-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RG4+b9kJS2xB5XtE7e1bKwHzNcM+ilKKbqWj4ItPn0s9V0cvmdLlSeeYaJlzyGSj vY3SMeerUZMCryrNyLacFQ== 0000909334-00-000035.txt : 20000315 0000909334-00-000035.hdr.sgml : 20000315 ACCESSION NUMBER: 0000909334-00-000035 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEMING COMPANIES INC /OK/ CENTRAL INDEX KEY: 0000352949 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 480222760 STATE OF INCORPORATION: OK FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08140 FILM NUMBER: 568669 BUSINESS ADDRESS: STREET 1: 6301 WATERFORD BLVD STREET 2: P O BOX 26647 CITY: OKLAHOMA CITY STATE: OK ZIP: 73126 BUSINESS PHONE: 4058407200 MAIL ADDRESS: STREET 1: P O BOX 26647 CITY: OKLAHOMA CITY STATE: OK ZIP: 73216-0647 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 25, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8140 FLEMING COMPANIES, INC. (Exact name of registrant as specified in its charter) Oklahoma 48-0222760 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6301 Waterford Boulevard, Box 26647 Oklahoma City, Oklahoma 73126 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (405) 840-7200 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock, $2.50 Par Value New York Stock Exchange Pacific Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X] The aggregate market value of the common shares (based upon the closing price on March 2, 2000 of these shares on the New York Stock Exchange) of Fleming Companies, Inc. held by nonaffiliates was approximately $569 million. As of March 3, 2000, 39,212,000 common shares were outstanding. Documents Incorporated by Reference A portion of Part III has been incorporated by reference from the registrant's proxy statement in connection with its annual meeting of shareholders to be held on May 10, 2000. PART I ITEM 1. BUSINESS GENERAL Fleming Companies, Inc. ("Fleming" or the "company") began operations in 1915 in Topeka, Kansas as a small food wholesaler. Today, Fleming's distribution operation ("distribution") is one of the largest food and general merchandise distributors in the United States supplying supermarket, supercenter, discount, convenience, limited assortment, drug, specialty and other retail stores and businesses in 41 states. Fleming's retail operation ("retail") is a major food and general merchandise retailer in the United States, operating approximately 240 supermarkets in 8 states. Business Strategy. At the end of 1998, Fleming completed a comprehensive study of all facets of its operations which resulted in a strategic plan to be implemented over the next two years. During 1999, the company's strategic plan continued to be refined providing additional focus. Today, the company has three primary objectives for continued growth: rationalize assets; reduce costs; and focus on core competencies to grow sales aggressively. Rationalize assets. Assets have and will continue to be rationalized to divest or close under-performing and non- strategic business distribution operating units and retail stores. In the distribution segment, the closing of twelve operating units is in varying stages of completion. By closing these twelve operating units the company has the potential to optimize other distribution operations and more effectively and efficiently support the company's retail customers. During 1998, the company completed the closing of two operating units: El Paso, TX and Portland, OR. By mid-1999, six operating units were closed: Houston, TX; Huntingdon, PA; Laurens, IA; Johnson City, TN; Sikeston, MO; and Peoria, IL. By mid-2000, four additional operating units will be closed: San Antonio, TX; Philadelphia, PA; York, PA; and Buffalo, NY. The customers at eleven of the twelve closed operating units will be transferred and serviced primarily by the operating units located in Nashville, TN; Memphis, TN; Massillon, OH; Lincoln, NE; Kansas City, MO; La Crosse, WI; Garland, TX; Lubbock, TX; and North East, MD. During 1998, the Portland operating unit was sold to Associated Grocers of Seattle (AG) as part of the formation of a joint venture marketing company. In the retail segment, the divestiture or closing of seven retail chains and groups has been completed or is underway. During 1999, the company completed the divestiture or closing of 75 stores: six from the Hyde Park Market(trademark) chain in Florida; 21 from the Consumers Food & Drug(trademark) chain headquartered in Missouri; 24 from the Boogaarts(registered trademark) Food Stores chain which operated in Kansas and Nebraska; 10 from the New York Retail chain in New York and Pennsylvania; and 14 other stores. During 2000, the company expects to divest or close an additional 60 stores comprised of: 19 additional stores from the New York Retail chain; 18 from the Penn Retail group which operates in Pennsylvania and Maryland; seven Baker's(trademark) stores located in Oklahoma; and 16 other stores. Reduce costs. To support improved operating efficiency, overhead expenses were reduced during 1999 with additional reductions expected during 2000. Staff functions at all levels of the organization have and will continue to be examined and appropriately reset to reflect the configuration of the distribution and retail segments. In addition, the "low cost pursuit" program was developed during 1999 covering five areas of the company. These five areas are: merchandising and procurement; logistics and distribution; shared services and finance; retail operations; and customer relations. In the merchandising and procurement functions, the company is focusing on lowering cost of goods and administrative costs by moving to a centralized versus local procurement system. The logistics and distribution functions are attempting to remove costs associated with back-haul, in-bound transportation and other logistics functions. Within the shared services and finance organizations, many functions are being centralized to reduce costs and improve effectiveness. Centralization is occurring in areas such as non-merchandise procurement, certain employee benefit programs, accounting and information technology services. Retail operations are implementing best demonstrated practices to reduce labor costs and reduce store operating costs. Certain administrative functions are also being centralized for retail operations. Customer relations is establishing a single point of contact for each customer to eliminate many paper-based processes and improve customer communications. Focus on core competencies to grow sales aggressively. By focusing on the company's core competencies and engaging in a continuous improvement program the company expects to foster growth. These core competencies consist of the following: case-pick distribution; piece-pick distribution; flow-through distribution; procurement; retail services; value oriented price impact retail operations ("value retail"); and e- commerce. The company's strategy for growth will focus around its core competencies to take advantage of growth opportunities in distribution, value retail and e-commerce. In 1999, asset rationalization activities resulted in lower sales compared to 1998. Strategic growth in distribution consists of the continuous implementation of an aggressive business development program that will leverage the power of Fleming's consolidated distribution operations to earn a greater share of business from existing customers and to attract new customers including non-traditional retailers. The growth strategies for each targeted market are based on detailed market-by-market studies, the competitive advantages anticipated from the consolidations, cost reduction initiatives, and improvement in buying efficiencies and cost of goods resulting from the centralization of the majority of procurement. In retail operations, the company will concentrate growth in its Food 4 Less(registered trademark) and other value- oriented retail operations. In addition, the company will be focusing on improving the performance of its strong regional players which includes Baker's(trademark), Rainbow Foods(registered trademark), Sentry(registered trademark) Foods and ABCO Foods(trademark). To strengthen the top- performing retail operations, the company will spend additional capital for new store development and remodels. Fleming also expects growth through supply arrangements with e- commerce grocers. Fleming generated net sales of $14.6 billion, $15.1 billion and $15.4 billion for 1999, 1998 and 1997, respectively. The net loss for fiscal 1999 was $45 million which was largely due to a $137 million pre-tax charge related to the strategic plan. Fleming generated net earnings before strategic plan charges and one-time adjustments of $43 million, $32 million and $25 million for fiscal 1999, 1998 and 1997, respectively. Additionally, the company generated net cash flows from operations of $168 million, $148 million and $113 million for the same periods, respectively, before payments related to the strategic plan. The combined businesses generated $411 million, $431 million and $460 million of adjusted EBITDA for fiscal 1999, 1998 and 1997, respectively. "Adjusted EBITDA" is earnings before extraordinary items, interest expense, income taxes, depreciation and amortization, equity investment results, LIFO provision and one-time adjustments (e.g., strategic plan charges and specific litigation charges). Adjusted EBITDA should not be considered as an alternative measure of the company's net income, operating performance, cash flow or liquidity. It is provided as additional information related to the company's ability to service debt; however, conditions may require conservation of funds for other uses. Although the company believes adjusted EBITDA enhances a reader's understanding of the company's financial condition, this measure, when viewed individually, is not necessarily a better indicator of any trend as compared to conventionally computed measures (e.g., net sales, net earnings, net cash flows, etc.). Finally, amounts presented may not be comparable to similar measures disclosed by other companies. The following table sets forth the calculation of adjusted EBITDA (in millions):
1999 1998 1997 -------- -------- -------- Net income (loss) $ (45) $(511) $25 Add back: Extraordinary charge - - 13 Taxes on income (loss) (18) (88) 44 Depreciation/amortization 158 180 173 Interest expense 165 162 163 Equity investment results 10 12 17 LIFO provision 11 8 6 ------ ----- ------ EBITDA 281 (237) 441 Add back non-cash strategic plan charges and one-time items 92 594 - ------ ----- ------ EBITDA excluding non-cash strategic plan charges 373 357 441 Add back strategic plan charges and one-time items ultimately requiring cash 38 74 19 ------ ----- ------ Adjusted EBITDA $411 $431 $460 ====== ===== ======
The company expects adjusted EBITDA for 2000 to be at least $450 million. The adjusted EBITDA amount represents cash flow from operations excluding unusual or infrequent items. In the company's opinion, adjusted EBITDA is the best starting point when evaluating the company's ability to service debt. In addition, the company believes it is important to identify the cash flows relating to unusual or infrequent charges and strategic plan charges, which should also be considered in evaluating the company's ability to service debt. DISTRIBUTION SEGMENT The distribution segment sells food and non-food products to retail grocers and other retail operators. A variety of retail support services are offered to independently-owned and company- owned retail stores. Net sales for the distribution segment were $10.9 billion for fiscal 1999, excluding sales to the company's retail segment. Sales to the retail segment totaled $2.2 billion during 1999. Customers Served. During 1999 the distribution segment served a wide variety of retail operations located in 41 states. The segment's customers range from small convenience outlets to large supercenters with the format of the retail stores being a function of size and marketing approach. The segment serves customers operating as conventional supermarkets (averaging approximately 23,000 total square feet), superstores (supermarkets of 30,000 square feet or more), supercenters (a combination of discount store and supermarket encompassing 110,000 square feet or more), warehouse stores ("no-frills" operations of various large sizes), combination stores (which have a high percentage of non-food offerings) and convenience stores (generally under 4,000 square feet and offering only a limited assortment of products). The company is continuing to diversify its customer base to include non-traditional retailers such as drug stores and mass merchandisers. The company also licenses or grants franchises to retailers to use certain registered trade names such as Piggly Wiggly(registered trademark), Food 4 Less(registered trademark) (a registered servicemark of Food 4 Less Supermarkets, Inc.), Sentry(registered trademark) Foods, Super 1 Foods(registered trademark), Festival Foods(registered trademark), Jubilee Foods(registered trademark), Jamboree Foods(registered trademark), MEGAMARKET(registered trademark), Shop 'N Kart(registered trademark), American Family(registered trademark), Big Star(registered trademark), Big T(registered trademark), Buy for Less(registered trademark), County Pride Markets(registered trademark), Buy Way(registered trademark), Pic- Pac(registered trademark), Shop N Bag(registered trademark), Super Save(registered trademark), Super Duper(registered trademark), Super Foods(trademark), Super Thrift(registered trademark), Thriftway(registered trademark), and Value King(registered trademark). The company is working to encourage independents and small chains to join one of the Fleming Banner Groups to receive many of the same marketing and procurement efficiencies available to larger chains. The Fleming Banner Groups are retail stores operating under the IGA(registered trademark) (IGA(registered trademark) is a registered trademark/servicemark of IGA, Inc.) or Piggly Wiggly(registered trademark) banner or under one of a number of banners representing a price impact retail format. Fleming Banner Group stores are owned by customers, many of which license their store banner from Fleming. The company's top 10 external customers accounted for approximately 16% of total net sales during 1999. Kmart Corporation, the company's largest customer, represented approximately 4.5% of total net sales. No single other customer represented more than 2.3% of total net sales during 1999. Pricing. The distribution segment uses market research and cost analyses as a basis for pricing its products and services. In all operating units, Retail Services are individually and competitively priced. The company has three marketing programs for its distribution business: FlexMate(trademark), FlexPro(trademark) and FlexStar(trademark). The FlexMate(trademark) marketing program has a presentation to customers of a quoted sell price. The quoted sell price is generally a selling price that includes a mark-up. The FlexMate(trademark) marketing program is available as an option in all operating units for grocery, frozen and dairy products. In all operating units, a price plus mark-up method is applied for meat, produce, bakery goods, delicatessen products, tobacco supplies, general merchandise and health and beauty care products. Under FlexMate(trademark) a distribution fee is added to the product price for various product categories. Under some marketing programs, freight charges are also added to offset in whole or in part Fleming's cost of delivery services provided. Any cash discounts, certain allowances, and service income earned from vendors may be retained by the distribution segment. This has generally been referred to as the "traditional pricing" method. Under FlexPro(trademark), grocery, frozen and dairy products are listed at a price generally comparable to the net cash price paid by the distribution segment. Dealer allowances and service income are passed through to the customer. Service charges are established using the principles of activity-based pricing modified by market research. Activity-based pricing attempts to identify Fleming's cost of providing certain services in connection with the sale of products such as transportation, storage, handling, etc. Based on these identified costs, and with a view to market responses, Fleming establishes charges for these activities designed to recover Fleming's cost and provide the company with a reasonable profit. These charges are then added to aggregate product price. A fee is also charged for administrative services provided to arrange and manage certain allowances and service income offered by vendors and earned by the distribution segment and its customers. FlexStar(trademark) is very similar to FlexPro(trademark), but generally uses a less complex presentation for distribution service charges by using customer-specific average charges. This averaging mechanism lessens the volatility of charges to the retailer but does not permit the retailer to manage his own product costs as fully as with FlexPro(trademark). Fleming Brands. Fleming Brands are store brands which include both private labels and controlled labels. Private labels are offered only in stores operating under specific banners (which may or may not be controlled by Fleming). Controlled labels are Fleming-owned brands which are offered to all distribution customers. Fleming Brands are targeted to three market segments: premium, national quality and value. Each Fleming Brand offers consumers high quality products within each pricing tier. Fleming- controlled labels include: Living Well(trademark) and Nature's Finest(registered trademark), which are premium brands; BestYet(registered trademark), SuperTru(registered trademark) and Marquee(registered trademark), which are national quality brands; and Rainbow(registered trademark), Fleming's value brand. Fleming offers two private labels, IGA(registered trademark) and Piggly Wiggly(registered trademark), which are national quality brands. Fleming shares the benefit of reduced acquisition costs of store brand products with its customers, permitting both the distribution segment and the retailer to earn higher margins from the sale of Fleming Brands. Retail Services. Retail Services are separately marketed, priced and delivered from other distribution operations. Retail Services marketing and sales personnel look for opportunities to cross- sell additional retail services as well as other distribution segment products to their customers. The company offers consulting, administrative and information technology services to its distribution segment customers (including retail segment operating units) and non-customers. Consulting Services include: the advertising service group, one of the largest retail advertising agencies in the United States; the retail development group, which offers market analysis, surveys and store development services; the pricing group, which assists retailers in developing pricing strategy programs; the store operations group, which offers assistance in quality control, standards monitoring, audit training, and other general supermarket management; and insurance services for reviewing, pricing and coordinating retail insurance portfolios. Administrative Services include: the financial group, which helps retailers track their financial performance by providing full accounting services, operating statements, payroll and accounts payable systems and tax return preparation; the category management group, which offers retailers more effective product management selection, shelf management, perpetual inventory and computer-assisted ordering capability; and the promotion group, which offers numerous promotional tools to assist retail operators in improving store traffic, such as frequent shopper programs, kiosk use and instant savings programs. Information Technology Services include: the technology group, which provide POS equipment purchasing and leasing programs with the three largest vendors of scanning equipment; electronic payment systems; credit/debit/EBT; direct store delivery and receiving systems; electronic shelf labels; in-store file managers; total store technology solutions; and Visionet(registered trademark), which is the company's proprietary interactive internet-based electronic information network giving retailers access to inventory information, financial data, vendor promotions, retail support services and on- line ordering. Facilities and Transportation. At the end of 1999 the distribution segment operated twenty-five full-line food product supply centers which are responsible for the distribution of national brands and Fleming Brands, including groceries, meat, dairy and delicatessen products, frozen foods, produce, bakery goods and a variety of related food and non-food items. Six general merchandise and specialty food operating units distribute health and beauty care items and other items of general merchandise and specialty foods. Two operating units serve convenience stores. All facilities are equipped with modern material handling equipment for receiving, storing and shipping large quantities of merchandise. Upon the completion of the closing of the four operating units scheduled during 2000, the distribution segment will operate twenty-two full-line operating units. The Philadelphia and York operating units scheduled to be closed will be merged into the expanded North East, MD facility which currently serves as a perishables facility for the Philadelphia operating unit. The distribution segment's operating units comprise more than 16.5 million square feet of warehouse space. Additionally, the distribution segment rents, on a short-term basis, approximately four million square feet of off-site temporary storage space. Upon the completion of the closing of the four operating units scheduled during 2000, the distribution segment facilities in operation will comprise approximately 15 million square feet of warehouse space and will continue to rent approximately 4 million square feet of off-site temporary storage space. Distribution productivity and efficiencies increase dramatically as the company merges smaller operating units into large volume operating units. The benefit is twofold: customers benefit from improved economics and the company improves sales per operating unit. Average sales volume per operating unit increased 24% from 1998 to 1999 and an additional 22% increase is expected by year- end 2000. Transportation arrangements and operations vary by operating unit and may vary by customer. Some customers prefer to handle product delivery themselves, others prefer the company to deliver products, and still others ask the company to coordinate delivery with a third party. Accordingly, many operating units maintain a truck fleet to deliver products to customers, and several centers also engage dedicated contract carriers to deliver products. The company increases the utilization of its truck fleet by back- hauling products from suppliers and others, thereby reducing the number of empty miles traveled. To further increase its fleet utilization, the company has made its truck fleet available to other firms on a for-hire carriage basis. Capital Invested in Customers. As part of its services to retailers, the company provides capital to certain customers by extending credit for inventory purchases, by becoming primarily or secondarily liable for store leases, by leasing equipment to retailers, by making secured loans and by making equity investments in customers: o Extension of Credit for Inventory Purchases. Customary trade credit terms are usually the day following statement date for customers on FlexPro(trademark) or FlexStar(trademark) and up to seven days for other marketing plan customers. o Store and Equipment Leases. The company leases stores for sublease to certain customers. At year-end 1999, the company was the primary lessee of more than 680 retail store locations subleased to and operated by customers. Fleming also leases a substantial amount of equipment to retailers. o Secured Loans and Lease Guarantees. Loans are approved by the company's business development committee following written approval standards. The company makes loans to customers primarily for store expansions or improvements. These loans are typically secured by inventory and store fixtures, bear interest at rates above the prime rate, and are for terms of up to 10 years. During fiscal year 1997, the company sold, with limited recourse, $29 million of notes evidencing such loans. No loans were sold in 1998 or 1999. The company believes its loans to customers are illiquid and would not be investment grade if rated. From time to time, the company also guarantees the lease obligations of certain of its customers. o Equity Investments. The company has equity investments in operators referred to as Equity Stores. Certain Equity Store participants may retain the right to purchase the company's investment over a five to ten year period. Many of the customers in which the company has equity investments are highly leveraged, and the company believes its equity investments are highly illiquid. In making credit and investment decisions, Fleming considers many factors, including estimated return on capital, risk and the benefits to be derived. At year-end 1999, Fleming had loans outstanding to customers totaling $114 million ($12 million of which were to retailers in which the company had an equity investment) and equity investments in customers totaling $4 million. The company also has investments in customers through direct financing leases, lease guarantees, operating leases or credit extensions for inventory purchases. The present values of the company's obligations under direct financing leases and lease guarantees were $214 million and $53 million, respectively, at year-end 1999. Fleming's credit loss expense from receivables as well as from investments in customers was $25 million in 1999, $23 million in 1998 and $24 million in 1997. See "Investments and Notes Receivable" and "Lease Agreements" in the notes to the consolidated financial statements. RETAIL SEGMENT The retail segment presently operates approximately 240 supermarkets in eight states. Sixty of the stores are in the process of being divested or closed, resulting in continuing operations of approximately 180 supermarkets operated as five distinct local chains in six states with an aggregate of approximately 8.9 million square feet. Each chain has its own local management and localized marketing skills. The retail segment's supermarkets are all served by distribution segment operating units. Net sales of the retail segment were $3.7 billion in fiscal 1999. The company operates two basic retail formats: conventional and value retail. Conventional retail stores are designed and equipped to offer a broad selection of both national brands as well as Fleming Brands at attractive prices while maintaining high levels of service. Most of these stores have extensive produce sections and complete meat departments, together with one or more specialty departments such as in-store bakeries, delicatessens, seafood or floral departments. Specialty departments generally produce higher gross margins per selling square foot than general grocery sections. Value retail stores are designed and equipped to offer a reduced assortment of products at reduced prices resulting in increased volumes which is enabled by a lower cost structure. The retail segment consisted of the following local trade names and number of stores as of year-end 1999: Value Retail Operations. Food 4 Less(registered trademark) is a group of 25 food warehouse stores operating in the Northern California, Salt Lake City and Phoenix market areas with an average size of approximately 54,500 square feet. The supermarkets use a price impact pricing strategy. "Price impact" stores seek to minimize the retail price of goods by a reduced variety of product offerings, lower levels of customer services and departments, low overhead and minimal decor and advertising. Conventional Retail Operations. ABCO Foods(trademark). Located in Phoenix and Tucson, ABCO operates 58 stores, of which a majority are "Desert Market" format conventional supermarkets, averaging approximately 37,700 square feet. Baker's(trademark), Nebraska. Located primarily in Omaha, Nebraska, Baker's operates 15 stores which are primarily superstores in format. Baker's stores average approximately 56,900 square feet. Rainbow Foods(registered trademark). With 44 stores in Minnesota, primarily Minneapolis/St. Paul, and two stores in Wisconsin, Rainbow Foods operates in a large store format. The average store size for Rainbow Foods is approximately 59,500 square feet. Sentry(registered trademark) Foods. Located in Wisconsin, Sentry operates 41 stores, 38 of which are conventional-format supermarkets with an average size of approximately 46,200 square feet. The remaining three stores are liquor or drug stores. Other. New York Retail. This is a 19 store group consisting primarily of Jubilee Foods(registered trademark) stores, operating in western New York and Pennsylvania. As a result of Fleming's asset rationalization, New York Retail is in the process of being divested or closed. Penn Retail. This group is made up of 18 conventional supermarkets which includes Festival Foods(registered trademark) and Jubilee Foods(registered trademark) operating primarily in Pennsylvania with several located in Maryland. As a result of Fleming's asset rationalization, Penn Retail is in the process of being divested or closed. Thompson Food Basket(registered trademark). Located in Illinois and Iowa, these 13 stores average approximately 38,500 square feet. As a result of Fleming's asset rationali- zation, Thompson Food Basket is in the process of being divested or closed. Baker's(trademark), Oklahoma. This is a seven store group which as a result of Fleming's asset rationalization is in the process of being divested. Fleming retail segment supermarkets provide added purchasing power as they enable Fleming to commit to certain promotional efforts at the retail level. The company, through its owned supermarkets, is able to retain many of the promotional savings offered by vendors in exchange for volume increases. Additional information regarding the company's two operating segments is contained in "Segment Information" in the notes to the consolidated financial statements which are included in Item 8 of this report. E-COMMERCE SEGMENT Fleming has assets in place and is well positioned to play a major role in the e-commerce industry. The company is already involved in e-commerce by supplying internet-based grocers (including NetGrocer.com, GroceryWorks.com, Pinkdot.com, AmericanGrocer.com and Webvan.com) and through our proprietary Visionet(registered trademark) system. Visionet unites retailers, traditional and non-traditional vendors, and Fleming operations. Visionet provides a way to communicate orders, promotions, marketing bulletins and related information among Fleming, vendors, and retailers. For example, retail customers regularly avail themselves of the cost savings inherent in special manufacturer promotions via Visionet. In addition to serving as a high-velocity informational interchange for promotional purchasing, Visionet offers a bid/auction capability for case pricing and inventory liquidation. This proprietary portal also enables Fleming to communicate with independent retail stores on category management, item price guides, order status, and other issues. In addition, Visionet is proving to be a valuable tool for replacing paper-based communications. To date, this segment has been immaterial and included as part of the distribution segment, but rapid growth is anticipated in the future. PRODUCTS The distribution segment and the retail segment supply Fleming's customers with a full line of national brands and Fleming Brands, including groceries, meat, dairy and delicatessen products, frozen foods, produce, bakery goods and a variety of general merchandise, health and beauty care and other related items. During 1999 the average number of stock keeping units ("SKUs") carried in full-line distribution operating units was approximately 15,200 including approximately 2,500 perishable products. General merchandise and specialty food operating units carried an average of approximately 18,200 SKUs. Food and food- related product sales account for over 93 percent of the company's consolidated sales. During 1999, the company's product mix as a percentage of product sales was approximately 51% groceries, 42% perishables and 7% general merchandise. The company is in the process of centralizing over 60% of all merchandise procurement which should make more efficient use of procurement staff, improve buying effectiveness, and substantially reduce the cost of goods. SUPPLIERS Fleming purchases its products from numerous vendors and growers. As a large customer, Fleming is able to secure favorable terms and volume discounts on many of its purchases, leading to lower unit costs. The company purchases products from a diverse group of suppliers and believes it has adequate sources of supply for substantially all of its products. COMPETITION The distribution segment faces significant competition. The company's primary competitors are regional and local food distributors, national chains which perform their own distribution, and national food distributors. The principal competitive factors include price, quality and assortment of product lines, schedules and reliability of delivery, and the range and quality of customer services. The primary competitors of retail segment supermarkets and distribution segment customers are national, regional and local grocery and drug chains, as well as supercenters, independent supermarkets, convenience stores, restaurants and fast food outlets. Principal competitive factors include product price, quality and assortment, store location and format, sales promotions, advertising, availability of parking, hours of operation and store appeal. EMPLOYEES At year-end 1999, the company had approximately 36,300 full-time and part-time employees, with approximately 10,900 employed by the distribution segment, approximately 23,600 by the retail segment and approximately 1,800 employed in shared services, customer support and other functions. Approximately half of the company's associates are covered by collective bargaining agreements with the International Brotherhood of Teamsters; Chauffeurs, Warehousemen and Helpers of America; the United Food and Commercial Workers; the International Longshoremen's and Warehousemen's Union; and the Retail Warehouse and Department Store Union. Most of such agreements expire at various times throughout the next five years. RISK FACTORS All statements other than statements of historical facts included in this report including, without limitation, statements under the captions "Risk Factors," "Management's Discussion and Analysis" and "Business," regarding the company's financial position, business strategy and plans and objectives of management of the company for future operations, constitute forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Cautionary statements describing important factors that could cause actual results to differ materially from the company's expectations are disclosed hereunder and elsewhere in this report. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements. Changing Environment. The distribution and retail segments are undergoing accelerated change as distributors and retailers seek to lower costs and increase services in an increasingly competitive environment. An example of this is the growing trend of large self-distributing chains to consolidate to reduce costs and gain efficiencies. Eating away from home and alternative format food stores (such as warehouse stores and supercenters) have taken market share from traditional supermarket operators, including independent grocers, many of whom are Fleming customers. Vendors, seeking to ensure that more of their promotional fees and allowances are used by retailers to increase sales volume, increasingly direct promotional dollars to large self-distributing chains. The company believes that these changes have led to reduced sales, reduced margins and lower profitability among many of its customers and, consequently, at the company itself. Failure to implement the company's strategies, developed in response to these changing market conditions, could have a material adverse effect on the financial condition and prospects of the company. Sales Growth. Net sales have declined each year since 1995; however, the decline slowed and turned during 1999 with the fourth quarter reflecting positive net sales growth. The company anticipates that net sales for 2000 will be higher than in 1999 due to growth in sales to non-traditional distribution customers, higher sales for continuing retail stores and growing sales to internet-based companies. See Item 7. Management's Discussion and Analysis. Although Fleming has taken steps to reverse sales declines and to enhance its overall profitability (see -General), no assurance can be given that the company will be successful in these efforts. Employee Relations. Approximately one-half of the company's associates are covered by collective bargaining agreements. Successful execution of the company's strategic plan is subject to maintaining satisfactory relationships with its unions. Leverage. The company has substantial indebtedness in relation to its shareholders' equity. The degree to which the company is leveraged could have important consequences including the following: (i) the company's ability to obtain other financing in the future may be impaired; (ii) a substantial portion of the company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness; and (iii) a high degree of leverage may make the company more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. Fleming's ability to make scheduled payments on or refinance its indebtedness depends on its financial and operating performance, which may fluctuate significantly from quarter to quarter and is subject to prevailing economic conditions and to financial, business and other factors beyond the company's control. If Fleming is unable to generate sufficient cash flow to meet its debt obligations, the company may be required to renegotiate the payment terms or refinance all or a portion of its indebtedness, to sell assets or to obtain additional financing. If Fleming could not satisfy its obligations related to such indebtedness, substantially all of the company's long-term debt could be in default and could be declared immediately due and payable. There can be no assurance that the company could repay all such indebtedness in such event. The company's credit agreement and the indentures for certain of its outstanding indebtedness contain numerous restrictive covenants which limit the discretion of the company's management with respect to certain business matters. These covenants place significant restrictions on, among other things, the ability of the company and its subsidiaries to incur additional indebtedness, to create liens or other encumbrances, to pay dividends, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets to, or merge or consolidate with, another entity which is not wholly owned by the company. Competition. The distribution segment is in a highly competitive market. The company faces competition from local, regional and national food distributors on the basis of price, quality and assortment, schedules and reliability of deliveries and the range and quality of services provided. The company also competes with retail supermarket chains that provide their own distribution functions, purchasing directly from producers and distributing products to their supermarkets for sale to the consumer. Consolidation of self-distributing chains may produce even stronger competition for the distribution segment. In its retail segment, Fleming competes with other food outlets on the basis of price, quality and assortment, store location and format, sales promotions, advertising, availability of parking, hours of operation and store appeal. Traditional mass merchandisers have gained a growing foothold in food marketing and distribution with alternative store formats, such as warehouse stores and supercenters, which depend on concentrated buying power and low-cost distribution technology. Market share of stores with alternative formats is expected to continue to grow in the future. Retail consolidations not only produce stronger competition in the retail segment, but may also result in declining sales in the distribution segment due to customers being acquired by self-distributing chains. To meet the challenges of a rapidly changing and highly competitive environment, the company must maintain operational flexibility and effectively implement its strategies across many market segments. The company's failure to successfully respond to these competing pressures or to implement its strategies effectively could have a material adverse effect on the financial condition and prospects of the company. Certain Litigation. Fleming is involved in substantial litigation which exposes the company to material loss contingencies. See Item 7. Management's Discussion and Analysis-Contingencies, Item 3. Legal Proceedings and "Litigation Charges" and "Contingencies" in the notes to the consolidated financial statements. Potential Losses From Investments in Retailers. The company provides subleases and extends loans to and makes investments in many of its retail customers, often in conjunction with the establishment of long-term supply contracts. Loans to customers are generally not investment grade and, along with equity investments in customers, are highly illiquid. The company also makes investments in customers through direct financing leases, lease guarantees, operating leases, credit extensions for inventory purchases and the recourse portion of notes sold evidencing such loans. See "-Capital Invested in Customers", Item 7. Management's Discussion and Analysis, and Fleming's consolidated financial statements and the notes thereto included elsewhere in this report. The company also invests in real estate to assure market access or to secure supply points. See "Lease Agreements" in the notes to the consolidated financial statements. Although the company has strict credit policies and applies cost/benefit analyses to loans to and investments in customers, there can be no assurance that credit losses from existing or future investments or commitments will not have a material adverse effect on the company's results of operations or financial condition. ITEM 2. PROPERTIES The following table sets forth facilities information with respect to Fleming's Distribution segment. Approximate Square Feet Owned or Location (in 000's) Leased -------- ----------- -------- Distribution: Altoona, PA (1) 172 Owned Buffalo, NY (2) 417 Leased Ewa Beach, HI 196 Leased Fresno, CA 326 Owned Garland, TX 1,180 Owned Geneva, AL 345 Leased Kansas City, KS 929 Leased La Crosse, WI 907 Owned Lafayette, LA 437 Owned Lincoln, NE 304 Leased Lubbock, TX 400 Owned Marshfield, WI (1) 157 Owned Massillon, OH 855 Owned Memphis, TN 765 Owned Miami, FL 764 Owned Milwaukee, WI 600 Owned Minneapolis, MN 480 Owned Nashville, TN 803 Leased North East, MD 108 Owned Oklahoma City, OK 410 Leased Philadelphia, PA (3) 832 Leased Phoenix, AZ 912 Owned Sacramento, CA 719 Owned Salt Lake City, UT 433 Owned San Antonio, TX (4) 514 Leased Superior, WI 371 Owned Warsaw, NC 334 Owned/Leased York, PA (3) 450 Owned ------ 15,120 General Merchandise Group: Dallas, TX 262 Owned/Leased King of Prussia, PA 377 Leased La Crosse, WI 163 Owned Memphis, TN 339 Owned/Leased Sacramento, CA 294 Leased Topeka, KS 179 Leased ------ 1,614 Outside Storage: Outside storage facilities - Typically rented on a Short-term basis 4,240 ------ Total for Distribution 20,974 ====== (1) Convenience store distribution operations. (2) In process of merging into Massillon distribution operation. (3) In process of merging into North East distribution operation (which currently serves as a perishables facility for the Philadelphia distribution operation). (4) In process of merging into Garland distribution operation. In addition to the above, the company has closed six facilities in various states and is actively marketing them. The following table sets forth general information with respect to Fleming's Retail segment. These retail stores are primarily leased. Approximate Combined Retail Chain Location Number Square Feet or Group of Stores of Stores (in 000's) ------------ --------- --------- ----------- ABCO Foods AZ 58 2,187 Baker's NE NE 15 853 Food 4 Less AZ, CA, UT 25 1,364 Rainbow Foods MN, WI 46 2,735 Sentry Foods WI 38 1,755 --- ----- Total Retail Segment 182 8,894 === ===== In addition to the above stores, the company is also in the process of divesting or closing 60 stores in various states. Fleming's shared service and customer support center offices are located in Oklahoma City, Oklahoma in leased office space totaling approximately 356,000 square feet. During 2000, Fleming will move its customer support services from the Oklahoma City office and field locations to leased space totaling approximately 136,000 square feet in Lewisville, Texas. Fleming owns and leases other significant assets, such as inventories, fixtures and equipment, capital leases, etc., which are reflected in the company's consolidated balance sheets which are included in Item 8 of this report. For information regarding lease commitments and long-term debt relating to properties or other assets, see "Lease Agreements" and "Long-term Debt" in the notes to the consolidated financial statements which are included in Item 8 of this report. ITEM 3. LEGAL PROCEEDINGS The following describes various pending legal proceedings to which Fleming is subject. For additional information see "Litigation Charges" and "Contingencies" in the notes to the consolidated financial statements which are included in Item 8 of this report. (1) Class Action Suits. In 1996, the company and certain of its present and former officers and directors (Robert E. Stauth, R. Randolph Devening, Harry L. Winn, Kevin J. Twomey and Donald N. Eyler) were named as defendants in nine purported class action suits filed by certain stockholders (Kenneth Steiner, Lawrence B. Hollin, Ronald T. Goldstein, General Telcom Money Purchase Plan & Trust, Bright Trading, Inc., City of Philadelphia, Gerald Pindus, Charles Hinton and Lawrence M. Wells, among others) and one purported class action suit filed by a noteholder (Robert Mark), each in the U.S. District Court for the Western District of Oklahoma (Mr. Devening was not named in the noteholder case). In 1997, the court consolidated the stockholder cases as City of Philadelphia, et al. v. Fleming Companies, Inc., et al. (the noteholder case was also consolidated, but only for pre-trial purposes). During 1998 the noteholder case was dismissed and during 1999 the consolidated case was also dismissed, each without prejudice. The court gave the plaintiffs the opportunity to restate their claims in each case. The complaint filed in the consolidated cases asserted liability for the company's alleged failure to properly account for and disclose the contingent liability created by the David's litigation and by the company's alleged "deceptive business practices." The plaintiffs claimed that these alleged practices led to the David's litigation and to other material contingent liabilities, caused the company to change its manner of doing business at great cost and loss of profit, and materially inflated the trading price of the company's common stock. The company denied each of these allegations. On February 4, 2000, the stockholder case was dismissed with prejudice by the district court. On March 3, 2000, the plaintiffs filed an appeal. The motion to dismiss in the noteholder case has not yet been decided. The plaintiffs seek undetermined but significant damages. However, if the district court ruling described below is upheld, the company believes the litigation will not have a material adverse effect on the company. In 1997, the company won a declaratory judgment in the U.S. District Court for the Western District of Oklahoma against certain of its insurance carriers regarding policies issued to Fleming for the benefit of its officers and directors ("D&O policies"). On motion for summary judgment, the court ruled that the company's exposure, if any, under the class action suits is covered by D&O policies written by the insurance carriers (aggregating $60 million in coverage) and that the "larger settlement rule" will be applicable to the case. According to the trial court, under the larger settlement rule a D&O insurer is liable for the entire amount of coverage available under a policy even if there is some overlap in the liability created by the insured individuals and the uninsured corporation. If a corporation's liability is increased by uninsured parties beyond that of the insured individuals, then that portion of the liability is the sole obligation of the corporation. The court also held that allocation is not available to the insurance carriers as an affirmative defense. The insurance carriers appealed. In 1999, the appellate court affirmed the decision that the class actions were covered by D&O policies aggregating $60 million on coverage but reversed the trial court's decision on allocation as being premature. (2) Tobacco Cases. Notices of suit or intention to sue have been filed by 27 individuals in the Court of Common Pleas of Philadelphia County, and by 3 individuals in the Court of Common Pleas of Dauphin County, Pennsylvania; and one individual brought suit in the 38th Judicial District Court, Cameron Parish, Louisiana. Each case named as co-defendants at least one major manufacturer of tobacco products and the company or a current or former company subsidiary, among others. With respect to each case, the company is being indemnified and defended by a substantial third-party co-defendant. Pursuant to a tolling agreement among the parties, all of the cases which were already pending in Pennsylvania (save two) were dismissed in 1998 without prejudice and may be refiled at a later date. During the fourth quarter of 1999, the court set a trial date in one of the cases pending in the Court of Common Pleas, Philadelphia County, Pennsylvania for October 1, 2000. Two cases are now set for trial in that court. The second case is set for trial March 4, 2001. In addition, counsel for the parties amended the tolling agreement, by which three of the cases were withdrawn from the tolling agreement. In January, 2000, counsel for the parties agreed to an amendment to the tolling agreement by which counsel for the plaintiffs withdrew from representing the plaintiffs in 21 of the cases, and one case was withdrawn from the tolling agreement. These plaintiffs have until March 31, 2000 to file a case, after which the company can assert the defenses of statute of limitations and laches. As to the case formerly pending in Cameron Parish, Louisiana, plaintiffs have appealed to the Fifth Circuit Court of Appeals the decision of the federal district court refusing to remand the case, which appeal is pending. Oral argument occurred in September, 1999 and no decision has been rendered. (3) Don's United Super (and related cases). The company and two retired executives have been named in a suit filed in 1998 in the United States District Court for the Western District of Missouri by several current and former customers of the company (Don's United Super, et al. v. Fleming, et al.). The eighteen plaintiffs operate retail grocery stores in the St. Joseph and Kansas City metropolitan areas. The plaintiffs in this suit allege product overcharges, breach of contract, breach of fiduciary duty, misrepresentation, fraud, and RICO violations, and they are seeking actual, punitive and treble damages, as well as a declaration that certain contracts are voidable at the option of the plaintiffs. During the fourth quarter of 1999, plaintiffs produced reports of their expert witnesses calculating alleged actual damages of approximately $112 million. During the first quarter of 2000, plaintiffs revised a portion of these damage calculations, and although plaintiffs have not finalized these calculations, it appears that their revised damage calculations will result in a claim of approximately $120 million, exclusive of any punitive or treble damages. In October 1998, the company and the same two retired executives were named in a suit filed by another group of retailers in the same court as the Don's suit. (Coddington Enterprises, Inc., et al. v. Fleming, et al.). Currently, sixteen plaintiffs are asserting claims in the Coddington suit. All of the plaintiffs except for one have arbitration agreements with Fleming. The plaintiffs assert claims virtually identical to those set forth in the Don's suit, and although plaintiffs have not yet quantified the damages in their pleadings, it is anticipated that they will claim actual damages approximating the damages claimed in the Don's suit. In July 1999, the court ordered two of the plaintiffs in the Coddington case to arbitration, and otherwise denied arbitration as to the remaining plaintiffs. The company has appealed the district court's denial of arbitration to the Eighth Circuit Court of Appeals. The two plaintiffs that were ordered to arbitration have filed motions asking the district court to reconsider the arbitration ruling. Two other cases had been filed before the Don's case in the same district court (R&D Foods, Inc., et al. v. Fleming, et al. and Robandee United Super, Inc., et al. v. Fleming, et al.) by ten customers, some of whom are also plaintiffs in the Don's case. The earlier two cases, which principally seek an accounting of the company's expenditure of certain joint advertising funds, have been consolidated. All proceedings in these cases have been stayed pending the arbitration of the claims of those plaintiffs who have arbitration agreements with the company. The company intends to vigorously defend against the claims in these related cases, but is currently unable to predict the outcome. An unfavorable outcome could have a material adverse effect on the financial condition and prospects of the company. (4) Storehouse Markets. In 1998, the company and one of its division officers were named in a suit filed in the United States District Court for the District of Utah by several current and former customers of the company (Storehouse Markets, Inc., et al. v. Fleming Companies, Inc., et al.). The plaintiffs have alleged product overcharges, fraudulent misrepresentation, fraudulent non- disclosure and concealment, breach of contract, breach of duty of good faith and fair dealing, and RICO violations, and they are seeking actual, punitive and treble damages. On March 7, 2000 the court stated that this case will be certified as a class action. The class will include current and former customers of Fleming's Salt Lake City division covering a four state region. A formal order has not yet been received. The company is considering an appeal of this ruling pending receipt of this order. Damages have not been quantified by the plaintiffs; however, the company anticipates that substantial damages will be claimed. The company intends to vigorously defend against these claims, but is currently unable to predict the outcome. An unfavorable outcome could have a material adverse effect on the financial condition and prospects of the company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of the company as of March 1, 2000: Year First Became Name (age) Present Position An Officer - ---------- ---------------- ------------ Mark S. Hansen (45) Chairman and 1998 Chief Executive Officer E. Stephen Davis (59) Executive Vice President and 1981 President, Wholesale Dennis C. Lucas (52) Executive Vice President and 1999 President, Retail William H. Marquard Executive Vice President, 1999 (40) Business Development and Chief Knowledge Officer Scott M. Northcutt (38) Executive Vice President, 1999 Human Resources Neal J. Rider (38) Executive Vice President and 2000 Chief Financial Officer David R. Almond (59) Senior Vice President, 1989 Administration Mark K. Batenic (51) Senior Vice President, Sales 1994 and Business Development - Food Distribution Lenore T. Graham (44) Senior Vice President, 2000 General Counsel and Secretary Charles L. Hall (49) Senior Vice President, Real 1999 Estate and Store Development Richard C. Judd (48) Senior Vice President, Supply 1999 Dixon E. Simpson (57) Senior Vice President, 1993 e-Commerce Fulfillment John M. Thompson (58) Senior Vice President, 1982 Business Development Finance and Assistant Secretary Kevin J. Twomey (49) Senior Vice President, 1995 Finance and Controller No family relationship exists among any of the executive officers listed above. Executive officers are elected by the Board of Directors for a term of one year beginning with the annual meeting of shareholders held in April or May of each year. Each of the executive officers has been employed by the company or its subsidiaries for the preceding five years except for Messrs. Hansen, Lucas, Marquard, Northcutt, Rider and Hall and Mrs. Graham. Mr. Hansen joined the company in his present position in November 1998. From 1997 until joining the company, he was Chairman and Chief Executive Officer of SAM's Club, a division of Wal-Mart Stores, Inc. From 1989 to 1997, he served in multiple capacities at PETsMART, Inc., including President and Chief Executive Officer. Mr. Lucas joined the company in his present position in July 1999. From 1992 until joining the company, he served in multiple capacities at Albertson's, including Vice President positions and Regional President. Mr. Marquard joined the company in his present position in June 1999. From 1991 until joining the company, he was a partner in the consulting practice of Ernst & Young. Mr. Northcutt joined the company in his present position in January 1999. From 1997 until joining the company, he was Vice President-People Group at SAM's Club, a division of Wal-Mart Stores, Inc. From 1988 to 1996, he served as Vice President-Human Resources and later as Vice President-Store Operations at Dollar General Corporation. Mr. Rider joined the company in his present position in January 2000. From 1999 until joining the company, he was Executive Vice President and Chief Financial Officer at Regal Cinemas, Inc. From 1980 to 1999, Mr. Rider served in multiple capacities at American Stores Company, including Treasurer and Controller responsibilities before becoming Chief Financial Officer. Mr. Hall joined the company in his present position in June 1999. From 1998 until joining the company, he was Senior Vice President- Real Estate and Store Development at Eagle Hardware and Garden, Inc. From 1992 to 1998, he served as Vice President of Real Estate Development at PETsMART, Inc. Mrs. Graham joined the company in her present position in January 2000. From 1995 until joining the company, she was a stockholder with the Oklahoma City law firm McAfee & Taft A Professional Corporation. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Fleming common stock is traded on the New York, Chicago and Pacific stock exchanges. The ticker symbol is "FLM". As of March 3, 2000, 39.2 million outstanding shares were owned by 16,100 shareholders of record and approximately 9,500 beneficial owners whose shares are held in street name by brokerage firms and financial institutions. According to the New York Stock Exchange Composite Transactions tables, the high and low prices of Fleming common stock during each calendar quarter of the past two years are shown below. 1999 1998 --------------------- ------------------- Quarter High Low High Low ------- --------- ------- -------- ------- First $11.88 $7.19 $20.75 $13.38 Second 12.00 8.31 20.06 17.25 Third 12.50 9.81 18.00 11.06 Fourth 13.44 9.25 12.69 8.63 Cash dividends on Fleming common stock have been paid for 83 consecutive years. Dividends are generally declared on a quarterly basis with holders as of the record date being entitled to receive the cash dividend on the payment date. Record and payment dates for 2000 are as shown below: Record Dates: Payment Dates: ------------- -------------- February 18 March 10 May 19 June 9 August 18 September 11 November 20 December 8 Cash dividends of $.02 per share were paid on or near each of the above four payment dates in 1999 and 1998. ITEM 6. SELECTED FINANCIAL DATA 1999(a) 1998(b) 1997(c) 1996(d) 1995(e) ------- ------- ------- ------- ------- (In millions, except per share amounts) Net sales $14,646 $15,069 $15,373 $16,487 $17,502 Earnings (loss) before extraordinary charge (45) (511) 39 27 42 Net earnings (loss) (45) (511) 25 27 42 Diluted net earnings (loss) per common share before extraordinary charge (1.17) (13.48) 1.02 .71 1.12 Diluted net earnings (loss) per share (1.17) (13.48) .67 .71 1.12 Total assets 3,573 3,491 3,924 4,055 4,297 Long-term debt and capital leases 1,602 1,503 1,494 1,453 1,717 Cash dividends declared per common share .08 .08 .08 .36 1.20 See Item 3. Legal Proceedings, notes to consolidated financial statements in Item 8., and the financial review included in Item 7. (a) The results in 1999 reflect an impairment/restructuring charge with related costs totaling $137 million ($92 million after-tax) related to the company's strategic plan. 1999 also reflected one-time items ($31 million charge to close 10 conventional retail stores, income of $22 million from extinguishing some workers' compensation liability at a discount, interest income of $9 million related to refunds in federal income taxes from prior years, and $6 million in gains from the sale of distribution facilities) netting to $6 million of income ($3 million after-tax). (b) The results in 1998 reflect an impairment/restructuring charge with related costs totaling $668 million ($543 million after-tax) related to the company's newly adopted strategic plan. (c) The results in 1997 reflect a charge of $19 million ($9 million after-tax) related to the settlement of a lawsuit against the company. 1997 also reflected an extraordinary charge of $22 million ($13 million after-tax) related to the recapitalization program. (d) Results in 1996 include a charge of $20 million ($10 million after-tax) related to the settlement of two related lawsuits against the company. (e) In 1995, management changed its estimates with respect to the general merchandising portion of the 1993 reengineering plan and reversed $9 million ($4 million after-tax) of the related provision. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL In early 1998 the Board of Directors and senior management began an extensive strategic planning process that evaluated all aspects of Fleming's business. With the help of a consulting firm, the evaluation and planning process was completed late in 1998. In December 1998, the strategic plan was approved and implementation efforts began. The strategic plan consists of the following four major initiatives: o Consolidate distribution operations. The strategic plan initially included closing eleven operating units (El Paso, TX; Portland, OR; Houston, TX; Huntingdon, PA; Laurens, IA; Johnson City, TN; Sikeston, MO; San Antonio, TX; Buffalo, NY; an unannounced operating unit still to be closed; and an unannounced operating unit scheduled for 1999 closure, but due to increased cash flows from new business it will not be closed). Of the nine announced, all but San Antonio and Buffalo have been completed. San Antonio should be closed by the end of the first quarter of 2000 and Buffalo by the end of the second quarter of 2000. Three additional closings were announced which were not originally part of the strategic plan which brings the total operating units to be closed to thirteen. The closing of Peoria was added to the plan in the first quarter of 1999 when costs associated with continuing to service customers during a strike coupled with costs of reopening the operating unit made closing the operating unit an economically sound decision. Recently, the closings of York and Philadelphia were announced as part of an effort to grow in the northeast by consolidating distribution operations and expand the Maryland facility. Total 1998 sales from the 13 operating units closed or to be closed were approximately $3.1 billion. Most of these sales have been or are expected to be retained by transferring customer business to its higher volume, better utilized facilities. The company believes that this consolidation process benefits customers with better product variety and improved buying opportunities. The company has also benefited with better coverage of fixed expenses. The closings result in savings due to reduced depreciation, payroll, lease and other operating costs, and the company begins recognizing these savings immediately upon closure. The capital returned from the divestitures and closings has been and will continue to be reinvested in the business. o Grow distribution sales. Higher volume, better-utilized distribution operations and the dynamics of the market place represent an opportunity for sales growth. The improved efficiency and effectiveness of the remaining distribution operations enhances their competitiveness and the company intends to capitalize on these improvements. During 1999, significant new customers were added in the distribution segment, including increased business with Kmart Corporation, which is expected to result in approximately $1 billion in annualized new sales. o Improve retail performance. This not only requires divestiture or closing of under-performing company-owned retail chains, but also requires increased investments in market leading chains. The strategic plan includes the divestiture or closing of seven retail chains (including the recently announced letters of intent to sell the Baker's Oklahoma stores in the first half of 2000). The chains divested or closed (or to be divested or closed) are Hyde Park, Consumers, Boogaarts, New York Retail, Pennsylvania Retail, Baker's Oklahoma, and a chain not yet announced. The sale of Baker's Oklahoma as well as the divestiture or closing of the chain not yet announced were not in the original strategic plan, but no longer fit into the current business strategy. Total 1998 sales from the divested or closed (or to be divested or closed) chains was approximately $844 million. The sale or closing of these chains is expected to be substantially completed by the end of the second quarter of 2000. Also during 1999, the company built or acquired more than 25 retail stores that are expected to fit in well strategically with the existing chains. Sixteen remodels of existing retail stores were also completed during 1999. o Reduce overhead and operating expenses. Overhead has been and will continue to be reduced through the low cost pursuit program which includes organization and process changes, such as a reduction in workforce through productivity improvements and elimination of work, centralization of administrative and procurement functions, and reduction in the number of management layers. The low cost pursuit program also includes other initiatives to reduce complexity in business systems and remove non-value-added costs from operations, such as reducing the number of SKU's, creating a single point of contact with customers, reducing the number of decision points within the company, and centralizing vendor negotiations. These initiatives are well underway and have reflected reduced costs for the company which ultimately reflect improved profitability and competitiveness. Implementation of the strategic plan is expected to continue through 2000. This time frame accommodates the company's limited resources and customers' seasonal marketing requirements. Thus far, the implementation has proceeded as planned other than changes to the plan described above. Additional expenses will continue for some time beyond 2000 because certain disposition related costs can only be expensed when incurred. The total pre-tax charge of the strategic plan is presently estimated at $935 million ($239 million cash and $696 million non- cash). The plan originally announced in December 1998 had an estimated pre-tax charge totaling $782 million. The increase is due primarily to closing the Peoria, York and Philadelphia divisions ($59 million), updating impairment amounts on certain retail chains ($25 million), the divestiture of the Baker's chain in Oklahoma ($17 million), increasing costs associated with initiatives to reduce overhead and complexity in business systems ($60 million), and decreasing costs related to a scheduled closing no longer planned ($8 million). Updating the impairment amounts was necessary as decisions to close additional operating units were made. Additionally, sales negotiations provided more current information regarding the fair value on certain chains. The cost of severance, relocation and other periodic expenses relating to reducing overhead and business complexities was more than expected. Also, there were changes in the list of operating units to be divested or closed due to their failure to fit into the current business strategy as described above. The pre-tax charge recorded to-date is $805 million ($137 million in 1999 and $668 million recorded in 1998). After tax, the expense for 1999 was $92 million or $2.39 per share. Of the $137 million charge in 1999, $58 million is expected to require cash expenditures. The remaining $79 million consisted of non-cash items. The $137 million charge consisted of the following components: o Impairment of assets of $62 million. The impairment components were $36 million for goodwill and $26 million for other long- lived assets. The entire $62 million impairment related to assets to be sold or closed. o Restructuring charges of $41 million. The restructuring charges consisted primarily of severance related expenses and pension withdrawal liabilities for the divested or closed operating units announced during 1999. The restructuring charges also consisted of operating lease liabilities for divestitures or closings decided in 1999 that weren't part of the original plan and professional fees incurred during the year related to the restructuring process. o Other disposition and related costs of $34 million. These costs consisted primarily of inventory valuation adjustments, impairment of an investment, disposition related costs recognized on a periodic basis and other costs. Additional pre-tax expense of approximately $130 million is expected in 2000 relating to the continuing implementation of the strategic plan. Approximately $107 million of these future expenses are expected to require cash expenditures. The remaining $23 million of the future expense relates to non-cash items. These future expenses will consist primarily of severance, real estate-related expenses, pension withdrawal liabilities and other costs expensed when incurred. The pre-tax charge relating to the strategic plan for 1998 totaled $668 million and is described in the Form 10-K and Form 10-K/A for 1998. The expected benefits of the plan are increased sales and improved earnings. Sales are expected to increase in 2000 due to new customers added in the distribution segment. Based on management's plan, earnings are expected to improve and exceed $3 per share by or before the year 2003. The company has assessed the strategic significance of all operating units. Under the plan, the sale or closing of certain operating units has been announced and is planned as described above. The company anticipates the improved performance of several strategic operating units. However, in the event that performance is not improved, the strategic plan will be revised and additional operating units could be sold or closed. In addition to the strategic plan related charges mentioned above, other significant one-time items included in 1999 were: a $31 million charge to close certain retail stores; income of $22 million from extinguishing a portion of the company's self- insured workers' compensation liability at a discount through insurance coverage; interest income of $9 million related to refunds in federal income taxes from prior years; and income of $6 million in gains from the sale of distribution facilities. This results in a net one-time income of approximately $6 million ($3 million after-tax or $.09 per share). The net effect of the strategic plan charges and one-time adjustments was a $131 million pre-tax charge. Net earnings for 1999 after excluding these charges was $43 million or $1.12 per share. The company expects net earnings after excluding strategic plan charges and one-time items for 2000 to be at least $1.46 per share. RESULTS OF OPERATIONS Set forth in the following table is information regarding the company's net sales and certain components of earnings expressed as a percent of sales which are referred to in the accompanying discussion: 1999 1998 1997 ------- ------- ------- Net Sales 100.00% 100.00% 100.00% Gross margin 9.81 9.62 9.16 Less: Selling and administrative 8.62 8.30 7.62 Interest expense 1.13 1.07 1.06 Interest income (.28) (.24) (.30) Equity investment results .07 .08 .11 Litigation charges - .05 .13 Impairment/restructuring charge .70 4.33 - ----- ----- ----- Total expenses 10.24 13.59 8.62 ----- ----- ----- Earnings (loss) before taxes (.43) (3.97) .54 Taxes on income (loss) (.12) (.58) .29 ----- ----- ----- Earnings (loss) before extraordinary charge (.31) (3.39) .25 Extraordinary charge - - (.09) ----- ----- ----- Net earnings (loss) (.31)% (3.39)% .16% ===== ===== ===== 1999 and 1998 Net Sales. Sales for 1999 decreased by $.4 billion, or 3%, to $14.65 billion from $15.07 billion for 1998. Net sales for the distribution segment were $10.9 billion in 1999 compared to $11.5 billion in 1998. The sales decrease was primarily due to the previously announced loss of sales to Furr's (in 1998) and Randall's (in 1999) and the disposition of the Portland division (in 1999). These sales losses were partially offset by the increase in sales to Kmart Corporation. Sales during 1999 were also impacted by the planned closing and consolidation of certain distribution operating units. These sales losses plus the prospective loss of sales to United in 2000 will be partially offset by the increase in sales to Kmart Corporation. In 1999 and 1998, sales to Furr's, Randall's and United accounted for approximately 4% and 8%, respectively, of the company's sales. Retail segment sales were $3.7 billion in 1999 compared to $3.6 billion in 1998. The increase in sales was due primarily to new stores added in 1999. This was offset partially by a 1.9% decrease in same-store sales and closing non-performing stores. The company measures inflation using data derived from the average cost of a ton of product sold by the company. For 1999, food price inflation was 1.0%, compared to 2.1% in 1998. The company anticipates that net sales for 2000 will be approximately $15 billion and will be higher than in 1999 due to growth in sales to non-traditional distribution customers, higher sales for continuing retail stores and growing sales to internet- based companies. Gross Margin. Gross margin for 1999 decreased by $13 million, or 1%, to $1.44 billion from $1.45 billion for 1998, and increased as a percentage of net sales to 9.81% from 9.62% for 1998. After excluding the strategic plan charges and one-time items, gross margin dollars still decreased compared to the same period in 1998 and gross margin as a percentage of net sales still increased compared to the same period in 1998. The decrease in dollars was due primarily to the overall sales decrease, but was partly offset by positive results from leveraging the company's buying power and cutting costs. The increase in percentage to net sales was due to the impact of the growing retail segment compared to the distribution segment. The retail segment has the higher margins of the two segments. This increase was partly offset by lower margins in the retail segment due to competitive pricing at company-owned new stores. Selling and Administrative Expenses. Selling and administrative expenses for 1999 increased by $10 million, or 1%, to $1.26 billion from $1.25 billion for 1998, and increased as a percentage of net sales to 8.62% for 1999 from 8.30% for 1998. The increase in both dollars and percentage of net sales was primarily due to one-time items recorded in 1999: a charge to close conventional retail stores which was partially offset by income from extinguishing a portion of the company's self-insured workers' compensation liability at a discount. The increase in percentage to net sales was also partly due to the impact of the growing retail segment compared to the distribution segment - the retail segment has higher operating expenses as a percent to sales compared to the distribution segment. The company has a significant amount of credit extended to certain customers through various methods. These methods include customary and extended credit terms for inventory purchases and equity investments in and secured and unsecured loans to certain customers. Secured loans generally have terms up to ten years. Credit loss expense is included in selling and administrative expenses and for 1999 increased to $25 million from $23 million for 1998. Operating Earnings. Operating earnings for the distribution segment increased by $31 million, or 12%, to $290 million from $259 million for 1998, and increased as a percentage of distribution net sales to 2.65% from 2.26%. Excluding the costs relating to the strategic plan and one-time items, operating earnings still increased by $29 million to $302 million from $273 million for the same period of 1998. Operating earnings improved primarily due to the benefits of the consolidation of distribution operating units and cost reduction. Operating earnings for the retail segment decreased by $64 million to a loss of $2 million from earnings of $62 million for 1998. Excluding the costs relating to the strategic plan and one- time items (primarily a charge to close conventional retail stores), operating earnings still decreased, but by $20 million to $42 million from $62 million for the same period of 1998. The decrease was due to the impact of new store start-up expenses plus expenses related to the divestiture and closing of stores. Operating earnings for the retail segment were also adversely affected by a 1.9% decrease in same-store sales. Corporate expenses decreased in 1999 to $112 million compared to $122 million for 1998. Excluding the costs relating to the strategic plan and one-time items (primarily income from extinguishing a portion of the company's self-insured workers' compensation liability at a discount), corporate expenses increased in 1999 to $132 million compared to $121 million for 1998. The increase was due primarily to an increase in lease termination and real estate disposition expenses and higher incentive compensation. Interest Expense. Interest expense in 1999 was $4 million higher than 1998 due primarily to 1998's low interest expense as a consequence of a favorable settlement of tax assessments. The higher 1999 expense was also due to higher average debt balances. The company's derivative agreements consist of simple "floating- to-fixed rate" interest rate swaps. For 1999, interest rate hedge agreements contributed $4.8 million of net interest expense compared to $4.3 million in 1998, or $0.5 million higher. This was due to slightly higher average net interest rates underlying the hedge agreements. For a description of these derivatives see Item 7A. Quantitative and Qualitative Disclosures About Market Risk and "Long-Term Debt" in the notes to the consolidated financial statements. Interest Income. Interest income for 1999 was $4 million higher than 1998 due to a one-time item related to refunds in federal income taxes from prior years. This was partially offset by lower average balances for the company's investment in direct financing leases. Equity Investment Results. The company's portion of operating losses from equity investments for 1999 decreased by approximately $2 million to $10 million from $12 million for 1998. The reduction in losses is due to improved results of operations in certain of the underlying equity investments. Litigation Charges. In October 1997, the company began paying Furr's $800,000 per month as part of a settlement agreement which ceased in October 1998. Payments to Furr's totaled $7.8 million in 1998. Impairment/Restructuring Charge. The pre-tax charge for the strategic plan recorded in the Consolidated Statements of Operations totaled $137 million for 1999 and $668 million for 1998. Of these totals, $103 million and $653 million were reflected in the Impairment/restructuring charge line with the balance of the charges reflected in other financial statement lines. See "General" above and the notes to the consolidated condensed financial statements for further discussion regarding the strategic plan. Taxes On Income. The effective tax rates used for 1999 and 1998 were 28.5% and 14.6%, respectively, both representing a tax benefit. These are blended rates taking into account operations activity, strategic plan activity, write-offs of non-deductible goodwill and the timing of these transactions during the year. Certain Accounting Matters. The Financial Accounting Standards Board issued SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and is effective for 2001. The company will adopt SFAS No. 133 by the required effective date. The company has not determined the impact on its financial statements from adopting the new standard. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 - Revenue Recognition ("SAB No. 101"). SAB No. 101 provides guidance on recognition, presentation, and disclosure of revenue in financial statements. The company has determined the impact on earnings is not material. Other. Several factors negatively affecting earnings in 1999 are likely to continue for the near term. The company believes that these factors include costs related to the strategic plan, negative same-store sales and operating losses in certain company-owned retail stores. 1998 and 1997 Net Sales. Sales for 1998 decreased by $.3 billion, or 2%, to $15.07 billion from $15.37 billion for 1997. Net sales for the distribution segment were $11.5 billion in 1998 compared to $11.9 billion in 1997. The loss of sales from customers moving to self-distribution, Furr's (in 1998), Randall's (in 1999) and United (in 2000), will result in sales comparisons to prior periods being negative for some time. In 1998, sales to these three customers accounted for approximately 8% of the company's sales. Retail segment sales were $3.6 billion in 1998 compared to $3.5 billion in 1997. The increase in sales was due primarily to new stores added in 1998. This was offset partially by a decrease in same-store sales in 1998 compared to 1997 of 3.6% and closing non- performing stores. The company measures inflation using data derived from the average cost of a ton of product sold by the company. For 1998, food price inflation was 2.1%, compared to 1.3% in 1997. Gross Margin. Gross margin for 1998 increased by $42 million, or 3%, to $1.45 billion from $1.41 billion for 1997, and increased as a percentage of net sales to 9.62% from 9.16% for 1997. The increase was due, in part, to an overall increase in the retail segment, which has the better margins of the two segments, net of the unfavorable impact of gains from dispositions that occurred in 1997, but not in 1998. Gross margin also reflects favorable adjustments for closed stores due to better-than-expected lease buyouts. These increases in gross margin were partly offset by costs relating to the strategic plan in 1998 primarily relating to inventory valuation adjustments. Product handling expenses, consisting of warehouse, transportation and building expenses, were lower as a percentage of net sales in 1998 compared to 1997, reflecting continued productivity improvements. Selling and Administrative Expenses. Selling and administrative expenses for 1998 increased by $79 million, or 7%, to $1.25 billion from $1.17 billion for 1997, and increased as a percentage of net sales to 8.30% for 1998 from 7.62% in 1997. The increase was partly due to increased operating expense in the retail segment. Selling expense was higher than the previous year as the company continues to work at reversing recent sales declines. The increase was also partly due to costs relating to the strategic plan. The company has a significant amount of credit extended to certain customers through various methods. These methods include customary and extended credit terms for inventory purchases and equity investments in and secured and unsecured loans to certain customers. Secured loans generally have terms up to ten years. Credit loss expense is included in selling and administrative expenses and for 1998 decreased by approximately $1 million to $23 million from $24 million for 1997. Operating Earnings. Operating earnings for the distribution segment decreased by $24 million, or 8%, to $259 million from $283 million for 1997, and decreased as a percentage of distribution net sales to 2.26% from 2.38%. 1998 operating earnings were adversely affected by inventory valuation adjustments and other costs related to the strategic plan as well as lower sales. Operating earnings for the retail segment decreased by $18 million, or 23%, to $62 million from $80 million for 1997, and decreased as a percentage of retail sales to 1.73% from 2.31%. Operating earnings for the retail segment were adversely affected primarily by a 3.6% decrease in same-store sales and by higher labor costs. Corporate expenses decreased in 1998 compared to 1997 due to lower incentive compensation, which was partially offset by severance expense and professional fees under the strategic plan as well as an increase in the LIFO charge. Interest Expense. Interest expense in 1998 was $1 million lower than 1997 due primarily to a reduction of interest accruals relating to a favorable settlement of tax assessments. Without this reduction, interest expense in 1998 would have been $2 million greater than 1997 due to higher average fixed-rate debt balances. The company's derivative agreements consist of simple "floating- to-fixed rate" interest rate swaps. For 1998, interest rate hedge agreements contributed $4.3 million of interest expense compared to $7.2 million in 1997, or $2.9 million lower. This was due to a lower average amount of notional principal of debt referenced by the hedge agreements. For a description of these derivatives see Item 7A. Quantitative and Qualitative Disclosures About Market Risk and "Long-Term Debt" in the notes to the consolidated financial statements. Interest Income. Interest income for 1998 was $10 million lower than 1997 due to lower average balances and interest rates for the company's notes receivable and investment in direct financing leases. Equity Investment Results. The company's portion of operating losses from equity investments for 1998 decreased by approximately $5 million to $12 million from $17 million for 1997. The reduction in losses is due to improved results of operations in certain of the underlying equity investments. Litigation Charges. In October 1997, the company began paying Furr's $800,000 per month as part of a settlement agreement which ceased in October 1998. Payments to Furr's totaled $7.8 million in 1998. In the first quarter of 1997, the company expensed $19.2 million in settlement of the David's litigation. See "Litigation Charges" in the notes to the consolidated financial statements. Impairment/Restructuring Charge. In December 1998, the company announced the implementation of a strategic plan designed to improve the competitiveness of the retailers the company serves and improve the company's performance by building stronger operations that can better support long-term growth. The pre-tax charge recorded in 1998 for the plan was $668 million. After tax, the expense was $543 million in 1998 or $14.33 loss per share. The $114 million of costs relating to the strategic plan not yet charged against income will be recorded over the next 2 years at the time such costs are accruable. Taxes On Income. The effective tax rate for 1998 is 14.6% versus 58.0% for 1997. The 1998 effective rate is low due primarily to the impairment of non-deductible goodwill written off as part of the strategic plan. The presentation of the 1997 tax is split by reflecting a tax benefit at the statutory rate of 40% for the extraordinary charge and reflecting the balance of the tax amount on the taxes on income line. See "Income Taxes" in the notes to the consolidated financial statements. Extraordinary Charge From Early Retirement of Debt. During 1997, the company undertook a recapitalization program which culminated in an $850 million senior secured credit facility and the sale of $500 million of senior subordinated notes. The recapitalization program resulted in an extraordinary charge of $13.3 million, after income tax benefits of $8.9 million, or $.35 per share, in the company's third quarter 1997. Almost all of the charge represents a non-cash write-off of unamortized financing costs related to debt which was prepaid. Other. During 1998 and 1997, activity was booked against the facilities consolidation and restructuring reserve set up in 1993. In 1998, the primary activity was the reversal of a $4 million reserve originally set up to close a facility. In 1997, $11 million of severance expense was recorded which related to corporate headcount reductions, outsourcing certain transportation operations and an early retirement program; additionally, $2 million was recorded to reimburse customers of the company's general merchandise and distribution operations for expenses they incurred to conform to a change in our standard product codes. The implementation of the 1993 plan was slowed by the acquisition of Scrivner in mid-1994, disruptions caused by the David's lawsuit and other litigation developments in 1996 and 1997, and other unforeseen difficulties. LIQUIDITY AND CAPITAL RESOURCES In the year ended December 25, 1999, the company's principal sources of liquidity were cash flows from operating activities, borrowings under its credit facility, and the sale of certain assets and investments. The company's principal sources of capital, excluding shareholders' equity, during this period were banks and lessors. Net cash provided by operating activities. Operating activities generated $118 million of net cash flows for the year ended December 25, 1999, compared to $141 million for the same period in 1998. Included in 1999 net operating cash flows were $78 million from an increase in receivables and inventories, $36 million reduction in accounts payable, and $50 million in payments for strategic plan-related restructuring charges. Cash requirements related to the implementation and completion of the strategic plan (on a pre-tax basis) are estimated to be a total of $130 million in 2000 and $56 million thereafter. Total expected cash requirements (pre-tax) have increased by $85 million since the end of 1998 due to the cost of additional divestitures and closings added to the strategic plan plus increasing costs associated with initiatives to reduce overhead and complexity in business systems. Management believes working capital reductions, proceeds from the sale of assets, and increased after-tax earnings related to the successful implementation of the strategic plan are expected to provide adequate cash flows to cover all of these costs. Net cash used in investing activities. Total net investment expenditures were $213 million for the year ended December 25, 1999, compared to $163 million in net investment expenditures for the same period in 1998. Included in 1999 net investment expenditures were $166 million for capital expenditures, $78 million for acquisitions of retail stores and a total of $52 million in loans and equity investments in customers. Offsetting these expenditures in part were sales of assets and investments totaling $45 million and collections on notes receivable totaling $35 million. Capital expenditures are estimated to be a total of $180 million for 2000. The company intends to increase its retail operations by making investments in its existing stores and by adding new stores through store construction or acquisitions. Acquisitions of supermarket groups or chains or distribution operations will be made only on a selective basis. The focus of retail investment is expected to shift towards the company's value- oriented stores. The company's strategic plan involves divesting or closing certain distribution and retail facilities and other assets, and focusing resources on the remaining distribution and retail operations. Net cash provided by financing activities. Net cash provided by financing activities was $96 million for the year ended December 25, 1999, compared to $2 million in net cash used in financing activities for the same period in 1998. Included in 1999 net cash provided by financing activities was a net increase in long-term debt of $120 million since the end of 1998. The increase in long-term debt reflects net cash required from external sources to finance net cash used in investment activities and certain financing activities such as $22 million of principal payments on capital lease obligations and $3 million of dividends paid, offset in part by $1 million from the sale of common stock under stock ownership plans. Approximately $30 million in net capital value has been provided by lessors through capital lease obligations since the end of 1998. At the end of 1999, borrowings under the credit facility totaled $198 million in term loans and $255 million of revolver borrowings, and $40 million of letters of credit had been issued. Based on actual borrowings and letters of credit issued, the company could have borrowed an additional $305 million under the revolver. For the foreseeable future, the company's principal sources of liquidity and capital are expected to be cash flows from operating activities, the company's ability to borrow under its credit facility, and asset sale proceeds. In addition, lease financing may be employed for new retail stores and certain equipment. Management believes these sources will be adequate to meet working capital needs, capital expenditures, expenditures for acquisitions (if any), strategic plan implementation costs and other capital needs for the next 12 months. Three of the company's largest customers (Furr's, Randall's and United) have announced they are moving or have moved to self-distribution, which together represented approximately 4% and 8% of the company's sales in 1999 and 1998, respectively. This is expected to have no significant future impact on the company's liquidity due to the implementation of cost cutting measures and the new business gained in 1999 and so far in 2000. In December 2001, the company's $300 million of 10 5/8% senior notes are scheduled to mature. While management believes future cash flows from operating activities, the company's ability to borrow under its credit facility, and asset sale proceeds may be adequate to cover this debt service requirement, alternative means of refinancing this debt maturity are being explored (such as accessing the long-term capital markets). CONTINGENCIES From time to time the company faces litigation or other contingent loss situations resulting from owning and operating its assets, conducting its business or complying (or allegedly failing to comply) with federal, state and local laws, rules and regulations which may subject the company to material contingent liabilities. In accordance with applicable accounting standards, the company records as a liability amounts reflecting such exposure when a material loss is deemed by management to be both "probable" and "quantifiable" or "reasonably estimable." Furthermore, the company discloses material loss contingencies in the notes to its financial statements when the likelihood of a material loss has been determined to be greater than "remote" but less than "probable." Such contingent matters are discussed in "Contingencies" in the notes to the consolidated financial statements. An adverse outcome experienced in one or more of such matters, or an increase in the likelihood of such an outcome, could have a material adverse effect on the company. Also see Item 3. Legal Proceedings. Fleming has numerous computer systems which were developed employing six digit date structures (i.e., two digits each for month, day and year). Where date logic requires the year 2000 or beyond, such date structures may produce inaccurate results. In 1996, management implemented a program to comply with year-2000 requirements on a system-by-system basis, which included extensive systems testing. Conversion efforts were complete at December 31, 1999. The company has not experienced any significant difficulties to date relating to year-2000 issues, and management does not expect year-2000 issues to have a significant impact on the company's operations. Although the company believes contingency plans will not be necessary, contingency plans have been developed for each critical system. The content of the contingency plans varies depending on the system and the assessed probability of failure and such plans are modified periodically based on remediation and testing. The alternatives include reallocating internal resources, obtaining additional outside resources, implementing temporary manual processes or temporarily rolling back internal clocks. In addition, the company has not experienced any significant difficulties to date relating to its vendors' and customers' year- 2000 readiness. Program costs to comply with year-2000 requirements were expensed as incurred. Through the year end 1999, total expenditures to third parties were $8.4 million since the beginning of 1997. To compensate for the dilutive effect on results of operations, the company delayed other non-critical development and support initiatives. Accordingly, the company's annual information technology expenses did not differ significantly from prior years. FORWARD-LOOKING INFORMATION This report includes statements that (a) predict or forecast future events or results, (b) depend on future events for their accuracy, or (c) embody projections and assumptions which may prove to have been inaccurate, including expectations for years 2000 and beyond, the company's ability to successfully achieve the goals of its strategic plan and reverse sales declines, cut costs and improve earnings; the company's assessment of the probability and materiality of losses associated with litigation and other contingent liabilities; the company's ability to expand portions of its business or enter new facets of its business; and the company's expectations regarding the adequacy of capital and liquidity. The management of the company has prepared the financial projections included in this Form 10-K on a reasonable basis, and such projections reflect the best currently available estimates and judgments and present, to the best of management's knowledge and belief, the expected course of action and the expected future financial performance of the company. However, this information is not fact and should not be relied upon as necessarily indicative of future results, and readers of this Form 10-K are cautioned not to place undue reliance on the projected financial information. These projections, forward-looking statements and the company's business and prospects are subject to a number of factors which could cause actual results to differ materially including the risks associated with the successful execution of the company's strategic business plan; adverse effects of labor disruptions; adverse effects of the changing industry environment and increased competition; continuing sales declines and loss of customers; exposure to litigation and other contingent losses; failure of the company to achieve necessary cost savings; and the negative effects of the company's substantial indebtedness and the limitations imposed by restrictive covenants contained in the company's debt instruments. These and other factors are described in this report under Item 1. Business -- Risk Factors and in other periodic reports available from the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's exposure to pricing risk in the financial markets consists of changes in interest rates related to its investment in notes receivable, the balance of debt obligations outstanding, and derivatives employed to hedge interest rate changes on variable rate debt. The company does not use foreign currency exchange rate forward contracts or commodity contracts and does not have any material foreign currency exposure. The company does not use financial instruments or derivatives for any trading purposes. Fleming uses derivatives, currently consisting of simple floating-to-fixed interest rate swap transactions, to hedge its exposure to changing interest rates for its variable interest rate debt obligations. In the normal course of business Fleming carries notes receivable because the company makes long-term loans to certain retail customers (see "Investments and Notes Receivable" in the notes to the consolidated financial statements). A portion of the notes receivable carries a variable interest rate, which is based on a prime rate index published in a major financial publication and is reset quarterly. The remaining portion carries fixed interest rates negotiated with each retail customer. No derivatives have been employed to hedge the company's exposure to variable interest rates on notes receivable primarily because these notes are considered to be a partial hedge for debt with variable interest rates. In order to help maintain liquidity and finance business operations, Fleming obtains long-term credit commitments from banks and other financial institutions under which term loans and revolving loans are made. Such loans carry variable interest rates based on the London interbank offered interest rate ("LIBOR") plus a borrowing margin for different interest periods, such as one week, one month, and other periods up to one year. To assist in managing its debt maturities and diversify its sources of debt capital, Fleming also uses long-term debt which carries fixed interest rates. Fleming management maintains a written policy statement which governs its financial risk management activities including the use of financial derivatives. The policy statement says that the company will engage in a financial risk management process to manage its defined exposures to uncertain future changes in interest rates and foreign exchange rates which impact net earnings. The primary purpose of this process is to control and limit the volatility of net earnings according to pre-established targets for exposure to such changes in a manner which does not result in unreasonable or unmanageable additional risks or expense. The financial risk management process works under the oversight of a special management group to ensure certain policy objectives are achieved. Such objectives include, and are not limited to, the following: to act in accordance with authority granted by resolution of the Board of Directors, which specifically permits the use of derivatives to hedge interest rate or foreign exchange rate risks and which prohibits the use of derivatives for the purpose of speculation; to define and measure the company's financial risks associated with interest and foreign exchange rates as well as with derivative instruments to be used for hedging; and to establish exposure targets and to manage performance against those targets. Changes in interest rates may have a material impact on Fleming's interest expense and interest income, as well as to the fair values for its investment in notes receivable, outstanding debt obligations and financial derivatives used. The table below presents a summary of the categories of Fleming's financial instruments according to their respective interest rate profiles. For notes receivable, the table shows the principal amount of cash the company expects to collect each year according to the scheduled maturities, as well as the average interest rates applicable to such maturities. For debt obligations, the table shows the principal amount of cash the company expects to pay each year according to the scheduled maturities, as well as the average interest rates applicable to such maturities. For derivatives, the table shows when the notional principal contracts terminate. SUMMARY OF FINANCIAL INSTRUMENTS
Maturities of Principal by Fiscal Year ----------------------------------------- (In millions, Fair Value Fair Value There- except rates) at 12/26/98 at 12/25/99 2000 2001 2002 2003 2004 after Notes Receivable with Variable Interest Rates Principal receivable $72 $93 $20 $14 $12 $11 $11 $25 Average variable rate receivable 10.6% 11.0% Based on the referenced Prime Rate plus a margin Notes Receivable with Fixed Interest Rates Principal receivable $51 $28 $9 $3 $4 $2 $2 $8 Average fixed rate receivable 5.2% 6.0% 4.6% 4.3% 2.1% 2.1% 4.6% 7.6% Debt with Variable Interest Rates Principal payable $313 $428 $35 $35 $40 $295 $49 $ - Average variable rate payable 6.8% 7.1% Based on LIBOR plus a margin Debt with Fixed Interest Rates Principal payable $846 $808 $37 $303 $10 $5 $250 $250 Average fixed rate payable 10.3% 6.6% 10.6% 8.9% 8.8% 10.5% 10.6% Variable-To-Fixed Rate Swaps Amount payable $10 $3 $250 (notional, not payable) Average fixed rate payable 7.2% 7.2% 7.2% Average variable rate receivable 5.2% 6.2% Based on LIBOR
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Part IV, Item 14(a) 1. Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the company's proxy statement in connection with its annual meeting of shareholders to be held on May 10, 2000. Information concerning Executive Officers of the company is included in Part I herein which is incorporated in this Part III by reference. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the company's proxy statement in connection with its annual meeting of shareholders to be held on May 10, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the company's proxy statement in connection with its annual meeting of shareholders to be held on May 10, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the company's proxy statement in connection with its annual meeting of shareholders to be held on May 10, 2000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: o Consolidated Statements of Operations - For the years ended December 25, 1999, December 26, 1998, and December 27, 1997 o Consolidated Balance Sheets - At December 25, 1999 and December 26, 1998 o Consolidated Statements of Cash Flows - For the years ended December 25, 1999, December 26, 1998, and December 27, 1997 o Consolidated Statements of Shareholders' Equity - For the years ended December 25, 1999, December 26, 1998, and December 27, 1997 o Notes to Consolidated Financial Statements - For the years ended December 25, 1999, December 26, 1998, and December 27, 1997 o Independent Auditors' Report o Quarterly Financial Information (Unaudited) CONSOLIDATED STATEMENT OF OPERATIONS For the years ended December 25, 1999, December 26, 1998 and December 27, 1997 (In thousands, except per share amounts)
1999 1998 1997 ---- ---- ---- Net sales $14,645,566 $15,069,335 $15,372,666 Costs and expenses (income): Costs of sales 13,208,399 13,618,961 13,963,972 Selling and administrative 1,261,631 1,251,592 1,172,436 Interest expense 165,180 161,581 162,506 Interest income (40,318) (36,736) (46,638) Equity investment results 10,243 11,622 16,746 Litigation charges - 7,780 20,959 Impairment/restructuring charge 103,012 652,737 - ----------- ----------- ----------- Total costs and expenses 14,708,147 15,667,537 15,289,981 ----------- ----------- ----------- Earnings (loss) before taxes (62,581) (598,202) 82,685 Taxes on income (loss) (17,853) (87,607) 43,963 ----------- ----------- ----------- Earnings (loss) before extraordinary charge (44,728) (510,595) 38,722 Extraordinary charge from early retirement of debt (net of taxes - - (13,330) ----------- ----------- ----------- Net earnings (loss) $(44,728) $(510,595) $25,392 =========== =========== =========== Earnings (loss) per share: Basic and diluted before extraordinary charge $(1.17) $(13.48) $1.02 Extraordinary charge - - (.35) ------ ------- ------- Basic and diluted net earnings (loss) $(1.17) $(13.48) $ .67 ====== ======= ======= Weighted average shares outstanding: Basic 38,305 37,887 37,803 ====== ====== ====== Diluted 38,305 37,887 37,862 ====== ====== ======
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS At December 25, 1999 and December 26, 1998 (In Thousands)
ASSETS 1999 1998 ---- ---- Current assets: Cash and cash equivalents $6,683 $5,967 Receivables, net 496,159 450,905 Inventories 997,805 984,287 Other current assets 228,103 146,757 ---------- ---------- Total current assets 1,728,750 1,587,916 Investments 108,895 119,468 Investment in direct financing leases 126,309 177,783 Property and equipment: Land 45,507 49,494 Buildings 389,651 408,739 Fixtures and equipment 636,501 663,724 Leasehold improvements 236,570 225,010 Leased assets under capital leases 231,236 207,917 ---------- ---------- 1,539,465 1,554,884 Less accumulated depreciation and amortization (701,289) (734,819) ---------- ---------- Net property and equipment 838,176 820,065 Deferred income taxes 54,754 51,497 Other assets 150,214 154,524 Goodwill, net 566,120 579,579 ---------- ---------- TOTAL ASSETS $3,573,218 $3,490,832 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $981,219 $945,475 Current maturities of long-term debt 70,905 41,638 Current obligations under capital leases 21,375 21,668 Other current liabilities 210,220 272,573 ---------- ---------- Total current liabilities 1,283,719 1,281,084 Long-term debt 1,234,185 1,143,900 Long-term obligations under capital leases 367,960 359,462 Other liabilities 126,652 136,455 Commitments and contingencies Shareholders' equity: Common stock, $2.50 par value, authorized - 100,000 shares, issued and outstanding - 38,856 and 38,542 shares 97,141 96,356 Capital in excess of par value 511,447 509,602 Reinvested earnings (deficit) (22,326) 23,155 Accumulated other comprehensive income: Additional minimum pension liability (25,560) (57,133) ---------- ---------- Accumulated other comprehensive income (25,560) (57,133) Less ESOP note - (2,049) ---------- ---------- Total shareholders' equity 560,702 569,931 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,573,218 $3,490,832 ========== ==========
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 25, 1999, December 26, 1998, and December 27, 1997 (In thousands)
1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $(44,728) $(510,595) $25,392 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 162,379 185,368 181,357 Credit losses 24,704 23,498 24,484 Deferred income taxes 3,357 (117,239) 40,301 Equity investment results 9,412 11,622 16,746 Impairment/restructuring and related charges 136,868 668,028 - Cash payments on impairment/ restructuring and related charges (50,340) (7,408) - Cost of early debt retirement - - 22,227 Consolidation and restructuring reserve activity 423 (1,008) (12,724) Change in assets and liabilities, excluding effect of acquisitions: Receivables (55,692) (156,822) (41,347) Inventories (22,049) 6,922 31,315 Accounts payable 35,744 114,136 (117,219) Other assets and liabilities (77,113) (71,058) (53,116) Other adjustments, net (5,348) (4,365) (4,448) -------- -------- -------- Net cash provided by operating activities 117,617 141,079 112,968 -------- -------- -------- Cash flows from investing activities: Collections on notes receivable 34,798 38,076 59,011 Notes receivable funded (43,859) (28,946) (37,537) Notes receivable sold - - 29,272 Businesses acquired (78,440) (30,225) (9,572) Proceeds from sale of businesses 7,042 32,277 13,093 Purchase of property and equipment (166,339) (200,211) (129,386) Proceeds from sale of property and equipment 35,487 17,056 15,845 Investments in customers (8,115) (1,009) (1,694) Proceeds from sale of investments 2,745 3,529 4,970 Other investing activities 3,337 6,141 1,895 -------- -------- -------- Net cash used in investing activities (213,344) (163,312) (54,103) -------- -------- -------- Cash flows from financing activities: Proceeds from long-term borrowings 126,000 170,000 914,477 Principal payments on long-term debt (6,178) (159,651) (982,982) Principal payments on capital lease obligations (21,533) (13,356) (20,102) Sale of common stock under incentive stock and stock ownership plans 1,267 4,830 593 Dividends paid (3,082) (3,048) (3,007) Other financing activities (31) (891) (1,195) -------- -------- -------- Net cash provided by (used in) financing activities 96,443 (2,116) (92,216) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 716 (24,349) (33,351) Cash and cash equivalents, beginning of year 5,967 30,316 63,667 -------- -------- -------- Cash and cash equivalents, end of year $6,683 $5,967 $30,316 ======== ======== ========
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 25, 1999, December 26, 1998 and December 27, 1997 (In thousands, except per share amounts)
Accumulated Capital Reinvested Other Common Shares in excess Earnings Comprehensive Comprehensive ESOP Total Shares Amount of par value (Deficit) Income Income Note --------------------------------------------------------------------------------------- Balance at December 28, 1996 $1,075,958 37,798 $94,494 $503,595 $514,408 $(29,597) $(6,942) Comprehensive income Net earnings 25,392 25,392 $25,392 Other comprehensive income, net of tax Currency translation adjustment (net of $0 taxes) (222) (222) (222) Minimum pension liability adjustment (net of $8,556 of taxes) (12,818) (12,818) (12,818) ------- Comprehensive income $12,352 ======= Incentive stock and stock ownership plans 2,022 466 1,166 856 Cash dividends, $0.08 per share (3,008) (3,008) ESOP note payments 2,348 2,348 ---------- ------ ------- -------- -------- ------- ------- Balance at December 27, 1997 1,089,672 38,264 95,660 504,451 536,792 (42,637) (4,594) Comprehensive income Net loss (510,595) (510,595) $(510,595) Other comprehensive income, net of tax Currency translation adjustment (net of $0 taxes) 4,922 4,922 4,922 Minimum pension liability adjustment (net of $12,914 of taxes) (19,418) (19,418) (19,418) --------- Comprehensive income $(525,091) ========= Incentive stock and stock ownership plans 5,847 278 696 5,151 Cash dividends, $0.08 per share (3,042) (3,042) ESOP note payments 2,545 2,545 ---------- ------ ------- -------- -------- ------- ------ Balance at December 26, 1998 569,931 38,542 96,356 509,602 23,155 (57,133) (2,049) Comprehensive income Net loss (44,728) (44,728) $(44,728) Other comprehensive income, net of tax Minimum pension liability adjustment (net of $21,049 of taxes) 31,573 31,573 31,573 -------- Comprehensive income $(13,155) ======== Incentive stock and stock ownership plans 4,955 314 785 4,170 Cash dividends, $0.08 per share (3,078) (2,325) (753) ESOP note payments 2,049 2,049 ---------- ------ ------- -------- Balance at December 25, 1999 $560,702 38,856 $97,141 $511,447 $(22,326) $(25,560) $ - ========== ====== ======= ======== ======== ======== ======
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 25, 1999, December 26, 1998 and December 27, 1997 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: The company markets food and related products and offers retail services to supermarkets in 41 states. The company also operates more than 240 company-owned stores in several geographic areas. The company's activities encompass two major businesses: distribution and retail operations. Food and food-related product sales account for over 90 percent of the company's consolidated sales. No one customer accounts for 4.5 percent or more of consolidated sales. Fiscal Year: The company's fiscal year ends on the last Saturday in December. Basis of Presentation: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation: The consolidated financial statements include all subsidiaries. Material intercompany items have been eliminated. The equity method of accounting is usually used for investments in certain entities in which the company has an investment in common stock of between 20% and 50% or such investment is temporary. Under the equity method, original investments are recorded at cost and adjusted by the company's share of earnings or losses of these entities and for declines in estimated realizable values deemed to be other than temporary. Reclassifications: Certain reclassifications have been made to prior year amounts to conform to current year classifications. Basic and Diluted Net Earnings (Loss) Per Share: Both basic and diluted earnings per share are computed based on net earnings (loss) divided by weighted average shares as appropriate for each calculation subject to anti-dilution limitations. Taxes on Income: Deferred income taxes arise from temporary differences between financial and tax bases of certain assets and liabilities. Cash and Cash Equivalents: Cash equivalents consist of liquid investments readily convertible to cash with an original maturity of three months or less. The carrying amount for cash equivalents is a reasonable estimate of fair value. Receivables: Receivables include the current portion of customer notes receivable of $25 million in 1999 and $17 million in 1998. Receivables are shown net of allowance for doubtful accounts of $32 million in 1999 and $28 million in 1998. The company extends credit to its retail customers located over a broad geographic base. Regional concentrations of credit risk are limited. Interest income on impaired loans is recognized only when payments are received. Inventories: Inventories are valued at the lower of cost or market. Grocery and certain perishable inventories, aggregating approximately 70% of total inventories in 1999 and 1998 are valued on a last-in, first-out (LIFO) method. The cost for the remaining inventories is determined by the first-in, first-out (FIFO) method. Current replacement cost of LIFO inventories was greater than the carrying amounts by approximately $54 million at year-end 1999 ($4 million of which is recorded in assets held for sale in other current assets) and $44 million at year-end 1998. In 1999 and 1998, the liquidation of certain LIFO layers related to business closings decreased cost of products sold by approximately $2 million and $3 million, respectively. Property and Equipment: Property and equipment are recorded at cost or, for leased assets under capital leases, at the present value of minimum lease payments. Depreciation, as well as amortization of assets under capital leases, is based on the estimated useful asset lives using the straight-line method. The estimated useful lives used in computing depreciation and amortization are: buildings and major improvements - 20 to 40 years; warehouse, transportation and other equipment - 3 to 10 years; and data processing equipment and software - 3 to 7 years. Goodwill: The excess of purchase price over the fair value of net assets of businesses acquired is amortized on the straight-line method over periods not exceeding 40 years. Goodwill is shown net of accumulated amortization of $184 million and $176 million in 1999 and 1998, respectively. Impairment: Asset impairments are recorded when the carrying amount of assets are not recoverable. Impairment is assessed and measured, by asset type, as follows: notes receivable - fair value of the collateral for each note; and, long-lived assets, goodwill and other intangibles - estimate of the future cash flows expected to result from the use of the asset and its eventual disposition aggregated to the operating unit level for distribution and store level for retail. Financial Instruments: Interest rate hedge transactions and other financial instruments are utilized to manage interest rate exposure. The methods and assumptions used to estimate the fair value of significant financial instruments are discussed in the "Investments and Notes Receivable" and "Long-term Debt" notes. Stock-Based Compensation: The company applies APB Opinion No. 25 - - Accounting for Stock Issued to Employees and related Interpretations in accounting for its plans. Comprehensive Income: Comprehensive income is reflected in the Consolidated Statements of Shareholders' Equity. Other comprehensive income is comprised of foreign currency translation adjustments and minimum pension liability adjustments. The cumulative effect of other comprehensive income is reflected in the Shareholders' Equity section of the Consolidated Balance Sheets. IMPAIRMENT/RESTRUCTURING CHARGE AND RELATED COSTS In December 1998, the company announced the implementation of a strategic plan designed to improve the competitiveness of the retailers the company serves and improve the company's performance by building stronger operations that can better support long-term growth. The following reflect the four major initiatives and their current status: o Consolidate distribution operations. The strategic plan initially included closing eleven operating units (El Paso, TX; Portland, OR; Houston, TX; Huntingdon, PA; Laurens, IA; Johnson City, TN; Sikeston, MO; San Antonio, TX; Buffalo, NY; an unannounced operating unit still to be closed; and an unannounced operating unit scheduled for 1999 closure, but due to increased cash flows from new business it will not be closed). Of the nine announced, all but San Antonio and Buffalo have been completed. San Antonio should be closed by the end of the first quarter of 2000 and Buffalo by the end of the second quarter of 2000. Three additional closings were announced which were not originally part of the strategic plan which brings the total operating units to be closed to thirteen. The closing of Peoria was added to the plan in the first quarter of 1999 when costs associated with continuing to service customers during a strike coupled with costs of reopening the operating unit made closing the operating unit an economically sound decision. Recently, the closings of York and Philadelphia were announced as part of an effort to grow in the northeast by consolidating distribution operations and expand the Maryland facility. Total 1998 sales from the 13 operating units closed or to be closed were approximately $3.1 billion. Most of these sales have been or are expected to be retained by transferring customer business to its higher volume, better utilized facilities. The company believes that this consolidation process benefits customers with better product variety and improved buying opportunities. The company has also benefited with better coverage of fixed expenses. The closings result in savings due to reduced depreciation, payroll, lease and other operating costs, and the company begins recognizing these savings immediately upon closure. The capital returned from the divestitures and closings has been and will continue to be reinvested in the business. o Grow distribution sales. Higher volume, better-utilized distribution operations and the dynamics of the market place represent an opportunity for sales growth. The improved efficiency and effectiveness of the remaining distribution operations enhances their competitiveness and the company intends to capitalize on these improvements. o Improve retail performance. This not only requires divestiture or closing of under-performing company-owned retail chains, but also requires increased investments in market leading chains. The strategic plan includes the divestiture or closing of seven retail chains (including the recently announced letters of intent to sell the Baker's Oklahoma stores in the first half of 2000). The chains divested or closed (or to be divested or closed) are Hyde Park, Consumers, Boogaarts, New York Retail, Pennsylvania Retail, Baker's Oklahoma, and a chain not yet announced. The sale of Baker's Oklahoma as well as the divestiture or closing of the chain not yet announced were not in the original strategic plan, but no longer fit into the current business strategy. Total 1998 sales from the divested or closed (or to be divested or closed) chains that have been announced were approximately $844 million. The sale or closing of these chains is expected to be substantially completed by the end of the second quarter of 2000. Also during 1999, the company built or acquired more than 25 retail stores that are expected to fit in well strategically with the existing chains. Sixteen remodels of existing retail stores were also completed during 1999. o Reduce overhead and operating expenses. Overhead has been and will continue to be reduced through the low cost pursuit program which includes organization and process changes, such as a reduction in workforce through productivity improvements and elimination of work, centralization of administrative and procurement functions, and reduction in the number of management layers. The low cost pursuit program also includes other initiatives to reduce complexity in business systems and remove non-value-added costs from operations, such as reducing the number of SKU's, creating a single point of contact with customers, reducing the number of decision points within the company, and centralizing vendor negotiations. These initiatives are well underway and have reflected reduced costs for the company which ultimately reflect improved profitability and competitiveness. The total pre-tax charge of the strategic plan is presently estimated at $935 million ($239 million cash and $696 million non- cash). The plan originally announced in December 1998 had an estimated pre-tax charge totaling $782 million. The increase is due primarily to closing the Peoria, York and Philadelphia divisions ($59 million), updating impairment amounts on certain retail chains ($25 million), the divestiture of the Baker's chain in Oklahoma ($17 million), increasing costs associated with initiatives to reduce overhead and complexity in business systems ($60 million), and decreasing costs related to a scheduled closing no longer planned ($8 million). Updating the impairment amounts was necessary as decisions to close additional operating units were made. Additionally, sales negotiations provided more current information regarding the fair value on certain chains. The cost of severance, relocation and other periodic expenses relating to reducing overhead and business complexities was more than expected. Also, there were changes in the list of operating units to be divested or closed due to no longer fitting into the current business strategy as described above. The pre-tax charge recorded to-date is $805 million ($137 million in 1999 and $668 million recorded in 1998). After tax, the expense for 1999 was $92 million or $2.39 per share. The $130 million of costs relating to the strategic plan not yet charged against income will primarily be recorded throughout 2000 at the time such costs are accruable. The $137 million charge in 1999 was included on several lines of the Consolidated Statements of Operations as follows: $18 million was included in cost of sales and was primarily related to inventory valuation adjustments; $16 million was included in selling and administrative expense and equity investment results as disposition related costs recognized on a periodic basis; and the remaining $103 million was included in the impairment/ restructuring charge line. The 1999 charge consisted of the following components: o Impairment of assets of $62 million. The impairment components were $36 million for goodwill and $26 million for other long- lived assets. Of the goodwill charge of $36 million, $22 million related to the 1994 "Scrivner" acquisition with the remaining amount related to two retail acquisitions. o Restructuring charges of $41 million. The restructuring charges consisted primarily of severance related expenses and pension withdrawal liabilities for the divested or closed operating units announced during 1999. The restructuring charges also consisted of operating lease liabilities and professional fees incurred related to the restructuring process. o Other disposition and related costs of $34 million. These costs consisted primarily of inventory valuation adjustments, impairment of an investment, disposition related costs recognized on a periodic basis and other costs. The 1999 charge relates to the company's segments as follows: $48 million relates to the distribution segment and $70 million relates to the retail segment with the balance relating to corporate overhead expenses. The charges related to workforce reductions are as follows: ($'s in thousands) Amount Headcount ------ --------- 1998 Activity: Charge $25,441 1,430 Terminations (3,458) (170) ------- ----- 1998 Ending Liability 21,983 1,260 1999 Activity: Charge 12,029 1,350 Terminations (24,410) (1,950) ------- ----- 1999 Ending Liability $9,602 660 ======= ===== The breakdown of the 1,350 headcount reduction recorded during 1999 is: 275 from the distribution segment; 925 from the retail segment; and 150 from corporate. Additionally, the strategic plan includes charges related to lease obligations which will be utilized as operating units or retail stores close, but ultimately reduced over remaining lease terms ranging from 1 to 20 years. The charges and utilization have been recorded to-date as follows: ($'s in thousands) Amount ------ 1998 Activity: Charge $28,101 Utilized (385) ------- 1998 Ending Liability 27,716 1999 Activity: Charge 4,153 Utilized (10,281) ------- 1999 Ending Liability $21,588 ======= Asset impairments were recognized in accordance with SFAS No. 121 - - Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of, and such assets were written down to their estimated fair values based on estimated proceeds of operating units to be sold or discounted cash flow projections. The operating costs of operating units to be sold or closed are treated as normal operations during the period they remain in use. Salaries, wages and benefits of employees at these operating units are charged to operations during the time such employees are actively employed. Depreciation expense is continued for assets that the company is unable to remove from operations. Assets held for sale included in other current assets at the end of 1999 were approximately $69 million, consisting of $8 million of distribution operating units and $61 million of retail stores. During 1999, gains on the sale of facilities totaled approximately $6 million and were included in net sales. Also during 1999, the company recorded a charge of approximately $31 million related to the closing of certain retail stores which was included in selling and administrative expense. LITIGATION CHARGES Furr's Supermarkets, Inc. ("Furr's") filed suit against the company in 1997 claiming it was overcharged for products. During 1997, Fleming and Furr's reached an agreement dismissing all litigation between them. Pursuant to the settlement, Furr's purchased Fleming's El Paso product supply center in 1998, together with related inventory and equipment. As part of the settlement, Fleming paid Furr's $1.7 million in 1997 and $7.8 million in 1998 as a refund of fees and charges. The company was sued by David's Supermarkets, Inc. ("David's") in 1993 for allegedly overcharging for products. In 1996, judgment was entered against the company for $211 million; the judgment was subsequently vacated and a new trial granted. At the end of 1996 the company had an accrual of $650,000. The company denied the plaintiff's allegations; however, to eliminate the uncertainty and expense of protracted litigation, the company paid $19.9 million to the plaintiff in April 1997 in exchange for dismissal, with prejudice, of all plaintiff's claims against the company, resulting in a charge to first quarter 1997 earnings of $19.2 million. EXTRAORDINARY CHARGE During 1997, the company undertook a recapitalization program which culminated in an $850 million senior secured credit facility and the sale of $500 million of senior subordinated notes. The recapitalization program resulted in an extraordinary charge of $13.3 million, after income tax benefits of $8.9 million, or $.35 per share. Almost all of the charge represents a non-cash write-off of unamortized financing costs related to debt which was prepaid. See the "Long-term Debt" note for further discussion of the recapitalization program. PER SHARE RESULTS The following table sets forth the basic and diluted per share computations for income (loss) before extraordinary charge.
(In thousands, except per share amounts) 1999 1998 1997 - ---------------------------------------- ---- ---- ---- Numerator: Basic and diluted earnings (loss) before extraordinary charge $(44,728) $(510,595) $38,722 ======== ========= ======= Denominator: Weighted average shares for basic earnings per share 38,305 37,887 37,803 Effect of dilutive securities: Employee stock options - - 21 Restricted stock compensation - - 38 ------ ------ ------ Dilutive potential common shares - - 59 ------ ------ ------ Weighted average shares for diluted earnings per share 38,305 37,887 37,862 ====== ====== ====== Basic and diluted earnings (loss) per share before extraordinary charge $(1.17) $(13.48) $1.02 ====== ======= ======
The company did not reflect 364,000 weighted average potential shares for the 1999 diluted calculation or 172,000 weighted average potential shares for the 1998 diluted calculation because they would be antidilutive. Other options with exercise prices exceeding market prices consisted of 3.8 million shares in 1999 and 2.4 million shares in 1998 of common stock at a weighted average exercise price of $ 14.71 and $19.37 per share, respectively, that were not included in the computation of diluted earnings per share because the effect would be antidilutive. SEGMENT INFORMATION The company derives over 90% of its net sales and operating profits from the sale of food and food-related products. Further, over 90% of the company's assets are based in and net sales derived from 41 states and no single customer amounts to 4.5% or more of net sales for any of the years reported. Considering the customer types and the processes for meeting the needs of customers, senior management manages the business as two segments: distribution and retail operations. The distribution segment represents the aggregation of retail services and the distribution and marketing of the following products: food, general merchandise, health and beauty care, and Fleming Brands. The aggregation is based primarily on the common customer base and the interdependent marketing and distribution efforts. The company's senior management utilizes more than one measurement and multiple views of data to assess segment performance and to allocate resources to the segments. However, the dominant measurements are consistent with the company's consolidated financial statements and, accordingly, are reported on the same basis herein. Interest expense, interest income, equity investments, corporate expenses, other unusual charges and income taxes are managed separately by senior management and those items are not allocated to the business segments. Intersegment transactions are reflected at cost. The following table sets forth the composition of the segment's and total company's net sales, operating earnings, depreciation and amortization, capital expenditures and identifiable assets.
(In millions) 1999 1998 1997 - ------------- ---- ---- ---- Net Sales Distribution $13,131 $13,561 $13,864 Intersegment elimination (2,204) (2,081) (1,950) ------- ------- ------- Net distribution 10,927 11,480 11,914 Retail 3,719 3,589 3,459 ------- ------- ------- Total $14,646 $15,069 $15,373 ======= ======= ======= Operating Earnings Distribution $290 $259 $283 Retail (2) 62 80 Corporate (112) (122) (127) ------- ------- ------- Total operating earnings 176 199 236 Interest expense (165) (161) (162) Interest income 40 37 47 Equity investment results (10) (12) (17) Litigation charges - (8) (21) Impairment/restructuring charge (103) (653) - ------- ------- ------- Earnings (loss) before taxes $(62) $(598) $83 ------- ------- ------- Depreciation and Amortization Distribution $88 $107 $105 Retail 64 61 55 Corporate 10 17 21 ------- ------- ------- Total $162 $185 $181 ======= ======= ======= Capital Expenditures Distribution $53 $81 $51 Retail 112 118 77 Corporate 1 1 1 ------- ------- ------- Total $166 $200 $129 ======= ======= ======= Identifiable Assets Distribution $2,517 $2,502 $2,864 Retail 823 683 708 Corporate 233 306 352 ------- ------- ------- Total $3,573 $3,491 $3,924 ======= ======= =======
INCOME TAXES Components of taxes on income (loss) are as follows:
(In thousands) 1999 1998 1997 - -------------- ---- ---- ---- Current: Federal $(17,287) $ 23,896 $ (4,761) State (3,924) 5,737 (474) -------- -------- -------- Total current (21,211) 29,633 (5,235) -------- -------- -------- Deferred: Federal 2,552 (94,254) 32,519 State 806 (22,986) 7,782 -------- -------- -------- Total deferred 3,358 (117,240) 40,301 -------- -------- -------- Taxes on income (loss) $(17,853) $(87,607) $ 35,066 ======== ======== ========
Taxes on income in the above table includes a tax benefit of $8,897,000 in 1997 which is reported net in the extraordinary charge from the early retirement of debt in the consolidated statements of operations. Deferred tax expense (benefit) relating to temporary differences includes the following components:
(In thousands) 1999 1998 1997 - -------------- ---- ---- ---- Depreciation and amortization $ (9,603) $ (64,132) $(4,818) Inventory 7,019 (6,839) (6,228) Capital losses (4,825) 251 (357) Asset valuations and reserves (18,114) 9,302 22,498 Equity investment results (172) (403) 821 Credit losses (4,527) (7,825) 23,184 Lease transactions 7,996 (34,718) (757) Associate benefits 31,700 3,200 2,727 Note sales (139) (217) (1,843) Acquired loss carryforwards - - - Other (5,977) (15,859) 5,074 -------- --------- ------- Deferred tax expense (benefit) $ 3,358 $(117,240) $40,301 ======== ========= =======
Temporary differences that give rise to deferred tax assets and liabilities as of year-end 1999 and 1998 are as follows:
(In thousands) 1999 1998 - -------------- ---- ---- Deferred tax assets: Depreciation and amortization $ 23,002 $ 76,175 Asset valuations and reserve activities 48,559 34,238 Associate benefits 54,457 111,591 Credit losses 28,263 21,656 Equity investment results 9,983 9,196 Lease transactions 40,325 48,340 Inventory 26,342 31,328 Acquired loss carryforwards 67 4,997 Capital losses 9,372 4,549 Other 30,847 29,865 --------- -------- Gross deferred tax assets 271,217 371,935 Less valuation allowance - (4,929) --------- -------- Total deferred tax assets 271,217 367,006 --------- -------- Deferred tax liabilities: Depreciation and amortization 52,103 114,878 Equity investment results 3,482 2,867 Lease transactions 1,532 1,551 Inventory 56,867 54,835 Associate benefits 29,424 33,809 Asset valuations and reserve activities 2,772 6,565 Note sales 3,387 3,418 Prepaid expenses 3,874 3,421 Capital losses 1,088 1,090 Other 28,225 31,703 --------- -------- Total deferred tax liabilities 182,754 254,137 --------- -------- Net deferred tax asset $ 88,463 $112,869 ========= ========
The change in net deferred tax asset from 1998 to 1999 is allocated $3.4 million to deferred income tax expense and $21.0 million expense to stockholders' equity. The valuation allowance in 1998 relates to $4.9 million of acquired loss carryforwards. The valuation allowance is not needed in 1999 and management believes it is more likely than not that all of the company's deferred tax assets will be realized. The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
1999 1998 1997 ---- ---- ---- Statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 5.1 6.8 7.9 Acquisition-related differences 0.0 12.3 14.5 Other (3.1) (.4) .6 ---- ---- ---- Effective rate on operations 37.0% 53.7% 58.0% Impairment/restructuring and related charges (8.5) (39.1) - ---- ---- ---- Effective rate after impairment/ restructuring and related charges 28.5% 14.6% 58.0% ==== ==== ====
During 1999, the company recorded interest income of $9 million related to refunds in federal income taxes from prior years. INVESTMENTS AND NOTES RECEIVABLE Investments and notes receivable consist of the following:
(In thousands) 1999 1998 - -------------- ---- ---- Investments in and advances to customers $ 14,136 $ 30,371 Notes receivable from customers 83,354 71,751 Other investments and receivables 11,405 17,346 -------- -------- Investments and notes receivable $108,895 $119,468 ======== ========
Investments and notes receivable are shown net of reserves of $23 million and $27 million in 1999 and 1998, respectively. Sales to customers accounted for under the equity method were approximately $0.3 billion, $0.6 billion and $0.9 billion in 1999, 1998 and 1997, respectively. Receivables include $8 million and $5 million in 1999 and 1998, respectively, due from customers accounted for under the equity method. The company extends long-term credit to certain retail customers. Loans are primarily collateralized by inventory and fixtures. Interest rates are above prime with terms up to 10 years. The carrying amount of notes receivable approximates fair value because of the variable interest rates charged on certain notes and because of the allowance for credit losses. The company's impaired notes receivable (including current portion) are as follows:
(In thousands) 1999 1998 - -------------- ---- ---- Impaired notes with related allowances $ 57,657 $ 55,031 Credit loss allowance on impaired notes (25,811) (26,260) Impaired notes with no related allowances 4,613 366 -------- -------- Net impaired notes receivable $ 36,459 $ 29,137 ======== ========
Average investments in impaired notes were as follows: 1999-$65 million; 1998-$59 million; and 1997-$13 million. Activity in the allowance for credit losses is as follows:
(In thousands) 1999 1998 1997 Balance, beginning of year $ 47,232 $ 43,848 $ 49,632 Charged to costs and expenses 24,704 23,498 24,484 Uncollectible accounts written off, net of recoveries (16,408) (20,114) (32,655) Asset impairment - - 2,387 -------- -------- -------- Balance, end of year $ 55,528 $ 47,232 $ 43,848 ======== ======== ========
The company sold certain notes receivable at face value with limited recourse during 1997. The outstanding balance at year-end 1999 on all notes sold is $15 million, of which the company is contingently liable for $4 million should all the notes become uncollectible. LONG-TERM DEBT Long-term debt consists of the following:
(In thousands) 1999 1998 - -------------- ---- ---- 10.625% senior notes due 2001 $ 300,000 $ 300,000 10.5% senior subordinated notes due 2004 250,000 250,000 10.625% senior subordinated notes due 2007 250,000 250,000 Revolving credit, average interest rates of 6.5% for both years, due 2003 255,000 89,000 Term loans, due 2000 to 2004, average interest rate of 7.3% and 7.0% 197,594 224,269 Other debt 52,496 71,999 ---------- ---------- 1,305,090 1,185,268 Less current maturities (70,905) (41,368) ---------- ---------- Long-term debt $1,234,185 $1,143,900 ========== ==========
Five-year Maturities: Aggregate maturities of long-term debt for the next five years are as follows: 2000-$71 million; 2001-$337 million; 2002-$50 million; 2003-$300 million; and 2004-$299 million. The 10.625% $300 million senior notes were issued in 1994 and mature December 15, 2001. The senior notes are unsecured senior obligations of the company, ranking the same as all other existing and future senior indebtedness and senior in right of payment to the subordinated notes. The senior notes are effectively subordinated to secured senior indebtedness of the company with respect to assets securing such indebtedness, including loans under the company's senior secured credit facility. The senior notes are guaranteed by substantially all of the company's subsidiaries (see -Subsidiary Guarantee of Senior Notes below). The senior subordinated notes consist of two issues: $250 million of 10.5% Notes due December 1, 2004 and $250 million of 10.625% Notes due July 31, 2007. The subordinated notes are general unsecured obligations of the company, subordinated in right of payment to all existing and future senior indebtedness of the company, and senior to or of equal rank with all future subordinated indebtedness of the company. The company currently has no other subordinated indebtedness outstanding. The company's $850 million senior secured credit facility consists of a $600 million revolving credit facility, with a final maturity of July 25, 2003, and a $250 million amortizing term loan, with a maturity of July 25, 2004. Up to $300 million of the revolver may be used for issuing letters of credit. Borrowings and letters of credit issued under the new credit facility may be used for general corporate purposes and are secured by a first priority security interest in the accounts receivable and inventories of the company and its subsidiaries and in the capital stock or other equity interests owned by the company in its subsidiaries. In addition, this credit facility is guaranteed by substantially all company subsidiaries. The stated interest rate on borrowings under the credit agreement is equal to a referenced index interest rate, normally the London interbank offered interest rate ("LIBOR"), plus a margin. The level of the margin is dependent on credit ratings on the company's senior secured bank debt. The credit agreement and the indentures under which other company debt instruments were issued contain customary covenants associated with similar facilities. The credit agreement currently contains the following more significant financial covenants: maintenance of a fixed charge coverage ratio of at least 1.7 to 1, based on adjusted earnings, as defined, before interest, taxes, depreciation and amortization and net rent expense; maintenance of a ratio of inventory-plus-accounts receivable to funded bank debt (including letters of credit) of at least 1.4 to 1; and a limitation on restricted payments, including dividends, up to $72 million at year-end 1999, based on a formula tied to net earnings and equity issuances. Under the credit agreement, new issues of certain kinds of debt must have a maturity after January 2005. Covenants contained in the company's indentures under which other company debt instruments were issued are generally less restrictive than those of the credit agreement. The company is in compliance with all financial covenants under the credit agreement and its indentures. The credit facility may be terminated in the event of a defined change of control. Under the company's indentures, noteholders may require the company to repurchase notes in the event of a defined change of control coupled with a defined decline in credit ratings. At year-end 1999, borrowings under the credit facility totaled $198 million in term loans and $255 million of revolver borrowings, and $40 million of letters of credit had been issued. Letters of credit are needed primarily for insurance reserves associated with the company's normal risk management activities. To the extent that any of these letters of credit would be drawn, payments would be financed by borrowings under the credit agreement. At year-end 1999, the company would have been allowed to borrow an additional $305 million under the revolving credit facility contained in the credit agreement based on the actual borrowings and letters of credit outstanding. Medium-term Notes: Medium-term notes are included in other debt in the above table. Between 1990 and 1993, the company registered $565 million in medium-term notes with a total of $275 million issued. The company has no plans to issue additional medium-term notes at this time. The balances due at year-end 1999 and 1998 were $53 million and $69 million, respectively, with average interest rates of 7.2% for both years. The notes mature from 2000 to 2003. Credit Ratings: On August 24, 1999, Moody's Investors Service ("Moody's") announced it had confirmed its ratings for the company's various issues of long-term debt, and that it had changed its outlook from negative to positive. On September 9, 1999, Standard & Poor's rating group ("S&P") announced it had lowered its ratings one notch and confirmed its stable outlook on the company. Giving effect to these changes, the table below summarizes the company's credit ratings:
Moody's S&P ------- --- Credit agreement loan Ba3 BB Senior implied debt B1 BB- Senior unsecured debt B1 B+ Subordinated notes B3 B Outlook Positive Stable
Average Interest Rates: The average interest rate for total debt (including capital lease obligations) before the effect of interest rate hedges was 10.2% for 1999, versus 10.1% for 1998. Including the effect of interest rate hedges, the interest rate of debt was 10.5% and 10.4% at the end of 1999 and 1998, respectively. Interest Expense: Components of interest expense are as follows:
(In thousands) 1999 1998 1997 - -------------- ---- ---- ---- Interest costs incurred: Long-term debt $127,271 $123,054 $121,356 Capital lease obligations 36,768 37,542 36,414 Other 2,258 1,589 5,922 -------- -------- -------- Total incurred 166,297 162,185 163,692 Less interest capitalized (1,117) (604) (1,186) -------- -------- -------- Interest expense $165,180 $161,581 $162,506 ======== ======== ========
Derivatives: The company enters into interest rate hedge agreements with the objective of managing interest costs and exposure to changing interest rates. The classes of derivative financial instruments used have included interest rate swaps and caps. The company's policy regarding derivatives is to engage in a financial risk management process to manage its defined exposures to uncertain future changes in interest rates which impact net earnings. Strategies for achieving the company's objectives have resulted in the company maintaining interest rate swap agreements covering $250 million aggregate principal amount of floating rate indebtedness at year-end 1999. The agreements all mature in 2000. The counterparties to these agreements are three major U.S. and international financial institutions. The interest rate applicable to most of the company's floating rate indebtedness is equal to LIBOR, plus a margin. The average fixed interest rate paid by the company on the interest rate swaps at year-end 1999 was 7.22%, covering $250 million of floating rate indebtedness. The interest rate swap agreements, which were implemented through three counterparty banks, and which had an average remaining life of 0.4 years at year-end 1999, provide for the company to receive substantially the same LIBOR that the company pays on its floating rate indebtedness. The notional amounts of interest rate swaps did not represent amounts exchanged by the parties and are not a measure of the company's exposure to credit or market risks. The amounts exchanged are calculated on the basis of the notional amounts and the other terms of the hedge agreements. Notional amounts are not included in the consolidated balance sheet. The company believes its exposure to potential loss due to counterparty nonperformance is minimized primarily due to the relatively strong credit ratings of the counterparty banks for their unsecured long-term debt (A- or higher from S&P or A3 or higher from Moody's) and the size and diversity of the counterparty banks. The hedge agreements are subject to market risk to the extent that market interest rates for similar instruments decrease and the company terminates the hedges prior to maturity. Fleming's financial risk management policy requires that any interest rate hedge agreement be matched to designated interest- bearing assets or debt instruments. All of the company's hedge agreements have been matched to its floating rate indebtedness. At year-end 1999, the company's floating rate indebtedness consisted of the term loans and revolver loans under the credit agreement. Accordingly, all outstanding swaps are matched swaps and the settlement accounting method is employed. Derivative financial instruments are reported in the balance sheet where the company has made or received a cash payment upon entering into or terminating the transaction. The carrying amount is amortized over the shorter of the initial life of the hedge agreement or the maturity of the hedged item. The company had a financial basis of $2.2 million and $2.6 million at year-end 1999 and 1998, respectively, including accrued interest payable or receivable for the interest rate agreements included in the balance sheet. Payments made or received under interest rate swap agreements are included in interest expense. Fair Value of Financial Instruments: The fair value of long-term debt was determined using valuation techniques that considered market prices for actively traded debt, and cash flows discounted at current market rates for management's best estimate for instruments without quoted market prices. At year-end 1999, the carrying value of debt was higher than the fair value by $69 million, or 5.3% of the carrying value. At year-end 1998, the carrying value of debt was higher than the fair value by $26 million, or 2.2% of the carrying value. The fair value of notes receivable is comparable to the carrying value because of the variable interest rates charged on certain notes and because of the allowance for credit losses. For derivatives, the fair value was estimated using termination cash values. At year-end 1999 and 1998, interest rate hedge agreement values would represent an obligation of $3 million and $9 million, respectively. The Financial Accounting Standards Board issued SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and is effective for 2001. The company will adopt SFAS No. 133 by the required effective date. The company has not determined the impact on its financial statements from adopting the new standard. Subsidiary Guarantee of Senior Notes: The senior notes are guaranteed by all direct and indirect subsidiaries of the company (except for certain inconsequential subsidiaries), all of which are wholly-owned. The guarantees are joint and several, full, complete and unconditional. There are currently no restrictions on the ability of the subsidiary guarantors to transfer funds to the company in the form of cash dividends, loans or advances. Financial statements for the subsidiary guarantors are not presented herein because the operations and financial position of such subsidiaries are not material. The summarized financial information, which includes allocations of material corporate-related expenses, for the combined subsidiary guarantors may not necessarily be indicative of the results of operations or financial position had the subsidiary guarantors been operated as independent entities.
(In millions) 1999 1998 ---- ---- Current assets $256 $30 Noncurrent assets 462 52 Current liabilities 102 14 Noncurrent liabilities 144 7
(In millions) 1999 1998 1997 ---- ---- ---- Net sales $899 $362 $379 Costs and expenses 913 393 388 Net loss (9) (10) (4)
The 1999 and 1998 losses include impairment/restructuring and other costs related to the strategic plan totaling $2 million pre-tax ($1 million after-tax) and $19 million pre-tax ($15 million after-tax), respectively. LEASE AGREEMENTS Capital And Operating Leases: The company leases certain distribution facilities with terms generally ranging from 20 to 35 years, while lease terms for other operating facilities range from 1 to 15 years. The leases normally provide for minimum annual rentals plus executory costs and usually include provisions for one to five renewal options of five years each. The company leases company-owned store facilities with terms generally ranging from 15 to 20 years. These agreements normally provide for contingent rentals based on sales performance in excess of specified minimums. The leases usually include provisions for one to four renewal options of two to five years each. Certain equipment is leased under agreements ranging from two to eight years with no renewal options. Accumulated amortization related to leased assets under capital leases was $59 million and $70 million at year-end 1999 and 1998, respectively. Future minimum lease payment obligations for leased assets under capital leases as of year-end 1999 are set forth below:
(In thousands) Lease Years Obligations - ----- ----------- 2000 $ 37,620 2001 36,257 2002 35,129 2003 35,308 2004 35,134 Later 154,297 -------- Total minimum lease payments 333,745 Less estimated executory costs (49,613) -------- Net minimum lease payments 284,132 Less interest (108,492) -------- Present value of net minimum lease payments 175,640 Less current obligations (7,457) -------- Long-term obligations $168,183 ========
Future minimum lease payments required at year-end 1999 under operating leases that have initial noncancelable lease terms exceeding one year are presented in the following table:
(In thousands) Facility Facilities Equipment Net Years Rentals Subleased Rentals Rentals - ----- -------- ---------- --------- ------- 2000 $ 155,034 $ (68,706) $ 12,393 $ 98,721 2001 137,336 (59,646) 9,698 87,388 2002 128,369 (50,606) 4,061 81,824 2003 118,077 (42,974) 458 75,561 2004 104,305 (35,343) 156 69,118 Later 323,963 (100,080) - 223,883 --------- --------- -------- --------- Total lease payments $ 967,084 $(357,355) $ 26,766 $ 636,495 ========= ========= ======== =========
The following table shows the composition of annual net rental expense under noncancelable operating leases and subleases with initial terms of one year or greater:
(In thousands) 1999 1998 1997 - -------------- ---- ---- ---- Operating activity: Rental expense $ 95,760 $100,238 $108,694 Contingent rentals 1,329 1,971 2,002 Less sublease income (9,868) (7,349) (7,064) -------- -------- -------- 87,221 94,860 103,632 -------- -------- -------- Financing activity: Rental expense 64,107 70,914 76,973 Less sublease income (68,442) (63,920) (75,445) -------- -------- -------- (4,335) 6,994 1,528 -------- -------- -------- Net rental expense $82,886 $101,854 $105,160 ======== ======== ========
The company reflects net financing activity, as shown above, as a component of net sales. Direct Financing Leases: The company leases retail store facilities with terms generally ranging from 15 to 20 years which are subsequently subleased to customers. Most leases provide for a percentage rental based on sales performance in excess of specified minimum rentals. The leases usually contain provisions for one to four renewal options of five years each. The sublease to the customer is normally for an initial five-year term with automatic five-year renewals at Fleming's discretion, which corresponds to the length of the initial term of the prime lease. The following table shows the future minimum rentals receivable under direct financing leases and future minimum lease payment obligations under capital leases in effect at year-end 1999:
(In thousands) Lease Rentals Lease Years Receivable Obligations - ----- ------------- ----------- 2000 $ 34,239 $ 31,023 2001 30,611 29,466 2002 27,092 29,242 2003 23,597 28,212 2004 21,169 27,456 Later 67,482 95,072 --------- --------- Total minimum lease payments 204,190 240,471 Less estimated executory costs (17,365) (21,124) --------- --------- Net minimum lease payments 186,825 219,347 Less interest (45,758) (5,652) --------- --------- Present value of net minimum lease payments 141,067 213,695 Less current portion (14,758) (13,918) --------- --------- Long-term portion $ 126,309 $ 199,777 ========= =========
Contingent rental income and contingent rental expense are not material. SHAREHOLDERS' EQUITY The company offers a Dividend Reinvestment and Stock Purchase Plan which provides shareholders the opportunity to automatically reinvest their dividends in common stock at a 5% discount from market value. Shareholders also may purchase shares at market value by making cash payments up to $5,000 per calendar quarter. Such programs resulted in issuing 54,000 and 33,000 new shares in 1999 and 1998, respectively. The company's employee stock ownership plan (ESOP) established in 1990 allows substantially all associates to participate. In 1990, the ESOP entered into a note with a bank to finance the purchase of the shares. In 1994, the company paid off the note and received a note from the ESOP. The ESOP completed payments of the loan balance to the company in 1999. The company made contributions to the ESOP based on fixed debt service requirements of the ESOP note. Such contributions were approximately $2 million in 1999, $2.5 million in 1998, and $2 million in 1997. Dividends used by the ESOP for debt service and interest and compensation expense recognized by the company were not material. The company issues shares of restricted stock to key employees under plans approved by the stockholders. Periods of restriction and/or performance goals are established for each award. The fair value of the restricted stock at the time of the grant is recorded as unearned compensation - restricted stock which is netted against capital in excess of par within shareholders' equity. Compensation is amortized to expense when earned. At year-end 1999, 568,742 shares remained available for award under all plans. Subsequent to year end, approximately 363,000 shares were awarded. Information regarding restricted stock balances is as follows (in thousands):
1999 1998 ---- ---- Awarded restricted shares outstanding 441 420 === === Unearned compensation - restricted stock $ 3,503 $ 6,199 ======= =======
The company may grant stock options to key employees through stock option plans, providing for the grant of incentive stock options and non-qualified stock options. The stock options have a maximum term of 10 years and have time and/or performance based vesting requirements. At year-end 1999, there were 1,472,000 shares available for grant under the unrestricted stock option plans. Subsequent to year end, approximately 826,000 stock options were granted. Also subsequent to year end, the Board of Directors approved, subject to shareholder approval, a new stock option plan reserving 1.9 million shares for future grants. Stock option transactions for the three years ended December 25, 1999 are as follows:
Weighted Average (Shares in thousands) Shares Exercise Price Price Range - --------------------- ------ ---------------- ----------- Outstanding, year-end 1996 2,631 $23.93 $16.38-42.13 Granted 80 $17.58 $17.50-18.13 Exercised (8) $16.38 $16.38-16.38 Canceled and forfeited (437) $28.48 $16.38-42.13 ------ ------ ------------ Outstanding, year-end 1997 2,266 $22.65 $16.38-38.38 Granted 550 $10.18 $9.72-18.19 Exercised (3) $16.38 $16.38-16.38 Canceled and forfeited (403) $25.40 $16.38-37.06 ------ ------ ------------ Outstanding, year-end 1998 2,410 $19.35 $9.72-38.38 Granted 2,337 9.80 $7.53-12.25 Exercised (0) 0.00 $0.00- 0.00 Canceled and forfeited (968) 16.53 $7.53-38.38 ------ ------ ------------ Outstanding, year end 1999 3,799 $14.19 $7.53-38.38 ====== ====== ============
Information regarding options outstanding at year-end 1999 is as follows:
All Options (Shares in thousands) Outstanding Currently - --------------------- Options Exercisable ----------- ----------- Option price $28.38 - $38.38: Number of options 129 121 Weighted average exercise price 36.25 36.77 Weighted average remaining life in years 1 - Option price $18.19 - $26.44: Number of options 594 283 Weighted average exercise price 24.57 24.33 Weighted average remaining life in years 4 - Option price $7.53 - $17.50: Number of options 3,057 649 Weighted average exercise price 11.17 14.30 Weighted average remaining life in years 9 -
In the event of a change of control, the vesting of all awards will accelerate. The company applies APB Opinion No. 25 - Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans. Total compensation cost recognized in income for stock based employee compensation awards was $1,378,000, $3,160,000 and $1,493,000 for 1999, 1998 and 1997, respectively. If compensation cost had been recognized for the stock-based compensation plans based on fair values of the awards at the grant dates consistent with the method of SFAS No. 123 - Accounting for Stock-Based Compensation, reported net earnings (loss) and earnings (loss) per share, both before extraordinary charge, would have been $(47.4) million and $(1.24) for 1999, $(511.7) million and $(13.48) for 1998, $37.9 million and $1.00 for 1997, respectively. The weighted average fair value on the date of grant of the individual options granted during 1999, 1998 and 1997 was estimated at $4.62, $4.82 and $8.81, respectively. Significant assumptions used to estimate the fair values of awards using the Black-Scholes option-pricing model with the following weighted average assumptions for 1999, 1998 and 1997 are: risk-free interest rate - 4.50% to 7.00%; expected lives of options - 10 years; expected volatility - 30% to 50%; and expected dividend yield of 0.5% to 0.8%. ASSOCIATE RETIREMENT PLANS AND POSTRETIREMENT BENEFITS The company sponsors pension and postretirement benefit plans for substantially all non-union and some union associates. Benefit calculations for the company's defined benefit pension plans are primarily a function of years of service and final average earnings at the time of retirement. Final average earnings are the average of the highest five years of compensation during the last 10 years of employment. The company funds these plans by contributing the actuarially computed amounts that meet funding requirements. Substantially all the plans' assets are invested in listed securities, short-term investments, bonds and real estate. The company also has unfunded nonqualified supplemental retirement plans for selected associates. The company offers a comprehensive major medical plan to eligible retired associates who meet certain age and years of service requirements. This unfunded defined benefit plan generally provides medical benefits until Medicare insurance commences. The following table provides a reconciliation of benefit obligations, plan assets and funded status of the plans mentioned above.
Other (In thousands) Pension Benefits Postretirement Benefits - -------------- ---------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Change in benefit obligation: Balance at beginning of year $418,604 $350,993 $16,503 $16,441 Service cost 14,163 12,981 177 139 Interest cost 26,511 25,334 1,020 1,052 Plan participants' contributions - - 837 851 Actuarial gain/loss (53,098) 50,009 2,006 2,932 Amendments - 1,132 - - Benefits paid (30,577) (21,892) (5,330) (4,911) SFAS #88 curtailment - 47 - - -------- -------- ------- ------- Balance at end of year $375,603 $418,604 $15,213 $16,504 ======== ======== ======= ======= Change in plan assets: Fair value at beginning of year $316,539 $262,484 $- $- Actual return on assets 39,608 31,415 - - Employer contribution 6,292 44,532 5,330 4,911 Benefits paid (30,577) (21,892) (5,330) (4,911) -------- -------- ------- ------- Fair value at end of year $331,862 $316,539 $- $- ======== ======== ======= ======= Funded status $(43,741) $(102,065) $(15,213) $(16,504) Unrecognized actuarial loss 53,401 127,984 5,564 3,781 Unrecognized prior service cost 1,190 1,481 - - Unrecognized net transition asset (320) (588) - - -------- --------- -------- -------- Net amount recognized $ 10,530 $ 26,812 $ (9,649) $(12,723) ======== ========= ======== ======== Amounts recognized in the consolidated balance sheet: Prepaid benefit cost $- $- $- $- Accrued benefit liability (6,714) (69,714) (9,649) (12,723) Intangible asset 958 1,304 - - Accumulated other comprehensive income 16,286 95,222 - - -------- -------- -------- -------- Net amount recognized $ 10,530 $ 26,812 $ (9,649) $(12,723) ======== ======== ======== ========
The following year-end assumptions were used for the plans mentioned above.
Other Pension Benefits Postretirement Benefits ---------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Discount rate (weighted average) 7.50% 6.50% 7.50% 6.50% Expected return on plan assets 8.50% 9.50% - - Rate of compensation increase 4.50% 4.00% - -
Net periodic pension and other postretirement benefit costs include the following components:
Other Pension Benefits Postretirement Benefits ---------------- ----------------------- (In thousands) 1999 1998 1997 1999 1998 1997 - -------------- ---- ---- ---- ---- ---- ---- Service cost $14,163 $12,981 $11,359 $177 $139 $137 Interest cost 26,511 25,334 23,525 1,020 1,052 1,185 Expected return on plan assets (29,257) (25,234) (28,008) - - - Amortization of actuarial loss 11,134 9,105 11,533 222 - (44) Amortization of prior service cost 291 354 549 - - - Amortization of net transition asset (268) (268) (220) - - - Cost of termina- benefits - - - - - 15 ------- ------- ------- ------ ------ ------ Net periodic benefit cost $22,574 $22,272 $18,738 $1,419 $1,191 $1,293 ======= ======= ======= ====== ====== ====== The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $376 million, $341 million, and $332 million, respectively, as of December 25, 1999, and $419 million, $385 million, and $317 million, respectively, as of December 26, 1998. For measurement purposes in 1999 and 1998, a 9% annual rate of increase in the per capita cost of covered medical care benefits was assumed. In 1999, the rate for 2000 was assumed to remain at 9%, then decrease to 5% by the year 2008, then remain level. In 1998, the rate for 2000 was assumed to be 8.5%, then decrease to 5% by the year 2007, then remain level. The effect of one-percentage point increase in assumed medical cost trend rates would have increased the accumulated postretirement benefit obligation as of December 31, 1999 from $15.2 to $16.0 million, and increased the total of the service cost and interest cost components of the net periodic cost from $1.19 million to $1.25 million. The effect of one-percentage point decrease in assumed medical cost trend rates would have decreased the accumulated postretirement benefit obligation as of December 31, 1999 from $15.2 to $14.5 million, and decreased the total of the service cost and interest cost components of the net periodic cost from $1.19 million to $1.15 million. In some of the retail operations, contributory profit sharing plans are maintained by the company for associates who meet certain types of employment and length of service requirements. Company contributions under these defined contribution plans are made at the discretion of the Board of Directors and totaled $3 million in both 1999 and 1998 and $4 million in 1997. Beginning in 2000, the company changed its benefit plans to offer a matching 401(k) plan to associates in addition to the pension plan previously offered. The pension plan was continued, but with a reduced benefit formula. The new plan offerings were also offered to an increased number of associates. Certain associates have pension and health care benefits provided under collectively bargained multi-employer agreements. Expenses for these benefits were $77 million, $80 million and $81 million for 1999, 1998 and 1997, respectively. SUPPLEMENTAL CASH FLOWS INFORMATION
(In thousands) 1999 1998 1997 - -------------- ---- ---- ---- Acquisitions: Fair value of assets acquired $ 78,607 $ 32,080 $ 9,572 Less: Liabilities assumed or created - (1,792) - Existing company investment (167) (63) - -------- -------- -------- Cash paid, net of cash acquired $ 78,440 $ 30,225 $ 9,572 ======== ======== ======== Cash paid during the year for: Interest, net of amounts capitalized $165,676 $182,449 $179,180 ======== ======== ======== Income taxes, net of refunds $ 14,863 $ 23,822 $ 30,664 ======== ======== ======== Direct financing leases and related obligations $ 45,645 $ 9,349 $ 5,092 ======== ======== ======== Property and equipment additions by capital leases $ 45,220 $ 70,684 $ 28,990 ======== ======== ========
CONTINGENCIES In accordance with applicable accounting standards, the company records a charge reflecting contingent liabilities (including those associated with litigation matters) when management determines that a material loss is "probable" and either "quantifiable" or "reasonably estimable." Additionally, the company discloses material loss contingencies when the likelihood of a material loss is deemed to be greater than "remote" but less than "probable." Set forth below is information regarding certain material loss contingencies: Class Action Suits. In 1996, the company and certain of its present and former officers and directors were named as defendants in nine purported class action suits filed by certain stockholders and one purported class action suit filed by a noteholder. In 1997, the court consolidated the stockholder cases (the noteholder case was also consolidated, but only for pre-trial purposes). During 1998 the noteholder case was dismissed and during 1999 the consolidated case was also dismissed, each without prejudice. The court gave the plaintiffs the opportunity to restate their claims in each case. The complaint filed in the consolidated cases asserted liability for the company's alleged failure to properly account for and disclose the contingent liability created by the David's litigation and by the company's alleged "deceptive business practices." The plaintiffs claim that these alleged practices led to the David's litigation and to other material contingent liabilities, caused the company to change its manner of doing business at great cost and loss of profit, and materially inflated the trading price of the company's common stock. The company denied each of these allegations. On February 4, 2000 the shareholder case was dismissed with prejudice by the district court. The plaintiffs filed an appeal on March 3, 2000. The motion to dismiss in the noteholder case has not yet been decided. The plaintiffs seek undetermined but significant damages. However, if the district court ruling described below is upheld, Fleming believes the litigation will not have a material adverse effect on the company. In 1997, the company won a declaratory judgment against certain of its insurance carriers regarding policies issued to Fleming for the benefit of its officers and directors ("D&O policies"). On motion for summary judgment, the court ruled that the company's exposure, if any, under the class action suits is covered by D&O policies written by the insurance carriers (aggregating $60 million in coverage) and that the "larger settlement rule" will be applicable to the case. According to the trial court, under the larger settlement rule a D&O insurer is liable for the entire amount of coverage available under a policy even if there is some overlap in the liability created by the insured individuals and the uninsured corporation. If a corporation's liability is increased by uninsured parties beyond that of the insured individuals, then that portion of the liability is the sole obligation of the corporation. The court also held that allocation is not available to the insurance carriers as an affirmative defense. The insurance carriers appealed. In 1999, the appellate court affirmed the decision that the class actions were covered by D&O policies aggregating $60 million in coverage but reversed the trial court's decision as to allocation as being premature. Tru Discount Foods. Fleming brought suit in 1994 on a note and an open account against its former customer, Tru Discount Foods. The case was initially referred to arbitration but later restored to the trial court; Fleming appealed. In 1997, the defendant amended its counter claim against the company alleging fraud, overcharges for products and violations of the Oklahoma Deceptive Trade Practices Act. In 1998, the appellate court reversed the trial court and directed that the matter be sent again to arbitration. On September 28, 1999, the arbitration panel entered its award in favor of Fleming against Tru Discount Foods and its principals in the net amount of $579,443 plus interest at the rate of six percent per annum from October 29, 1999, and fees and expenses. On December 27, 1999, Tru Discount Foods and its principals filed a motion in the trial court to vacate the arbitration award, on the grounds, among others, that the arbitration panel prevented them from asserting a RICO counterclaim for treble damages, and refused to admit alleged new evidence relating thereto. The company objected to the motion and moved to confirm the arbitration award. On February 28, 2000, the trial court confirmed the award and entered judgment against the defendants. The defendants have until April 5, 2000 to appeal the judgment. Don's United Super (and related cases). The company and two retired executives have been named in a suit filed in 1998 in the United States District Court for the Western District of Missouri by several current and former customers of the company (Don's United Super, et al. v. Fleming, et al.). The eighteen plaintiffs operate retail grocery stores in the St. Joseph and Kansas City metropolitan areas. The plaintiffs in this suit allege product overcharges, breach of contract, breach of fiduciary duty, misrepresentation, fraud, and RICO violations, and they are seeking actual, punitive and treble damages, as well as a declaration that certain contracts are voidable at the option of the plaintiffs. During the fourth quarter of 1999, plaintiffs produced reports of their expert witnesses calculating alleged actual damages of approximately $112 million. During the first quarter of 2000, plaintiffs revised a portion of these damage calculations, and although plaintiffs have not finalized these calculations, it appears that their revised damage calculations will result in a claim of approximately $120 million, exclusive of any punitive or treble damages. In October 1998, the company and the same two retired executives were named in a suit filed by another group of retailers in the same court as the Don's suit. (Coddington Enterprises, Inc., et al. v. Fleming, et al.). Currently, sixteen plaintiffs are asserting claims in the Coddington suit. All of the plaintiffs except for one have arbitration agreements with Fleming. The plaintiffs assert claims virtually identical to those set forth in the Don's suit, and although plaintiffs have not yet quantified the damages in their pleadings, it is anticipated that they will claim actual damages approximating the damages claimed in the Don's suit. In July 1999, the court ordered two of the plaintiffs in the Coddington case to arbitration, and otherwise denied arbitration as to the remaining plaintiffs. The company has appealed the district court's denial of arbitration to the Eighth Circuit Court of Appeals. The two plaintiffs that were ordered to arbitration have filed motions asking the district court to reconsider the arbitration ruling. Two other cases had been filed before the Don's case in the same district court (R&D Foods, Inc., et al. v. Fleming, et al. and Robandee United Super, Inc., et al. v. Fleming, et al.) by ten customers, some of whom are also plaintiffs in the Don's case. The earlier two cases, which principally seek an accounting of the company's expenditure of certain joint advertising funds, have been consolidated. All proceedings in these cases have been stayed pending the arbitration of the claims of those plaintiffs who have arbitration agreements with the company. The company intends to vigorously defend against the claims in these related cases, but is currently unable to predict the outcome. An unfavorable outcome could have a material adverse effect on the financial condition and prospects of the company. Storehouse Markets. In 1998, the company and one of its associates were named in a suit filed in the United States District Court for the District of Utah by several current and former customers of the company (Storehouse Markets, Inc., et al. v. Fleming Companies, Inc., et al.). The plaintiffs have alleged product overcharges, fraudulent misrepresentation, fraudulent non-disclosure and concealment, breach of contract, breach of duty of good faith and fair dealing, and RICO violations, and they are seeking actual, punitive and treble damages. On March 7, 2000 the court stated that this case will be certified as a class action. The class will include current and former customers of Fleming's Salt Lake City division covering a four-state region. A formal order has not yet been received. The company is considering an appeal of this ruling pending receipt of this order. Damages have not been quantified by the plaintiffs; however, the company anticipates that substantial damages will be claimed. The company intends to vigorously defend against these claims, but is currently unable to predict the outcome. An unfavorable outcome could have a material adverse effect on the financial condition and prospects of the company. Other. The company's facilities and operations are subject to various laws, regulations and judicial and administrative orders concerning protection of the environment and human health, including provisions regarding the transportation, storage, distribution, disposal or discharge of certain materials. In conformity with these provisions, the company has a comprehensive program for testing, removal, replacement or repair of its underground fuel storage tanks and for site remediation where necessary. The company has established reserves that it believes will be sufficient to satisfy the anticipated costs of all known remediation requirements. The company and others have been designated by the U.S. Environmental Protection Agency ("EPA") and by similar state agencies as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state laws, as applicable, with respect to EPA-designated Superfund sites. While liability under CERCLA for remediation at such sites is generally joint and several with other responsible parties, the company believes that, to the extent it is ultimately determined to be liable for the expense of remediation at any site, such liability will not result in a material adverse effect on its consolidated financial position or results of operations. The company is committed to maintaining the environment and protecting natural resources and human health and to achieving full compliance with all applicable laws, regulations and orders. During 1999, the company recorded income of $22 million from extinguishing a portion of the company's self-insured workers' compensation liability at a discount through insurance coverage. The company is a party to various other litigation and contingent loss situations arising in the ordinary course of its business including: disputes with customers and former customers; disputes with owners and former owners of financially troubled or failed customers; disputes with employees and former employees regarding labor conditions, wages, workers' compensation matters and alleged discriminatory practices; disputes with insurance carriers; tax assessments and other matters, some of which are for substantial amounts. However, the company does not believe any such action will result in a material adverse effect on the company. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Fleming Companies, Inc. We have audited the accompanying consolidated balance sheets of Fleming Companies, Inc. and subsidiaries as of December 25, 1999 and December 26, 1998, and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the three years in the period ended December 25, 1999. Our audits also included the financial statement schedule listed in the index at item 14. These financial statements and financial statement schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Fleming Companies, Inc. and subsidiaries at December 25, 1999, and December 26, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 25, 1999, in conformity with generally accepted accounting principles. Also, in our opinion such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Oklahoma City, Oklahoma February 18, 2000 QUARTERLY FINANCIAL INFORMATION (In thousands, except per share amounts) (Unaudited)
1999 First Second Third Fourth Year - ---- ----- ------ ----- ------ ---- Net sales $4,465,246 $3,349,362 $3,243,192 $3,587,766 $14,645,566 Costs and expenses (income): Cost of sales 4,036,868 3,022,154 2,906,749 3,242,628 13,208,399 Selling and administrative 376,995 286,565 291,990 306,081 1,261,631 Interest expense 51,606 38,647 36,987 37,940 165,180 Interest income (9,350) (6,894) (7,075) (16,999) (40,318) Equity investment results 3,556 2,415 2,431 1,841 10,243 Litigation charges - - - - - Impairment/ restructuring charge 37,036 6,169 36,151 23,656 103,012 ---------- ---------- ---------- ---------- ----------- Total costs and expenses 4,496,711 3,349,056 3,267,233 3,595,147 14,708,147 ---------- ---------- ---------- ---------- ----------- Earnings (loss) before taxes (31,465) 306 (24,041) (7,381) (62,581) Taxes on income (loss) (7,224) 2,644 (9,695) (3,578) (17,853) ---------- ---------- ---------- ---------- ----------- Net earnings (loss) $ (24,241) $ (2,338) $ (14,346) $ (3,803) $ (44,728) ========== ========== ========== ========== =========== Basic and diluted net income (loss) per share $(.64) $(.06) $(.37) $(.10) $(1.17) ===== ===== ===== ===== ====== Dividends paid per share $.02 $.02 $.02 $.02 $.08 ==== ==== ==== ==== ==== Weighted average shares outstanding: Basic 38,143 38,204 38,459 38,470 38,305 ====== ====== ====== ====== ====== Diluted 38,143 38,204 38,459 38,470 38,305 ====== ====== ====== ====== ====== 1998 First Second Third Fourth Year - ---- ----- ------ ----- ------ ---- Net sales $4,567,126 $3,505,943 $3,438,766 $3,557,500 $15,069,335 Costs and expenses (income): Cost of sales 4,124,858 3,164,174 3,115,371 3,214,558 13,618,961 Selling and administrative 364,720 284,146 284,497 318,229 1,251,592 Interest expense 51,202 35,861 37,348 37,170 161,581 Interest income (11,305) (8,308) (8,559) (8,564) (36,736) Equity investment results 3,589 3,248 2,669 2,116 11,622 Litigation charges 2,954 2,216 2,215 395 7,780 Impairment/ restructuring charge (267) 916 6,038 646,050 652,737 ---------- ---------- ---------- ---------- ----------- Total costs and expenses 4,535,751 3,482,253 3,439,579 4,209,954 15,667,537 ---------- ---------- ---------- ---------- ----------- Earnings (loss) before taxes 31,375 23,690 (813) (652,454) (598,202) Taxes on income (loss) 16,105 10,051 1,512 (115,275) (87,607) ---------- ---------- ---------- ---------- ----------- Net earnings (loss) $15,270 $13,639 $(2,325) $(537,179) $(510,595) ========== ========== ========== ========== =========== Basic and diluted net income (loss) per share $.40 $.36 $(.06) $(14.11) $(13.48) ==== ==== ===== ======= ======= Dividends paid per share $.02 $.02 $.02 $.02 $.08 ==== ==== ==== ==== ==== Weighted average shares outstanding: Basic 37,804 37,859 38,039 38,084 37,887 ====== ====== ====== ====== ====== Diluted 37,972 38,027 38,039 38,084 37,887 ====== ====== ====== ====== ======
Each quarter of 1999 includes charges related to the company's strategic plan: quarter 1 - $46 million pre-tax, $32 million after-tax, $.84 per share; quarter 2 - $16 million pre-tax, $12 million after-tax, $.31 per share; quarter 3 - $45 million pre- tax, $28 million after-tax, $.73 per share; quarter 4 - $30 million pre-tax, $20 million after-tax, $.50 per share; full year - - $137 million pre-tax, $92 million after-tax, $2.39 per share. The third quarter also includes a one-time item for gains on the sale of facilities of approximately $6 million pre-tax ($3 million after-tax or $.09 per share). Each quarter of 1998 has been restated to reclassify certain operations expenses from selling and administrative expenses to cost of sales to conform with 1999 reporting. Each quarter of 1999 includes charges related to the company's strategic plan, but the fourth quarter reflects the significant portion for the year: quarter 4 - $661 million pre-tax, $540 million after-tax, $14.17 per share; full year - $668 million pre-tax, $543 million after-tax, $14.33 per share. The first quarter of both years consists of 16 weeks; all other quarters are 12 weeks. (a) 2. Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts (a) 3. Exhibits:
Page Number or Exhibit Incorporation by Number Reference to ------- ---------------- 3.1 Certificate of Incorporation Exhibit 3.1 to Form 10-Q for quarter ended April 17, 1999 3.2 By-Laws Exhibit 3.2 to Form 10-Q for quarter ended April 17, 1999 4.0 Credit Agreement, dated as of Exhibit 4.16 to July 25, 1997, among Fleming Form 10-Q for Companies, Inc., the Lenders quarter ended party thereto, BancAmerica July 12, 1997 Securities, Inc., as syndication agent, Societe Generale, as documentation agent and The Chase Manhattan Bank, as administrative agent 4.1 Security Agreement dated as Exhibit 4.17 to Form 10-Q of July 25, 1997, between for quarter ended Fleming Companies, Inc., the July 12, 1997 company subsidiaries party thereto and The Chase Manhattan Bank, as collateral agent 4.2 Pledge Agreement, dated as of Exhibit 4.18 to Form 10-Q July 25, 1997, among Fleming for quarter ended Companies, Inc., the company July 12, 1997 subsidiaries party thereto and The Chase Manhattan Bank, as collateral agent 4.3 Guarantee Agreement among the Exhibit 4.19 to Form 10-Q company subsidiaries party for quarter ended thereto and The Chase July 12, 1997 Manhattan Bank, as collateral agent 4.4 Indenture dated as of Exhibit 4.5 to Registration December 15, 1994, among Statement No. 33-55369 Fleming, the Subsidiary Guarantors named therein and Texas Commerce Bank National Association, as Trustee, regarding $300 million of 10- 5/8% Senior Notes 4.5 Indenture, dated as of July Exhibit 4.20 to Form 10-Q 25, 1997, among Fleming for quarter ended Companies, Inc., the July 12, 1997 Subsidiary Guarantors named therein and Manufacturers and Traders Trust Company, as Trustee, regarding 10-5/8% Senior Subordinated Notes due 2007 4.6 Indenture, dated as of July Exhibit 4.21 to Form 10-Q 25, 1997, among Fleming for quarter ended Companies, Inc., the July 12, 1997 Subsidiary Guarantors named therein and Manufacturers and Traders Trust Company regarding 10-1/2% Senior Subordinated Notes due 2004 4.7 First Amendment, dated as of Exhibit 4.8 to Form 10-Q October 5, 1998, to Credit for quarter ended October Agreement dated July 25, 1997 3, 1998 4.8 Agreement to furnish copies of other long-term debt instruments 10.0 Dividend Reinvestment and Exhibit 28.1 to Stock Purchase Plan, as Registration Statement No. amended 33-26648 and Exhibit 28.3 to Registration Statement No. 33-45190 10.1* 1990 Stock Option Plan Exhibit 28.2 to Registration Statement No. 33-36586 10.2* Form of Option Agreement for 1990 Stock Option Plan 10.3* Form of Restricted Stock Exhibit 10.5 to Form 10-K Award Agreement for 1990 for year ended December Stock Option Plan (1997) 27, 1997 10.4* Fleming Management Incentive Exhibit 10.4 to Compensation Plan Registration Statement No. 33-51312 10.5* Form of Amended and Restated Severance Agreement between the Registrant and certain of its officers 10.6* Fleming Companies, Inc. 1996 Exhibit A to Proxy Stock Incentive Plan dated Statement for year ended February 27, 1996 December 30, 1995 10.7* Form of Restricted Award Exhibit 10.12 to Form 10-K Agreement for 1996 Stock for year ended December Incentive Plan (1997) 27, 1997 10.8* Phase III of Fleming Companies, Inc. Stock Incentive Plan 10.9* Amendment No. 1 to the Exhibit 10.16 to Form 10-K Fleming Companies, Inc. 1996 for year ended December Stock Incentive Plan 28, 1996 10.10* Supplemental Income Trust 10.11* First Amendment to Fleming Exhibit 10.19 to Form 10-K Companies, Inc. Supplemental for year ended December Income Trust 28, 1996 10.12* Form of Change of Control Employment Agreement between Registrant and certain of the employees 10.13* Economic Value Added Exhibit A to Proxy Statement Incentive Bonus Plan for year ended December 31, 1994 10.14* Agreement between the Exhibit 10.24 to Form 10-K Registrant and William J. for year ended December Dowd 30, 1995 10.15* Amended and Restated Exhibit 10.23 to Form 10-K Supplemental Retirement for year ended December Income Agreement for Robert 28, 1996 E. Stauth 10.16* Executive Past Service Exhibit 10.23 to Form 10-K Benefit Plan (November 1997) for year ended December 27, 1997 10.17* Form of Agreement for Exhibit 10.24 to Form 10-K Executive Past Service for year ended December Benefit Plan (November 1997) 27, 1997 10.18* Executive Deferred Exhibit 10.25 to Form 10-K Compensation Plan (November for year ended December 1997) 27, 1997 10.19* Executive Deferred Exhibit 10.26 to Form 10-K Compensation Trust (November for year ended December 1997) 17, 1997 10.20* Form of Agreement for Exhibit 10.27 to Form 10-K Executive Deferred for year ended December Compensation Plan (November 27, 1997 1997) 10.21* Fleming Companies, Inc. Exhibit 10.28 to Form 10-K Associate Stock Purchase Plan for year ended December 27, 1997 10.22* Settlement Agreement between Exhibit 10.25 to Form 10-Q Fleming Companies, Inc. and for quarter ended October Furr's Supermarkets, Inc. 4, 1997 dated October 23, 1997 10.23* Form of Amended and Restated Exhibit 10.30 to Form 10-Q Agreement for Fleming for quarter ended October Companies, Inc. Executive 3, 1998 Past Service Benefit Plan 10.24* Form of Amended and Restated Exhibit 10.31 to Form 10-Q Agreement for Fleming for quarter ended October Companies, Inc. Executive 3, 1998 Deferred Compensation Plan 10.25* Amended and Restated Exhibit 10.32 to Form 10-Q Supplemental Retirement for quarter ended October Income Agreement between 3, 1998 William J. Dowd and Fleming Companies, Inc. dated August 18, 1998 10.26* Form of Amended and Restated Exhibit 10.33 to Form 10-Q Restricted Stock Award for quarter ended October Agreement under Fleming 3, 1998 Companies, Inc. 1996 Stock Incentive Plan 10.27* Form of Amended and Restated Exhibit 10.34 to Form 10-Q Non-Qualified Stock Option for quarter ended October Agreement under the Fleming 3, 1998 Companies, Inc. 1996 Stock Incentive Plan 10.28* First Amendment to Economic Exhibit 10.36 to Form 10-Q Value Added Incentive Bonus for quarter ended October Plan for Fleming Companies, 3, 1998 Inc. 10.29* Amendment No. 2 to Economic Exhibit 10.37 to Form 10-Q Value Added Incentive Bonus for quarter ended October Plan for Fleming Companies, 3, 1998 Inc. 10.30* Form of Amendment to Certain Exhibit 10.38 to Form 10-Q Employment Agreements for quarter ended October 3, 1998 10.31* Form of First Amendment to Exhibit 10.39 to Form 10-Q Restricted Stock Award for quarter ended October Agreement for Fleming 3, 1998 Companies, inc. 1996 Stock Incentive Plan 10.32* Settlement and Severance Exhibit 10.40 to Form 10-Q Agreement by and between for quarter ended October Fleming Companies, Inc. and 3, 1998 Robert E. Stauth dated August 28, 1998 10.33* 1999 Stock Incentive Plan Exhibit 10.38 to Form 10-K for year ended December 26, 1998 10.34* Form of Non-Qualified Stock Exhibit 10.39 to Form 10-K Option Agreement for 1999 for year ended December Stock Incentive Plan 26, 1998 10.35* Corporate Officer Incentive Exhibit 10.40 to Form 10-K Plan for year ended December 26, 1998 10.36* Employment Agreement for Mark Exhibit 10.41 to Form 10-K Hansen dated as of November for year ended December 30, 1998 26, 1998 10.37* Restricted Stock Agreement Exhibit 10.42 to Form 10-K under 1990 Stock Incentive for year ended December Plan for Mark Hansen dated as 26, 1998 of November 30, 1998 10.38* Form of Amendment to Exhibit 10.43 to Form 10-K Employment Agreement between for year ended December Registrant and certain 26, 1998 executives dated as of March 2, 1999 10.39* Amendment No. One to 1990 Exhibit 10.44 to Form 10-K Stock Option Plan for year ended December 26, 1998 10.40* Fleming Companies, Inc. 1990 Exhibit 10.45 to Form 10-K Stock Incentive Plan (as for year ended December amended) 26, 1998 10.41* Fleming Companies, Inc. Exhibit 10.46 to Form 10-K Amended and Restated for year ended December Directors' Compensation and 26, 1998 Stock Equivalent Unit Plan 10.42* Severance Agreement for Exhibit 10.47 to Form 10-K Thomas L. Zaricki dated for year ended December January 29, 1999 26, 1998 10.43* Severance Agreement for Harry Exhibit 10.48 to Form 10-K L. Winn, Jr. dated February for year ended December 22, 1999 26, 1998 10.44* Amendment to Fleming Exhibit 10.49 to Form 10-Q Companies, Inc. 1990 Stock for quarter ended April Incentive Plan 17, 1999 10.45* Employment Agreement for John Exhibit 10.50 to Form 10-Q T. Standley dated as of May for quarter ended April 17, 1999 17, 1999 10.46* Restricted Stock Agreement Exhibit 10.51 to Form 10-Q for John T. Standley dated as for quarter ended April of May 17, 1999 17, 1999 10.47* Letter Agreement for William Exhibit 10.52 to Form 10-Q H. Marquard dated as of May for quarter ended April 26, 1999 17, 1999 10.48* Severance Agreement with Exhibit 10.53 to Form 10-Q William J. Dowd effective as for quarter ended July 10, of June 17, 1999 1999 10.49* Employment Agreement for Exhibit 10.54 to Form 10-Q William H. Marquard dated as for quarter ended July 10, of June 1, 1999 1999 10.50* Restricted Stock Agreement Exhibit 10.55 to Form 10-Q for William H. Marquard dated for quarter ended July 10, as of June 1, 1999 1999 10.51* Employment Agreement for Exhibit 10.56 to Form 10-Q Dennis C. Lucas dated as of for quarter ended July 10, July 28, 1999 1999 10.52* Restricted Stock Agreement Exhibit 10.57 to Form 10-Q for Dennis C. Lucas dated as for quarter ended July 10, of July 28, 1999 1999 10.53* Restricted Stock Agreement Exhibit 10.58 to Form 10-Q for E. Stephen Davis dated as for quarter ended July 10, of July 20, 1999 1999 10.54* Form of Loan Agreement Exhibit 10.59 to Form 10-Q Pursuant to Executive Stock for quarter ended July 10, Ownership Program 1999 10.55* Restricted Stock Award Agreement for William H. Marquard dated as of December 21, 1999 10.56* Restricted Stock Award Agreement for John M. Thompson dated as of December 21, 1999, as amended 10.57* Form of Non-qualified Stock Option Agreement for 1999 Stock Option Plan - Corporate 10.58* Form of Non-qualified Stock Option Agreement for 1999 Stock Option Plan - Distribution 10.59* Form of Non-qualified Stock Option Agreement for 1999 Stock Option Plan - Retail 10.60* Amended and Restated Employ- ment Agreement for Scott M. Northcutt effective January 26, 1999 12 Computation of ratio of earnings to fixed charges 21 Subsidiaries of the Registrant 23 Consent of Deloitte & Touche LLP 24 Power of Attorney 27 Financial Data Schedule
* Management contract, compensatory plan or arrangement. (b) Reports on Form 8-K: On December 6, 1999, registrant announced the departure of John Standley and certain finance and accounting promotions. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Fleming has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of March, 2000. FLEMING COMPANIES, INC. MARK S. HANSEN By: Mark S. Hansen Chairman and Chief Executive Officer (Principal executive officer) NEAL RIDER By: Neal Rider Executive Vice President and Chief Financial Officer (Principal financial officer) KEVIN TWOMEY By: Kevin Twomey Senior Vice President Finance and Controller (Principal accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 14th day of March, 2000. MARK S. HANSEN JACK W. BAKER * HERBERT M. BAUM * Mark S. Hansen Jack W. Baker Herbert M. Baum (Chairman of the Board) (Director) (Director) ARCHIE R. DYKES * CAROL B. HALLETT * EDWARD C. JOULLIAN III * Archie R. Dykes Carol B. Hallett Edward C. Joullian III (Director) (Director) (Director) GUY A. OSBORN * ALICE M. PETERSON * DAVID A. RISMILLER * Guy A. Osborn Alice M. Peterson David A. Rismiller (Director) (Director) (Director) NEAL RIDER Neal Rider (Chief Financial Officer) *A Power of Attorney authorizing Neal Rider to sign the Annual Report on Form 10-K on behalf of each of the indicated directors of Fleming Companies, Inc. has been filed herein as Exhibit 24. SCHEDULE INDEX
Schedule Number Description Method of Filing - -------- ----------- ---------------- II Valuation and Filed herewith electronically Qualifying Accounts
EXHIBIT INDEX
Exhibit Number Description Method of Filing - ------- ----------- ---------------- 3.1 Certificate of Incorporation Incorporated herein by reference 3.2 By-Laws Incorporated herein by reference 4.0 Credit Agreement, dated as of Incorporated herein by July 25, 1997, among Fleming reference Companies, Inc., the Lenders party thereto, BancAmerica Securities, Inc., as syndication agent, Societe Generale, as documentation agent and The Chase Manhattan Bank, as administrative agent 4.1 Security Agreement dated as of Incorporated herein by July 25, 1997, between Fleming reference Companies, Inc., the company subsidiaries party thereto and The Chase Manhattan Bank, as collateral agent 4.2 Pledge Agreement, dated as of Incorporated herein by July 25, 1997, among Fleming reference Companies, Inc., the company subsidiaries party thereto and The Chase Manhattan Bank, as collateral agent 4.3 Guarantee Agreement among the Incorporated herein by company subsidiaries party reference thereto and The Chase Manhattan Bank, as collateral agent 4.4 Indenture dated as of Incorporated herein by December 15, 1994, among reference Fleming, the Subsidiary Guarantors named therein and Texas Commerce Bank National Association, as Trustee, regarding $300 million of 10- 5/8% Senior Notes 4.5 Indenture, dated as of July Incorporated herein by 25, 1997, among Fleming reference Companies, Inc., the Subsidiary Guarantors named therein and Manufacturers and Traders Trust Company, as Trustee, regarding 10-5/8% Senior Subordinated Notes due 2007 4.6 Indenture, dated as of July Incorporated herein by 25, 1997, among Fleming reference Companies, Inc., the Subsidiary Guarantors named therein and Manufacturers and Traders Trust Company regarding 10-1/2% Senior Subordinated Notes due 2004 4.7 First Amendment, dated as of Incorporated herein by October 5, 1998, to Credit reference Agreement dated July 25, 1997 4.8 Agreement to furnish copies of Filed herewith electronically other long-term debt instruments 10.0 Dividend Reinvestment and Incorporated herein by Stock Purchase Plan, as reference amended 10.1 1990 Stock Option Plan Incorporated herein by reference 10.2 Form of Option Agreement for Filed herewith electronically 1990 Stock Option Plan 10.3 Form of Restricted Stock Award Incorporated herein by Agreement for 1990 Stock reference Option Plan (1997) 10.4 Fleming Management Incentive Incorporated herein by Compensation Plan reference 10.5 Form of Amended and Restated Filed herewith electronically Severance Agreement between the Registrant and certain of its officers 10.6 Fleming Companies, Inc. 1996 Incorporated herein by Stock Incentive Plan dated reference February 27, 1996 10.7 Form of Restricted Award Incorporated herein by Agreement for 1996 Stock reference Incentive Plan (1997) 10.8 Phase III of Fleming Filed herewith electronically Companies, Inc. Stock Incentive Plan 10.9 Amendment No. 1 to the Fleming Incorporated herein by Companies, Inc. 1996 Stock reference Incentive Plan 10.10 Supplemental Income Trust Filed herewith electronically 10.11 First Amendment to Fleming Incorporated herein by Companies, Inc. Supplemental reference Income Trust 10.12 Form of Change of Control Filed herewith electronically Employment Agreement between Registrant and certain of the employees 10.13 Economic Value Added Incentive Incorporated herein by Bonus Plan reference 10.14 Agreement between the Incorporated herein by Registrant and William J. Dowd reference 10.15 Amended and Restated Incorporated herein by Supplemental Retirement Income reference Agreement for Robert E. Stauth 10.16 Executive Past Service Benefit Incorporated herein by Plan (November 1997) reference 10.17 Form of Agreement for Incorporated herein by Executive Past Service Benefit reference Plan (November 1997) 10.18 Executive Deferred Incorporated herein by Compensation Plan (November reference 1997) 10.19 Executive Deferred Incorporated herein by Compensation Trust (November reference 1997) 10.20 Form of Agreement for Incorporated herein by Executive Deferred reference Compensation Plan (November 1997) 10.21 Fleming Companies, Inc. Incorporated herein by Associate Stock Purchase Plan reference 10.22 Settlement Agreement between Incorporated herein by Fleming Companies, Inc. and reference Furr's Supermarkets, Inc. dated October 23, 1997 10.23 Form of Amended and Restated Incorporated herein by Agreement for Fleming reference Companies, Inc. Executive Past Service Benefit Plan 10.24 Form of Amended and Restated Incorporated herein by Agreement for Fleming reference Companies, Inc. Executive Deferred Compensation Plan 10.25 Amended and Restated Incorporated herein by Supplemental Retirement Income reference Agreement between William J. Dowd and Fleming Companies, Inc. dated August 18, 1998 10.26 Form of Amended and Restated Incorporated herein by Restricted Stock Award reference Agreement under Fleming Companies, Inc. 1996 Stock Incentive Plan 10.27 Form of Amended and Restated Incorporated herein by Non-Qualified Stock Option reference Agreement under the Fleming Companies, Inc. 1996 Stock Incentive Plan 10.28 First Amendment to Economic Incorporated herein by Value Added Incentive Bonus reference Plan for Fleming Companies, Inc. 10.29 Amendment No. 2 to Economic Incorporated herein by Value Added Incentive Bonus reference Plan for Fleming Companies, Inc. 10.30 Form of Amendment to Certain Incorporated herein by Employment Agreements reference 10.31 Form of First Amendment to Incorporated herein by Restricted Stock Award reference Agreement for Fleming Companies, inc. 1996 Stock Incentive Plan 10.32 Settlement and Severance Incorporated herein by Agreement by and between reference Fleming Companies, Inc. and Robert E. Stauth dated August 28, 1998 10.33 1999 Stock Incentive Plan Incorporated herein by reference 10.34 Form of Non-Qualified Stock Incorporated herein by Option Agreement for 1999 reference Stock Incentive Plan 10.35 Corporate Officer Incentive Incorporated herein by Plan reference 10.36 Employment Agreement for Mark Incorporated herein by Hansen dated as of November reference 30, 1998 10.37 Restricted Stock Agreement Incorporated herein by under 1990 Stock Incentive reference Plan for Mark Hansen dated as of November 30, 1998 10.38 Form of Amendment to Incorporated herein by Employment Agreement between reference Registrant and certain executives dated as of March 2, 1999 10.39 Amendment No. One to 1990 Incorporated herein by Stock Option Plan reference 10.40 Fleming Companies, Inc. 1990 Incorporated herein by Stock Incentive Plan (as reference amended) 10.41 Fleming Companies, Inc. Incorporated herein by Amended and Restated reference Directors' Compensation and Stock Equivalent Unit Plan 10.42 Severance Agreement for Thomas Incorporated herein by L. Zaricki dated January 29, reference 1999 10.43 Severance Agreement for Harry Incorporated herein by L. Winn, Jr. dated February reference 22, 1999 10.44 Amendment to Fleming Incorporated herein by Companies, Inc. 1990 Stock reference Incentive Plan 10.45 Employment Agreement for John Incorporated herein by T. Standley dated as of May reference 17, 1999 10.46 Restricted Stock Agreement for Incorporated herein by John T. Standley dated as of reference May 17, 1999 10.47 Letter Agreement for William Incorporated herein by H. Marquard dated as of May reference 26, 1999 10.48 Severance Agreement with Incorporated herein by William J. Dowd effective as reference of June 17, 1999 10.49 Employment Agreement for Incorporated herein by William H. Marquard dated as reference of June 1, 1999 10.50 Restricted Stock Agreement for Incorporated herein by William H. Marquard dated as reference of June 1, 1999 10.51 Employment Agreement for Incorporated herein by Dennis C. Lucas dated as of reference July 28, 1999 10.52 Restricted Stock Agreement for Incorporated herein by Dennis C. Lucas dated as of reference July 28, 1999 10.53 Restricted Stock Agreement for Incorporated herein by E. Stephen Davis dated as of reference July 20, 1999 10.54 Form of Loan Agreement Incorporated herein by Pursuant to Executive Stock reference Ownership Program 10.55 Restricted Stock Award Filed herewith electronically Agreement for William H. Marquard dated as of December 21, 1999 10.56 Restricted Stock Award Filed herewith electronically Agreement for John M. Thompson dated as of December 21, 1999, as amended 10.57 Form of Non-qualified Stock Filed herewith electronically Option Agreement for 1999 Stock Option Plan - Corporate 10.58 Form of Non-qualified Stock Filed herewith electronically Option Agreement for 1999 Stock Option Plan - Distribution 10.59 Form of Non-qualified Stock Filed herewith electronically Option Agreement for 1999 Stock Option Plan - Retail 10.60 Amended and Restated Employ- Filed herewith electronically ment Agreement for Scott M. Northcutt effective January 26, 1999 12 Computation of ratio of Filed herewith electronically earnings to fixed charges 21 Subsidiaries of the Registrant Filed herewith electronically 23 Consent of Deloitte & Touche Filed herewith electronically LLP 24 Power of Attorney Filed herewith electronically 27 Financial Data Schedule Filed herewith electronically
SCHEDULE II FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 25, 1999 DECEMBER 26, 1998, AND DECEMBER 27, 1997 (In thousands)
Allowance for Credit Losses Current Noncurrent BALANCE, December 28, 1996 $49,632 $24,659 $24,973 Charged to cost and expenses 24,484 11,989 12,495 Uncollectible accounts written-off, less recoveries (32,655) (17,636) (15,019) Asset impairment 2,387 - 2,387 BALANCE, December 27, 1997 $43,848 $19,012 $24,836 Charged to cost and expenses 23,498 9,979 13,519 Uncollectible accounts written-off, less recoveries (20,114) (9,012) (11,102) BALANCE, December 26, 1998 $47,232 $19,979 $27,253 Charged to cost and expenses 24,704 20,734 3,970 Uncollectible accounts written-off, less recoveries (16,408) (8,512) (7,896) BALANCE, December 25, 1999 $55,528 $32,201 $23,327
EX-4 2 Exhibit 4.8 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES The Registrant has various long-term debt agreements which define the rights of the holders of the related debt securities of the Registrant. The Registrant agrees to furnish copies of any unfiled debt agreements to the Commission upon request. FLEMING COMPANIES, INC. (Registrant) KEVIN TWOMEY Date: March 14, 2000 By Kevin Twomey Senior Vice President, Finance and Controller (Principal Accounting Officer) EX-10 3 Exhibit 10.2 FLEMING COMPANIES, INC. _________________________________________________________________ NON-QUALIFIED STOCK OPTION AGREEMENT (1990 STOCK OPTION PLAN) _________________________________________________________________ Name: ______________ Grant Date: _________________ Option Price: $_____________ Exercise Date: _________________ - 25% Shares Granted: ______________ _________________ - 50% Expiration Date: ______________ _________________ - 75% _________________ - 100% NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE FLEMING COMPANIES, INC. 1990 STOCK OPTION PLAN THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement"), made as of this ____ day of ________, 199_, at Oklahoma City, Oklahoma by and between ______________ (hereinafter referred to as the "Participant," and Fleming Companies, Inc. (hereinafter referred to as the "Company"): W I T N E S S E T H: WHEREAS, the Participant is a key employee of the Company, its parent or any subsidiary of the Company, and it is important to the Company that the Participant be encouraged to remain in the employ of the Company, its parent or any subsidiary of the Company; and WHEREAS, in recognition of such facts, the Company desires to provide to the Participant an opportunity to purchase shares of the common stock of the Company, as hereinafter provided, pursuant to the "Fleming Companies, Inc. 1990 Stock Option Plan" (the "Plan"). NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the Participant and the Company hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant a non-qualified stock option (the "Stock Options") as described in Sections 83 and 421 of the Code to purchase all or any part of an aggregate of ____________ ________________________________________ (_______) shares of common stock of the Company, par value $2.50 per share (the "Stock") under and subject to the terms and conditions of this Option Agreement and the Plan each of which is incorporated herein by reference and made a part hereof for all purposes. All capitalized terms used in this Option Agreement shall have the same meaning ascribed to them in the Plan unless specifically denoted otherwise. The purchase price per share for each share of Stock to be purchased hereunder shall be $__________ (the "Option Price"). 2. TIMES OF EXERCISE OF STOCK OPTION. After, and only after, the conditions of Section 9 hereof have been satisfied, the Participant shall be eligible to exercise that portion of his Stock Options pursuant to the schedule set forth hereinafter. If the Participant's employment with the Company (or its parent or of any one or more of the subsidiaries of the Company) remains full-time and continuous at all times prior to any of the "Exercise Dates" set forth in this Section 2, then the Participant shall be entitled, subject to the applicable provisions of the Plan and this Option Agreement having been satisfied, to exercise on or after the applicable Exercise Date, on a cumulative basis, the number of shares of Stock determined by multiplying the aggregate number of shares set forth in Section 1 of this Agreement by the designated percentage set forth below. Percent of Stock Exercise Dates Option Exercisable - -------------------------------------------------------------------- On or After _________________ 25% On or After _________________ 50% On or After _________________ 75% On or After _________________ 100% 3. TERM OF STOCK OPTION. Except as specifically provided to the contrary in this Option Agreement or in the Plan with regard to the death of a Participant, no Stock Option shall be exercisable within six months from nor more than ten years after the date of grant (the "Option Period"). Stock Options shall be exercisable only by the Participant while actively employed by the Company or a subsidiary, except that (i) the Stock Options which are otherwise exercisable, may be exercised by the personal representative of a deceased Participant within 12 months after the death of such Participant and (ii) if a Participant terminates his employment with the Company or a subsidiary, such Participant may exercise any of the Stock Options which are otherwise exercisable at any time within three months of such date of termination. If a Participant should die during the applicable three month period following the date of such Participant's termination, the rights of the personal representative of such deceased Participant as such relate to the Stock Options shall be governed in accordance with Section 3(i) of this Agreement. 4. NONTRANSFERABILITY OF STOCK OPTIONS. Except as otherwise herein provided, the Stock Options shall not be transferable otherwise than by will or the laws of descent and distribution, and the Stock Options may be exercised, during the lifetime of the Participant, only by him. More particularly (but without limiting the generality of the foregoing), the Stock Options may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, shall not be assignable by operation of law and shall not be subject to execution, attachment, or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Stock Options contrary to the provisions hereof shall be null and void and without effect. 5. EMPLOYMENT. So long as the Participant shall continue to be a full-time and continuous employee of the Company, its parent or one or more of the subsidiaries of the Company, the Stock Options shall not be affected by any change of duties or position. Nothing in the Plan or in this Option Agreement shall confer upon the Participant any right to continue in the employ of the Company, its parent or any of the subsidiaries of the Company, or interfere in any way with the right of the Company, its parent or any of the subsidiaries of the Company to terminate such Participant's employment at any time. 6. SPECIAL RULES WITH RESPECT TO STOCK OPTIONS. With respect to Stock Options granted hereunder, the following special rules shall apply: (a) Acceleration of Otherwise Unexercisable Stock Option on Termination of Employment or Death. The Committee, in its sole discretion, may permit (i) a Participant who terminates employment with the Company or a subsidiary or (ii) the personal representative of a deceased Participant, to exercise and purchase (within three months of such date of termination of employment or 12 months in the case of a deceased Participant) all or any part of the shares subject to the Stock Options on the date of the Participant's death or termination, notwithstanding that all installments, if any, with respect to the Stock Options, had not accrued on such date. Provided, such discretionary authority of the Committee may not be exercised with respect to any Stock Option (or portion thereof) if the applicable six month waiting period for exercise had not expired except in the event of the death of the Participant when the personal representative of the deceased Participant may, with the consent of the Committee, exercise such Stock Option notwithstanding the fact that the applicable six month waiting period had not yet expired. (b) Right to Exercise Upon Company Ceasing to Exist. Where dissolution or liquidation of the Company or any merger, consolidation or combination in which the Company is not the surviving corporation occurs, the Participant shall have the right immediately prior to such dissolution, liquidation, merger, consolidation or combination, as the case may be, to exercise, in whole or in part, his then remaining Stock Options whether or not then exercisable. Provided, further, that for the purposes of this Section 6(c), if any merger, consolidation or combination occurs in which the Company is not the surviving corporation and is the result of a mere change in identity, form or place of organization of the Company accomplished in accordance with Section 368(a) (1) (F) of the Code, then, such event will not cause an acceleration of the exercisability of such Stock option granted hereunder. (c) Assumption of Outstanding Stock Options. To the extent permitted by the applicable provisions of the Code, any successor to the Company succeeding to, or assigned the business of, the Company as the result of or in connection with a corporate merger, consolidation, combination, reorganization or liquidation transaction shall assume the Stock Options outstanding under this Option Agreement or issue new non- qualified stock options in place of such outstanding Stock Options. Provided, such assumption of outstanding Stock Options is to be made on a fair and equivalent basis in accordance with the applicable provisions of Section 425(a) of the Code; provided, further, in no event will such assumption result in a modification of the Stock Options as defined in Section 425(h) of the Code. (d) Payment of Withholding Taxes. Upon the exercise of any Stock Option as provided herein, no such exercise shall be permitted, nor shall any Stock be issued to any Participant until the Company receives full payment for the Stock purchased which shall include any required state and federal withholding taxes. Further, upon the exercise of any Stock Option the Participant may direct the Company to retain from the shares of Stock to be issued upon exercise of the Stock Option that number of initial shares of Stock (based on "fair market value" as such term is defined in Section 1.6 of the Plan) that would satisfy the requirements for withholding any amounts due upon the exercise. 7. METHOD OF EXERCISING STOCK OPTION. (a) Procedures for Exercise. The manner of exercising the Stock Options shall be by written notice to the Company at least two days before the date the Stock Options, or part thereof, are to be exercised, and in any event prior to the expiration of the Option Period. Such notice shall state the election to exercise the Stock Options and the number of shares of Stock with respect to that portion of the Stock Options being exercised, and shall be signed by the person or persons so exercising the Stock Options. The notice shall be accompanied by payment of the full purchase price of such shares, in which event the Company shall deliver a certificate or certificates representing such shares to the person or persons entitled thereto as soon as practicable after the notices shall be received. (b) Form of Payment. Payment for shares of Stock purchased under this Option Agreement shall be made in full and in cash or check made payable to the Company. Provided, payment for shares of Stock purchased under this Option Agreement may also be made in common stock of the Company or a combination of cash and common stock of the Company. In the event that common stock of the Company is utilized in consideration for the purchase of Stock upon the exercise of the Stock Options, then, such common stock shall be valued at the "fair market value" as defined in Section 1.6 of the Plan. In addition to the foregoing procedure which may be available for the exercise of the Stock Options, the Participant may deliver to the Company a notice of exercise including an irrevocable instruction to the Company to deliver the stock certificate representing the shares subject to the Stock Options to a broker authorized to trade in the common stock of the Company. Upon receipt of such notice, the Company will acknowledge receipt of the executed notice of exercise and forward this notice to the broker. Upon receipt of the copy of the notice which has been acknowledged by the Company, and without waiting for issuance of the actual stock certificate with respect to the exercise of the Stock Options, the broker may sell the Stock (or that portion of the Stock necessary to cover the Option Price and any withholding taxes due, if any). Upon receipt of the stock certificate from the Company, the broker will deliver directly to the Company that portion of the sales proceeds to cover the Option Price and any withholding taxes. Further, the broker may also facilitate a loan to the Participant upon advance receipt of the exercise notice for issuance of the actual stock certificate as an alternative means of financing and facilitating the exercise of any Stock Option. For all purposes of effecting the exercise of the Stock Options, the date on which the Participant gives the notice of exercise to the Company will be the date he becomes bound contractually to take and pay for the shares of Stock underlying the Stock Options. No Stock shall be issued to the Participant until the Company receives full payment for the Stock purchased under the Stock Options which shall include any required state and federal withholding taxes. (c) Further Information. In the event the Stock Options are exercised, pursuant to the foregoing provisions of this Section 7, by any person or persons other than the Participant in the event of the death of the Participant, such notice shall also be accompanied by appropriate proof of the right of such person or persons to exercise the Stock Options. The notice so required shall be given by personal delivery to the Secretary of the Company or by registered or certified mail, addressed to the Company at 6301 Waterford Boulevard, Oklahoma City, Oklahoma 73118, and it shall be deemed to have been given when it is so personally delivered or when it is deposited in the United States mail in an envelope addressed to the Company, as aforesaid, properly stamped for delivery as a registered or certified letter. 8. ACCELERATION OF OPTIONS UPON CHANGE OF CONTROL. Notwithstanding anything to the contrary in the Plan, in the event of a "Change of Control" (as such term is defined in Section 8 of this Option Agreement and not in the Plan), any and all Stock Options will become automatically fully vested and immediately exercisable with such acceleration to occur without the requirement of any further act by either the Company or the Participant. For purposes of this Participant and this Option Agreement, the term "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more (the "Triggering Percentage") of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, in the event the "Incumbent Board" (as such term is hereinafter defined) pursuant to authority granted in any rights agreement to which the Company is a party (the "Rights Agreement") lowers the acquisition threshold percentages set forth in such Rights Agreement, the Triggering Percentage shall be automatically reduced to equal the threshold percentages set pursuant to authority granted to the board in the Rights Agreement; and provided, further, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (x), (y), and (z) of subsection (iii) of this Section 8; or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, appointment or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for purposes of this definition, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the shareholders of the Company of a reorganization, share exchange, merger or consolidation or acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction will own the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (z) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of (x) a complete liquidation or dissolution of the Company or, (y) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition, and (C) at least a majority of the members of the board of directors of such corporation will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company. 9. SECURITIES LAW RESTRICTIONS. Stock Options shall be exercised and Stock issued only upon compliance with the Securities Act of 1933, as amended (the "Act"), and any other applicable securities law, or pursuant to an exemption therefrom. 10. NOTICES. All notices or other communications relating to the Plan and this Option Agreement as it relates to the Participant shall be in writing and shall be mailed (U.S. Mail) by the Company to the Participant at the then current address as maintained by the Company or such other address as the Participant may advise the Company in writing. IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly executed by its officers thereunto duly authorized, and the Participant has hereunto set his hand and seal, all on the day and year first above written. COMPANY: FLEMING COMPANIES, INC., an Oklahoma corporation By:________________________________ Scott M. Northcutt, Senior Vice President - Human Resources PARTICIPANT: ___________________________________ EX-10 4 Exhibit 10.5 SEVERANCE AGREEMENT SEVERANCE AGREEMENT (the "Agreement") entered into between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and _________________, an individual (the "Executive"), dated as of this ___ day of _____________, 1999 (the "Effective Date"). WHEREAS, the Company deems the services of the Executive to be of great and unique value to the business of the Company and the Company desires to assure both itself of continuity of management and the Executive of continued employment; and WHEREAS, the Executive is a key management associate of the Company and is presently making and is expected to continue making substantial contributions to the Company; and WHEREAS, it is in the best interests of the Company and its shareholders to induce the Executive to remain in the employ of the Company; and WHEREAS, the Executive presently is serving in his/her capacity as a ______________ Associate of the Company; and WHEREAS, the Company desires to provide an additional inducement for the Executive to remain in the employ of the Company as hereinafter provided by providing to him/her additional amounts of compensation as provided in this Agreement in the event of his/her termination of employment for the reasons specified herein. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the Company hereby agree as provided below. 1. Operation of Agreement. The purpose of this Agreement is to provide to the Executive additional amounts of compensation as provided in this Agreement in the event of his/her termination of employment for the reasons specified herein. Accordingly, the Company and the Executive have entered into this Agreement in accordance with the terms and provisions herein to provide for such protection to the Executive. (a) Control Date. The "Control Date" shall be the date during the "Change of Control Period" (as defined in Section 1(b)) on which a Change of Control (as defined in Section 1(c)) occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Control Date" shall mean the date immediately prior to the date of such termination. (b) Change of Control Period. The "Change of Control Period" is the period commencing on the Effective Date and ending on the first to occur of (i) the second anniversary of such date or (ii) the first day of the month coinciding with or next following the Executive's attainment of age 65 ("Normal Retirement Date"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (the date one year after the date hereof and each annual anniversary of such date, is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate on the first to occur of: (i) two years from such Renewal Date or (ii) the first day of the month coinciding with or next following the Executive's Normal Retirement Date, unless at least 60 days prior to the Renewal Date, the Company shall give notice that the Change of Control Period shall not be so extended, in which event this Agreement shall continue for the remainder of the term of the then current Change of Control Period and terminate as provided herein. (c) Definition of Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more (the "Triggering Percentage") of either (x) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, in the event the "Incumbent Board" (as such term is hereinafter defined) pursuant to authority granted in any rights agreement to which the Company is a party (the "Rights Agreement") lowers the acquisition threshold percentages set forth in such Rights Agreement, the Triggering Percentage shall be automatically reduced to equal the threshold percentages set pursuant to authority granted to the board in the Rights Agreement; and provided, further, however, that the following acquisitions shall not constitute a change of control: (A) any acquisition directly from the Company, (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition previously approved by at least a majority of the members of the Incumbent Board, (E) any acquisition approved by at least a majority of the members of the Incumbent Board within five (5) business days after the Company has notice of such acquisition, or (F) any acquisition by any corporation pursuant to a transaction which complies with clauses (x), (y), and (z) of subsection (iii) of this Section 1(c); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, appointment or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for purposes of this definition, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the shareholders of the Company of a reorganization, share exchange, merger or consolidation (a "Business Combination"), in each case, unless, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 70% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (z) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination or were elected, appointed or nominated by the Board; or (iv) Approval by the shareholders of the Company of (x) a complete liquidation or dissolution of the Company or, (y) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 70% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition, and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company or were elected, appointed or nominated by the Board. 2. Agreement Not Employment Contract. This Agreement shall be considered solely as a "severance agreement" obligating the Company to pay to the Executive certain amounts of compensation in the event and only in the event of his termination of employment after the Control Date for the reasons and at the times specified herein. 3. Termination. Except as provided in Section 5 hereof, this Agreement shall terminate upon the first to occur of the following events. (a) Death. The date of death of the Executive. (b) Cause. The termination of the Executive's employment by the Company for "Cause." For purposes of this Agreement, termination of the Executive's employment by the Company for Cause shall mean termination for one of the following reasons: (i) the conviction of the Executive of a felony by a federal or state court of competent jurisdiction; (ii) an act or acts of dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company; or (iii) the Executive's "willful" failure to follow a direct, reasonable and lawful written order from his supervisor, within the reasonable scope of the Executive's duties, which failure is not cured within 30 days. Further, for purposes of this Section (b): (1) No act or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. (2) The Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths (3/4ths) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth in clauses (i), (ii) or (iii) above and specifying the particulars thereof in detail. (c) Good Reason. The termination of the Executive's employment by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" means: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities or any other action by the Company which results in a diminishment in such position, compensation, authority, duties or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Company promptly after receipt of written notice thereof given by the Executive (ii) the Company's requiring the Executive to be based at any office or location more than 25 miles from where the Executive was employed immediately prior to the Change of Control, except for periodic travel reasonably required in the performance of the Executive's responsibilities; or (iii) any failure by the Company to comply with and satisfy Section 10(a) of this agreement. (d) Failure to Extend Agreement. The Company gives notice of its intent not to extend the Change of Control Period as provided in Section 1(b) hereof. 4. Notice of Termination. Any termination of employment by the Company for Cause or by the Executive for Good Reason as provided in Section 3, above, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). 5. Obligations of the Company Upon Termination Following Change of Control. If (i) within 24 months of the Control Date the Company shall terminate the Executive's employment for any reason other than for Cause or death, or (ii) within 24 months of the Control Date the employment of the Executive shall be terminated by the Executive for Good Reason, then, upon the occurrence of either event as described in clauses (i) and (ii), the Company shall pay to the Executive in a lump sum, in cash, within 30 days after the date of termination of employment an amount equal to 24 times the Base Compensation Rate (defined below) on the Control Date. "Base Compensation Rate" shall mean the monthly rate of compensation of the Executive (before any salary reductions on account of contributions made pursuant to either Sections 401(k) or 125 of the Code, if applicable) in effect as of the Effective Date or such rate as increased but not reduced) from the Effective Date until the Control Date. The Executive's Base Compensation Rate as of the Effective Date is the monthly rate of salary, payable bi-weekly. Provided, in the event the Executive has not attained his Normal Retirement Date as of the Control Date, and if his Normal Retirement Date would occur within 24 months of his Control Date assuming the Executive continued in the employ of the Company until his Normal Retirement Date and then retired, then, in such event, the aforesaid factor "24" shall be reduced to equal the number of months (partial months shall be considered as a whole month) remaining between the Control Date and the Executive's Normal Retirement Date. Provided further, if the Executive has attained his Normal Retirement Date on the Control Date, then, the factor "24" as used in this Section 5 shall be reduced to zero, and such Executive shall be entitled to no payment under this Agreement. 6. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, including, by example and not by way of limitation, acceleration by the Company of the date of vesting or payment or rate of payment under any plan, program or arrangement of the Company (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by Deloitte & Touche LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment which would be subject to the Excise Tax, or such earlier time as is requested by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 6(b), shall be paid to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 6(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross- Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross- Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the date of termination of employment shall be payable in accordance with such plan or program. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. 9. Confidential Information. (a) Requirement of Executive. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be public knowledge (other than by acts by the Executive or his representatives in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) Additional Remedies. The Executive agrees that the remedy at law for any breach or threatened breach of any covenant contained in this Section 9 will be inadequate, and that the Company, in addition to such other remedies as may be available to it, in law or in equity, shall be entitled to injunctive relief without bond or other security. 10. Successors and Binding Effect. (a) Successor Must Assume Agreement. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive terminated employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of termination of employment. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise. (b) Binding Effect. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there is no such designee, to the Executive's estate. 11. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma, without reference to principles of conflict of laws. 12. Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: At his last known address evidenced on the Company's payroll records If to the Company: Fleming Companies, Inc. 6301 Waterford Boulevard P. O. Box 26647 Oklahoma City, Oklahoma 73126 Attn: Senior Vice President - Human Resources with a copy to: Fleming Companies, Inc. 6301 Waterford Boulevard P.O. Box 26647 Oklahoma City, Oklahoma 73126 Attn: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. 13. Taxes to be Withheld. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. 14. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all prior or contemporaneous oral and prior written agreements and understandings. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof or in effect among the parties. 15. Amendment. This Agreement may not be amended, and no provision hereof shall be waived, except by a writing signed by all parties to this Agreement, or, in the case of a waiver, by the party waiving compliance therewith, which states that it is intended to amend or waive a provision of this Agreement. Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or failure to act in any other instance, whether or not similar. 16. Enforceability. Should any provision of this Agreement be unenforceable or prohibited by an applicable law, this Agreement shall be considered divisible as to such provision which shall be inoperative, and the remainder of this Agreement shall be valid and binding as though such provision were not included herein. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 17. Counterparts. This Agreement may be executed in two or more counterparts with the same effect as if the signatures to all such counterparts were upon the same instrument, and all such counterparts shall constitute but one instrument. 18. Headings. All headings in this Agreement are for convenience only and are not intended to affect the meaning of any provision hereof. 19. No Trust. No action under this Agreement by the Company or its Board of Directors shall be construed as creating a trust, escrow or other secured or segregated fund, in favor of the Executive or his beneficiary. The status of the Executive and his beneficiary with respect to any liabilities assumed by the Company hereunder shall be solely those of unsecured creditors of the Company. Any asset acquired or held by the Company in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust, escrow or other secured or segregated fund for the benefit of the Executive or his beneficiary or to be security for the performance of the obligations of the Company, but shall be, and remain a general, unpledged, unrestricted asset of the Company at all times subject to the claims of general creditors of the Company. 20. No Assignability. Neither the Executive nor his beneficiary, nor any other person shall acquire any right to or interest in any payments payable under this Agreement, otherwise than by actual payment in accordance with the provisions of this Agreement, or have any power to transfer, assign, anticipate, pledge, mortgage or otherwise encumber, alienate or transfer any rights hereunder in advance of any of the payments to be made pursuant to this Agreement or any portion thereof which is expressly declared to be nonassignable and nontransferable. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. IN WITNESS WHEREOF, the Executive has hereunto set his/her hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf all as of the day and year first above written. "EXECUTIVE" FLEMING COMPANIES, INC., an Oklahoma corporation By Scott M. Northcutt Senior Vice President, Human Resources "COMPANY" EX-10 5 Exhibit 10.8 FLEMING COMPANIES, INC. PHASE III OF THE FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN WHEREAS, the Board of Directors of Fleming Companies, Inc. (the "Company") has adopted the "Fleming Companies, Inc. 1990 Stock Incentive Plan" (herein the "Plan"), a copy of which is attached hereto as Exhibit "A"; and WHEREAS, the Compensation and Organization Committee (the "Committee") of the Board of Directors of the Company has been delegated the responsibility of implementing and adminis tering the Plan and making Awards to Key Associates of the Company under the Plan; and WHEREAS, the Committee has created Phase III of the Plan to provide for Restricted Stock Awards to certain Key Associates of the Company. NOW THEREFORE, BE IT RESOLVED, that the Committee does hereby create, establish and adopt Phase III of the Plan as herein described and declare and grant the following awards: ARTICLE I (PHASE III) Section 1. Definitions. The following terms as used herein shall have the following meanings. All other capitalized terms shall have the meaning ascribed to them in the Plan. 1.01 "Awards Agreement" means the agreement each of the Participants shall execute as described in Section 2 of Article II. 1.02 "Participants" means those Key Associates set forth in Section 3 of this Article I. 1.03 "Phase III Performance Cycle" shall mean a period of time commencing February 16, 1994, and ending on February 15, 2004, unless all of the Restricted Stock awarded under this Phase III shall have become Vested Stock on an earlier date, in which event the Phase III Performance Cycle shall end on such date. 1.04 "Restrictions" means as to the Restricted Stock to be issued to each Participant under this Phase III those restrictions set forth in Section 7.1 of the Plan. 1.05 "Vested Stock" means Restricted Stock as to which all Restrictions have been removed in accordance with this Article I. Section 2. Objectives. The Committee has determined the following objectives of Phase III of the Plan: (i) To reward the creation of shareholder value; (ii) To emphasize stock ownership by the Key Associates; and (iii) To provide strong incentive to the Key Associates to increase the per share price of the Company's common stock. Section 3. Participants. The Participants of Phase III of the Plan shall be those persons listed on Exhibit "B" hereto (herein called the "Participant" or "Participants"). Section 4. Phase III Awards. Phase III Awards shall be made in shares of Restricted Stock to the Participants as provided in Article II hereof. 4.01 Voting Rights and Dividends. Each Par ticipant shall have all of the voting rights attributable to the shares of Restricted Stock issued to him. However, dividends declared and paid by the Company with respect to the shares of Restricted Stock (the "Accrued Dividends") shall not be paid to the participant until such Restricted Stock becomes Vested Stock. Such Accrued Dividends shall be held by the Company as a general obligation and paid to the Participant at the time the underlying Restricted Stock becomes Vested Stock. In accordance with Sec tion 5.3(b) of the Plan, the right to vote such shares and to receive the Accrued Dividends shall terminate with respect to unvested shares of Restricted Stock of any Participants whose Award has been forfeited as provided in the Plan. 4.02 Escrow. The Restricted Stock issued to each Participant shall be escrowed with the Secretary of the Company subject to the removal of the Restrictions placed thereon or forfeiture pursuant to the terms of this Article I. 4.03 Restrictive Legend. The Restricted Stock shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED STOCK, HAVING BEEN ISSUED PURSUANT TO THE 'FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN' (THE 'PLAN'), ARE SUB JECT TO THE TERMS AND PROVISIONS OF PHASE III OF THE PLAN ADOPTED BY THE COMPENSATION AND ORGANIZATION COMMITTEE OF THE BOARD OF DIREC TORS ON FEBRUARY 16, 1994, AND BEAR THE RE STRICTIONS ON ALIENATION SET FORTH IN SECTION 7.1 OF THE PLAN. COPIES OF THE PLAN AND PHASE III OF THE PLAN MAY BE OBTAINED FROM THE OFFICE OF THE SECRETARY OF THE COMPANY." Violation of the foregoing restrictive legend shall result in immediate forfeiture of all Restricted Stock. Section 5. Performance Goals. In order for the Participant to "earn" the Restricted Stock free and clear of the Restrictions, the following Performance Goals shall have been attained by the Company. 5.01 Performance Goals - Stock Price Appreciation. During the Phase III Performance Cycle before any of the Restricted Stock awarded to the Participants hereunder shall become Vested Stock, the average of the last reported sales price of the Common Stock as reported on the New York Stock Exchange Composite Transactions report for any twenty (20) consecutive business day period shall have equalled or exceeded the target stock price set forth below (the "Target Stock Price"). In the event the Target Stock Price is achieved during the Phase III Performance Cycle, the Participants will have earned and be vested with the percentage indicated of the Restricted Stock awarded to them as set forth in the Performance Vesting Schedule below: PERFORMANCE VESTING SCHEDULE % of Shares Vested Target Stock Prices 20% $43.00 40% $47.00 60% $50.00 80% $53.00 100% $56.00 5.02 Performance Goals - Adjustments. In the case of a recapitalization, stock split, merger, stock dividend, reorganization, combination, liquidation or other change in the Common Stock (an "Adjustment Event"), the Target Stock Prices shall be automatically adjusted to reflect such Adjustment Event. The Committee shall promptly notify all Participants of any such adjustments. 5.03 Vested Stock - Removal of Restrictions. Upon Restricted Stock becoming Vested Stock, all Restrictions shall be removed from the certificates representing such stock and the Secretary of the Company shall deliver to the Participant certifi cates representing such Vested Stock free and clear of all Restrictions together with a check in the amount of all Accrued Dividends attributed to such Vested Stock without interest there on; provided, however, prior to such delivery, the Committee shall have certified in writing that a Target Stock Price has been met. In order to fulfil the certification requirement, the Committee shall meet in person or by telephone or act by unani mous written consent no later than thirty days after the achieve ment of a Target Stock Price for the required period. 5.04 Termination. All Restricted Stock awarded to a Participant under this Phase III that has not become Vested Stock shall be forfeited at the end of the Phase III Performance Cycle, and all Restricted Stock that has not become Vested Stock shall be forfeited upon the termination from the employ of the Company of such Participant for any reason except as follows: (i) Death, Disability or Retirement. Restricted Stock which achieves the Target Stock Price in accor dance with Section 5.01 during the year of the death, Disability or Retirement of a Participant may become Vested Stock and pay able to the Participant or to his estate, as the case may be, at the discretion of the Committee. All other Restricted Stock shall be forfeited. (ii) Change of Control. (a) In the event of a Change of Control all Restricted Stock and Accrued Dividends shall be forfeited, but the Participant shall have earned and be paid by the Company a sum of money equal to his then current annual base salary if such event occurs in the first year of the Phase III Performance Cycle; two-thirds of his then current annual base salary if such event occurs in the second year of the Phase III Performance Cycle; and one-third of his then current annual base salary if such event occurs in the third year of the Phase III Performance Cycle. (b) In addition to the payment pro vided for in Section 5.04(ii)(a) above, the Company shall also pay to the Participant any Gross-Up Payment determined in accor dance with Section 9.2 of the Plan. Section 6. The Plan. The Plan and all of its terms and provisions attached hereto as Exhibit "A" are herein in corporated by reference. In the event there is a conflict between this Phase III and the Plan, the Plan shall control. ARTICLE II (THE AWARDS) Section 1. The Awards. The Committee hereby makes the Awards to the Participants listed on Exhibit "B" hereto in the number of restricted shares set forth opposite the names of the Participants listed on Exhibit "B" hereto. Section 2. Awards Agreement. Each of the Participants shall execute and deliver to the Secretary of the Company a copy of the Awards Agreement in the form attached hereto as Exhibit "C" upon delivery to the Secretary of the shares of Restricted Stock set opposite his name in Section 1 above. Dated this 16th day of February, 1994. "Committee" JAMES G. HARLOW, JR. James G. Harlow, Jr., Chairman RICHARD D. HARRISON Richard D. Harrison EDWARD C. JOULLIAN III Edward C. Joullian III HOWARD H. LEACH Howard H. Leach JOHN A. MCMILLAN John A. McMillan EX-10 6 Exhibit 10.10 FIRST AMENDMENT TO FLEMING COMPANIES, INC. SUPPLEMENTAL INCOME TRUST This First Amendment to Fleming Companies, Inc. Supplemental Income Trust dated as of this 25th day of February, 1997 (the "Amendment"), by and among Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and BANCOKLAHOMA TRUST COMPANY, an Oklahoma corporation (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and the Trustee entered into that certain Fleming Companies, Inc. Supplemental Income Trust dated as of March 16, 1995 (the "Trust Agreement"). WHEREAS, the Company and the Trustee desire to amend the Trust Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the Company and the Trustee hereby amend the Trust Agreement as follows: 1. The Amendments. (a) Exhibit "A". Exhibit "A" to the Trust Agreement is hereby amended by adding the following: "5. The Supplemental Retirement Income Agreement by and between William J. Dowd and the Company, dated as of February 25, 1997." (b) Section 1(f). Section 1(f) of the Trust Agreement is hereby amended to read in its entirety as follows: "(f) Upon a Change of Control, Company shall, as soon as possible, but in no event longer than sixty (60) days following the Change of Control, make an irrevocable contribution to the Trust in an amount that is sufficient to pay the Participants or their beneficiaries the benefits to which the Participants or their beneficiaries would be entitled pursuant to the terms of the Amended and Restated Supplemental Retirement Income Plan of Fleming Companies, Inc. and Its subsidiaries (the "Supplemental Plan") and the Supplemental Retirement Income Agreement between the Company and William J. Dowd dated as of February 25, 1997 (the "Dowd Agreement") as of the date on which the Change of Control occurred assuming the Participants have each been terminated other than for "cause" (as such term is defined in the Supplemental Plan and in the Dowd Agreement), death or disability or the Participants terminate their employment for "good reason" as such term is defined in the Supplemental Plan and in the Dowd Agreement." 2. The Agreement. The term "Agreement", as used in the Trust Agreement and in this Amendment shall hereafter mean the Trust Agreement as amended by this Amendment. The Trust Agreement, as amended hereby, shall continue in full force and effect in accordance with the terms thereof. 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Oklahoma. 4. Counterparts. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same instrument, and shall become effective when one or more of the counterparts have been signed by each of the parties and delivered to the other parties. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed on the date first above written. FLEMING COMPANIES, INC., an Oklahoma corporation LARRY A. WAGNER By Larry A. Wagner Senior Vice President - Associate Support BANCOKLAHOMA TRUST COMPANY ELLEN D. FLEMING By Ellen D. Fleming Senior Vice President & Senior Trust Officer EX-10 7 Exhibit 10.12 CHANGE OF CONTROL EMPLOYMENT AGREEMENT THIS CHANGE OF CONTROL EMPLOYMENT AGREEMENT (the "Agreement") entered into between FLEMING COMPANIES, INC., an Oklahoma corporation (the "Company"), and __________________, an individual (the "Executive"), dated as of the ____ day of _______, 1999. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat, or occurrence of a "Change of Control" (as defined in Section 2 of this Agreement) of the Company. The Board believes it is important to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, and to encourage the Executive's full attention and dedication to the affairs of the Company during the term of this Agreement and upon the occurrence of such event. The Board also believes the Company is best served by providing the Executive with compensation arrangements upon a Change of Control which provide the Executive with individual financial security and which are competitive with those of other corporations. In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section 1(b) of this Agreement) on which a Change of Control (as defined below) occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. (b) Subject to the provisions of Section 11 of this Agreement, the "Change of Control Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the third anniversary of such date or (ii) the first day of the month next following the Executive's attainment of age 65 ("Normal Retirement Date"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate on the earlier of (i) three years from such Renewal Date or (ii) the first day of the month coinciding with or next following the Executive's Normal Retirement Date, unless at least 60 days prior to the Renewal Date, the Company shall give notice that the Change of Control Period shall not be so extended in which event this Agreement shall continue for the remainder of its then current term and terminate as provided herein. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more (the "Triggering Percentage") of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, in the event the "Incumbent Board" (as such term is hereinafter defined) pursuant to authority granted in any rights agreement to which the Company is a party (the "Rights Agreement") lowers the acquisition threshold percentages set forth in such Rights Agreement, the Triggering Percentage shall be automatically reduced to equal the threshold percentages set pursuant to authority granted to the board in the Rights Agreement; and provided, further, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (x), (y), and (z) of subsection (iii) of this Section 2; or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, appointment or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for purposes of this definition, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the shareholders of the Company of a reorganization, share exchange, merger or consolidation or acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction will own the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (z) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of (x) a complete liquidation or dissolution of the Company or, (y) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition, and (C) at least a majority of the members of the board of directors of such corporation will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the earlier to occur of (a) the third anniversary of such date or (b) the first day of the month coinciding with or next following the Executive's Normal Retirement Date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, secretarial and administrative support, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90- day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 25 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an associate of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Base Salary") at least equal to the greater of (i) his annual base salary in effect immediately prior to the Effective Date or (ii) the highest average annual base salary paid or payable to the Executive by the Company and its subsidiaries during the five fiscal years immediately preceding the fiscal year in which the Effective Date occurs; provided, however, that the three (which need not be consecutive) highest annual base salaries paid or payable during the past five fiscal years which yield the highest annual base salary payable shall be utilized to compute the highest average annual base salary. Such Base Salary shall be payable monthly in cash. Base Salary shall be computed prior to any reductions for (i) any deferrals of compensation made pursuant to Sections 125 or 401(c) of the Code and (ii) any withholding, income or employment taxes. During the Employment Period, the Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other key management associates of the Company and its subsidiaries. Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Base Salary shall not be reduced after any such increase. (ii) Annual Bonus. In addition to Base Salary, the Executive shall be paid, for each fiscal year during the Employment Period, an annual bonus in cash at least equal to the greater of (x) the middle target level bonus payable, regardless of whether any specified targets are met, under the Company's incentive compensation plan applicable to the Executive for the Executive's position, on the Effective Date (provided, however, if no middle target level has been set as of the Effective Date, the middle target level set for the fiscal year immediately preceding the Effective date shall be utilized, and (y) the maximum aggregate bonus paid (under the Company's incentive compensation plan applicable to the Executive or otherwise) during any of the five fiscal years immediately preceding the fiscal year in which the Effective Date occurs. The greater of the amounts described in clauses (x) and (y) of this Section 4(b)(ii) shall hereafter be called the "Annual Bonus." (iii) Incentive, Savings and Retirement Plans. In addition to Base Salary and Annual Bonus, the Executive shall be entitled to participate during the Employment Period in all incentive, savings and retirement plans, practices, supplemental retirement plan policies and programs applicable to other key management associates of the Company and its subsidiaries, in each case providing benefits which are the economic equivalent to those in effect immediately preceding the Effective Date or as subsequently amended. Such plans, practices, policies and programs, in the aggregate, shall provide the Executive with compensation, benefits and reward opportunities at least as favorable as the most favorable of such compensation, benefits and reward opportunities provided by the Company for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided at any time thereafter with respect to other key management associates of the Company and its subsidiaries. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its subsidiaries (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs), at least as favorable as the most favorable of such plans, practices, policies and programs in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter with respect to other key management associates of the Company and its subsidiaries. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key management associates of the Company and its subsidiaries. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key management associates of the Company and its subsidiaries. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its subsidiaries at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided at any time thereafter with respect to other key management associates of the Company and its subsidiaries. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its subsidiaries as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key management associates of the Company and its subsidiaries. (ix) Effect of Increases. Any increase in Base Salary, Annual Bonus or any other benefit or perquisite described in the foregoing Sections (i)-(viii) shall in no way diminish any obligation of the Company under the Agreement. 5. Termination. (a) Death or Disability. This Agreement shall terminate automatically upon the Executive's death. If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after the date of such notice (the "Disability Effective Date"), provided that, within such time period, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means disability (either physical or mental) which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment for "Cause." For purposes of this Agreement, termination of the Executive's employment by the Company for Cause shall mean termination for one of the following reasons: (i) the conviction of the Executive of a felony by a federal or state court of competent jurisdiction; (ii) an act or acts of dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company; or (iii) the Executive's "willful" failure to follow a direct, reasonable and lawful written order from his supervisor, within the reasonable scope of the Executive's duties, which failure is not cured within 30 days. Further, for purposes of this Section (b): (1) No act or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. (2) The Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths (3/4ths) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth in clauses (i), (ii) or (iii) above and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" means: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, compensation, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof, except for periodic travel reasonably required in the performance of the Executive's responsibilities; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 12(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provisions in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder. (e) Date of Termination. "Date of Termination" means the date of receipt of the Notice of Termination by either the Company or the Executive as the case may be or any later date specified therein; provided, however, that if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Death. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Executive as of the Date of Termination, including, for this purpose (i) the Executive's annual full Base Salary through the Date of Termination at the rate in effect on the Date of Termination or, if higher, at the highest annual rate in effect at any time from the thirty-six month period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), (ii) the product of the Annual Bonus (defined in Section 4(b)(ii)) paid to the Executive for the last full fiscal year and a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (iii) any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i), (ii) and (iii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Executive's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries to surviving families of other key management associates of the Company and such subsidiaries under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death with respect to other key management associates of the Company and its subsidiaries and their families. (b) Disability. If the Executive's employment is terminated by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive, other than those obligations accrued or earned and vested (if applicable) by the Executive as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company and its subsidiaries to disabled key management associates and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90- day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter with respect to other key management associates of the Company and its subsidiaries and their families. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive the Highest Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive (together with accrued interest thereon). If the Executive terminates employment other than for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than those obligations accrued or earned and vested (if applicable) by the Executive through the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. (d) Good Reason; Termination Other Than for Cause or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Disability, or death or if the Executive shall terminate his employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. to the extent not theretofore paid, the Executive's Highest Base Salary through the Date of Termination; and B. the product of (i) the Annual Bonus or, if higher, an amount equal to the middle target level bonus payable, regardless of whether specified targets are met, under the Company's incentive compensation plan applicable to the Executive for his position on the Date of Termination (as applicable, the "Highest Bonus") and (ii) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365; and C. the product obtained by multiplying 2.99 times the sum of (i) the Highest Base Salary and (ii) the Highest Bonus; and D. in the case of compensation previously deferred by the Executive, all amounts previously deferred (together with any accrued interest thereon) and not yet paid by the Company, and any accrued vacation pay not yet paid by the Company; and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated, including health insurance and life insurance, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to other key management associates and their families and for purposes of eligibility for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period. 7. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the month of any payment pursuant to Section 9 of this Agreement), plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, including, by example and not by way of limitation, acceleration by the Company of the date of vesting or payment or rate of payment under any plan, program or arrangement of the Company (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by Deloitte & Touche LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment which would be subject to the Excise Tax, or such earlier time as is requested by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b), shall be paid to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross- Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross- Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its subsidiaries and which shall not be or become public knowledge (other than by acts by the Executive or his representatives in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Termination of Employment Agreement. The Executive and the Company are parties to that certain Employment Agreement dated as of __________, 1999 (the "Employment Agreement"). Effective as of the Effective Date of this Agreement, the Employment Agreement shall be terminated and of no further force and effect. In the event the Effective Date is prior to _______ __, 2001, the term of this Agreement shall be extended by the number of days between the Effective Date and __________, 2001. 12. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Indemnification and Insurance. The Executive shall be indemnified and held harmless by the Company during the term of this Agreement and following any termination of this Agreement for any reason whatsoever in the same manner as would any other key management associate of the Company with respect to acts or omissions occurring prior to (a) the termination of this Agreement or (b) the termination of employment of the Executive. In addition, during the term of this Agreement and for a period of five years following the termination of this Agreement for any reason whatsoever, the Executive shall be covered by a Company held Directors and Officers liability insurance policy covering acts or omissions occurring prior to (a) the termination of this Agreement or (b) the termination of employment of the Executive. Provided, in no event will the obligation of the Company to indemnify the Executive or provide Directors and Officers insurance to the Executive under this Section 13 be less than the obligation and insurance coverage which the Company had to the Executive immediately prior to the occurrence of a Change of Control. 14. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: At his last known address evidenced on the Company's payroll records If to the Company: Fleming Companies, Inc. 6301 Waterford Boulevard P. O. Box 26647 Oklahoma City, Oklahoma 73126-0647 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. (g) The Executive and the Company acknowledge that the employment of the Executive by the Company is "at will," and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Upon a termination of the Executive's employment or upon the Executive's ceasing to be an officer of the Company, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. 15. No Trust. No action under this Agreement by the Company or its Board of Directors shall be construed as creating a trust, escrow or other secured or segregated fund, in favor of the Executive or his beneficiary. The status of the Executive and his beneficiary with respect to any liabilities assumed by the Company hereunder shall be solely those of unsecured creditors of the Company. Any asset acquired or held by the Company in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust, escrow or other secured or segregated fund for the benefit of the Executive or his beneficiary or to be security for the performance of the obligations of the Company, but shall be, and remain a general, unpledged, unrestricted asset of the Company at all times subject to the claims of general creditors of the Company. 16. No Assignability. Neither the Executive nor his beneficiary, nor any other person shall acquire any right to or interest in any payments payable under this Agreement, otherwise than by actual payment in accordance with the provisions of this Agreement, or have any power to transfer, assign, anticipate, pledge, mortgage or otherwise encumber, alienate or transfer any rights hereunder in advance of any of the payments to be made pursuant to this Agreement or any portion thereof which is expressly declared to be nonassignable and nontransferable. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. _______________________________ "EXECUTIVE" FLEMING COMPANIES, INC., an Oklahoma corporation By Scott M. Northcutt, Senior Vice President - Human Resources EX-10 8 Exhibit 10.55 RESTRICTED STOCK AWARD AGREEMENT FOR THE FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") entered into as of the 21st day of December, 1999, by and between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and William H. Marquard (herein referred to as the "Participant"); W I T N E S S E T H: WHEREAS, the Company has previously adopted the Fleming Companies, Inc. 1990 Stock Incentive Plan and certain amendments thereto (the "Plan"); WHEREAS, in recognition of his contribution to the Company, the Company has awarded the Participant 20,000 shares of common stock under the Plan subject to the terms and conditions of this Agreement; and WHEREAS, the Participant has previously entered into an Employment Agreement with the Company dated as of June 1, 1999 (the "Employment Agreement"). NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, the Participant and the Company agree as follows (all capitalized terms used herein, unless otherwise defined, have the meaning ascribed to such terms as set forth in the Plan): 1. The Plan. The Plan, a copy of which is attached hereto as Exhibit A, is hereby incorporated by reference herein and made a part hereof for all purposes, and when taken with this Agreement shall govern the rights of the Participant and the Company with respect to the Award (as defined below). 2. Grant of Award. The Company hereby grants to the Participant an award (the "Award") of 20,000 shares of Company common stock, par value $2.50 per share (the "Stock"), on the terms and conditions set forth herein and in the Plan. 3. Terms of Award. (a) Escrow of Shares. A certificate representing the shares of Stock subject to the Award (the "Restricted Stock") shall be issued in the name of the Participant and shall be escrowed with the Secretary of the Company (the "Escrow Agent") subject to removal of the restrictions placed thereon or forfeiture pursuant to the terms of this Agreement. (b) Vesting. One-half of the shares of Restricted Stock will vest based on the Participant's continuous employment with the Company or a "Subsidiary" (as such term is defined in Section 14(i) of this Agreement) through December 21, 2000 and the remaining one-half of the shares of Restricted Stock will vest based on the Participant's continuous employment with the Company or a Subsidiary through December 21, 2001. In the event the Participant's employment with the Company or a Subsidiary is terminated by reason of (i) death, (ii) disability, (iii) without "Cause" (as such term is defined in the Employment Agreement), or (iv) by the Participant for "Good Reason" (as such term is defined in the Employment Agreement), then all remaining shares of Restricted Stock (including any "Accrued Dividends," as such term is hereafter defined) which have not yet been vested shall immediately vest. Once vested pursuant to the terms of this Agreement, the Restricted Stock shall be deemed "Vested Stock." (c) Voting Rights and Dividends. The Participant shall have all of the voting rights attributable to the shares of Restricted Stock issued to him. Regular quarterly cash dividends declared and paid by the Company with respect to the shares of Restricted Stock shall be paid to the Participant. Any extraordinary dividends declared and paid by the Company with respect to shares of Restricted Stock ("Accrued Dividends") shall not be paid to the Participant until such Restricted Stock becomes Vested Stock. Such Accrued Dividends shall be held by the Company as a general obligation and paid to the Participant at the time the underlying Restricted Stock becomes Vested Stock. (d) Vested Stock - Removal of Restrictions. Upon Restricted Stock becoming Vested Stock, all restrictions shall be removed from the certificates representing such Stock and the Secretary of the Company shall deliver to the Participant certificates representing such Vested Stock free and clear of all restrictions, except for any applicable securities laws restrictions, together with a check in the amount of all Accrued Dividends attributed to such Vested Stock without interest thereon. (e) Forfeiture. Restricted Stock that does not become Vested Stock pursuant to the terms of this Agreement shall be absolutely forfeited and the Participant shall have no future interest therein of any kind whatsoever. In the event the Participant's employment with the Company or a Subsidiary is terminated prior to all shares of Restricted Stock becoming Vested Stock for any reason other than (i) death, (ii) disability, (iii) without Cause, or (iv) by the Participant for Good Reason, then all remaining shares of Restricted Stock which have not yet been vested (including any Accrued Dividends) shall be absolutely forfeited and the Participant shall have no further interest therein of any kind whatsoever. 4. Change of Control. (a) In the event of a Change of Control prior to December 21, 2001, all Restricted Stock shall become Vested Stock and the Company shall deliver to the Participant certificates representing the Vested Stock free and clear of all restrictions, except for any applicable securities law restrictions, together with any Accrued Dividends attributable to such Vested Stock without interest thereon. (b) The Company shall also pay to the Participant any Gross-Up Payment determined in accordance with Section 9.2 of the Plan. 5. Legends. The shares of Stock which are the subject of the Award shall be subject to the following legend: "THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND ARE TRANSFERRABLE ONLY IN ACCORDANCE WITH THAT CERTAIN RESTRICTED STOCK AWARD AGREEMENT FOR THE FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN DATED THE 21st DAY OF DECEMBER, 1999. ANY ATTEMPTED TRANSFER OF THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE IN VIOLATION OF SUCH AGREEMENT SHALL BE NULL AND VOID AND WITHOUT EFFECT. A COPY OF THE AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF FLEMING COMPANIES, INC." 6. Stock Powers. The Participant hereby agrees to execute and deliver to the Secretary of the Company a stock power (endorsed in blank) in the form of Exhibit B hereto covering his Award and authorizes the Secretary to deliver to the Company any and all shares of Restricted Stock that are forfeited under the provisions of this Agreement. The Participant further authorizes the Company to hold as a general obligation of the Company any Accrued Dividends and to pay such dividends to the Participant at the time the underlying Restricted Stock becomes Vested Stock. 7. Nontransferability of Award. The Participant shall not have the right to sell, assign, transfer, convey, dispose, pledge, hypothecate, burden, encumber or charge any shares of Restricted Stock or any interest therein in any manner whatsoever. 8. Notices. All notices or other communications relating to the Plan and this Agreement as it relates to the Participant shall be in writing, shall be deemed to have been made if personally delivered in return for a receipt, or if mailed, by regular U.S. mail, postage prepaid, by the Company to the Participant at his last known address evidenced on the payroll records of the Company. 9. Binding Effect and Governing Law. This Agreement shall be (i) binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns except as may be limited by the Plan and (ii) governed and construed under the laws of the State of Texas. 10. Withholding. The Company and the Participant shall comply with all federal and state laws and regulations with respect to the withholding, deposit and payment of any income, employment or other taxes relating to the Award (including Accrued Dividends). 11. Award Subject to Claims or Creditors. The Participant shall not have any interest in any particular assets of the Company, its parent, if applicable, or any Subsidiary by reason of the right to earn an Award (including Accrued Dividends) under the Plan and this Agreement; and the Participant or any other person shall have only the rights of a general unsecured creditor of the Company, its parent, if applicable, or a Subsidiary with respect to any rights under the Plan or this Agreement. 12. Captions. The captions of specific provisions of this Agreement are for convenience and reference only, and in no way define, describe, extend or limit the scope of this Agreement or the intent of any provision hereof. 13. Counterparts. This Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes, but all of which taken together shall form but one agreement. 14. Protection of Company's Business as Consideration. As specific consideration to the Company for this Award, the Participant agrees: (a) Limitations on Competition. The Participant and the Company recognize and agree that the in addition to Participant's general duties with the Company, the Participant has significant duties related to the Company's Project Grow. Subject to subsection (g), the Participant will not, without the Company's written consent, (i) directly or indirectly, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any direct competitor, or of any subsidiary, affiliate or successor of any direct competitor, of (x) the Company, any Subsidiary or of the type of business contemplated by, or developed in connection with, Project Grow, or (y) any of the limited assortment stores owned by the Company or any of its Subsidiaries or affiliates or targeted to be acquired, or developed, by the Company or any of its Subsidiaries or affiliates or (ii) be employed by any entity to develop the type of business contemplated by Project Grow (collectively, the "Competitors"). (b) Confidential Information; No Disparaging Statements. The Participant acknowledges that during the course of Participant's employment with the Company or any Subsidiary, he will have access to and gain knowledge of highly confidential and proprietary information and trade secrets. The Participant further acknowledges that the misuse, misappropriation or disclosure of this information could cause irreparable harm to the Company and/or a Subsidiary, both during and after the term of the Participant's employment. Therefore, the Participant agrees that during his employment and at all times thereafter he will hold in a fiduciary capacity for the benefit of the Company and/or a Subsidiary and will not divulge or disclose, directly or indirectly, to any other person, firm or business, all confidential or proprietary information, knowledge and data (including, but not limited to, processes, programs, trade "know how," ideas, details of contracts, marketing plans, strategies, business development techniques, business acquisition plans, personnel plans, pricing practices and business methods and practices) relating in any way to the business of the Company or any of its Subsidiaries, customers, suppliers, joint ventures, licensors, licensees, distributors and other persons and entities with whom the Company or any of its Subsidiaries do business ("Confidential Data"), except upon the Company's written consent or as required by his duties with the Company or any of its Subsidiaries, for so long as such Confidential Data remains confidential and all such Confidential Data, together with all copies thereof and notes and other references thereto, shall remain the sole property of the Company or a Subsidiary. The Participant agrees, during his employment with the Company or any of its Subsidiaries and at all times thereafter, not to make disparaging statements about the Company or any of its Subsidiaries or their officers, directors, agents, employees, products or services which he knows, or has reason to know, are false or misleading. (c) No Solicitation of Employees or Business. The Participant agrees that he will not either directly, or in concert with others, recruit, solicit or induce, or attempt to induce, any employee or employees of the Company or any of its Subsidiaries to terminate their employment with the Company or any of its Subsidiaries and/or become associated with another employer. The Participant further agrees that he will not either directly, or in concert with others, solicit, divert or take away or attempt to divert or take away, the business of any of the customers or accounts of the Company or any its Subsidiaries or related to the type of business contemplated by or developed in connection with Project Grow, or any of the limited assortment stores owned by the Company or any of its Subsidiaries or targeted to be acquired, or developed by the Company or any of its Subsidiaries before or on his date of termination/separation. (d) Term of the Participant's Promises Under This Section. The Participant agrees that except as otherwise provided in subsection (b), his promises contained in this Section 14 shall continue in effect during his employment with the Company or any of its Subsidiaries and until the first anniversary of his termination/separation. (e) Consequences of Breach of Limitations. Subject to subsection (g), if at any time within (i) the term of this Agreement or (ii) within one (1) year following the Participant's date of termination/separation, but only if such termination/separation occurs on a date prior to December 21, 2001, or (iii) within one (1) year after vesting any portion of the Restricted Stock, whichever is latest, the Participant, without the Company's written consent, directly or indirectly, is a shareholder, principal, agent, partner, officer, director, employee or consultant of any of the Competitors, then (x) with respect to any shares of Restricted Stock, effective the date the Participant enters into such activity, all such Restricted Stock (including any Accrued Dividends) shall be absolutely forfeited and the Participant shall have no further interest therein of any kind whatsoever (unless forfeited sooner by operation of another term or condition of this Agreement or the Plan), and (y) with respect to any shares of Vested Stock, the Participant shall be required to return to the Company all of the actual shares of Vested Stock, or other equivalent shares of Company common stock, within thirty (30) days after the date of written notice from the Company that pursuant to the provisions of this subsection delivery of such shares is due and the Participant shall forfeit all rights to such shares of Vested Stock. This shall be in addition to any injunctive or other relief to which the Company may be entitle under subsection (f) (f) Consequences of Other Breaches of this Section. The Participant acknowledges that damages which may arise from any breach of any of his promises contained in this Section 14 may be impossible to ascertain or prove with certainty. The Participant agrees if Participant breaches any of his promises contained in this Section 14, in addition to the remedies provided under subsection (e), if applicable, and any other legal remedies which may be available, the Company shall be entitled to immediate injunctive relief from a court of competent jurisdiction, pending arbitration under Section 15 or otherwise, to end such breach, without further proof of damage. (g) Permitted Ownership. Nothing in this Section 14 shall prohibit the Participant from owning less than one percent (1%) of any company that is publicly traded on any national securities exchange. (h) Severability and Reasonableness. If, at any time, the provisions of this Section 14 shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to geographic area, duration or scope of activity or due to any other restriction or limitation, this Section 14 shall be considered divisible and shall become and be immediately amended to only such geographic area, duration and scope of activity and/or restrictions or limitations as shall be determined to be reasonable and enforceable by an arbitrator or a court having jurisdiction over the matter; and the Participant agrees that this Section 14 as so amended shall be valid and binding as though any invalid or unenforceable portion had not been included herein. The parties agree that the geographic area, duration and scope of the limitations and the restrictions described in subsections (a) through (e) are reasonable. (i) Definition of term "Subsidiary". For purposes of this Agreement, the term "Subsidiary" shall mean any entity with 50% or more of its voting power being owned, directly or indirectly, by the Company. 15. Arbitration of Disputes. Any disputes, claims or controversies between the Participant and the Company which may arise out of or relate to this Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Dallas, Texas unless the parties mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The arbitrator(s) may, but will not be required, to award such damages or other monetary relief as either party might be entitled to receive from a court of competent jurisdiction. Nothing in this agreement to arbitrate shall preclude the Company from obtaining injunctive relief from a court of competent jurisdiction prohibiting any on-going breaches of the Agreement by the Participant pending arbitration. The arbitrator(s) may also award costs and attorneys' fees in connection with the arbitration to the prevailing party; however, in the arbitrator's(s') discretion, each party may be ordered to bear its/his own costs and attorneys' fees. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. "COMPANY" FLEMING COMPANIES, INC., an Oklahoma corporation By SCOTT M. NORTHCUTT Scott M. Northcutt, Senior Vice President - Human Resources "PARTICIPANT" WILLIAM H. MARQUARD William H. Marquard Exhibit A [Copy of 1990 Stock Incentive Plan] EX-10 9 Exhibit 10.56 RESTRICTED STOCK AWARD AGREEMENT FOR THE FLEMING COMPANIES, INC. 1996 STOCK INCENTIVE PLAN THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") entered into as of the 21st day of December, 1999, by and between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and John M. Thompson (herein referred to as the "Participant"); W I T N E S S E T H: WHEREAS, the Company has previously adopted the Fleming Companies, Inc. 1996 Stock Incentive Plan and certain amendments thereto (the "Plan"); and WHEREAS, in connection with his employment with the Company and anticipated future duties with eMAR.net, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (together with its affiliates, successors and assigns hereinafter referred to as "eMAR"), the Company has awarded the Participant 15,000 shares of common stock under the Plan subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, the Participant and the Company agree as follows (all capitalized terms used herein, unless otherwise defined, have the meaning ascribed to such terms as set forth in the Plan): 1. The Plan. The Plan, a copy of which is attached hereto as Exhibit A, is hereby incorporated by reference herein and made a part hereof for all purposes, and when taken with this Agreement shall govern the rights of the Participant and the Company with respect to the Award (as defined below). 2. Grant of Award. The Company hereby grants to the Participant an award (the "Award") of 15,000 shares of Company common stock, par value $2.50 per share (the "Stock"), on the terms and conditions set forth herein and in the Plan. 3. Terms of Award. (a) Escrow of Shares. A certificate representing the shares of Stock subject to the Award (the "Restricted Stock") shall be issued in the name of the Participant and shall be escrowed with the Secretary of the Company (the "Escrow Agent") subject to removal of the restrictions placed thereon or forfeiture pursuant to the terms of this Agreement. (b) Vesting. Vesting of the shares of Restricted Stock is subject to fulfillment of all of the following conditions: (i) subject to Sections 3(e) and 4, continuous employment by the Participant with the Company or eMAR (whether or not then owned 50% or more by the Company) through December 20, 2002 and (ii) subject to Section 3(c), occurrence of the "Valuation Shortfall." The "Valuation Shortfall" shall occur if on December 20, 2002, the "Fair Market Value" of Participant's "Equity Awards" in eMAR does not exceed the Fair Market Value of the shares of Restricted Stock assuming they were then fully vested. (c) Occurrence of the Valuation Shortfall. In the event the Valuation Shortfall has occurred and the Participant has remained continuously employed by the Company or eMAR through December 20, 2002, all or a portion of the Restricted Stock shall vest such that the Fair Market Value of the Vested Stock (rounded to the nearest whole share) shall equal the difference between (i) the Fair Market Value of the Restricted Stock assuming the shares of Restricted Stock were then fully vested and (ii) the Fair Market value of the Participant's Equity Awards in eMAR. The remaining shares of Restricted Stock, if any, shall be absolutely forfeited. (d) Nonoccurrence of the Valuation Shortfall. In the event the Valuation Shortfall has not occurred and/or the Participant has not remained continuously employed by the Company or eMAR through December 20, 2002, all of the Restricted Stock shall be absolutely forfeited and the Participant shall have no interest therein of any kind whatsoever. (e) Termination of Employment. In the event the Participant's employment with the Company or eMAR is terminated prior to December 20, 2002 by reason of (i) death, (ii) disability, (iii) without "Cause," or (iv) by the Participant for "Good Reason," then all shares of Restricted Stock (including any "Accrued Dividends") shall immediately vest. Once vested pursuant to the terms of this Agreement, the Restricted Stock shall be deemed "Vested Stock." (f) Voting Rights and Dividends. The Participant shall have all of the voting rights attributable to the shares of Restricted Stock issued to him. Regular quarterly cash dividends declared and paid by the Company with respect to the shares of Restricted Stock shall be paid to the Participant. Any extraordinary dividends declared and paid by the Company with respect to shares of Restricted Stock ("Accrued Dividends") shall not be paid to the Participant, but shall be accrued and paid to the Participant when the Restricted Stock becomes Vested Stock. Accrued Dividends shall be held by the Company as a general obligation and paid to the Participant at the time the underlying Restricted Stock becomes Vested Stock. (g) Forfeiture. Restricted Stock that does not become Vested Stock pursuant to the terms of this Agreement shall be absolutely forfeited and the Participant shall have no further interest therein of any kind whatsoever. In the event the Participant's employment with the Company or eMAR is terminated prior to December 20, 2002 for any reason other than (i) death, (ii) disability, (iii) without Cause, or (iv) by the Participant for Good Reason, then, all remaining shares of Restricted Stock which have not yet been vested (including any Accrued Dividends) shall be absolutely forfeited and the Participant shall have no further interest therein of any kind whatsoever. (h) Certain Definitions. (i) Cause. For purposes of this Agreement, termination of the employment for "Cause" shall mean termination for one of the following reasons: (A) the conviction of the Participant of a felony by a federal or state court of competent jurisdiction; (B) an act or acts of dishonesty taken by the Participant and intended to result in substantial personal enrichment of the Participant at the expense of the Company or eMAR (the "Employer"); or (C) the Participant's "willful" failure to follow a direct, reasonable and lawful written order from his supervisor, within the reasonable scope of the Participant's duties, which failure is not cured within 30 days. Further, for purposes of this Subsection: (1) No act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant's action or omission was in the best interest of the Employer. (2) The Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths (3/4ths) of the entire membership of the board of directors of the Employer at a meeting called and held for such purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with the Participant's counsel, to be heard before the board of directors), finding that in the good faith opinion of the board of directors the Participant was guilty of conduct set forth in clauses (A), (B) or (C) above and specifying the particulars thereof in detail. (ii) Equity Awards. The term "Equity Awards" shall mean all of the stock options, restricted stock awards, phantom stock units, stock appreciation rights or any other award of any kind wherein the value is attributable to, or based on, a "Security," including any and all Securities into which such Equity Awards may have been converted or exchanged together with the proceeds from any sale, exchange or other disposition thereof. (iii) Fair Market Value. The term "Fair Market Value" shall have the following meanings depending upon the type of property to which the term is applied: A. In the case of a share of stock as of any date, the following rules shall apply: (1) If the principal market for the stock is a national securities exchange or the Nasdaq National Market (the "National Market"), then the Fair Market Value as of that date shall be the average of the lowest and highest reported sale prices of the stock for the preceding fifteen trading days on the principal exchange on which the stock is then listed or admitted to trading. (2) If sale prices are not available or if the principal market for the stock is not a national securities exchange or the National Market, then the Fair Market Value as of that date shall be the average of the highest bid and lowest asked prices for the stock for the preceding fifteen trading days as reported on the Nasdaq market, the Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau, Incorporated or a comparable service. (3) If paragraphs (1) and (2) next above are otherwise inapplicable, then the Fair Market Value of the stock shall be determined in good faith by the Committee. B. In the case of all other Securities or property the term Fair Market Value shall mean the value determined as of a particular date by an independent accounting firm or other outside consultant selected by the Company. (iv) Good Reason. For purposes of this Agreement, "Good Reason" means the assignment to the Participant, without his consent, of any duties inconsistent in any respect with the Participant's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities or any other action by the Employer which results in a diminishment in such position, compensation, authority, duties or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Employer promptly after receipt of written notice thereof given by the Participant. (v) Security. The term "Security" shall have the meaning ascribed to it in the Securities Act of 1933, as amended. (vi) Valuation Shortfall. The term "Valuation Shortfall" shall be determined as follows: A. The Participant shall deliver to the Company a list of all Equity Awards in eMAR he has received during the period beginning December 21, 1999 and ending December 20, 2002, together with copies of all related plans, agreements or arrangements. B. The list will be referred by the Company to an independent accounting firm or other outside consultant selected by the Company to determine the Fair Market Value of the Equity Awards. C. The report of the independent accounting firm or other outside consultant shall be delivered to the Committee and the Participant; and the Committee shall make the final determination of whether the Valuation Shortfall has occurred. (i) Vested Stock - Removal of Restrictions. Upon Restricted Stock becoming Vested Stock, all restrictions shall be removed from the certificates representing such Stock and the Secretary of the Company shall deliver to the Participant certificates representing such Vested Stock free and clear of all restrictions, except for any applicable securities laws restrictions, together with a check in the amount of all Accrued Dividends and, to the extent the Accrued Dividends are in the form of property instead of cash, the property, without interest thereon. 4. Change of Control. Upon the occurrence of a Change of Control Event prior to December 20, 2002, all Restricted Stock shall become Vested Stock and the Company shall deliver to the Participant certificates representing the Vested Stock free and clear of all restrictions, together with any Accrued Dividends attributable to such Vested Stock without interest thereon. 5. Legends. The shares of Stock which are the subject of the Award shall be subject to the following legend: "THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND ARE TRANSFERRABLE ONLY IN ACCORDANCE WITH THAT CERTAIN RESTRICTED STOCK AWARD AGREEMENT FOR THE FLEMING COMPANIES, INC. 1996 STOCK INCENTIVE PLAN DATED THE 21ST DAY OF DECEMBER, 1999. ANY ATTEMPTED TRANSFER OF THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE IN VIOLATION OF SUCH AGREEMENT SHALL BE NULL AND VOID AND WITHOUT EFFECT. A COPY OF THE AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF FLEMING COMPANIES, INC." 6. Stock Powers and the Beneficiary. The Participant hereby agrees to execute and deliver to the Secretary of the Company a stock power (endorsed in blank) in the form of Exhibit B hereto covering his Award and authorizes the Secretary to deliver to the Company any and all shares of Restricted Stock that are forfeited under the provisions of this Agreement. The Participant further authorizes the Company to hold as a general obligation of the Company any Accrued Dividends and to pay such dividends to the Participant at the time the underlying Restricted Stock becomes Vested Stock. 7. Nontransferability of Award. The Participant shall not have the right to sell, assign, transfer, convey, dispose, pledge, hypothecate, burden, encumber or charge any shares of Restricted Stock or any interest therein in any manner whatsoever. 8. Notices. All notices or other communications relating to the Plan and this Agreement as it relates to the Participant shall be in writing, shall be deemed to have been made if personally delivered in return for a receipt, or if mailed, by regular U.S. mail, postage prepaid, by the Company to the Participant at his last known address evidenced on the payroll records of the Company. 9. Binding Effect and Governing Law. This Agreement shall be (i) binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns except as may be limited by the Plan and (ii) governed and construed under the laws of the State of Oklahoma. 10. Withholding. The Company and the Participant shall comply with all federal and state laws and regulations respecting the withholding, deposit and payment of any income, employment or other taxes relating to the Award (including Accrued Dividends). 11. Award Subject to Claims or Creditors. The Participant shall not have any interest in any particular assets of the Company, its parent, if applicable, or any Subsidiary by reason of the right to earn an Award (including Accrued Dividends) under the Plan and this Agreement, and the Participant or any other person shall have only the rights of a general unsecured creditor of the Company, its parent, if applicable, or a Subsidiary with respect to any rights under the Plan or this Agreement. 12. Captions. The captions of specific provisions of this Agreement are for convenience and reference only, and in no way define, describe, extend or limit the scope of this Agreement or the intent of any provision hereof. 13. Counterparts. This Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes, but all of which taken together shall form but one agreement. 14. Protection of Business as Consideration. As specific consideration to the Company for the Restricted Stock Award: (a) Confidential Information. The Participant acknowledges that during the course of his employment with the Company and/or eMAR, he will have access to and gain knowledge of highly confidential and proprietary information and trade secrets. He further acknowledges that the misuse, misappropriation or disclosure of this information could cause irreparable harm to the Company and/or eMAR, both during and after the term of his employment. Therefore, he agrees that during his employment and at all times thereafter he will hold in a fiduciary capacity for the benefit of the Company and/or eMAR and will not divulge or disclose, directly or indirectly, to any other person, firm or business, all confidential or proprietary information, knowledge and data (including, but not limited to, processes, programs, trade "know how," ideas, details of contracts, marketing plans, strategies, business development techniques, business acquisition plans, personnel plans, pricing practices and business methods and practices) relating in any way to the business of the Company and/or eMAR, customers, joint ventures, licensors, licensees, distributors and other persons and entities with whom the and/or eMAR does business ("Confidential Data"), except upon the written consent of the Company or as required by the Participant's duties with the Company and/or eMAR, for so long as such Confidential Data remains confidential and all such Confidential Data, together with all copies thereof and notes and other references thereto, shall remain the sole property of the Company and/or eMAR. (b) No Solicitation of Employees or Business. The Participant agrees that he will not either directly, or in concert with others, recruit, solicit or induce, or attempt to induce, any employees of the Company or eMAR to terminate their employment with the Company or eMAR and/or become associated with another employer. The Participant further agrees that he will not either directly, or in concert with others, solicit, divert or take away or attempt to divert or take away, the business of any of the customers or accounts of the Company or eMAR. The Participant agrees that his promises contained in this Section 14(b) shall continue in effect until the first anniversary of his termination/separation of employment. (c) Consequences of Breach of Limitations. The Participant acknowledges that damages which may arise from a breach of Section 14 may be impossible to ascertain or prove with certainty. In addition to the other legal or equitable remedies which may be available, the parties agree the Company shall be entitled to an immediate injunction from a court of competent jurisdiction to end such breach without further proof of damages. 15. Arbitration of Disputes. Any disputes, claims or controversies between the Participant and the Company which may arise out of or relate to this Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Dallas, Texas unless the parties mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The arbitrator(s) may, but will not be required, to award such damages or other monetary relief as either party might be entitled to receive from a court of competent jurisdiction. Nothing in this agreement to arbitrate shall preclude the Company from obtaining injunctive relief from a court of competent jurisdiction prohibiting any on-going breaches of the Agreement by the Participant pending arbitration. The arbitrator(s) may also award costs and attorneys' fees in connection with the arbitration to the prevailing party; however, in the arbitrator's(s') discretion, each party may be ordered to bear its/his own costs and attorneys' fees. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. "COMPANY" FLEMING COMPANIES, INC., an Oklahoma corporation By SCOTT M. NORTHCUTT Scott M. Northcutt, Senior Vice President - Human Resources "PARTICIPANT" JOHN M. THOMPSON John M. Thompson Exhibit A [Copy of 1996 Stock Incentive Plan] Exhibit B ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, __________________, an individual, hereby irrevocably assigns and conveys to ________________________, ______________ AND NO/100 (_____) shares of the Common Capital Stock of Fleming Companies, Inc., an Oklahoma corporation, $2.50 par value. DATED: EX-10 10 Exhibit 10.57 FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN NON-QUALIFIED STOCK OPTION AGREEMENT Name: Grant Date: Option Price: Exercise Date: 25% Shares Granted: 50% Expiration Date: 75% 100% NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement"), made as of this ____ day ______________, _____, at Oklahoma City, Oklahoma by and between _______________ (hereinafter referred to as the "Participant"), and Fleming Companies, Inc. (hereinafter referred to as the "Company"): W I T N E S S E T H: WHEREAS, the Participant is an "Eligible Associate" of the Company, as such term is defined in the Plan, and it is important to the Company that the Participant be encouraged to remain in the employ of the Company and given incentive to perform while in the employ of the Company; and WHEREAS, as an ancillary part of this Option Agreement, it is also important to the Company to protect its legitimate business interests if the Participant leaves the employ of the Company; and WHEREAS, in recognition of such facts, the Company desires to provide to the Participant an opportunity to purchase shares of the common stock of the Company, as hereinafter provided, pursuant to the "Fleming Companies, Inc. 1999 Stock Incentive Plan" (the "Plan"); and WHEREAS, the Participant is a "Non-Executive Officer Participant" as such term is defined in the Plan, and the Regular Award Committee has made this Award as permitted by Section 3.1 of the Plan. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the Participant and the Company hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant Nonqualified Stock Options (the "Stock Options") to purchase all or any part of an aggregate of _______ shares of Common Stock under and subject to the terms and conditions of this Option Agreement and the Plan, which is incorporated herein by reference and made a part hereof for all purposes. All capitalized terms used in this Option Agreement shall have the same meaning ascribed to them in the Plan unless specifically denoted otherwise. The purchase price per share for each share of Common Stock to be purchased hereunder shall be $__________ (the "Option Price"). 2. TIMES OF EXERCISE OF STOCK OPTION. After, and only after, the conditions of Section 8 hereof have been satisfied, the Participant shall be eligible to exercise that portion of his/her Stock Options pursuant to the schedule set forth hereinafter. If the Participant's employment with the Company (or of any one or more of the Subsidiaries of the Company) remains full-time and continuous at all times prior to any of the "Exercise Dates" set forth in this Section 2, then the Participant shall be entitled, subject to the applicable provisions of the Plan and this Option Agreement having been satisfied, to exercise on or after the applicable Exercise Date, on a cumulative basis, the number of shares of Stock determined by multiplying the aggregate number of shares set forth in Section 1 of this Option Agreement by the designated percentage set forth below. Percent of Stock Exercise Dates Option Exercisable - ----------------------------------------------------------------- On or After ______________ 25% On or After ______________ 50% On or After ______________ 75% On or After ______________ 100% 3. TERM OF STOCK OPTION. Except as provided for in Section 4 of this Option Agreement, none of the Stock Options shall be exercisable more than ten years from the Date of Grant (the "Option Period"). 4. SPECIAL RULES WITH RESPECT TO STOCK OPTIONS. With respect to the Stock Options, the following special rules shall apply: (a) Exercise of Exercisable Stock Options on Termination of Employment. Except as provided to the contrary in the Plan or in this Option Agreement, if a Participant's employment with the Company or a Subsidiary is terminated during the Option Period for any reason other than death, he/she may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of such termination at any time within three months from the date of termination; provided, however, that if the Participant should die during such three month period, the rights of his/her personal representative shall be as set forth in Section 4(b) of this Option Agreement. (b) Exercise of Exercisable Stock Options on Termination of Employment Due to Death. If a Participant's employment with the Company or a Subsidiary is terminated during the Option Period due to his/her death, the personal representative of the deceased Participant may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of death within 12 months from the date of death. (c) Acceleration of Otherwise Unexercisable Stock Options on Termination of Employment. The Committee, in its sole discretion, may determine that upon termination of the employment of a Participant any and all Stock Options shall become automatically fully vested and immediately exercisable by the Participant or his/her personal representative as the case may be for whatever period following such termination as the Committee shall so decide. (d) Acceleration of Options Upon Change of Control. Upon the occurrence of a Change of Control Event, any and all Stock Options will become automatically fully vested and immediately exercisable with such acceleration to occur without the requirement of any further act by either the Company or the Participant. (e) Exercise of Exercisable Stock Options on Termination of Employment Due to Retirement. If a Participant's employment with the Company or a Subsidiary is terminated due to retirement in accordance with the Company's retirement policies, the Participant shall have a period of three years following his/her date of retirement to exercise the Stock Options which are otherwise exercisable on his/her date of retirement. 5. NON-TRANSFERABILITY OF STOCK OPTIONS. Except as provided in Section 11.3 of the Plan regarding certain limited transferability of Stock Options with the Committee's approval, Stock Options shall be transferable only by will or the laws of descent and distribution; however, no such transfer of the Stock Options by the Participant shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee of the terms and conditions of such Option. 6. EMPLOYMENT. So long as the Participant shall continue to be a full-time and continuous employee of the Company or a Subsidiary, the Stock Options shall not be affected by any change of duties or position. Nothing in the Plan or in this Option Agreement shall confer upon the Participant any right to continue in the employ of the Company, or any of the Subsidiaries, or interfere in any way with the right of the Company or any of the Subsidiaries to terminate such Participant's employment at any time. 7. METHOD OF EXERCISING STOCK OPTION. (a) Procedures for Exercise. The manner of exercising the Stock Options shall be by written notice to the Company at least two days before the date the Stock Option, or part thereof, is to be exercised, and in any event prior to the expiration of the Option Period. Such notice shall state the election to exercise the Stock Options and the number of shares of Common Stock with respect to that portion of the Stock Options being exercised, and shall be signed by the person or persons so exercising the Stock Options. The notice shall be accompanied by payment of the full purchase price of such shares, in which event the Company shall deliver a certificate or certificates representing such shares to the person or persons entitled thereto as soon as practicable after the notices shall be received. (b) Form of Payment. Payment for shares of Common Stock purchased under this Option Agreement shall be made in full by the Participant in any manner specified in Section 6.2(b) of the Plan; provided if the Option Price is to be paid by delivering to the Company shares of Common Stock owned by the Participant, such shares must have been continuously held by the Participant for at least six months prior to being used to pay the Option Price. No Common Stock shall be issued to the Participant until the Company receives full payment for the Common Stock purchased under the Stock Options which shall include any required state and federal withholding taxes. Withholding taxes may be paid by the Participant in any manner specified in Section 11.4 of the Plan. (c) Further Information. In the event the Stock Options are exercised, pursuant to the foregoing provisions of this Section 7, by any person or persons other than the Participant in the event of the death of the Participant, the notice of election to exercise shall also be accompanied by appropriate proof of the right of such person or persons to exercise the Stock Options. 8. SECURITIES LAW RESTRICTIONS. Stock Options shall be exercised and Common Stock issued only upon compliance with the Securities Act of 1933, as amended, and any other applicable securities law, or pursuant to an exemption therefrom. 9. NOTICES. All notices or other communications relating to the Plan and this Option Agreement as it relates to the Participant or, in event of the death of the Participant, his/her personal representative shall be in writing and shall be mailed (U.S. Mail) by the Company to the Participant or his/her personal representative, as the case may be, at the then current address as maintained by the Company or such other address as the Participant or his/her personal representative may advise the Company in writing. All other notices shall be given by personal delivery to the Secretary of the Company or by registered or certified mail at his/her principal office or at such other address as the Company may hereafter advise the Participant or his/her personal representative, and it shall be deemed to have been given when they are so personally delivered or when they are deposited in the United States mail in an envelope addressed to the Company, properly stamped for delivery as a registered or certified letter. 10. PROTECTION OF COMPANY BUSINESS AS CONSIDERATION. As specific consideration to the Company for the Stock Options, the Participant agrees: (a) Limitations on Competition. Subject to sub- section (g), the Participant will not, without the Company's written consent, directly or indirectly, be a shareholder, principal, agent, partner, officer, director, employee or consultant of SUPERVALU, Inc., Nash Finch Company or any other direct competitor of the Company, excluding national retail chains, or any of their respective subsidiaries, affiliates or successors (collectively, the "Competitors"). (b) Confidential Information; No Disparaging State- ments. The Participant acknowledges that during the course of the Participant's employment with the Company or any Subsidiary, he/she will have access to and gain knowledge of highly confidential and proprietary information and trade secrets. The Participant further acknowledges that the misuse, misappropriation or disclosure of this information could cause irreparable harm to the Company and/or a Subsidiary, both during and after the term of the Participant's employment. Therefore, the Participant agrees, during his/her employment and at all times thereafter, he/she will hold in a fiduciary capacity for the benefit of the Company and/or a Subsidiary and will not divulge or disclose, directly or indirectly, to any other person, firm or business, all confidential or proprietary information, knowledge and data (including, but not limited to, processes, programs, trade "know how," ideas, details of contracts, marketing plans, strategies, business development techniques, business acquisition plans, personnel plans, pricing practices and business methods and practices) relating in any way to the business of the Company or any Subsidiary, customers, suppliers, joint ventures, licensors, licensees, distributors and other persons and entities with whom the Company or any of its Subsidiaries do business ("Confidential Data"), except upon the Company's written consent or as required by his/her duties with the Company or any of its Subsidiaries, for so long as such Confidential Data remains confidential and all such Confidential Data, together with all copies thereof and notes and other references thereto, shall remain the sole property of the Company or a Subsidiary. The Participant agrees, during his/her employment with the Company or any of its Subsidiaries and at all times thereafter, not to make disparaging statements about the Company or their officers, directors, agents, employees, products or services which he/she knows, or has reason to know, are false or misleading. (c) No Solicitation of Employees or Business. The Participant agrees that he/she will not, either directly or in concert with others, recruit, solicit or induce, or attempt to induce, any employees of the Company or any of its Subsidiaries to terminate their employment with the Company or any of its Subsidiaries and/or become associated with another employer. The Participant further agrees that he/she will not, either directly or in concert with others, solicit, divert or take away, or attempt to divert or take away, the business of any of the customers or accounts of the Company or any of its Subsidiaries which the Company or a Subsidiary had or was actively soliciting before and/or on his/her date of termination/separation. (d) Term of the Participant's Promises under this Section. The Participant agrees that except as otherwise provided in subsection (b), his/her promises contained in this Section 10 shall continue in effect during his/her employment with the Company or any of its Subsidiaries and until the first anniversary of his/her termination/separation. (e) Consequences of Breach of Limitations on Competi- tion and/or Other Competing Employment. Subject to subsection (g), if at any time within (i) the term of this Option Agreement or (ii) within one (1) year following the Participant's date of termination/separation, but only if such termination/separation occurs on a date which is prior to ten (10) years from the date of this Option Agreement, or (iii) within one (1) year after he/she exercises any portion of the Stock Options, whichever is latest, the Participant is, without the Company's written consent, directly or indirectly, a shareholder, principal, agent, partner, officer, director, employee or consultant of any of the Competitors, then (iv) the Stock Options shall terminate effective the date the Participant enters into such activity (unless terminated sooner by operation of another term or condition of this Option Agreement or the Plan), and (v) any gain represented by the Fair Market Value (as defined in the Plan) on the date the Participant exercised any of the Stock Options over the Option Price, multiplied by the number of shares the Participant purchased (the "Option Gain"), shall be paid by the Participant to the Company within 30 days of written notice from the Company to the Participant that such payment is due. The Option Gain shall be calculated without regard to any subsequent market price decrease or increase. This shall be in addition to any injunctive or other relief to which the Company may be entitled under subsection (f). (f) Consequences of Other Breaches of this Section. The Participant acknowledges that damages which may arise from any breach of any of his/her promises contained in this Section 10 may be impossible to ascertain or prove with certainty. The Participant agrees if the Participant breaches any of his/her promises contained in this Section 10, in addition to the remedies provided under subsection (e), if applicable, and any other legal remedies which may be available, the Company shall be entitled to immediate injunctive relief from a court of competent jurisdiction, pending arbitration under Section 11 or otherwise, to end such breach, without further proof of damage. (g) Permitted Ownership. Nothing in this Section 10 shall prohibit the Participant from owning less than one percent (1%) of any company that is publicly traded on any national securities exchange. (h) Severability and Reasonableness. If, at any time, the provisions of this Section 10 shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to geographic area, duration or scope of activity or due to any other restriction or limitation, this Section 10 shall be considered divisible and shall become and be immediately amended to only such geographic area, duration and scope of activity and/or restrictions or limitations as shall be determined to be reasonable and enforceable by an arbitrator or a court having jurisdiction over the matter; and the Participant agrees that this Section 10 as so amended shall be valid and binding as though any invalid or unenforceable portion had not been included herein. The parties agree that the geographic area, duration and scope of the limitations and the restrictions described in subsections (a) through (e) are reasonable. 11. ARBITRATION OF DISPUTES. Any disputes, claims or controversies between the Participant and the Company which may arise out of or relate to this Option Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Option Agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Dallas, Texas unless the parties mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The arbitrator(s) may, but will not be required, to award such damages or other monetary relief as either party might be entitled to receive from a court of competent jurisdiction. Nothing in this agreement to arbitrate shall preclude the Company from obtaining injunctive relief under Section 10(f) from a court of competent jurisdiction prohibiting any on-going breaches of the Option Agreement by the Participant pending arbitration. The arbitrator(s) may also award costs and attorneys' fees in connection with the arbitration to the prevailing party; however, in the arbitrator's(s') discretion, each party may be ordered to bear its/his/her own costs and attorneys' fees. 12. CHOICE OF LAW. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Option Agreement to the substantive law of another jurisdiction, except as superseded by applicable federal law and/or as provided in Section 11 hereof. IN WITNESS WHEREOF, the Company, through a duly authorized officer, and the Participant have executed this Option Agreement on the day and year first above written. COMPANY: FLEMING COMPANIES, INC., an Oklahoma corporation By Scott M. Northcutt Senior Vice President - Human Resources PARTICIPANT: EX-10 11 Exhibit 10.58 FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN NON-QUALIFIED STOCK OPTION AGREEMENT Name: Grant Date: Option Price: Exercise Date: 25% Shares Granted: 50% Expiration Date: 75% 100% NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement"), made as of this ____ day of _______________, ____, at Oklahoma City, Oklahoma by and between _______________ (hereinafter referred to as the "Participant"), and Fleming Companies, Inc. (hereinafter referred to as the "Company"): W I T N E S S E T H: WHEREAS, the Participant is an "Eligible Associate" of the Company, as such term is defined in the Plan, and it is important to the Company that the Participant be encouraged to remain in the employ of the Company and given incentive to perform while in the employ of the Company; and WHEREAS, as an ancillary part of this Option Agreement, it is also important to the Company to protect its legitimate business interests if the Participant leaves the employ of the Company; and WHEREAS, in recognition of such facts, the Company desires to provide to the Participant an opportunity to purchase shares of the common stock of the Company, as hereinafter provided, pursuant to the "Fleming Companies, Inc. 1999 Stock Incentive Plan" (the "Plan"); and WHEREAS, the Participant is a "Non-Executive Officer Participant" as such term is defined in the Plan, and the Regular Award Committee has made this Award as permitted by Section 3.1 of the Plan. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the Participant and the Company hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant Nonqualified Stock Options (the "Stock Options") to purchase all or any part of an aggregate of ______ shares of Common Stock under and subject to the terms and conditions of this Option Agreement and the Plan, which is incorporated herein by reference and made a part hereof for all purposes. All capitalized terms used in this Option Agreement shall have the same meaning ascribed to them in the Plan unless specifically denoted otherwise. The purchase price per share for each share of Common Stock to be purchased hereunder shall be $________ (the "Option Price"). 2. TIMES OF EXERCISE OF STOCK OPTION. After, and only after, the conditions of Section 8 hereof have been satisfied, the Participant shall be eligible to exercise that portion of his/her Stock Options pursuant to the schedule set forth hereinafter. If the Participant's employment with the Company (or of any one or more of the Subsidiaries of the Company) remains full-time and continuous at all times prior to any of the "Exercise Dates" set forth in this Section 2, then the Participant shall be entitled, subject to the applicable provisions of the Plan and this Option Agreement having been satisfied, to exercise on or after the applicable Exercise Date, on a cumulative basis, the number of shares of Stock determined by multiplying the aggregate number of shares set forth in Section 1 of this Option Agreement by the designated percentage set forth below. Percent of Stock Exercise Dates Option Exercisable - -------------------------------------------------------------------- On or After ________________ 25% On or After ________________ 50% On or After ________________ 75% On or After ________________ 100% 3. TERM OF STOCK OPTION. Except as provided for in Section 4 of this Option Agreement, none of the Stock Options shall be exercisable more than ten years from the Date of Grant (the "Option Period"). 4. SPECIAL RULES WITH RESPECT TO STOCK OPTIONS. With respect to the Stock Options, the following special rules shall apply: (a) Exercise of Exercisable Stock Options on Termination of Employment. Except as provided to the contrary in the Plan or in this Option Agreement, if a Participant's employment with the Company or a Subsidiary is terminated during the Option Period for any reason other than death, he/she may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of such termination at any time within three months from the date of termination; provided, however, that if the Participant should die during such three month period, the rights of his/her personal representative shall be as set forth in Section 4(b) of this Option Agreement. (b) Exercise of Exercisable Stock Options on Termination of Employment Due to Death. If a Participant's employment with the Company or a Subsidiary is terminated during the Option Period due to his/her death, the personal representative of the deceased Participant may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of death within 12 months from the date of death. (c) Acceleration of Otherwise Unexercisable Stock Options on Termination of Employment. The Committee, in its sole discretion, may determine that upon termination of the employment of a Participant any and all Stock Options shall become automatically fully vested and immediately exercisable by the Participant or his/her personal representative as the case may be for whatever period following such termination as the Committee shall so decide. (d) Acceleration of Options Upon Change of Control. Upon the occurrence of a Change of Control Event, any and all Stock Options will become automatically fully vested and immediately exercisable with such acceleration to occur without the requirement of any further act by either the Company or the Participant. (e) Exercise of Exercisable Stock Options on Termination of Employment Due to Retirement. If a Participant's employment with the Company or a Subsidiary is terminated due to retirement in accordance with the Company's retirement policies, the Participant shall have a period of three years following his/her date of retirement to exercise the Stock Options which are otherwise exercisable on his/her date of retirement. 5. NON-TRANSFERABILITY OF STOCK OPTIONS. Except as provided in Section 11.3 of the Plan regarding certain limited transferability of Stock Options with the Committee's approval, Stock Options shall be transferable only by will or the laws of descent and distribution; however, no such transfer of the Stock Options by the Participant shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee of the terms and conditions of such Option. 6. EMPLOYMENT. So long as the Participant shall continue to be a full-time and continuous employee of the Company or a Subsidiary, the Stock Options shall not be affected by any change of duties or position. Nothing in the Plan or in this Option Agreement shall confer upon the Participant any right to continue in the employ of the Company, or any of the Subsidiaries, or interfere in any way with the right of the Company or any of the Subsidiaries to terminate such Participant's employment at any time. 7. METHOD OF EXERCISING STOCK OPTION. (a) Procedures for Exercise. The manner of exercising the Stock Options shall be by written notice to the Company at least two days before the date the Stock Option, or part thereof, is to be exercised, and in any event prior to the expiration of the Option Period. Such notice shall state the election to exercise the Stock Options and the number of shares of Common Stock with respect to that portion of the Stock Options being exercised, and shall be signed by the person or persons so exercising the Stock Options. The notice shall be accompanied by payment of the full purchase price of such shares, in which event the Company shall deliver a certificate or certificates representing such shares to the person or persons entitled thereto as soon as practicable after the notices shall be received. (b) Form of Payment. Payment for shares of Common Stock purchased under this Option Agreement shall be made in full by the Participant in any manner specified in Section 6.2(b) of the Plan; provided if the Option Price is to be paid by delivering to the Company shares of Common Stock owned by the Participant, such shares must have been continuously held by the Participant for at least six months prior to being used to pay the Option Price. No Common Stock shall be issued to the Participant until the Company receives full payment for the Common Stock purchased under the Stock Options which shall include any required state and federal withholding taxes. Withholding taxes may be paid by the Participant in any manner specified in Section 11.4 of the Plan. (c) Further Information. In the event the Stock Options are exercised, pursuant to the foregoing provisions of this Section 7, by any person or persons other than the Participant in the event of the death of the Participant, the notice of election to exercise shall also be accompanied by appropriate proof of the right of such person or persons to exercise the Stock Options. 8. SECURITIES LAW RESTRICTIONS. Stock Options shall be exercised and Common Stock issued only upon compliance with the Securities Act of 1933, as amended, and any other applicable securities law, or pursuant to an exemption therefrom. 9. NOTICES. All notices or other communications relating to the Plan and this Option Agreement as it relates to the Participant or, in the event of the death of the Participant, his/her personal representative shall be in writing and shall be mailed (U.S. Mail) by the Company to the Participant or his/her personal representative, as the case may be, at the then current address as maintained by the Company or such other address as the Participant or his/her personal representative may advise the Company in writing. All other notices shall be given by personal delivery to the Secretary of the Company or by registered or certified mail at his/her principal office or at such other address as the Company may hereafter advise the Participant or his/her personal representative, and shall be deemed to have been given when they are so personally delivered or when they are deposited in the United States mail in an envelope addressed to the Company, properly stamped for delivery as a registered or certified letter. 10. PROTECTION OF COMPANY'S BUSINESS AS CONSIDERATION. As specific consideration to the Company for the Stock Options, the Participant agrees: (a) Limitations on Competition. Subject to sub- section (g), the Participant will not, without the Company's written consent, directly or indirectly, in association with or as a share- holder, principal, agent, partner, officer, director, employee or consultant of SUPERVALU, Inc., Nash Finch Company or any other direct competitor of the Company, excluding national retail chains, or any of their respective subsidiaries, affiliates or successors (the "Competitors"), engage in the business of the wholesale of food and related products within the Standard Metropolitan Statistical Areas (the "SMSA's") in which the Participant is, and/or on his/her date of termination/separation was, employed by the Company or one of its Subsidiaries, or in which the Company or any of its Subsidiaries during his/her employment is, and/or on his/her date of termination/separation was, actively soliciting business. (b) Confidential Information; No Disparaging State- ments. The Participant acknowledges that during the course of the Participant's employment with the Company or any Subsidiary, he/she will have access to and gain knowledge of highly confidential and proprietary information and trade secrets. The Participant further acknowledges that the misuse, misappropriation or disclosure of this information could cause irreparable harm to the Company and/or a Subsidiary, both during and after the term of the Participant's employment. Therefore, the Participant agrees, during his/her employment and at all times thereafter, he/she will hold in a fiduciary capacity for the benefit of the Company and/or a Subsidiary and will not divulge or disclose, directly or indirectly, to any other person, firm or business, all confidential or proprietary information, knowledge and data (including, but not limited to, processes, programs, trade "know how," ideas, details of contracts, marketing plans, strategies, business development techniques, business acquisition plans, personnel plans, pricing practices and business methods and practices) relating in any way to the business of the Company or any of its Subsidiaries, customers, suppliers, joint ventures, licensors, licensees, distributors and other persons and entities with whom the Company or any of its Subsidiaries do business ("Confidential Data"), except upon the Company's written consent or as required by his/her duties with the Company or any of its Subsidiaries, for so long as such Confidential Data remains confidential and all such Confidential Data, together with all copies thereof and notes and other references thereto, shall remain the sole property of the Company or a Subsidiary. The Participant agrees, during his/her employment with the Company or any of its Subsidiaries and at all times thereafter, not to make disparaging statements about the Company or any of its Subsidiaries or their officers, directors, agents, employees, products or services which he/she knows, or has reason to know, are false or misleading. (c) No Solicitation of Employees or Business. The Participant agrees that he/she will not, either directly or in concert with others, recruit, solicit or induce, or attempt to induce, any employees of the Company or any of its Subsidiaries to terminate their employment with the Company or any of its Subsidiaries and/or become associated with another employer. The Participant further agrees that he/she will not, either directly or in concert with others, solicit, divert or take away, or attempt to divert or take away, the business of any of the customers or accounts of the Company or any of its Subsidiaries within the SMSA's in which the Participant is, and/or on his/her date of termination/separation was, employed by the Company or one of its Subsidiaries, or in which the Company or any of its Subsidiaries during his/her employment is, and/or on his/her date of termination/separation was, actively soliciting such business. (d) Term of the Participant's Promises under this Section. The Participant agrees that except as otherwise provided in subsection (b), his/her promises contained in this Section 10 shall continue in effect during his/her employment with the Company or any of its Subsidiaries and until the first anniversary of his/her termination/separation. (e) Consequences of Breach of Limitations on Competi- tion and/or Other Competing Employment. Subject to subsection (g), if at any time within (i) the term of this Option Agreement or (ii) within one (1) year following the Participant's date of termination/ separation, but only if such termination/separation occurs on a date which is prior to ten (10) years from the date of this Option Agreement, or (iii) within one (1) year after he/she exercises any portion of the Stock Options, whichever is latest, the Participant, without the Company's written consent, directly or indirectly, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of the Competitors, engages in the business of the wholesale of food and related products within the SMSA's in which the Participant is, or on his/her date of termination/separation was, employed by the Company or one of its Subsidiaries, or in which the Company or any of its Subsidiaries during the Participant's employment is, and/or on his/her date of termination/separation was, actively soliciting business, then (iv) the Stock Options shall terminate effective the date the Participant enters into such activity (unless terminated sooner by operation of another term or condition of this Option Agreement or the Plan), and (v) any gain represented by the Fair Market Value (as defined in the Plan) on the date the Participant exercised any of the Stock Options over the Option Price, multiplied by the number of shares the Participant purchased (the "Option Gain"), shall be paid by the Participant to the Company within 30 days of written notice from the Company to the Participant that such payment is due. The Option Gain shall be calculated without regard to any subsequent market price decrease or increase. This shall be in addition to any injunctive or other relief to which the Company may be entitled under subsection (f). (f) Consequences of Other Breaches of this Section. The Participant acknowledges that damages which may arise from any breach of any of his/her promises contained in this Section 10 may be impossible to ascertain or prove with certainty. The Participant agrees if the Participant breaches any of his/her promises contained in this Section 10, in addition to the remedies provided under subsection (e), if applicable, and any other legal remedies which may be available, the Company shall be entitled to immediate injunctive relief from a court of competent jurisdiction, pending arbitration under Section 11 or otherwise, to end such breach, without further proof of damage. (g) Permitted Ownership. Nothing in this Section 10 shall prohibit the Participant from owning less than one percent (1%) of any company that is publicly traded on any national securities exchange. (h) Severability and Reasonableness. If, at any time, the provisions of this Section 10 shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to geographic area, duration or scope of activity or due to any other restriction or limitation, this Section 10 shall be considered divisible and shall become and be immediately amended to only such geographic area, duration and scope of activity and/or restrictions or limitations as shall be determined to be reasonable and enforceable by an arbitrator or a court having jurisdiction over the matter; and the Participant agrees that this Section 10 as so amended shall be valid and binding as though any invalid or unenforceable portion had not been included herein. The parties agree that the geographic area, duration and scope of the limitations and the restrictions described in subsections (a) through (e) are reasonable. 11. ARBITRATION OF DISPUTES. Any disputes, claims or controversies between the Participant and the Company which may arise out of or relate to this Option Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Option Agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Dallas, Texas unless the parties mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The arbitrator(s) may, but will not be required, to award such damages or other monetary relief as either party might be entitled to receive from a court of competent jurisdiction. Nothing in this agreement to arbitrate shall preclude the Company from obtaining injunctive relief under Section 10(f) from a court of competent jurisdiction prohibiting any on-going breaches of the Option Agreement by the Participant pending arbitration. The arbitrator(s) may also award costs and attorneys' fees in connection with the arbitration to the prevailing party; however, in the arbitrator's(s') discretion, each party may be ordered to bear its/his/her own costs and attorneys' fees. 12. CHOICE OF LAW. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Option Agreement to the substantive law of another jurisdiction, except as superseded by applicable federal law and/or as provided in Section 11 hereof. IN WITNESS WHEREOF, the Company, through a duly authorized officer, and the Participant have executed this Option Agreement on the day and year first above written. COMPANY: FLEMING COMPANIES, INC., an Oklahoma corporation By Scott M. Northcutt, Senior Vice President - Human Resources PARTICIPANT: EX-10 12 Exhibit 10.59 FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN NON-QUALIFIED STOCK OPTION AGREEMENT Name: Grant Date: Option Price: Exercise Date: 25% Shares Granted: 50% Expiration Date: 75% 100% NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement"), made as of this ____ day of __________, ____, at Oklahoma City, Oklahoma by and between _______________ (herein- after referred to as the "Participant"), and Fleming Companies, Inc. (hereinafter referred to as the "Company"): W I T N E S S E T H: WHEREAS, the Participant is an "Eligible Associate" of the Company, as such term is defined in the Plan, and it is important to the Company that the Participant be encouraged to remain in the employ of the Company and given incentive to perform while in the employ of the Company; and WHEREAS, as an ancillary part of this Option Agreement, it is also important to the Company to protect its legitimate business interests if the Participant leaves the employ of the Company; and WHEREAS, in recognition of such facts, the Company desires to provide to the Participant an opportunity to purchase shares of the common stock of the Company, as hereinafter provided, pursuant to the "Fleming Companies, Inc. 1999 Stock Incentive Plan" (the "Plan"); and WHEREAS, the Participant is a "Non-Executive Officer Participant" as such term is defined in the Plan, and the Regular Award Committee has made this Award as permitted by Section 3.1 of the Plan. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the Participant and the Company hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant Nonqualified Stock Options (the "Stock Options") to purchase all or any part of an aggregate of _________ shares of Common Stock under and subject to the terms and conditions of this Option Agreement and the Plan, which is incorporated herein by reference and made a part hereof for all purposes. All capitalized terms used in this Option Agreement shall have the same meaning ascribed to them in the Plan unless specifically denoted otherwise. The purchase price per share for each share of Common Stock to be purchased hereunder shall be $___________ (the "Option Price"). 2. TIMES OF EXERCISE OF STOCK OPTION. After, and only after, the conditions of Section 8 hereof have been satisfied, the Participant shall be eligible to exercise that portion of his/her Stock Options pursuant to the schedule set forth hereinafter. If the Participant's employment with the Company (or of any one or more of the Subsidiaries of the Company) remains full-time and continuous at all times prior to any of the "Exercise Dates" set forth in this Section 2, then the Participant shall be entitled, subject to the applicable provisions of the Plan and this Option Agreement having been satisfied, to exercise on or after the applicable Exercise Date, on a cumulative basis, the number of shares of Stock determined by multiplying the aggregate number of shares set forth in Section 1 of this Option Agreement by the designated percentage set forth below. Percent of Stock Exercise Dates Option Exercisable - ----------------------------------------------------------------- On or After _________ 25% On or After _________ 50% On or After _________ 75% On or After _________ 100% 3. TERM OF STOCK OPTION. Except as provided for in Section 4 of this Option Agreement, none of the Stock Options shall be exercisable more than ten years from the Date of Grant (the "Option Period"). 4. SPECIAL RULES WITH RESPECT TO STOCK OPTIONS. With respect to the Stock Options, the following special rules shall apply: (a) Exercise of Exercisable Stock Options on Termination of Employment. Except as provided to the contrary in the Plan or in this Option Agreement, if a Participant's employment with the Company or a Subsidiary is terminated during the Option Period for any reason other than death, he/she may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of such termination at any time within three months from the date of termination; provided, however, that if the Participant should die during such three month period, the rights of his/her personal representative shall be as set forth in Section 4(b) of this Option Agreement. (b) Exercise of Exercisable Stock Options on Termination of Employment Due to Death. If a Participant's employment with the Company or a Subsidiary is terminated during the Option Period due to his/her death, the personal representative of the deceased Participant may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of death within 12 months from the date of death. (c) Acceleration of Otherwise Unexercisable Stock Options on Termination of Employment. The Committee, in its sole discretion, may determine that upon termination of the employment of a Participant any and all Stock Options shall become automatically fully vested and immediately exercisable by the Participant or his/her personal representative as the case may be for whatever period following such termination as the Committee shall so decide. (d) Acceleration of Options Upon Change of Control. Upon the occurrence of a Change of Control Event, any and all Stock Options will become automatically fully vested and immediately exercisable with such acceleration to occur without the requirement of any further act by either the Company or the Participant. (e) Exercise of Exercisable Stock Options on Termination of Employment Due to Retirement. If a Participant's employment with the Company or a Subsidiary is terminated due to retirement in accordance with the Company's retirement policies, the Participant shall have a period of three years following his/her date of retirement to exercise the Stock Options which are otherwise exercisable on his/her date of retirement. 5. NON-TRANSFERABILITY OF STOCK OPTIONS. Except as provided in Section 11.3 of the Plan regarding certain limited transferability of Stock Options with the Committee's approval, Stock Options shall be transferable only by will or the laws of descent and distribution; however, no such transfer of the Stock Options by the Participant shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee of the terms and conditions of such Option. 6. EMPLOYMENT. So long as the Participant shall continue to be a full-time and continuous employee of the Company or a Subsidiary, the Stock Options shall not be affected by any change of duties or position. Nothing in the Plan or in this Option Agreement shall confer upon the Participant any right to continue in the employ of the Company, or any of the Subsidiaries, or interfere in any way with the right of the Company or any of the Subsidiaries to terminate such Participant's employment at any time. 7. METHOD OF EXERCISING STOCK OPTION. (a) Procedures for Exercise. The manner of exercising the Stock Options shall be by written notice to the Company at least two days before the date the Stock Option, or part thereof, is to be exercised, and in any event prior to the expiration of the Option Period. Such notice shall state the election to exercise the Stock Options and the number of shares of Common Stock with respect to that portion of the Stock Options being exercised, and shall be signed by the person or persons so exercising the Stock Options. The notice shall be accompanied by payment of the full purchase price of such shares, in which event the Company shall deliver a certificate or certificates representing such shares to the person or persons entitled thereto as soon as practicable after the notices shall be received. (b) Form of Payment. Payment for shares of Common Stock purchased under this Option Agreement shall be made in full by the Participant in any manner specified in Section 6.2(b) of the Plan; provided if the Option Price is to be paid by delivering to the Company shares of Common Stock owned by the Participant, such shares must have been continuously held by the Participant for at least six months prior to being used to pay the Option Price. No Common Stock shall be issued to the Participant until the Company receives full payment for the Common Stock purchased under the Stock Options which shall include any required state and federal withholding taxes. Withholding taxes may be paid by the Participant in any manner specified in Section 11.4 of the Plan. (c) Further Information. In the event the Stock Options are exercised, pursuant to the foregoing provisions of this Section 7, by any person or persons other than the Participant in the event of the death of the Participant, the notice of election to exercise shall also be accompanied by appropriate proof of the right of such person or persons to exercise the Stock Options. 8. SECURITIES LAW RESTRICTIONS. Stock Options shall be exercised and Common Stock issued only upon compliance with the Securities Act of 1933, as amended, and any other applicable securities law, or pursuant to an exemption therefrom. 9. NOTICES. All notices or other communications relating to the Plan and this Option Agreement as it relates to the Participant or, in the event of the death of the Participant, his/her personal representative shall be in writing and shall be mailed (U.S. Mail) by the Company to the Participant or his/her personal representative, as the case may be, at the then current address as maintained by the Company or such other address as the Participant or his/her personal representative may advise the Company in writing. All other notices shall be given by personal delivery to the Secretary of the Company or by registered or certified mail at his/her principal office or at such other address as the Company may hereafter advise the Participant or his/her personal representative, and shall be deemed to have been given when they are so personally delivered or when they are deposited in the United States mail in an envelope addressed to the Company, properly stamped for delivery as a registered or certified letter. 10. PROTECTION OF COMPANY'S BUSINESS AS CONSIDERATION. As specific consideration to the Company for the Stock Options, the Participant agrees: (a) Limitations on Competition. Subject to sub- section (g), the Participant will not, without the Company's written consent, directly or indirectly, in association with or as a share- holder, principal, agent, partner, officer, director, employee or consultant of any other retail chain or any subsidiary or affiliate of any such retail chain, engage in the business of the retail sale of food and related products within the Standard Metropolitan Statistical Areas (the "SMSA's") in which the Participant is, and/or on his/her date of termination/separation was, employed by the Company or one of its Subsidiaries, or in which the Company or any of its Subsidiaries during his/her employment is, and/or on his/her date of termination/ separation was, actively soliciting business. (b) Confidential Information; No Disparaging State- ments. The Participant acknowledges that during the course of the Participant's employment with the Company or any Subsidiary, he/she will have access to and gain knowledge of highly confidential and proprietary information and trade secrets. The Participant further acknowledges that the misuse, misappropriation or disclosure of this information could cause irreparable harm to the Company and/or a Subsidiary, both during and after the term of the Participant's employment. Therefore, the Participant agrees, during his/her employment and at all times thereafter, he/she will hold in a fiduciary capacity for the benefit of the Company and/or a Subsidiary and will not divulge or disclose, directly or indirectly, to any other person, firm or business, all confidential or proprietary information, knowledge and data (including, but not limited to, processes, programs, trade "know how," ideas, details of contracts, marketing plans, strategies, business development techniques, business acquisition plans, personnel plans, pricing practices and business methods and practices) relating in any way to the business of the Company or any of its Subsidiaries, customers, suppliers, joint ventures, licensors, licensees, distributors and other persons and entities with whom the Company or any of its Subsidiaries do business ("Confidential Data"), except upon the Company's written consent or as required by his/her duties with the Company or any of its Subsidiaries, for so long as such Confidential Data remains confidential and all such Confidential Data, together with all copies thereof and notes and other references thereto, shall remain the sole property of the Company or a Subsidiary. The Participant agrees, during his/her employment with the Company or any of its Subsidiaries and at all times thereafter, not to make disparaging statements about the Company or any of its Subsidiaries or their officers, directors, agents, employees, products or services which he/she knows, or has reason to know, are false or misleading. (c) No Solicitation of Employees or Business. The Participant agrees that he/she will not, either directly or in concert with others, recruit, solicit or induce, or attempt to induce, any employees of the Company or any of its Subsidiaries to terminate their employment with the Company or any of its Subsidiaries and/or become associated with another employer. The Participant further agrees that he/she will not, either directly or in concert with others, solicit, divert or take away, or attempt to divert or take away, the business of any of the customers or accounts of the Company or any of its Subsidiaries within the SMSA's in which the Participant is, and/or on his/her date of termination/separation was, employed by the Company or one of its Subsidiaries, or in which the Company or any of its Subsidiaries during his/her employment is, and/or on his/her date of termination/separation was, actively soliciting such business. (d) Term of the Participant's Promises under this Section. The Participant agrees that except as otherwise provided in subsection (b), his/her promises contained in this Section 10 shall continue in effect during his/her employment with the Company or any of its Subsidiaries and until the first anniversary of his/her termination/separation. (e) Consequences of Breach of Limitations on Competi- tion and/or Other Competing Employment. Subject to subsection (g), if at any time within (i) the term of this Option Agreement or (ii) within one (1) year following the Participant's date of termination/ separation, but only if such termination/separation occurs on a date which is prior to ten (10) years from the date of this Option Agreement, or (iii) within one (1) year after he/she exercises any portion of the Stock Options, whichever is latest, the Participant, without the Company's written consent, directly or indirectly, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other retail chain or any subsidiary or affiliate of any such retail chain, engages in the business of the retail sale of food and related products within the SMSA's in which the Participant is, or on his/her date of termination/separation was, employed by the Company or one of its Subsidiaries, or in which the Company or any of its Subsidiaries during the Participant's employment is, and/or on his/her date of termination/separation was, actively soliciting business, then (iv) the Stock Options shall terminate effective the date the Participant enters into such activity (unless terminated sooner by operation of another term or condition of this Option Agreement or the Plan), and (v) any gain represented by the Fair Market Value (as defined in the Plan) on the date the Participant exercised any of the Stock Options over the Option Price, multiplied by the number of shares the Participant purchased (the "Option Gain"), shall be paid by the Participant to the Company within 30 days of written notice from the Company to the Participant that such payment is due. The Option Gain shall be calculated without regard to any subsequent market price decrease or increase. This shall be in addition to any injunctive or other relief to which the Company may be entitled under subsection (f). (f) Consequences of Other Breaches of this Section. The Participant acknowledges that damages which may arise from any breach of any of his/her promises contained in this Section 10 may be impossible to ascertain or prove with certainty. The Participant agrees if the Participant breaches any of his/her promises contained in this Section 10, in addition to the remedies provided under subsection (e), if applicable, and any other legal remedies which may be available, the Company shall be entitled to immediate injunctive relief from a court of competent jurisdiction, pending arbitration under Section 11 or otherwise, to end such breach, without further proof of damage. (g) Permitted Ownership. Nothing in this Section 10 shall prohibit the Participant from owning less than one percent (1%) of any company that is publicly traded on any national securities exchange. (h) Severability and Reasonableness. If, at any time, the provisions of this Section 10 shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to geographic area, duration or scope of activity or due to any other restriction or limitation, this Section 10 shall be considered divisible and shall become and be immediately amended to only such geographic area, duration and scope of activity and/or restrictions or limitations as shall be determined to be reasonable and enforceable by an arbitrator or a court having jurisdiction over the matter; and the Participant agrees that this Section 10 as so amended shall be valid and binding as though any invalid or unenforceable portion had not been included herein. The parties agree that the geographic area, duration and scope of the limitations and the restrictions described in subsections (a) through (e) are reasonable. 11. ARBITRATION OF DISPUTES. Any disputes, claims or controversies between the Participant and the Company which may arise out of or relate to this Option Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Option Agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Dallas, Texas unless the parties mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The arbitrator(s) may, but will not be required, to award such damages or other monetary relief as either party might be entitled to receive from a court of competent jurisdiction. Nothing in this agreement to arbitrate shall preclude the Company from obtaining injunctive relief under Section 10(f) from a court of competent jurisdiction prohibiting any on-going breaches of the Option Agreement by the Participant pending arbitration. The arbitrator(s) may also award costs and attorneys' fees in connection with the arbitration to the prevailing party; however, in the arbitrator's(s') discretion, each party may be ordered to bear its/his/her own costs and attorneys' fees. 12. CHOICE OF LAW. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Texas, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Option Agreement to the substantive law of another jurisdiction, except as superseded by applicable federal law and/or as provided in Section 11 hereof. IN WITNESS WHEREOF, the Company, through a duly authorized officer, and the Participant have executed this Option Agreement on the day and year first above written. COMPANY: FLEMING COMPANIES, INC., an Oklahoma corporation By Scott M. Northcutt, Senior Vice President - Human Resources PARTICIPANT: EX-10 13 Exhibit 10.60 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT, amending, restating and superceding in its entirety that prior Employment Agreement effective January 26, 1999, by and between FLEMING COMPANIES, INC., an Oklahoma corporation (the "Company") and SCOTT M. NORTHCUTT ("Executive"). IN CONSIDERATION of the premises and the mutual covenants set forth below, the parties hereby agree as follows: 1. Employment. The Company hereby agrees to employ Executive as Senior Vice President of Human Resources of the Company, and Executive hereby accepts such employment, on the terms and conditions hereinafter set forth. 2. Term. The period of employment of Executive by the Company hereunder (the "Employment Period") shall commence on January 26, 1999 (the "Commencement Date") and shall continue through January 25, 2004. The Employment Period may be sooner terminated in accordance with Section 6 of this Agreement. 3. Position and Duties. During the Employment Period, Executive shall report directly to the Chairman and Chief Executive Officer of the Company. Executive shall have those powers and duties normally associated with the position of Senior Vice President of Human Resources. Executive shall devote substantially all of his working time, attention and energies (other than absences due to illness or vacation) to the performance of his duties for the Company. Notwithstanding the above, Executive shall be permitted, to the extent such activities do not interfere with the performance by Executive of his duties and responsibilities hereunder or violate Sections 10(a), (b) or (c) of this Agreement, to (i) manage Executive's personal, financial and legal affairs, (ii) serve on civic or charitable boards or committees and (iii) subject to the approval of the board of directors of the Company (the "Board") (which approval shall not be unreasonably withheld), serve on the board of directors or other similar governing body of any other corporation or other business entity or trade organization. 4. Place of Performance. The principal place of employment of Executive shall be at the Company's principal executive offices. 5. Compensation and Related Matters. (a) Base Salary. During the Employment Period the Company shall pay Executive a base salary at the rate of not less than $245,000 per year ("Base Salary"). Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. Executive's Base Salary shall be subject to increase, but not decrease, pursuant to annual review by the Compensation and Organization Committee of the Board (the "Compensation Committee"). Such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement. (b) Company Stock Option. The Company has granted to Executive, on the Commencement Date, a stock option to purchase 100,000 shares of the common stock of the Company, par value $2.50 per share (the "Company Stock"), at an exercise price of $9.00 per share, pursuant to the Company's 1996 Stock Incentive Plan (the "Company Options"). Each of the Company Options has a scheduled 10-year term and, subject to the terms of the applicable stock option agreements between the Company and Executive, shall vest and become exercisable (i) with respect to 25% of the shares of Company Stock subject to such Company Options on each of the first four anniversaries of the Commencement Date and (ii) upon the occurrence of a Change of Control (as such term is defined in that certain Change of Control Employment Agreement, dated as of the date of this Agreement, between the Company and Executive) with respect to 100% of the Company Stock subject to Company Options. (c) Annual Bonus. Executive shall have a target annual bonus of 55% of Base Salary and a maximum annual bonus of 110% of Base Salary, based upon meeting performance goals established by the Compensation Committee. The performance goals and corresponding bonus amounts during the Employment Period shall be established by the Compensation Committee. (d) Expenses. The Company shall promptly reimburse Executive for all reasonable business expenses upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all senior executive officers of the Company. (e) Vacation. Executive shall be entitled to the number of weeks of vacation per year provided to the Company's senior executive officers. (f) Restricted Stock Grant. The Company has granted to Executive, on the Commencement Date, eight thousand (8,000) shares of restricted Company Stock (the "Restricted Stock") pursuant to the Company's 1990 Stock Incentive Plan. In connection with the grant of the Restricted Stock, Executive shall make an election prior to February 26, 1999 to include in gross income the value of the Restricted Stock on the date of grant pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"). Upon notification from Executive that he has made such election, the Company shall pay to Executive an additional payment in an amount necessary to cause the net amount of such payment that is retained by Executive after the calculation and deduction of any and all federal, state and local income taxes and employment taxes on such payment to be equal to Executive's income taxes attributable to the Restricted Stock and Executive's election under Section 83(b) of the Code in connection with the Restricted Stock. (g) Welfare, Pension and Incentive Benefit Plans. During the Employment Period, Executive (and his spouse and dependents to the extent provided therein) shall be entitled to participate in and be covered under all the welfare benefit plans or programs maintained by the Company from time to time for the benefit of its senior executives including, without limitation, all medical, life, hospitalization, dental, disability, accidental death and dismemberment and travel accident insurance plans and programs. In addition, during the Employment Period, Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by the Company for the benefit of its senior executives or any annual incentive or long-term performance plans. (h) Offices. Executive shall serve, without additional compensation, as a director or trustee of the Company's wholly-owned subsidiaries, (and as a member of any committees of the board of directors of any such entities), and in one or more executive positions of any of such subsidiaries, provided that Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is then provided to any other director of such entity. (i) Relocation. The Executive shall be provided with the Company's standard relocation program for transferred senior executive officers in order to relocate to the Company's principal executive offices in Lewisville, Texas, including travel costs, temporary housing, moving costs of household belongings, storage costs for up to one year, and any other expenses necessary to efficiently effect Executive's relocation (collectively, the "Relocation Payment"). Also, at the Executive's option, at any time during up to the first two (2) years of the employment period, the Company shall purchase the Executive's residence located in Bentonville, Arkansas, at a purchase price equal to the greater of its respective appraised value (as set by an appraiser designated by the Company) or the Executive's documented invested cost in the residence (the "Residence Payment"). In addition to these payments, the Company shall pay the Executive an additional payment in an amount (the "Tax Gross-Up Amount") necessary to cause the net amount of such payment that is retained by the Executive after the calculation and deduction of all federal, state and local income taxes and employment taxes on such payments to be equal to the Executive's income tax attributable to such payments for the Relocation Payment and the Residence Payment. In the event the Executive voluntarily leaves his employment with the Company, other than for "Good Reason" (as such term is hereafter defined), prior to January 26, 2001, the Executive shall repay the Company an amount equal to the Relocation Payment, plus the Tax Gross-Up Amount attributable to the Relocation Payment within thirty (30) days after his termination of employment; provided, however, that this repayment obligation shall be waived in equal increments each of one eighth (1/8th) of the total amount, for each three consecutive months during which the Executive is employed following January26, 1999. (j) Indemnification and Insurance. Executive shall be indemnified and held harmless by the Company during the term of this Agreement and following any termination of this Agreement for any reason whatsoever in the same manner as would any other key management associate of the Company with respect to acts or omissions occurring prior to the termination of employment of the Executive under this Agreement. In addition, during the Employment Period and for a period of five years following the termination of employment of the Executive under this Agreement for any reason whatsoever, the Executive shall be covered by a Company-held directors and officers liability insurance policy covering acts or omissions occurring prior to the termination of employment of the Executive under this Agreement. (k) Signing Bonus. Within thirty days after the Commencement Date, the Executive will receive a cash bonus from the Company ("Signing Bonus") in the gross amount necessary to cause the net amount of the Signing Bonus, after the calculation and deduction of any and all federal, state and local income taxes and employment taxes on the Signing Bonus payment to be equal to $71,000. 6. Termination. Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (a) Death. Executive's employment hereunder shall terminate upon his death. (b) Disability. If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been substantially unable to perform his duties hereunder for an entire period of six (6) consecutive months, and within thirty (30) days after written Notice of Termination is given after such six (6) month period, Executive shall not have returned to the substantial performance of his duties on a full- time basis, the Company shall have the right to terminate Executive's employment hereunder for "Disability", and such termination in and of itself shall not be, nor shall it be deemed to be, a breach of this Agreement. (c) Cause. The Company shall have the right to terminate Executive's employment for Cause, and such termination shall not be, nor shall it be deemed to be, a breach of this Agreement. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment upon: (i) Executive's conviction of a felony by a federal or state court of competent jurisdiction; or (ii) an act or acts of dishonesty taken by Executive and intended to result in substantial personal enrichment of Executive at the expense of the Company; or (iii) Executive's "willful" failure to follow a direct, reasonable and lawful order from the Board and/or the Chairman and Chief Executive Officer, within the reasonable scope of Executive's duties, which failure is not cured within thirty (30) days. For purposes of this Section 6(c), no act, or failure to act, by Executive shall be considered "willful" unless done, or omitted to be done, by Executive not in good faith and without a reasonable belief that the act or omission was in the best interests of the Company. Cause shall not exist under paragraphs (i), (ii) or (iii) above unless and until the Company has delivered to Executive a copy of a resolution duly adopted by not less than three-fourths (3/4ths) of the Board (excluding Executive) at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of the conduct set forth in paragraphs (i),(ii) or (iii) and specifying the particulars thereof in detail. (d) Good Reason. Executive may terminate his employment for "Good Reason" by providing Notice of Termination (as defined in Section 7(a)) to the Company within one hundred and twenty (120) days after Executive has actual knowledge of the occurrence, without the written consent of Executive, of one of the events set forth below. Executive's Date of Termination for Good Reason shall be fifteen (15) days after Notice of Termination, unless the basis for Good Reason has been cured by the Company prior to such date: (i) the assignment to Executive of duties materially and adversely inconsistent with Executive's status as Executive Vice President and Chief Financial Officer of the Company or a material and adverse alteration in the nature of Executive's duties and/or responsibilities, reporting obligations, titles or authority; (ii) a reduction by the Company in Executive's Base Salary; (iii) the relocation of (a) the Company's principal executive offices or Executive's own office location to a location more than twenty five (25) miles from Oklahoma City except with respect to one relocation during the term of this Agreement, provided such relocation is pursuant to recommendation of the Chairman and Chief Executive Officer or an action by the Board concurred in by the Chairman and Chief Executive Officer, as evidenced by his vote, or (b) Executive's office location to a place other than the Company's principal executive offices; (iv) the Company's failure to provide any material employee benefits due to be provided to Executive (other than any such failure which affects all senior executive officers); or (v) the failure of any successor to the Company to assume this Agreement pursuant to Section 12(a). Executive's right to terminate his employment hereunder for Good Reason shall not be affected by his incapacity due to physical or mental illness. Executive's continued employment during the one hundred and twenty (120) day period referred to above in this paragraph (d) shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (e) Without Cause. The Company shall have the right to terminate Executive's employment hereunder without Cause by providing Executive with a Notice of Termination, and such termination shall not in and of itself be, nor shall it be deemed to be, a breach of this Agreement. 7. Termination Procedure. (a) Notice of Termination. Any termination of Executive's employment by the Company or by Executive during the Employment Period (other than termination pursuant to Section 6(a)) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated pursuant to Section 6(b), thirty (30) days after Notice of Termination (provided that Executive shall not have returned to the substantial performance of his duties on a full- time basis during such thirty (30) day period), (iii) if Executive's employment is terminated pursuant to Section 6(d), the date provided in such Section, and (iv) if Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date (within thirty (30) days after the giving of such notice) set forth in such Notice of Termination. 8. Compensation Upon Termination or During Disability. In the event Executive is disabled or his employment terminates during the Employment Period, the Company shall provide Executive with the payments and benefits set forth below. Executive acknowledges and agrees that the payments set forth in this Section 8, and the other agreements and plans referenced in this Agreement, constitute the sole and liquidated damages for termination of his employment during the Employment Period. The Executive also agrees that the Company shall have the right to deduct any amounts owed by the Executive to the Company for any reason, including, without limitation, due to the Executive's misappropriation of Company funds, from the payments set forth in this Section 8. (a) Termination By Company without Cause or By Executive for Good Reason. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason: (i) the Company shall pay to Executive (A) his Base Salary and accrued vacation pay through the Date of Termination, as soon as practicable following the Date of Termination, and (B) continued Base Salary (as provided for in Section 5(a)) for a period of twenty-four (24) months following the Date of Termination; (ii) the Company shall maintain in full force and effect, for the continued benefit of Executive, his spouse and his dependents for a period of twenty-four (24) months following the Date of Termination the medical, hospitalization, dental, and life insurance programs in which Executive, his spouse and his dependents were participating immediately prior to the Date of Termination at the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the Date of Termination; provided, that if Executive, his spouse or his dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, his spouse and his dependents with the economic equivalent of such benefits which they otherwise would have been entitled to receive under such plans and programs ("Continued Benefits"); provided, that if Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period; (iii) the Company shall reimburse Executive pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment; and (iv) Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. (b) Cause or By Executive Without Good Reason. If Executive's employment is terminated by the Company for Cause or by Executive (other than for Good Reason): (i) the Company shall pay Executive his Base Salary and his accrued vacation pay (to the extent required by law or the Company's vacation policy) through the Date of Termination, as soon as practicable following the Date of Termination; (ii) the Company shall reimburse Executive pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment, unless such termination resulted from a misappropriation of Company funds; and (iii) Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. (c) Disability. During any period that Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), Executive shall continue to receive his full Base Salary set forth in Section 5(a) until his employment is terminated pursuant to Section 6(b). In the event Executive's employment is terminated for Disability pursuant to Section 6(b): (i) the Company shall pay to Executive (A) his Base Salary and accrued vacation pay through the Date of Termination, as soon as practicable following the Date of Termination, and (B) provide Executive with disability benefits pursuant to the terms of the Company's disability programs; (ii) the Company shall reimburse Executive pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment; and (iii) Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. (d) Death. If Executive's employment is terminated by his death: (i) the Company shall pay in a lump sum to Executive's beneficiary, legal representatives or estate, as the case may be, Executive's Base Salary through the Date of Termination; (ii) the Company shall reimburse Executive's beneficiary, legal representatives, or estate, as the case may be, pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment; and (iii) Executive's beneficiary, legal representatives or estate, as the case may be, shall be entitled to any other rights, compensation and benefits as may be due to any such persons or estate following such termination to which such persons or estate is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. 9. Mitigation. Executive shall not be required to mitigate amounts payable under this Agreement by seeking other employment or otherwise, and, notwithstanding Section 8 hereof, there shall be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. 10. Confidential Information, Ownership of Documents; Non-Competition. (a) Confidential Information. Executive shall hold in a fiduciary capacity for the benefit of the Company all trade secrets and confidential information, knowledge or data relating to the Company and its businesses and investments and its Affiliates, which shall have been obtained by Executive during Executive's employment by the Company and which is not generally available public knowledge (other than by acts by Executive in violation of this Agreement). Except as may be required or appropriate in connection with his carrying out his duties under this Agreement, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or any legal process, or as is necessary in connection with any adversarial proceeding against the Company (in which case Executive shall use his reasonable best efforts in cooperating with the Company in obtaining a protective order against disclosure by a court of competent jurisdiction), communicate or divulge any such trade secrets, information, knowledge or data to anyone other than the Company and those designated by the Company or on behalf of the Company in the furtherance of its business or to perform duties hereunder. (b) Removal of Documents; Rights to Products; Other Property. All records, files, drawings, documents, models, equipment, and the like relating to the Company's business and its Affiliates, which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out his duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination of employment. Executive shall assign to the Company all rights to trade secrets and other products relating to the Company's business developed by him alone or in conjunction with others at any time while employed by the Company. Executive shall also return to the Company all Company-provided vehicles in his possession or control. (c) Protection of Business. During the Employment Period and until the second anniversary of Executive's Date of Termination (other than if such termination is by the Company without Cause or by Executive for Good Reason), the Executive will not directly or indirectly, be a shareholder, principal, agent, partner, officer, director, employee or consultant of SUPERVALU, Inc., Nash Finch Company, Richfood Holdings, Inc. or any other direct competitor of the Company, excluding, national retail chains, or any subsidiary, affiliate or successor of any direct competitor of the Company (collectively, the "Competitors"). Notwithstanding the preceding sentence, the Executive shall not be prohibited from owning less than one percent (1%) of any publicly traded corporation (or from owning any greater percentage if such ownership is through a mutual fund or other diversified investment vehicle in which he has a passive and minority interest), whether or not such corporation is a Competitor. If, at any time, the provisions of this Section 10(c) shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 10(c) shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Executive agrees that this Section 10(c) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. The parties agree that the duration and geographic area for which the covenant not to compete set forth in this Section 10(c) is to be effective are reasonable. (d) Injunctive Relief. In the event of a breach or threatened breach of this Section 10, Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, Executive acknowledging that damages would be inadequate and insufficient. (e) Continuing Operation. Except as specifically provided in this Section 10, the termination of Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 10. 11. Arbitration; Legal Fees and Expenses. The parties agree that Executive's employment and this Agreement relate to interstate commerce, and that any disputes, claims or controversies between Executive and the Company which may arise out of or relate to the Executive's employment relationship or this Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Dallas, Texas unless the parties mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The parties agree that punitive, liquidated or indirect damages shall not be awarded by the arbitrator(s). Nothing in this agreement to arbitrate, however, shall preclude the Company from obtaining injunctive relief from a court of competent jurisdiction prohibiting any on- going breaches by Executive of this Agreement including, without limitation, violations of Section 10. If any contest or dispute shall arise between the Company and Executive regarding any provision of this Agreement, the Company shall reimburse Executive for all legal fees and expenses reasonably incurred by Executive in connection with such contest or dispute, but only if Executive is successful in respect of one or more of Executive's material claims or defenses brought, raised or pursued in connection with such contest or dispute. Such reimbursement shall be made as soon as practicable following the resolution of such contest or dispute to the extent the Company receives reasonable written evidence of such fees and expenses. 12. Successors Binding Agreement. (a) Company's Successors. No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 12 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) Executive's Successors. No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. Executive shall be entitled to select and change a beneficiary or beneficiaries to receive any benefit or compensation payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or other legal representative(s). If Executive should die following his Date of Termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to such person or persons so appointed in writing by Executive, or otherwise to his legal representatives or estate. 13. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to Executive: At his last known address evidenced on the Company's payroll records. If to the Company: Fleming Companies, Inc. 6301 Waterford Boulevard Oklahoma City, Oklahoma 73126-0647 Attention: General Counsel or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. Miscellaneous. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The respective rights and obligations of the parties hereunder shall survive Executive's termination of employment and the termination of this Agreement to the extent necessary for the intended preservation of such rights and obligations. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas without regard to its conflicts of law principles. 15. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. 18. Withholding. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 19. Section Headings. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to amend, restate and supercede in its entirety their prior Employment Agreement effective on the date first above written. FLEMING COMPANIES, INC. By LENORE T. GRAHAM Lenore T. Graham, Senior Vice President, General Counsel and Secretary SCOTT M. NORTHCUTT Scott M. Northcutt EX-12 14 Exhibit 12 FLEMING COMPANIES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FISCAL YEAR ENDED THE LAST SATURDAY IN DECEMBER 1999 1998 1997 1996 1995 (IN THOUSANDS OF DOLLARS) Earnings: Pre-tax income (loss) $ (62,581) $(598,202) $ 82,685 $ 54,573 $ 85,892 Fixed charges, net 193,263 195,956 197,923 202,184 209,830 Total earnings (loss) $ 130,682 $(402,246) $ 280,608 $ 256,757 $ 295,722 Fixed charges: Interest expense $ 165,180 $ 161,581 $ 162,506 $ 163,466 $ 175,390 Portion of rental charges deemed to be interest 27,626 33,948 35,050 38,356 34,113 Capitalized interest and debt issuance cost amortization 1,117 604 1,186 104 708 Total fixed charges $ 193,133 $ 196,133 $ 198,742 $ 201,926 $ 210,211 Deficiency $ 62,451 $ 598,379 Ratio of earnings (loss) to fixed charges 0.67 (2.05) 1.41 1.27 1.41
"Earnings" consist of income from continuing operations before income taxes and fixed charges excluding capitalized interest. Capitalized interest amortized during the respective periods is added back to earnings. "Fixed charges, net" consist of interest expense, an estimated amount of rental expense which is deemed to be representative of the interest factor and amortization of capitalized interest and debt issuance cost. The pro forma ratio of earnings to fixed charges is omitted as it is not applicable. Under the company's long-term debt agreements, "earnings" and "fixed charges" are defined differently and amounts and ratios differ accordingly. EX-21 15 Exhibit 21 FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Fleming Companies, Inc. had the following subsidiaries at year-end 1999: ABCO Holding, Inc. (incorporated in Delaware),*,# ABCO Markets Inc. (incorporated in Arizona),* ABCO Realty Corp. (incorporated in Arizona)* AG, L.L.C. (incorporated in Oklahoma)* American Logistics Group, Inc. (incorporated in Delaware) Arizona Price Impact, L.L.C. (incorporated in Oklahoma),# Chouteau Development Company, L.L.C. (incorporated in Oklahoma),# eMar.net, Inc. (incorporated in Delaware)# FAVAR CONCEPTS, LTD. (incorporated in Delaware)* Fleming Foods Management Co., L.L.C. (incorporated in Oklahoma)* Fleming Foods of Texas, L.P. (incorporated in Oklahoma)*,# Fleming Foreign Sales Corporation (incorporated in Barbados) Fleming International Ltd. (incorporated in Oklahoma)* Fleming Supermarkets of Florida, Inc. (incorporated in Florida) Fleming Transportation Service, Inc. (incorporated in Oklahoma) Fleming Wholesale, Inc. (incorporated in Nevada)* Gateway Insurance Agency, Inc. (incorporated in Wisconsin) LAS, Inc. (incorporated in Oklahoma),* Northwest Foods, L.L.C. (incorporated in Oklahoma),*,# Piggly Wiggly Company (incorporated in Oklahoma) Progressive Realty, Inc. (incorporated in Oklahoma) Retail Investments, Inc. (incorporated in Nevada) Retail Supermarkets, Inc. (incorporated in Texas) RFS Marketing Services, Inc. (incorporated in Oklahoma) Richmar Foods, Inc. (incorporated in California) SAV-U-FOODS, Inc. (incorporated in Oklahoma),*,# Scrivner Transportation, Inc. (incorporated in Oklahoma),* University Foods, Inc. (incorporated in Utah) * Inactive corporation # Not 100% owned by Fleming Companies, Inc. or subsidiary. EX-23 16 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in: (i) Registration Statement No. 2-98602 (1985 Stock Option Plan) on Form S-8; (ii) Registration Statement No. 33-36586 (1990 Fleming Stock Option Plan) on Form S-8; (iii) Registration Statement No. 33-56241 (Dividend Reinvestment and Stock Purchase Plan) on Form S-3; (iv) Registration Statement No. 333-11317 (1996 Fleming Incentive Stock Option Plan) on Form S-8; (v) Registration Statement No. 333-35703 (Senior Subordinated Notes) on Form S-4; (vi) Registration Statement No. 333-28219 (Associate Stock Purchase Plan) on Form S-8; (vii) Registration Statement No. 333-80445 (1999 Stock Incentive Plan) on Form S-8; and (viii) Registration Statement No. 333-89375 (Consolidated Savings Plus and Stock Ownership Plan) on Form S-8 of our report dated February 18, 2000, appearing in this Annual Report on Form 10-K of Fleming Companies, Inc. for the year ended December 25, 1999. DELOITTE & TOUCHE LLP Oklahoma City, Oklahoma March 13, 2000 EX-24 17 Exhibit 24 POWER OF ATTORNEY We, the undersigned officers and directors of Fleming Companies, Inc. (hereinafter the "Company"), hereby severally constitute Mark S. Hansen, Neal Rider and Lenore T. Graham, and each of them severally, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names as officers or directors, or both, of the Company, the Annual Report on Form 10-K for the fiscal year ended December 25, 1999, and any and all amendments thereto, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. Dated this 29th day of February 2000. Signature Title MARK S. HANSEN Chairman and Chief Executive Mark S. Hansen Officer (principal executive officer) NEAL RIDER Executive Vice President and Neal Rider Chief Financial Officer (principal financial officer) KEVIN TWOMEY Senior Vice President, Finance Kevin Twomey and Controller (principal accounting officer) JACK W. BAKER Director Jack W. Baker HERBERT M. BAUM Director Herbert M. Baum ARCHIE R. DYKES Director Archie R. Dykes CAROL B. HALLETT Director Carol B. Hallett EDWARD C. JOULLIAN III Director Edward C. Joullian III GUY A. OSBORN Director Guy A. Osborn ALICE M. PETERSON Director Alice M. Peterson DAVID A. RISMILLER Director David A. Rismiller EX-27 18
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-25-1999 DEC-27-1998 DEC-25-1999 5,967 0 528,359 32,200 997,805 1,728,750 1,539,465 701,289 3,573,218 1,283,719 1,234,185 0 0 97,141 463,561 3,573,218 14,645,566 14,645,566 13,208,399 14,518,263 0 24,704 165,180 (62,581) (17,853) (44,728) 0 0 0 (44,728) (1.17) (1.17)
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