest on Debt Securities may be made at the option of the Company by check
mailed to the Holders thereof. (Sections 2.02 and 4.01)
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities may be transferred or exchanged at the office or agency maintained by
the Company for such purpose, subject to the limitations provided in the
Indenture, without the payment of any service charge, other than any tax or
governmental charge payable in connection therewith. (Section 2.05)
All moneys paid by the Company to the Trustee for the payment of principal
of (and premium, if any) or any interest on any Debt Security that remains
unclaimed by the Holder of such Debt Security at the end of two years after such
principal, premium or interest shall have become due and payable will be repaid
by the Trustee to the Company on demand, and such Holder will thereafter look
only to the Company for payment thereof. (Section 12.05)
The Indenture contains no covenants or other provisions to afford
protection to Holders of the Securities in the event of a highly leveraged
transaction or a change in control of the Company, except to the limited extent
described under "Certain Covenants of the Company Under the Indenture -- Merger,
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Sale, Lease, Etc." below. In the event such protective covenants or provisions
are added at a later time, they will be described in the applicable Prospectus
Supplement.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a Depositary or its nominee
identified in the applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denominations
equal to the portion of the aggregate principal amount of Outstanding (as
defined in the Indenture) Debt Securities of the series to be represented by
such Global Security or Securities. Unless and until it is exchangeable in whole
or in part for Debt Securities in definitive registered form, a Global Security
may not be registered for transfer or exchange except as a whole by the
Depositary for such Global Security to a nominee of such Depositary and except
in the circumstances described in the applicable Prospectus Supplement.
(Sections 2.03 and 2.05)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE COMPANY UNDER THE INDENTURE
The Indenture contains certain covenants described below which are
applicable to the Company with respect to any and all series of Debt Securities
issued thereunder after the date of this Prospectus. Specific covenants, if any,
peculiar to a particular series of Debt Securities to be offered hereby will be
described in the Prospectus Supplement relating thereto.
Restrictions on Liens. The Indenture provides that the Company will not,
and will not permit any Subsidiary (as defined in the Indenture), to issue,
assume or guarantee any debt for money borrowed (herein referred to as
"Indebtedness") if such Indebtedness is secured by any mortgage, deed of trust,
security interest, pledge, lien or other encumbrance (herein referred to as a
"mortgage") upon any Operating Property (as defined below) of the Company or of
any Subsidiary or any shares of stock or Indebtedness of any Subsidiary, whether
owned at the date of the Indenture or thereafter acquired, without effectively
securing, concurrent with the issuance, assumption or guarantee of any such
Indebtedness, the Debt Securities equally and ratably with such Indebtedness.
The foregoing restriction does not apply to: (i) mortgages on any property
acquired, constructed or improved by the Company or any Subsidiary after the
date of the Indenture, which are created or assumed within 36 months after such
acquisition or the completion of such construction or improvement (or within six
months thereafter pursuant to a firm commitment for financing arrangements
entered into within such 36 month period) to secure or provide for the payment
of the purchase price or cost thereof, or mortgages existing on any property at
the time of its acquisition (provided that the mortgage shall not apply to any
property theretofore owned by the Company or any Subsidiary other than, in the
case of any such construction or improvement, any theretofore unimproved real
property on which the property so constructed, or the improvement, is located);
(ii) mortgages existing on any property acquired from a corporation merged with
or into the Company or a Subsidiary; (iii) mortgages on property of any
corporation existing at the time it becomes a Subsidiary; (iv) mortgages to
secure Indebtedness of a Subsidiary to the Company or to another Subsidiary; (v)
mortgages in favor of governmental bodies to secure partial progress, advance or
other payments pursuant to any contract or statute or to secure Indebtedness
incurred to finance the purchase price or cost of constructing or improving the
property subject to such mortgages; or (vi) mortgages for the sole purpose of
extending, renewing or replacing Indebtedness secured by any mortgage referred
to in the foregoing clauses (i) to (v), inclusive, or in this clause (vi). The
foregoing restriction does not apply to the issuance, assumption or guarantee by
the Company or any Subsidiary of Indebtedness secured by a mortgage which would
otherwise be subject to the foregoing restriction up to an aggregate amount
which, together with all other secured Indebtedness of the Company and its
Subsidiaries (not including secured Indebtedness permitted under the foregoing
exceptions) and the Value (as defined below) of Sale and Lease-Back Transactions
(as defined below) existing at such time
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(other than any Sale and Lease-Back Transaction the proceeds of which have been
applied to the retirement of certain long-term Indebtedness or to the purchase
of other Operating Property within 180 days after such Sale and Lease-Back
Transaction, and other than any Sale and Lease-Back Transaction in which the
property involved would have been permitted to be mortgaged under clause (i)
above), does not exceed 8% of Consolidated Capitalization (as defined below).
(Section 4.11)
Restrictions on Sale and Lease-Back Transactions. So long as any Debt
Securities under the Indenture are Outstanding, the Company will not, and will
not permit any Restricted Subsidiary (as defined below) to, enter into any
arrangement with any person providing for the leasing by the Company or a
Restricted Subsidiary of any Operating Property (other than any such arrangement
involving a lease for a term, including renewal rights, for not more than three
years and leases between the Company and a Subsidiary or between Subsidiaries),
whereby such Operating Property has been or is to be sold or transferred by the
Company or a Restricted Subsidiary to such person (a "Sale and Lease-Back
Transaction") unless (a) the Company or such Restricted Subsidiary would, at the
time of entering into a Sale and Lease-Back Transaction, be entitled to incur
Indebtedness secured by a lien on the Operating Property to be leased in an
amount at least equal to the Attributable Debt (as defined below) in respect of
such transaction without equally and ratably securing the Debt Securities
pursuant to the provisions described under "Restrictions on Liens" above, or (b)
the proceeds of the sale of the Operating Property to be leased are at least
equal to their fair market value and an amount in cash equal to the net proceeds
is applied, within 180 days of the effective date of such transaction to the
purchase, acquisition or construction of Operating Property or to the retirement
(other than at maturity or pursuant to a mandatory sinking fund or redemption
provision and other than Indebtedness owned by the Company or any Restricted
Subsidiary) of Debt Securities or of Funded Indebtedness (as defined below) of
the Company ranking on a parity with or senior to the Debt Securities, or in the
case of a Sale and Lease-Back Transaction by a Restricted Subsidiary, of Funded
Indebtedness of such Restricted Subsidiary, provided that in connection with any
such retirement, any related loan commitment or the like shall be reduced in an
amount equal to the principal amount so retired. The foregoing restriction shall
not apply to, in the case of any Operating Property acquired or constructed
subsequent to the date eighteen months prior to the date of the Indenture, any
Sale and Lease-Back Transaction with respect to such Operating Property
(including presently owned real property upon which such Operating Property is
to be constructed) if a binding commitment is entered into with respect to such
Sale and Lease-Back Transaction within 36 months after the later of the
acquisition of the Operating Property or the completion of improvements or
construction thereon or commencement of full operations at such Operating
Property (which in the case of a retail store is the opening of the store for
business to the public). (Section 4.12)
Merger, Sale, Lease, Etc. The Indenture provides that the Company will not
merge into any other corporation or sell, convey, transfer or lease its
properties and assets substantially as an entirety to any person other than any
Subsidiary, unless the successor corporation or person that acquires all or
substantially all the assets of the Company shall expressly assume all
obligations of the Company under the Indenture and the Debt Securities issued
thereunder, and, immediately after such transaction, the Company, such person or
such successor corporation shall not be in default in the performance of the
covenants and conditions of the Indenture to be performed or observed by the
Company. (Section 11.01)
Other Covenants. The Indenture contains other covenants applicable to all
series of Debt Securities issued thereunder, including covenants respecting the
payment of taxes, maintenance of properties and other matters. (Article Four)
DEFINITIONS (Section 101)
The term "Attributable Debt" means in connection with a Sale and Lease-Back
Transaction the aggregate of present values (discounted at a rate per annum
equal to the average interest borne by all outstanding Debt Securities
determined on a weighted average basis and compounded semi-annually) of the
obligations of the Company or any Subsidiary for net rental payments during the
remaining term of the applicable lease (including any period for which such
lease has been extended or may, at the option of the lessor, be extended).
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The term "Capital Lease" means any lease of property which, in accordance
with generally accepted accounting principles, should be capitalized on the
lessee's balance sheet or for which the amount of the asset and liability
thereunder as if so capitalized should be disclosed in a note to such balance
sheet; and "Capitalized Lease Obligation" means the amount of the liability
which should be so capitalized or disclosed.
The term "Consolidated Capitalization" means the total of all the assets
appearing on the Consolidated Balance Sheets of the Company and its
subsidiaries, less the following (i) current liabilities, including liabilities
for Indebtedness maturing more than 12 months from the date of the original
creation thereof but maturing within 12 months from the date of determination
and (ii) deferred income taxes.
The term "Funded Indebtedness" means any Indebtedness maturing by its terms
more than one year from the date of the determination thereof, including any
Indebtedness renewable or extendible at the option of the obligor to a date
later than one year from the date of the determination thereof.
The term "Nonrecourse Indebtedness" means that portion of secured
Indebtedness which, on the date such secured Indebtedness becomes due by
acceleration or at its stated maturity, is less than or equal to the value of
the collateral securing such Indebtedness.
The term "Operating Property" means any manufacturing or processing plant,
office facility, retail store, warehouse, distribution center or equipment
located within the United States of America or its territories or possessions
and owned and operated now or hereafter by the Company or any subsidiary and
having a net book value on the date as of which the determination is being made
of more than 1.0% of Consolidated Capitalization. As of the date of this
Prospectus, none of the Company's supermarkets constituted an Operating
Property.
The term "Restricted Subsidiaries" means all Subsidiaries other than
Non-Restricted Subsidiaries. "Non-Restricted Subsidiary" means any Subsidiary
that the Company's Board of Directors has in good faith declared pursuant to a
written resolution not to be of material importance, either singly or together
with all other Non-Restricted Subsidiaries, to the business of the Company and
its consolidated Subsidiaries taken as a whole. As of the date of this
Prospectus, the Company has no Non-Restricted Subsidiaries.
The term "Value" means, with respect to a Sale and Lease-Back Transaction,
as of any particular time, the amount equal to the greater of (i) the net
proceeds from the sale or transfer of the property leased pursuant to such Sale
and Lease-Back Transaction, and (ii) the sum of all costs of the Company
incurred in connection with the acquisition of such property and the
construction of any improvements thereon, as determined in good faith by the
Company at the time of entering into such Sale and Lease-Back Transaction, in
either case multiplied by a fraction, the numerator of which shall be equal to
the number of full years of the lease remaining at the time of determination and
the denominator of which shall be equal to the number of full years of such
term, without regard to any renewal or extension options contained in the lease.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of more than 50% in principal amount of the
Outstanding Debt Securities of all series issued under the Indenture which are
affected by the modification or amendment (voting as one class), to execute
supplemental indentures modifying the rights of the Holders of Debt Securities
and making other changes to the terms of the Indenture, provided that, without
the consent of all Holders of then Outstanding Debt Securities affected, no such
modification shall extend the fixed maturity of any Debt Securities, or reduce
the principal amount thereof, or reduce the rate or extend the time of payment
of interest thereon, or reduce any premium payable upon redemption thereof, or
reduce the amount of the principal of the Original Issue Discount Security (as
defined in the Indenture) that would be due and payable upon acceleration of the
maturity thereof, or change the aforesaid percentage of Debt Securities, the
consent of Holders of which will be required for any such modification. (Section
10.02) Generally, the
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principal amount of the Debt Securities that is deemed Outstanding is the
principal amount theretofor authenticated and delivered by the Trustee under the
Indenture, except (a) as to Original Issue Discount Securities, it is the
portion of the principal amount thereof that then would be due and payable upon
an acceleration of the maturity thereof pursuant to an Event of Default and (b)
as to Debt Securities denominated in a currency other than U.S. dollars, it is
the amount of U.S. dollars that could be obtained for such principal amount on
the basis of the spot rate of exchange for purchasing U.S. dollars with such
currency at or about the date of determination. (Section 1.01)
The Indenture also contains provisions permitting the Company and the
Trustee, without the consent of the Holders, to execute supplemental indentures
modifying the Indenture for the purpose of adding covenants, restrictions,
conditions or provisions for the protection of the Holders of all or any series
of Debt Securities, curing any ambiguity in the Indenture or any supplemental
indenture, correcting or supplementing any provision of the Indenture or any
supplemental indenture which may be defective or inconsistent with any other
provision contained in the Indenture or any supplemental indenture, and taking
certain other actions that shall not adversely affect the rights of any Holder.
(Section 10.01)
EVENTS OF DEFAULT
An Event of Default is defined under the Indenture with respect to Debt
Securities of any series issued under such Indenture after the date of this
Prospectus as being one of the following events which shall have occurred and be
continuing: (a) default in payment of any principal of (or premium, if any, on)
the Debt Securities of such series when the same becomes due and payable, either
at maturity or upon a redemption or required repurchase, by declaration or
otherwise (including any sinking fund payment); (b) default for 30 days in
payment of any interest on any Debt Securities of such series when the same
becomes due and payable; (c) default for 60 days after written notice thereof to
the Company by the Trustee, or to the Company and the Trustee by the Holders of
not less than 25% in principal amount of Outstanding Debt Securities of such
series, in the observance or performance of any other covenant or agreement in
the Debt Securities of such series or the Indenture other than a covenant
included in the Indenture solely for the benefit of a series of Debt Securities
other than such series; (d) certain events of bankruptcy, insolvency or
reorganization relating to the Company or any Significant Subsidiary (as such
term is defined in Regulation S-X under the Exchange Act); (e) failure by the
Company or any Significant Subsidiary to make any payment at maturity, including
any applicable grace period, in respect of Indebtedness (other than the Debt
Securities of such series or non-recourse obligations), in an amount in excess
of $25,000,000 or the equivalent thereof in any other currency or composite
currency and continuance of such failure without having been cured, waived,
rescinded or annulled for a period of 30 days after written notice thereof to
the Company by the Trustee, or to the Company and the Trustee by the Holders of
not less than 25% in principal amount of Outstanding Debt Securities of such
series; (f) a default with respect to any Indebtedness of the Company or any
Significant Subsidiary, which default results in the acceleration of any
Indebtedness (other than non-recourse obligations or the Debt Securities of such
series) in an amount in excess of $25,000,000 without such indebtedness having
been discharged or such acceleration having been cured, waived, rescinded or
annulled for a period of 30 days after written notice thereof to the Company by
the Trustee, or to the Company and the Trustee by the Holders of not less than
25% in principal amount of Outstanding Debt Securities of such series,
Indebtedness being defined to mean all obligations of, or guarantee or assumed
by, the Company or any Significant Subsidiary for borrowed money or evidenced by
bonds, debentures, notes or other similar instruments; provided, however, that
if any such failure, default or acceleration referred to in clause (e) or (f)
above shall cease to exist or be cured, waived, rescinded or annulled, then the
Event of Default by reason thereof shall be deemed likewise to have been
thereupon cured; and (g) any other Event of Default provided with respect to
Debt Securities of that series.
The Indenture provides that, if an Event of Default shall have occurred and
be continuing (other than an Event of Default specified in clause (d) above
relating to the Company), either the Trustee or the Holders of not less than 25%
in the principal amount of the Debt Securities of such series then Outstanding
may declare the principal of all Debt Securities of such series and interest
accrued thereon
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to be due and payable immediately, but upon certain conditions such declarations
may be annulled and past defaults may be waived (except a continuing default in
payment of principal (including any required purchase) of (or premium, if any)
or interest on such Debt Securities) by the Holders of a majority in principal
amount of the Debt Securities of such series then Outstanding. If an Event of
Default specified in clause (d) above relating to the Company occurs, such
principal amount shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Indenture requires the Company to file with the Trustee an Officers'
Certificate quarterly and annually as to knowledge of any default under the
terms of the Indenture. (Section 4.06) The Indenture provides that the Trustee
may withhold notice to the Holders of the Debt Securities of any default (except
in payment of principal or premium, if any, or interest) if the Trustee
considers it in the interest of the Holders of the Debt Securities to do so.
(Section 6.07)
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Indenture provides that the Trustee shall be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of the Holders of the Debt Securities unless such Holders shall
have offered to the Trustee such reasonable security and indemnity as it may
require against costs, expenses and liabilities incurred by the Trustee.
(Section 6.04, 7.01 and 7.02) Subject to such provisions for indemnification and
certain other rights of the Trustee, the Indenture provides that the Holders of
a majority in principal amount of the Outstanding Debt Securities of any or all
series affected (voting as one class) will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. The Trustee
may decline to follow such direction if it in good faith determines that doing
so would involve the Trustee in personal liability or if the Trustee deems such
direction unduly prejudicial to any Holders not joining in such direction.
(Section 6.06) The Indenture provides that notwithstanding any other provisions
thereof, the right of any Holder to receive payment of the principal of (and
premium, if any) and interest on the Debt Securities or to institute suit for
the enforcement thereof shall not be impaired or affected without such Holder's
consent. (Section 6.04)
DEFEASANCE
Unless otherwise provided in the Prospectus Supplement with respect to any
series of Debt Securities, the Company, at its option (i) will be discharged
from any and all obligations in respect of such Debt Securities (except in each
case for certain obligations to register the transfer or exchange of such Debt
Securities, replace stolen, lost or mutilated Debt Securities, maintain paying
agencies and hold moneys for payment in trust) on the ninety-first day after the
satisfaction of conditions specified in the Indenture or (ii) need not comply
with certain restrictive covenants of the Indenture (including those described
under "Certain Covenants of the Company Under the Indenture"), in each case if
the Company deposits with the Trustee, in trust (a) money or (b) U.S. Government
Obligations (defined below) or a combination of (a) and (b) which, through the
payment of interest thereon and principal thereof in accordance with their
terms, will provide money in an amount sufficient to pay all the principal
(including any mandatory sinking fund payments) of, and interest, if any, and
premium, if any, on, such Debt Securities on the dates such payments are due in
accordance with the terms of such series. (Section 12.02) In order to avail
itself of either of the foregoing options, the Company must, among other things,
provide to the Trustee an opinion of independent counsel or a ruling from, or
published by, the Internal Revenue Service, to the effect that Holders of the
Debt Securities of such series will not recognize income, gain or loss for
Federal income tax purposes as a result of the Company's exercise of its option
and will be subject to Federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such option had not
been exercised. (Section 12.02) "U.S. Government Obligations" means generally
(i) direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) obligations of a person controlled
or supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America,
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which, in either case, are not callable or redeemable at the option of the
issuer thereof. (Section 1.01) In addition, the Company can also obtain a
discharge under the Indenture with respect to all the Debt Securities of a
series by depositing with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption all of the Debt Securities of such series provided
that all of the Debt Securities of such series are by their terms to become due
and payable within one year or are to be called for redemption within one year.
No such opinion of counsel or ruling from the Internal Revenue Service is
required with respect to a discharge pursuant to the immediately preceding
sentence. In the event of any discharge of Debt Securities pursuant to the terms
of the Indenture described above, the Holders of such Debt Securities will
thereafter be able to look solely to such trust fund, and not to the Company,
for payments of principal, premium, if any, and interest, if any. (Sections
12.01 and 12.02)
CONCERNING THE TRUSTEE
The Company maintains banking relationships (including the extension of
credit) in the ordinary course of business with the Trustee.
DESCRIPTION OF DEBT WARRANTS
The Company may issue, together with Debt Securities or separately, Debt
Warrants for the purchase of Debt Securities. If the Debt Warrants are issued
together with any Debt Securities, they may be attached to or separate from such
Debt Securities. The Debt Warrants are to be issued under a Debt Warrant
Agreement (the "Debt Warrant Agreement") to be entered into between the Company
and a bank or trust company, as Warrant Agent (the "Debt Warrant Agent"), and
may be issued in one or more series, all as shall be set forth in the Prospectus
Supplement relating thereto. The forms of the Debt Warrant Agreement and the
certificates for the Debt Warrant are filed as exhibits to the Registration
Statement of which this Prospectus is part. The following summaries of certain
provisions of the Debt Warrant Agreement and the Debt Warrants do not purport to
be complete and such summaries are subject to the detailed provisions of the
Debt Warrant Agreement to which reference is hereby made for a full description
of such provisions, including the definition of certain terms used herein, and
for other information regarding the Debt Warrants. References in italics are to
sections of the Debt Warrant Agreement. Wherever particular provisions of the
Debt Warrant Agreement are referred to, such provisions are incorporated by
reference as a part of the statements made, and the statements are qualified in
their entirety by such reference.
GENERAL
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Debt Warrants: (i) the price at which the Debt
Warrants will be issued; (ii) the currency or composite currency for which the
Debt Warrants may be purchased; (iii) the designation, aggregate principal
amount, currency or composite currency and terms of the Debt Securities that may
be purchased upon exercise of the Debt Warrants; (iv) if applicable, the
designation and terms of the Debt Securities with which the Debt Warrants are
issued and the number of Debt Warrants issued with each of such Debt Securities;
(v) if applicable, the date on and after which the Debt Warrants and the related
Debt Securities will be separately transferable; (vi) the principal amount of
Debt Securities purchasable upon exercise of each Debt Warrant and the price at
which and the currency or composite currency in which such principal amount of
Debt Securities may be purchase upon such exercise; (vii) the date on which the
right to exercise the Debt Warrants shall commence and the date (the "Debt
Warrant Expiration Date") on which such right shall expire or, if the Debt
Warrants are not continuously exercisable throughout such period, the specific
date or date on which they will be exercisable (each, a "Debt Warrant Exercise
Date," which term shall also mean, with respect to Debt Warrants continuously
exercisable for a period of time, every date during such period); (viii) any
applicable United States Federal income tax consequences; (ix) the identity of
the Debt Warrant Agent in respect of the Debt Warrants; (x) the proposed
listing, if any, of the Debt Warrants or the Debt Securities purchasable upon
exercise thereof on any securities exchange; and (xi) any other terms of the
Debt Warrants.
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Debt Warrants of each series will be evidenced by certificates (the "Debt
Warrant Certificates") in registered form. (Section 1.02)
At the option of the Holder upon request confirmed in writing, and subject
to the terms of the Debt Warrant Agreement, Debt Warrants may be presented for
exchange and for registration of transfer (with the form of transfer endorsed
thereon duly executed) at the corporate trust office of the Debt Warrant Agent
for such series of Debt Warrants (or any other office indicated in the
Prospectus Supplement relating to such series of Debt Warrants) without service
charge and upon payment of any taxes and other governmental charges as described
in the Debt Warrant Agreement. Such transfer or exchange will be effected only
if the Debt Warrant Agent for such series of Debt Warrants is satisfied with the
documents of title and identity of the person making the request. (Section 4.01)
The Debt Warrant Agreement contains no covenants or other provisions to
afford protection to Holders of the Debt Warrants in the event of a highly
leveraged transaction or a change in control of the Company, except to the
limited extent described under "Merger or Disposition of Assets" below. In the
event such protective covenants or provisions are added at a later time, they
will be described in the applicable Prospectus Supplement.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash such
principal amount of Debt Securities at such exercise price as shall in each case
be set forth in, or be determinable as set forth in, the Prospectus Supplement.
Debt Warrants may be exercised at any time up to the close of business on the
Debt Warrant Expiration Date set forth in the Prospectus Supplement. After the
close of business on the Debt Warrant Expiration Date (or such later date to
which the Debt Warrant Expiration Date may be extended by the Company),
unexercised Debt Warrants will become void. (Section 2.02)
Subject to any restrictions and additional requirements that may be set
forth in the Prospectus Supplement, Debt Warrants may be exercised by delivery
to the Debt Warrant Agent of the Debt Warrant Certificate evidencing such Debt
Warrants properly completed and duly executed and of payment as provided in the
Prospectus Supplement of the amount required to purchase the Debt Securities
purchasable upon such exercise. (Section 2.03) The exercise price of Debt
Warrants will be that price applicable on the date of receipt of payment in full
of the requisite amount of funds, determined as set forth in the Prospectus
Supplement. Upon receipt of such payment (plus payment of any accrued interest
on the Debt Securities being purchased, from and including the immediately
preceding interest payment date for such Debt Securities to and including the
Debt Warrant Exercise Date (unless the Debt Warrant Exercise Date is after the
record date, if any, but on or before the immediately succeeding interest
payment date, if any, for the Debt Securities being purchased, in which case no
accrued interest is payable in respect of Debt Securities to be issued as
registered securities) and upon surrender of such Debt Warrant Certificate at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement, the Company will, as soon as
practicable, forward the Debt Securities purchasable under such exercise. If
fewer than all of the Debt Warrants represented by a Debt Warrant Certificate
are exercised, a new Debt Warrant Certificate will be issued representing the
remaining number of Warrants. (Section 2.03)
MODIFICATIONS
The Debt Warrant Agreement and the terms of the Debt Warrants and the Debt
Warrant Certificates may be amended by the Company and the Debt Warrant Agent,
without the consent of the Holders, for the purpose of curing any ambiguity, or
of curing, correcting or supplementing any defective or inconsistent provision
therein or in any other manner which the Company may deem necessary or desirable
and which will not adversely affect the interests of the Holders in any material
respect. (Section 6.01)
11
<PAGE> 29
MERGER OR DISPOSITION OF ASSETS
If at any time there shall be a merger of the Company or a disposition of
substantially all of its assets as permitted under the Indenture, the successor
corporation thereunder shall succeed to and assume all obligations of the
Company under the Debt Warrant Agreement and the Debt Warrant Certificates.
(Section 3.04) See "Description of Debt Securities -- Certain Covenants of the
Company."
ENFORCEABILITY OF RIGHTS OF DEBT WARRANT HOLDERS; GOVERNING LAW
The Debt Warrant Agent will act solely as an agent of the Company in
connection with the Debt Warrant Certificates and will not assume any obligation
or relationship of agency or trust for or with any holder of Debt Warrant
Certificates or beneficial owners of Debt Warrants. (Section 5.02) Any holder of
Debt Warrant Certificates may, without the consent of the Debt Warrant Agent,
any other Holder, the Trustee or the Holder of any Debt Securities issued upon
exercise of Debt Warrants, enforce by appropriate legal action, on its own
behalf, its right to exercise the Debt Warrants evidenced by such Debt Warrant
Certificates in the manner provided therein and in the Debt Warrant Agreement.
(Section 3.03) No Holder of any Debt Warrant Certificate or beneficial owner of
any Debt Warrants evidenced thereby shall be entitled to any of the rights of a
holder of the Debt Securities purchasable upon exercise of such Debt Warrants,
including, without limitation, the right to receive the payment of principal or
premium, if any, or interest, if any, on such Debt Securities or to enforce any
of the covenants in the Indenture. (Section 3.01) The Debt Warrants and each
Debt Warrant Agreement will be governed by, and construed in accordance with,
the laws of the State of New York. (Section 6.04)
PLAN OF DISTRIBUTION
The Company may sell the Securities in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The applicable Prospectus Supplement will set forth the terms of
the offering of any Securities, including the names of any underwriters, the
purchase price of such Securities and the proceeds to the Company from such
sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price, any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchanges on which
such Securities may be listed.
If underwriters or dealers are used in the sale, the Securities will be
acquired by such underwriters or dealers for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Such Securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. Unless otherwise set forth in the applicable Prospectus
Supplement, the obligations of the underwriters to purchase such Securities will
be subject to certain conditions precedent, and the underwriters will be
obligated to purchase all of such Securities if any of such Securities are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Securities may also be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of Securities will be named, and any commissions payable by the Company to
such agent will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent will
act on a best efforts basis for the period of its appointment.
Any underwriters, dealers or agents participating in the distribution of
Securities may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Company to
indemnification by the Company against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters may be required to make in respect
thereof.
12
<PAGE> 30
Agents and underwriters may be customers of, engage in transactions with, or
perform services for, the Company or its affiliates in the ordinary course of
business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters to solicit offers by certain institutions to purchase
the Securities being offered hereby from the Company at the public offering
price set forth in the Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on the date or dates
stated in the Prospectus Supplement. Such Contracts will be subject to only
those conditions set forth in the Prospectus Supplement, and the Prospectus
Supplement will set forth the commission payable for solicitation of such
offers.
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington, DC.
EXPERTS
The consolidated balance sheets as of December 28, 1996 and December 30,
1995 and the related consolidated statements of income, shareholders' equity,
and cash flows and related financial statement schedule for each of the three
fiscal years in the period ended December 28, 1996, incorporated by reference in
this Prospectus, have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P. independent accountants, given on the authority of that
firm as experts in accounting and auditing.
13
<PAGE> 31
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FOOD LION OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF
WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Statement Regarding Forward Looking
Information........................ S-2
The Company.......................... S-3
Recent Developments.................. S-3
Use of Proceeds...................... S-4
Ratio of Earnings to Fixed Charges... S-4
Capitalization....................... S-5
Selected Financial Data.............. S-6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... S-7
Description of Notes................. S-12
Underwriting......................... S-16
Legal Matters........................ S-17
Experts.............................. S-17
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents... 2
The Company.......................... 3
Use of Proceeds...................... 3
Description of Debt Securities....... 3
Description of Debt Warrants......... 10
Plan of Distribution................. 12
Legal Matters........................ 13
Experts.............................. 13
</TABLE>
$300,000,000
FOOD LION, INC.
$150,000,000
7.55% NOTES DUE 2007
$150,000,000
8.05% NOTES DUE 2027
(FOOD LION LOGO)
SALOMON BROTHERS INC
NATIONSBANC
CAPITAL MARKETS, INC.
PROSPECTUS SUPPLEMENT
DATED APRIL 16, 1997
