-----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, VJZ41zI1NjLgQIUCbn61ZjQmx8D9EtgFF+2v+LyPZgXEIPAzyqA+xjbCrU0+lfB/ IVAeyjN+kPyPPTy0Q2ILCw== 0001047469-98-009466.txt : 19980313 0001047469-98-009466.hdr.sgml : 19980313 ACCESSION NUMBER: 0001047469-98-009466 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980312 SROS: CSE 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: 98563989 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 FORM 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 27, 1997 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 73126 OKLAHOMA CITY, OKLAHOMA (Zip code) (Address of principal executive offices) Registrant's telephone number, including area (405) 840-7200 code:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - ------------------------------------------- ----------------------------- Common Stock, $2.50 Par Value and New York Stock Exchange Common Stock Purchase Rights Pacific Stock Exchange Chicago Stock Exchange 9.5% Debentures New York 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. Yes _X_ 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 February 20, 1998 of these shares on the New York Stock Exchange) of Fleming Companies, Inc. held by nonaffiliates was approximately $651 million. As of February 20, 1998, 38,300,000 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 14, 1998. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Fleming Companies, Inc. ("Fleming" or the "company") began operations in 1915 as a food wholesaler and today is a recognized leader in the food marketing and distribution industry. Fleming's food distribution business is conducted by its Food Distribution Segment, which is one of the largest food distributors in the United States. Fleming's retail business is conducted by its Retail Food Segment which owns 14 local chains and groups operating under separate banners. The Retail Food Segment is one of the major food retailers in the United States based on net sales. Fleming's businesses generated net earnings of $42 million, $27 million and $25 million for fiscal 1995, 1996 and 1997, respectively. Additionally, the company generated net cash flows from operations of $399 million, $328 million and $113 million for the same periods, respectively. The combined businesses generated $448 million, $435 million and $454 million of Adjusted EBITDA for fiscal 1995, 1996 and 1997, respectively. "Adjusted EBITDA" is earnings before extraordinary items and accounting changes before taking into consideration interest expense, income taxes, depreciation and amortization, equity investment results and one-time adjustments. Fleming is focused on achieving earnings growth in both its distribution and retail food businesses. In its food distribution business, the company is (i) increasing its sales efforts, particularly by emphasizing the company's marketing plan alternatives and information technology systems, (ii) streamlining and strengthening Fleming Brands and its offerings of Retail Services and (iii) broadening its perishables and foodservice offerings. In its retail food business, Fleming is making significant investments in new and remodeled stores in its existing retail chains and will seek selective acquisitions of supermarket groups or chains which can be integrated into Fleming's distribution infrastructure. The company will continue to implement cost reduction initiatives in both of its business segments and in its corporate staff operations. OPERATING SEGMENTS FOOD DISTRIBUTION SEGMENT. At year-end 1997, Fleming's Food Distribution Segment served as the principal source of supply for more than 3,000 supermarkets (including supermarkets owned by Fleming's Retail Food Segment), which represented approximately 10% of all supermarkets in the United States. Distribution operations are conducted through a network of 35 full-line food product supply centers, six general merchandise (including health and beauty care and specialty food products) distribution centers, and two centers focused primarily on serving convenience stores. The Food Distribution Segment serves stores of various sizes located in 42 states. Distribution customers operate in a wide variety of formats including conventional full-service supermarkets, supercenters, price impact stores, combination stores and convenience stores. Net sales for the Food Distribution Segment were $13.9 billion, including $2.0 billion of net sales to the Retail Food Segment, for fiscal 1997. The Food Distribution Segment offers a complete selection of national brands and Fleming Brands, including groceries, meat, dairy and delicatessen products, frozen foods, produce, bakery goods and a variety of general merchandise and related items. Fleming Brands, which include both private label products and controlled label products, offer consumers a quality alternative to national brands at a reasonable price while generating improved margins (for both the retailer and the Food Distribution Segment) and reinforcing the retailer's marketing identity. The company is expanding its line of in-store foodservice products to offer consumers more home meal solutions. The Food Distribution Segment also offers an extensive menu of individually marketed and priced Retail Services, which draw on Fleming's broad industry expertise and are designed to enable both Fleming-owned and Fleming-served retailers to compete more effectively. The company is working to encourage independents and small chains to join one of the Fleming Banner Groups to increase marketing strength and procurement benefits from vendors. Fleming Banner Group stores are owned by customers, many of which license their store banner from Fleming. Fleming 1 Banner Groups are retail stores operating under the IGA-Registered Trademark- or Piggly Wiggly-Registered Trademark- banner or under one of a number of banners representing a price impact retail format. In 1994, the Food Distribution Segment initiated a substantial cost reduction effort. Through year-end 1997, the Food Distribution Segment has consolidated 13 distribution centers into larger, more efficient facilities, eliminated a substantial number of full and part-time positions (see "--Employees"), eliminated over 3 million square feet of warehouse space and consolidated information technology data centers. In addition, since 1994 the Food Distribution Segment has developed the FlexPro-TM-, FlexStar-TM- and FlexMate-TM- marketing plans for grocery, frozen and dairy products. See "--Pricing." RETAIL FOOD SEGMENT. The Fleming Retail Food Segment operates more than 275 supermarkets which are operated as 14 local chains and groups under 13 separate banners. The Retail Food Segment's supermarkets vary in format from conventional supermarkets to super warehouse stores and serve consumers in the Minneapolis, Phoenix, Milwaukee, Omaha, Buffalo, Peoria, Oklahoma City and Salt Lake City markets as well as important regional areas located in Pennsylvania, Florida, Maryland, Kansas, Missouri, Arkansas and California. Each Retail Food Segment supermarket is served by a product supply center operated by the Food Distribution Segment. In 1997, the Retail Food Segment improved its performance by: - selling or closing 21 stores which were unprofitable or inconsistent with Fleming's strategy, - acquiring 6 stores, opening 14 new stores and remodeling 22 stores, - implementing additional customer loyalty programs which have become key marketing tools, and - installing computer-based training in many Retail Food Segment supermarkets. Net sales of the Retail Food Segment were $3.5 billion for fiscal 1997 compared to $0.7 billion in fiscal 1992. This growth is attributable primarily to acquisitions, but also to remodeled stores and newly constructed stores. 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. COMPETITIVE STRENGTHS Fleming believes that its position as a leader in the food marketing and distribution industry is attributable to a number of competitive strengths: - Significant Customer Base: As one of the largest food marketing and distribution companies in the United States, with 43 product supply centers and more than 275 company-owned stores, the company has access to millions of consumers who shop at Fleming-supported retail stores. - Streamlined Operations: During the past three years, the Food Distribution Segment has significantly enhanced the efficiency of its distribution network as a result of facilities consolidations, staff reductions resulting from reorganizations, warehouse space eliminations and transportation outsourcing. In addition, 30 of the company's full-line food product supply centers and five general merchandise distribution centers operate under Fleming's on-line operating distribution system ("FOODS"), an internally developed information technology software system. Fleming's non-converted general merchandise distribution center and each of its remaining product supply centers (which were acquired by the company in acquisitions of local and regional wholesale operations) operate on its own unique information technology system. Conversion to FOODS, which will require a separate approach for each such system, is being undertaken and completed as resources permit and operations require. 2 - Fleming Retail Food Segment: The Retail Food Segment's portfolio of 14 chains and groups operating under 13 distinct retail banners, each with its own identity, local management and marketing capabilities, provides a stable sales volume for the Food Distribution Segment and gives Fleming important first-hand knowledge of consumer preferences and the retail environment. Retail sales also offer Fleming the opportunity to earn attractive margins relative to its distribution operations. - High Quality Fleming Brands: Fleming Brands generally produce higher margins than national brands for retailers and the Food Distribution Segment, and increase consumer loyalty. Capitalizing on its substantial purchasing power and efficient distribution system, the Food Distribution Segment offers a wide range of high quality Fleming Brands which are being marketed through a comprehensive campaign. - Expertise in Perishables: The company has developed extensive expertise in handling, marketing, distributing and retailing higher margin perishable products. The company derived approximately 40% of product sales in 1997 from the sale of perishables. - Diverse Operations: With customers in 42 states, Fleming is geographically diverse. It also has broad experience in supplying and in operating retail food stores across a full spectrum of formats and pricing strategies. BUSINESS STRATEGY Fleming's business strategy is to leverage its competitive strengths to achieve earnings growth in its marketing and distribution business and in its retail business. As principal elements of its business strategy, Fleming will: - Focus on Distribution Earnings Growth: The Food Distribution Segment will continue to pursue profitable sales and the expansion of its customer base. The company pursues those customers and sales which can be profitable for the long term, and will manage its costs in accordance with sales performance. Fleming will strive to be the best-value supplier of products and services. Our mission statement is "to excel at meeting the needs of consumers who shop at each Fleming-supported retail store." Renewed sales efforts are emphasizing regaining customers lost since 1994, in part by highlighting the advantages of Fleming's marketing plan alternatives. The company will continue to use activity-based pricing in order to rationalize its pricing and direct its marketing efforts to value-added services and products. Efforts to educate retailers about the advantages of Fleming Retail Services in managing their businesses will also be increased. Finally, investments in and loans to retailers will continue to be made on a selective basis. - Expand Retail Operations: Fleming will seek to increase its ownership of retail food operations by increasing investments in new and remodeled stores within the Retail Food Segment and by selective acquisitions of additional groups and chains, primarily in the markets already served by the Food Distribution Segment. Retail sales have the potential to generate attractive gross margins relative to Fleming's food distribution business, and management believes that its broad expertise in meeting consumer needs can be leveraged through a larger retailing business. The company will seek to improve the Retail Food Segment's profitability by increasing administrative efficiencies and divesting unprofitable stores as needed. - Aggressively Market Fleming Retail Services: The Food Distribution Segment will exploit opportunities for growth in Fleming Retail Services. In conjunction with the development of new marketing plans, Fleming "unbundled" the Retail Services offered to its distribution customers, giving them the opportunity to choose the services they wish to receive. The company has also repriced its Retail Services based on market analyses. The Retail Services group seeks to increase penetration with 3 existing customers and to attract new customers. A major component of this effort is VISIONET-Registered Trademark-, the company's proprietary interactive electronic information network. - Emphasize Perishables and Foodservice Offerings: Fleming is increasing its emphasis on higher margin perishables as consumer demand grows for fresh and prepared foods, in-store bakeries, delis, and expanded meat and produce offerings. The company is also developing home meal solutions under its Chef's Cupboard Concepts-TM- banner. Twenty-eight modular units were installed in 1996 and 106 in 1997. Also in development is a total store merchandising program for marketing convenient meal solutions that can be prepared in 15 minutes or less. - Streamline and Strengthen Fleming Brands: Fleming believes it has a substantial opportunity to strengthen Fleming Brands, which currently account for approximately 5% of Food Distribution Segment sales and approximately 6% of Retail Food Segment sales. For the average supermarket, store brand products comprise approximately 17% of sales. Fleming Brands are targeted to three market segments: premium products, national quality products and value products. The company is consolidating its brands to focus on a limited portfolio of brands which include three national quality brands (BestYet-Registered Trademark-, IGA-Registered Trademark- and Piggly Wiggly-Registered Trademark-), at least one value brand (Rainbow-Registered Trademark-), and a multiple-brand group of premium, upscale products individually tailored to selected market niches. The increase in purchasing power and marketing strength expected to result from fewer brands should benefit Fleming's food distribution customers by further increasing margins, brand recognition and consumer loyalty. Additionally, the number of products offered in each brand will be expanded, and Fleming will develop new logos, packaging and marketing programs over the next two years to strengthen sales for Fleming Brands. The costs to consolidate the company's brands are expected to be immaterial. The consolidation program is being managed during the roll-out to maintain or improve the company's historic earnings level in this area. - Leverage Information Technology Systems: Fleming will continue to utilize and to provide its customers with market-leading information technology systems through retail services. Initiatives currently underway include an integrated retail management system which will combine point-of-sale systems, inventory management and shrinkage control systems, frequent shopper programs and labor scheduling systems. The Food Distribution Segment will continue to promote VISIONET-Registered Trademark- to attract and retain retailers, to more efficiently network information exchanges among vendors, Fleming and retailers. VISIONET-Registered Trademark- gives retailers access to inventory information, financial data, vendor promotions, retail support services and on-line ordering. Also, vendors compensate the company for access to Fleming's customers through VISIONET-Registered Trademark-. The network currently covers approximately 1,300 retail customer locations and is being upgraded with the introduction of a third generation. With this new version, VISIONET-Registered Trademark- will provide greater internet capabilities. The company's scale allows it to leverage investments in information technology more broadly than many of its competitors. Fleming will continue to incorporate state-of-the-art information technology systems in its own operations to advance its administrative efficiencies. - Increase Cost Efficiencies: The company will continue to aggressively exploit opportunities for further consolidation of its operating units and support systems, capitalize on staff efficiency initiatives, primarily in its administrative operations, and pursue additional outsourcing opportunities in transportation to satisfy customer needs. PRODUCTS The Food Distribution Segment supplies its customers (including the Retail Food Segment's supermarkets) 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. Full-line food product supply centers carry approximately 14,000 stock keeping units (or SKUs), including approximately 4,500 perishable products. General merchandise 4 and specialty food distribution centers offer more than 65,000 different items throughout the year. Food and food-related product sales account for over 90 percent of the company's consolidated sales. During each of the last three fiscal years, the company's product mix as a percentage of product sales was approximately 55% groceries, 40% perishables and 5% general merchandise. FLEMING BRANDS. Fleming Brands are store brands which include both private labels and controlled labels. Private labels are offered only in stores operating under specific banners (which may or may not be controlled by Fleming). Controlled labels are Fleming-owned brands which are offered to all food distribution customers. Fleming Brands are targeted to three market segments: premium, national quality and value. Each Fleming Brand offers consumers high quality products within each pricing tier. Fleming-controlled labels include SuperTru-Registered Trademark- and Marquee-Registered Trademark-, which are premium brands, BestYet-Registered Trademark-, which is a national quality brand, 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 Food Distribution Segment and the retailer to earn higher margins from the sale of Fleming Brands. PERISHABLES. Certain categories of perishables offer both the Food Distribution Segment and the retailers it serves (including the Retail Food Segment) opportunities for improved margins as consumers are generally willing to pay relatively higher prices for high quality produce, bakery goods and fresh prepared foods. Fleming is encouraging its perishables providers to emphasize more "ready-to-use" packaging alternatives to support consumer demands. The company believes retailers compete for business by emphasizing perishables and store brand products. The competitive emphasis is on fresh and prepared foods through in-store bakeries, delis, expanded meat and produce offerings, in-store home meal solutions, and ready-to-cook or heat-and-serve offerings. The company is utilizing its perishables expertise to develop fresh food in-store meal solutions concepts under its Chef's Cupboard Concepts-TM- banner. Twenty-eight modular units were installed during 1996 and 106 in 1997. These in-store shops are offered as turn-key operations and allow retailers to effectively compete for the rapidly growing foodservice dollar. Five concepts are currently being licensed under Chef's Cupboard Concepts-TM-: - Captain Subman-TM-, which offers deli-style sandwiches, soups and salads; - Baker's Blvd.-Registered Trademark-, with an assortment of premium baked goods; - Cinnamon Island-TM-, serving coffee and cinnamon rolls; - Chicken Store and More-TM-, offering baked chicken and side dishes; and - s'Italian Specialties-TM-, an Italian specialty food shop. RETAIL SERVICES Retail Services are being separately marketed, priced and delivered. Retail Services marketing and sales personnel look for opportunities to cross-sell additional Retail Services as well as other Food Distribution Segment products to their customers. The company offers consulting, administrative and information technology services to its Food Distribution Segment customers (including Retail Food Segment supermarkets) and non-customers. CONSULTING SERVICES: Retailers may call upon Fleming consultants to provide professional advice regarding most facets of retail operations. Consulting services include the following: ADVERTISING. Fleming believes its advertising service group is one of the largest retail food advertising agencies in the United States, offering full service advertising production, media buying services, assistance in promotional development and execution, and marketing consultation. 5 STORE DEVELOPMENT. This Retail Service uses the latest technology in market analysis, surveys and store development techniques to assist retailers in finding new locations as well as gaining operations productivity in existing physical plants. PRICING. Fleming consultants involve retailers directly in pricing their own products through pricing strategy development programs utilizing market surveys and new technology. STORE OPERATIONS. Consultants offer assistance in perishables quality control and standards monitoring, audit training, general supermarket management, store operations analysis, shrink control and supervision task outsourcing. FRANCHISING. Fleming assists retailers in selecting the most suitable franchising operating format. INSURANCE. Professional consultants are available for reviewing, pricing and coordinating retail insurance portfolios. ADMINISTRATIVE SERVICES: A retailer may use administrative services provided by Fleming to outsource functions being performed internally or to install new programs which are not feasible for the retailer to develop: EDUCATION. Fleming operates retail food education facilities for both hands-on and classroom training. Among the retail education services provided are training for all levels of store managers and employees, including selling skills, general management and perishables department training, and strategic planning. FINANCIAL. Fleming helps retailers track their financial performance by providing full accounting services, operating statements, payroll and accounts payable systems and tax return preparation. Additionally, it assists retailers in establishing and managing money order programs, pre-paid phone card programs and coupon redemption programs. RETAIL INVENTORY MANAGEMENT (RIM). Inventory control programs are being used to more effectively manage product selection, and to provide instant planogram, perpetual inventory and computer-assisted ordering capability. A simplified shelf-management version has been developed and is being implemented. PROMOTION. Numerous promotional tools are offered to assist retail operators in improving store traffic, such as frequent shopper programs, kiosk use and instant savings programs; continuity programs such as games, premium catalogs, etc.; and controlled markdown programs. INFORMATION TECHNOLOGY SYSTEMS: Fleming has invested heavily in creating new information technology products that offer retailers a competitive systems edge: RETAIL MANAGEMENT SYSTEMS. These services include POS equipment purchasing and leasing, including programs with the three largest vendors of scanning equipment; electronic payment systems; credit/ debit/EBT; direct store delivery and receiving systems; electronic shelf labels; in-store file managers; and total store technology solutions. VISIONET-REGISTERED TRADEMARK-. The company's proprietary interactive electronic information network gives retailers access to inventory information, financial data, vendor promotions, retail support services and on-line ordering. PRICING The Food Distribution Segment uses market research and cost analyses as a basis for pricing its products and services. In all locations, Retail Services are individually and competitively priced. 6 In approximately 55% of the Food Distribution Segment's sales base at year-end 1997, all products are sold under various selling plans. Under these selling plans, a distribution fee is added to the product price for various product categories. Under some selling plans, freight charges are also added to offset in whole or in part the cost of delivery services provided. Any cash discounts, certain allowances, and service income earned from vendors may be retained by the Food Distribution Segment. This has been referred to generally as the "traditional pricing" method. For the remaining 45% of its sales base at year-end 1997, the Food Distribution Segment utilized two alternative marketing plans, FlexPro-TM- and FlexStar-TM-, to market its grocery, frozen and dairy products. Under FlexPro-TM-, grocery, frozen and dairy products are listed at a price generally comparable to the net cash price paid by the Food Distribution Segment. Dealer allowances and service income are passed through to the customer. Service charges are established using the principles of activity-based pricing modified by market research. Activity-based pricing attempts to identify Fleming's cost of providing certain services in connection with the sale of products such as transportation, storage, handling, etc. Based on these identified costs, and with a view to market responses, Fleming establishes charges for these activities designed to recover Fleming's cost and provide the company with a reasonable profit. These charges are then added to aggregate product price. A fee is also charged for administrative services provided to arrange and manage certain allowances and service income offered by vendors and earned by the Food Distribution Segment and its customers. In all locations, the traditional pricing method is still applied for meat, produce, bakery goods, delicatessen products, tobacco supplies, and general merchandise and health and beauty care products. FlexPro-TM-, the original flexible marketing plan implemented in 1995, has been enhanced. FlexStar-TM- is very similar to FlexPro-TM- but generally uses a less complex presentation for distribution service charges by using customer-specific average charges. This averaging mechanism lessens the volatility of charges to the retailer but does not permit the retailer to manage his own product costs as fully as with FlexPro-TM-. In 1997 the Food Distribution Segment began to introduce FlexMate-TM-, a marketing plan with a presentation to customers comparable to the traditional pricing method but which operates from the same information technology system and data base as FlexPro-TM- and FlexStar-TM-. Fleming uses activity-based pricing to support pricing decisions for all locations using the FlexPro-TM-, FlexStar-TM- and FlexMate-TM- marketing plans. The company expects that it will have offered its alternative marketing plans to all customers in the 30 locations that operate under Fleming's on-line operating distribution system by the end of 1998 for grocery, frozen and dairy products. FACILITIES AND TRANSPORTATION The Food Distribution Segment currently operates 35 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 distribution centers distribute health and beauty care items and other items of general merchandise and specialty foods. Two distribution centers serve convenience stores. Thirty full-line food product supply centers and five general merchandise distribution centers operate under Fleming's internally developed on-line operating distribution system. All facilities are equipped with modern material handling equipment for receiving, storing and shipping large quantities of merchandise. The Food Distribution Segment's food and general merchandise distribution facilities comprise more than 20 million square feet of warehouse space. Additionally, the Food Distribution Segment rents, on a short-term basis, approximately 5 million square feet of off-site temporary storage space. Since the beginning of 1994, the company has closed 13 distribution centers removing more than 3 million square feet of warehouse space from its distribution system. Transportation arrangements and operations vary by distribution center and may vary by customer. Some customers prefer to handle product delivery themselves, others prefer the company to deliver 7 products, and still others ask the company to coordinate delivery with a third party. Accordingly, many distribution centers operate a truck fleet to deliver products to customers, and several centers also engage dedicated contract carriers to deliver products. The company increases the utilization of its truck fleet by backhauling products from suppliers and others, thereby reducing the number of empty miles traveled. To further increase its fleet utilization, the company has made its truck fleet available to other firms on a for-hire carriage basis. FOOD DISTRIBUTION SEGMENT CUSTOMERS The Food Distribution Segment serves retail stores that vary in size, format, organization, sales level and location. The size of retail stores served ranges from small convenience outlets to large supercenters. The company estimates the aggregate square feet of retail stores served is in excess of 100 million. The format of retail stores served is a function of size and marketing approach. The Food Distribution 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 a discount store and a 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 and sizes). The retail stores served are organized as single stores, multiple store independents and chain stores. At year-end 1997, the company served approximately 925 supermarkets organized as chains, including more than 275 Retail Food Segment stores. In accordance with customary industry definitions, 11 or more stores are referred to as a "chain" and operations of 10 or fewer are referred to as "independents." The company supplies over 6,500 retail stores, 3,000 of which average more than $2 million in sales per year and are considered "supermarkets" under industry standards. Supermarkets generally carry a wide variety of grocery, meat, produce, frozen food and dairy products and also handle an assortment of non-food items, including health and beauty care products and general merchandise such as housewares, soft goods and stationery. Most supermarkets also operate one or more specialty departments such as in-store bakeries, delicatessens, seafood departments or floral departments. The location of Fleming-supported retail stores is national in perspective with stores in 42 states. 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-, Rainbow Foods-Registered Trademark-, Shop N Bag-Registered Trademark-, Super Save-Registered Trademark-, Super Duper-Registered Trademark-, Super Foods-TM-, Super Thrift-Registered Trademark-, Thriftway-Registered Trademark-, and Value King-Registered Trademark-. There are more than 1,600 food stores operating under Fleming franchises or licenses, including approximately 150 operated by the Retail Food Segment. 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- 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 three largest external customers accounted for 10.1%, and its top 10 external customers accounted for 18.5%, of Food Distribution net sales during 1997. No single customer represented more than 3.6% of Food Distribution net sales. In October 1997, Furr's, the company's largest customer, and Fleming entered into an agreement that requires Furr's board to offer Furr's for sale. In July 1997, Randall's, the company's third largest customer, initiated arbitration proceedings against the company alleging it had been overcharged for products. See Item 3. Legal Proceedings. 8 SUPPLY CONTRACTS The company supplies goods and services to some of its customers (particularly to its large customers and to customers in which the company has made a significant investment) pursuant to supply contracts containing a "competitiveness" clause. Under this clause, a customer may submit a "qualified bid" from a third-party supplier to provide the customer with a range of goods and services comparable to those goods and services offered by Fleming. If the prices to be charged under the qualifying bid are lower than those charged by the company by more than an agreed percentage, the company may lower its prices to come within the agreed percentage or, if the company chooses not to lower its prices, the customer may accept the competitor's bid. The competitiveness clause is not exercised frequently and disputes regarding the clause must generally be submitted to binding arbitration. Additionally, the company believes that most of its supply contracts prohibit recovery of both punitive and consequential damages if any dispute ever arises. RETAIL FOOD SEGMENT Retail Food Segment supermarkets are operated as 14 distinct local chains or groups, under 13 banners, each with local management and localized marketing skills. Retail Food Segment supermarkets also share certain common administrative and support systems which are centrally monitored and administered for increased efficiencies. At year-end 1997, the Retail Food Segment owned and operated more than 275 supermarkets with an aggregate of approximately 11 million square feet of retail space. The Retail Food Segment's supermarkets are all served by Food Distribution Segment product supply centers. Net sales of the Retail Food Segment were $3.5 billion in fiscal 1997 compared to $0.7 billion in fiscal 1992. This growth is attributable primarily to acquisitions, but also to remodels and new stores. Formats of Retail Food Segment stores vary from price impact stores to conventional supermarkets. All Retail Food Segment supermarkets are designed and equipped to offer a broad selection of both national brands as well as Fleming Brands at attractive prices while maintaining high levels of service. Most supermarket formats have extensive produce sections and complete meat departments, together with one or more specialty departments such as in-store bakeries, delicatessens, seafood departments or floral departments. Specialty departments generally produce higher gross margins per selling square foot than general grocery sections. The Retail Food Segment's supermarkets are operated through the following local trade names: ABCO FOODS-TM-. Located in Phoenix and Tucson, ABCO was acquired in January 1996. Previously, ABCO had been a Food Distribution Segment customer in which Fleming held an equity position. ABCO operates 56 stores, of which a majority are "Desert Market" format conventional supermarkets, averaging 35,600 square feet. BAKER'S-TM-. Located primarily in Omaha, Nebraska and Oklahoma City, Oklahoma, Baker's-TM- operates 23 stores which are primarily superstores in format with a value-pricing strategy. Baker's-TM- stores average 52,900 square feet. BOOGAARTS-REGISTERED TRADEMARK- FOOD STORES. There are 22 Boogaarts stores, 20 in Kansas and 2 in Nebraska, with an average size of 16,000 square feet. They are conventional supermarkets with a competitive-pricing strategy. CONSUMERS FOOD & DRUG-TM-. Headquartered in Springfield, Missouri, Consumers operates 21 combination stores in Missouri, Arkansas and Kansas, with an average of 42,800 square feet. Consumers employs a competitive-pricing strategy. HYDE PARK MARKET-TM-. Located in south Florida, primarily in Miami, there are now 13 Hyde Park Market-TM- stores with an average size of 21,500 square feet. The stores are operated as conventional supermarkets with a value-pricing strategy. NEW YORK RETAIL. The two groups consist of 16 Jubilee Foods-Registered Trademark- stores and 17 Market Basket-TM- stores, operating in western New York and Pennsylvania. These stores are conventional supermarkets with a 9 competitive-pricing strategy. The Jubilee Foods-Registered Trademark- stores average 30,300 square feet and the Market Basket-TM- stores average 14,600 square feet in size. PENN RETAIL. This group is made up of 16 conventional supermarkets with a competitive-pricing strategy. It includes Festival Foods-Registered Trademark- and Jubilee Foods-Registered Trademark-operating primarily in Pennsylvania with several located in Maryland. The average size is approximately 36,600 square feet. RAINBOW FOODS-REGISTERED TRADEMARK-. With 36 stores in Minnesota, primarily Minneapolis/St. Paul, and Wisconsin, Rainbow Foods operates in a large-combination format, with a price impact pricing strategy. "Price impact" stores seek to minimize the retail price of goods by a reduced variety of product offerings, lower levels of customer services and departments, low overhead and minimal decor and advertising. The average store size for Rainbow Foods is 58,400 square feet. RICHMAR. Fleming owns a 90% equity interest in RichMar, which operates 6 Food 4 Less-Registered Trademark-supermarkets in California. They are operated as price impact stores and average 54,000 square feet per store. SENTRY-REGISTERED TRADEMARK- FOODS/SUPERSAVER-TM-. Located in Wisconsin, these two groups include 13 Sentry-Registered Trademark- Foods stores, which are conventional-format supermarkets with an average size of 36,600 square feet, and 21 SuPeRSaVeR-TM- stores, which are price impact stores with a lowest-in-the-area pricing strategy. SuPeRSaVeR-TM- stores average over 62,000 square feet. THOMPSON FOOD BASKET-REGISTERED TRADEMARK-. Located in Illinois and Iowa, these 12 stores average 28,900 square feet and are operated as conventional supermarkets with a competitive-pricing strategy. UNIVERSITY FOODS. University Foods is a group of 5 Food 4 Less-Registered Trademark- supermarkets in the Salt Lake City area, with an average size of 56,400 square feet. The supermarkets use a price impact pricing strategy. Fleming owned a majority interest in this group for a number of years, and in early 1997 acquired the remaining interest. Fleming Retail Food Segment stores provide added purchasing power as they enable Fleming to commit to certain promotional efforts at the retail level. The company, through its owned stores, is able to retain many of the promotional savings offered by vendors in exchange for volume increases. SUPPLIERS Fleming purchases its products from numerous vendors and growers. As the largest single customer of many of its suppliers, Fleming is able to secure favorable terms and volume discounts on many of its purchases, leading to lower unit costs. In addition, the company's practice of passing through vendor promotional fees and allowances under its new marketing plans enhances Fleming's competitiveness and strengthens its retail customers. The company purchases products from a diverse group of suppliers and believes it has adequate sources of supply for substantially all of its products. CAPITAL INVESTED IN CUSTOMERS As part of its services to retailers, the company provides capital to certain customers in several ways. In making credit and investment decisions, Fleming considers many factors, including estimated return on capital, risk and the benefits to be derived. Loans are approved by the company's business development committee following written approval standards. The company provides capital to certain customers by extending credit for inventory purchases, by becoming primarily or secondarily liable for store leases, by leasing equipment to retailers, by making secured loans and by making equity investments in customers. - EXTENSION OF CREDIT FOR INVENTORY PURCHASES: Customary trade credit terms are usually the day following statement date for customers on FlexPro-TM- or FlexStar-TM- and up to seven days for other marketing plan customers. 10 - STORE AND EQUIPMENT LEASES: The company leases stores for sublease to certain customers. At year-end 1997, the company was the primary lessee of more than 700 retail store locations subleased to and operated by customers. Fleming also leases a substantial amount of equipment to retailers. - SECURED LOANS AND LEASE GUARANTEES: The company makes loans to customers primarily for store expansions or improvements. These loans are typically secured by inventory and store fixtures, bear interest at rates above the prime rate, and are for terms of up to 10 years. During fiscal years 1995, 1996 and 1997, the company sold, with limited recourse, $77 million, $35 million and $29 million, respectively, of notes evidencing such loans. The company believes its loans to customers are illiquid and would not be investment grade if rated. From time to time, the company also guarantees the lease obligations of certain of its customers. - EQUITY INVESTMENTS: The company has made equity investments in strategic multi-store customers, which it refers to as Joint Ventures, and in smaller operators, referred to as Equity Stores. Certain Equity Store participants may retain the right to purchase the company's investment over a five to ten year period. Many of the customers in which the company has made equity investments are highly leveraged, and the company believes its equity investments are highly illiquid. At year-end 1997, Fleming had loans outstanding to customers totaling $121 million ($33 million of which were to retailers in which the company had an equity investment) and equity investments in customers totaling $23 million. The company also has investments in customers through direct financing leases, lease guarantees, operating leases or credit extensions for inventory purchases. The present value of the company's obligations under direct financing leases and lease guarantees were $200 million and $62 million, respectively, at year-end 1997. Stricter credit policies and cost/benefit analyses applied to credit extensions to and investments in customers have resulted in less exposure and a decrease in credit losses. Fleming's credit loss expense from receivables as well as from investments in customers was $31 million in 1995, $27 million in 1996 and $24 million in 1997. See notes to consolidated financial statements. COMPETITION The Food Distribution Segment faces intense competition. The company's primary competitors are regional and local food distributors, national chains which perform their own distribution (such as The Kroger Co. and Albertson's, Inc.), and national food distributors (such as SUPERVALU Inc.). The principal competitive factors include price, quality and assortment of product lines, schedules and reliability of delivery, and the range and quality of customer services. The primary competitors of Retail Food Segment supermarkets and Food Distribution Segment customers are national, regional and local grocery and drug chains, as well as independent supermarkets, convenience stores, restaurants and fast food outlets. Principal competitive factors include product price, quality and assortment, store location and format, sales promotions, advertising, availability of parking, hours of operation and store appeal. EMPLOYEES At year-end 1997, the company had approximately 39,700 full-time and part-time associates, with approximately 12,700 employed by the Food Distribution Segment, approximately 25,200 by the Retail Food Segment and approximately 1,800 employed in corporate and other functions. Since year-end 1994, the company's total employment has been reduced by approximately 2,700 on a net basis. The number of associates employed by the Food Distribution Segment was reduced by 6,600, from approximately 19,300 at year-end 1994 to approximately 12,700 at year-end 1997, through facilities consolidation, elimination of management layers and outsourcing of transportation and other functions and other cost-cutting measures. The Retail Food Segment employment has increased on a net basis for the same time period by approximately 3,900 full and part-time associates, due primarily to acquisitions. 11 Approximately half of the company's associates are covered by collective bargaining agreements with the International Brotherhood of Teamsters; Chauffeurs, Warehousemen and Helpers of America; the United Food and Commercial Workers; the International Longshoremen's and Warehousemen's Union; and the Retail Warehouse and Department Store Union. Most of such agreements expire at various times throughout the next five years. The company believes it has satisfactory relationships with its unions. ITEM 2. PROPERTIES The following table sets forth facilities information with respect to Fleming's Food Distribution segment.
APPROXIMATE SQUARE FEET LOCATION (IN 000'S) OWNED OR LEASED - ------------------------------------------------------------- ------------- ----------------- FOOD DISTRIBUTION (1) Altoona, PA.................................................. 172 Owned Buffalo, NY.................................................. 417 Leased El Paso, TX (2).............................................. 477 Leased Ewa Beach, HI................................................ 196 Leased Fresno, CA (6)............................................... 326 Owned Garland, TX.................................................. 1,180 Owned Geneva, AL................................................... 345 Leased Houston, TX.................................................. 662 Leased Huntingdon, PA (7)........................................... 253 Owned Johnson City, TN(3).......................................... 298 Owned Kansas City, KS.............................................. 929 Leased La Crosse, WI................................................ 907 Owned Lafayette, LA................................................ 435 Owned Laurens, IA.................................................. 368 Owned Lincoln, NE.................................................. 304 Leased Lubbock, TX (2).............................................. 378 Owned Marshfield, WI............................................... 157 Owned Massillon, OH (7)............................................ 808 Owned Memphis, TN.................................................. 780 Owned Miami, FL.................................................... 763 Owned Milwaukee, WI................................................ 600 Owned Minneapolis, MN (4).......................................... 480 Owned Nashville, TN(3)............................................. 734 Leased North East, MD (5)........................................... 109 Owned Oklahoma City, OK (8)........................................ 454 Owned Oklahoma City, OK (8)........................................ 410 Leased Peoria, IL................................................... 325 Owned Philadelphia, PA (5)......................................... 832 Leased Phoenix, AZ.................................................. 912 Owned Portland, OR................................................. 337 Owned Sacramento, CA (6)........................................... 714 Owned Salt Lake City, UT........................................... 433 Owned San Antonio, TX.............................................. 514 Leased Sikeston, MO................................................. 481 Owned Superior, WI (4)............................................. 371 Owned Warsaw, NC................................................... 334 Owned/Leased York, PA..................................................... 450 Owned ------ 18,645
12
APPROXIMATE SQUARE FEET LOCATION (IN 000'S) OWNED OR LEASED - ------------------------------------------------------------- ------------- ----------------- 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...................................................... 5,204 ------ Total for Food Distribution.................................. 25,463
- ------------------------ (1) Food distribution includes two convenience store divisions. (2) Comprise the Lubbock distribution operation. (3) Comprise the Nashville distribution operation. (4) Comprise the Minneapolis distribution operation. (5) Comprise the Philadelphia distribution operation. (6) Comprise the Sacramento distribution operation. (7) Comprise the Massillon distribution operation. (8) The company operates two distribution operations in Oklahoma City. The administrative functions of these two distribution operations are consolidated. The following table sets forth general information with respect to Fleming's Retail Food segment. These retail stores are primarily leased.
APPROXIMATE COMBINED LOCATION OF NUMBER OF SQUARE FEET RETAIL CHAIN OR GROUP STORES STORES (IN 000'S) - --------------------------------------------------- ---------------- ------------- ------------- ABCO Foods......................................... AZ 56 1,995 Baker's............................................ NE, OK 23 1,216 Boogaarts.......................................... KS, NE 22 353 Jubilee Foods...................................... NY, PA 16 484 Market Basket...................................... NY, PA 17 249 Consumers.......................................... MO, AR, KS 21 898 Penn Retail........................................ PA, MD 16 585 Hyde Park Market................................... FL 13 279 Rainbow Foods...................................... MN, WI 36 2,103 Sentry Foods....................................... WI 13 476 SuPeRSaVeR......................................... WI 21 1,303 Thompson Food Basket............................... IL, IA 12 364 RichMar............................................ CA 6 324 University Foods................................... UT 5 282 --- ------ Total for Retail Foods............................. 277 10,911
13 Fleming's corporate offices are located in Oklahoma City, Oklahoma in leased office space totaling approximately 326,000 square feet. Fleming owns and leases other significant assets, such as inventories, fixtures and equipment, capital leases, etc., which are reflected in the company's consolidated balance sheets which are included in Item 8. of this report. For information regarding lease commitments and long-term debt relating to properties or other assets, see "Lease Agreements" and "Long-term Debt" in the notes to the consolidated financial statements which are included in Item 8. of this report. ITEM 3. LEGAL PROCEEDINGS The following describes various pending legal proceedings to which Fleming is subject. For additional information, see "Litigation and Contingencies" in the notes to the consolidated financial statements which are included in Item 8. of this report. (1) RANDALL'S. In July 1997, Randall's Food Markets, Inc. ("Randall's") initiated arbitration proceedings against Fleming before the American Arbitration Association in Dallas, Texas. Randall's has been a Fleming customer for over 30 years. In 1997 Randall's purchased approximately $450 million of products from Fleming under an eight-year supply contract entered into in 1993 in connection with Fleming's purchase of certain distribution assets from Randall's. Prior to initiating the arbitration proceeding, Randall's unsuccessfully sought to terminate its supply contract. Randall's alleges that Fleming conspired with a group of manufacturers and vendors to defraud Randall's by inflating prices and that Fleming impermissibly modified the pricing mechanism of its supply contract. Randall's claims it was overcharged by approximately $54 million during a 4 1/2 year period. Randall's alleges breach of contract, fraud and RICO violations, and seeks actual, punitive and treble damages, termination of its supply contract, attorneys' fees and costs. The contract on which Randall's bases its claim prohibits either party from recovering any amount other than actual damages; recovery of consequential damages, punitive damages and all similar forms of damages are expressly prohibited. Randall's asserts that such provision is contrary to public policy and therefore not binding on it. (2) CLASS ACTION SUITS. In 1996 certain stockholders (Kenneth Steiner, Lawrence B. Hollin, Ronald T. Goldstein, General Telcom Money Purchase Perscon Plan & Trust, Bright Trading, Inc., City of Philadelphia, Gerald Pindus, Charles Hinton and Lawrence M. Wells, among others) and one bondholder (Robert Mark) filed purported class action lawsuits against the company and certain of its present and former officers and directors [Robert E. Stauth, Harry L. Winn, Jr., Kevin J. Twomey, Donald N. Eyler (a former executive officer) and, as to the stock cases only, R. Randolph Devening (a former executive officer and former director)], each in the U.S. District Court for the Western District of Oklahoma. In April 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. A complaint has been filed in the consolidated cases asserting liability for the company's alleged failure to properly account for and disclose the contingent liability created by the litigation brought against the company by David's Supermarkets, Inc. ("David's") and by the company's alleged "deceptive business practices." The plaintiffs claim that these alleged failures and 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 plaintiffs seek undetermined but significant damages. In November 1997, the company won a declaratory judgment against certain of its insurance carriers regarding directors and officers ("D&O") insurance policies issued to Fleming for the benefit of its officers and directors. On motion for summary judgment, the U.S. District Court for the Western District of Oklahoma ruled that the company's exposure, if any, under the class action suits is covered by certain 14 D&O policies written by the insurance carriers (aggregating $60 million) 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 insured individuals and an uninsured corporation. If a corporation's liability is increased by uninsured parties beyond that of the insured individuals, then that portion of the liability is the sole obligation of the corporation. The court also held that allocation is not available to the insurance carriers as an affirmative defense. The insurance carriers have appealed. (3) DERIVATIVE SUITS. In October 1996, certain of the company's present and former officers and directors [Robert E. Stauth, Harry L. Winn, Jr., Kevin J. Twomey, Archie R. Dykes, Carol B. Hallett, Edward C. Joullian III, John A. McMillan, Guy A. Osborn, Howard H. Leach (a former director), R.D. Harrison (subsequently dismissed), Lawrence M. Jones (a former director), R. Randolph Devening (a former executive officer and former director), Donald N. Eyler (a former executive officer), E. Dean Werries (a former executive officer and former director) and James E. Stuard (a former executive officer)], were named as defendants in a purported shareholder's derivative suit in the U.S. District Court for the Western District of Oklahoma (Cauley, et al. v. Stauth, et al.). Plaintiffs' complaint contains allegations that the defendants breached their respective fiduciary duties to the company and were variably responsible for causing the company to (i) become "involved with" Premium Sales Corporation and its illegal course of business resulting in a $20 million settlement paid by Fleming; (ii) "systematically misrepresent and overstate" the cost of company products, resulting in litigation by David's Supermarkets (which was settled by the company for $20 million) and ultimately leading to the class action suits discussed above; and (iii) fail to meet its disclosure obligations under the law resulting in the class action lawsuits and increased borrowing costs, loss of customers and loss of market value. In another purported shareholder derivative action filed in October 1996 in the U.S. District Court for the Western District of Oklahoma (Rosenburger v. Stauth, et al.), the plaintiff sued the same and additional officers and directors [E. Stephen Davis, Thomas L. Zaricki, Gerald G. Austin (a former executive officer) and Glenn E. Mealman (a former executive officer)]. In this case, the plaintiff alleged the defendants caused the company to (i) violate certain sale agreements with David's Supermarkets resulting in the David's litigation, (ii) fail to disclose to the investing public the risks associated with the David's litigation, (iii) violate certain sale agreements with Megafoods in a manner similar to that alleged by David's Supermarkets, and (iv) defraud persons who invested in the Premium-related entities resulting in litigation. Plaintiffs' sought damages from the defendants on behalf of Fleming in excess of $50,000, forfeiture by the defendants of their salaries and other compensation for the period in which they allegedly breached their fiduciary duties, retention of all monies held by the company as deferred compensation or otherwise on behalf of the defendants as a constructive trust for the benefit of the company, and attorney's fees and costs. On September 30, 1997, both derivative suits were dismissed, without prejudice, for failure to make demand on the company's Board of Directors prior to instigating the litigation. Plaintiffs have filed a motion seeking leave to file an amended complaint. (4) TOBACCO CASES. In August 1996, Richard E. Ieyoub, the Attorney General of the State of Louisiana, brought an action in the 14th Judicial District Court of Louisiana against The American Tobacco Company and numerous defendants including the company. Since then 16 actions have been filed by individual plaintiffs (Joseph Aezen, Najiyya El-Haddi, Victoria Lynn Katz, Robert R. Applebaum, Carla Boyce, Robert J. Ruiz, Rosalind K. Orr, Florence Ferguson, Ella Daly, Janet Anes, Kym Glasser, Welton Lee Upshur, Donald G. Teti, George Thompson, Ronald Folkman, and Sandy and Howard Greenfield) against major tobacco companies (R.J. Reynolds Tobacco Company, Phillip Morris Companies and Lorillard Tobacco Company) and others including the company (or one of its predecessors) in the Court of Common Pleas, Philadelphia County, Pennsylvania; two individuals (Doyle Smith and Gloria Schultz) commenced separate actions in the Court of Common Pleas, Dauphin County, Pennsylvania against Phillip Morris Companies and others including the company; and one individual (Olanda Carter) commenced an 15 action against R.J. Reynolds Tobacco Company and a predecessor of the company in the Circuit Court for Shelby County, Tennessee. Each of these cases alleges substantial monetary liability for Fleming's participation in the distribution of tobacco products. The company is being indemnified and defended by substantial third party co-defendants with respect to these cases. The indemnifications are unconditional and unlimited. 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 2, 1998:
YEAR FIRST BECAME AN NAME (AGE) PRESENT POSITION OFFICER - -------------------------------------------- -------------------------------------------- --------------- Robert E. Stauth (53)....................... Chairman and Chief Executive Officer 1987 William J. Dowd (55)........................ President and Chief Operating Officer 1995 E. Stephen Davis (57)....................... Executive Vice President--Food Distribution 1981 Harry L. Winn, Jr. (53)..................... Executive Vice President and Chief Financial 1994 Officer David R. Almond (57)........................ Senior Vice President--General Counsel and 1989 Secretary Ronald C. Anderson (55)..................... Senior Vice President--General Merchandise 1993 Mark K. Batenic (49)........................ Senior Vice President--Sales and Business 1994 Development, Food Distribution Craig A. Grant (50)......................... Senior Vice President--Organizational 1998 Strategies/Management Development William M. Lawson, Jr. (47)................. Senior Vice President--Corporate Development 1994 Dixon E. Simpson (55)....................... Senior Vice President--Retail Services 1993 Larry A. Wagner (51)........................ Senior Vice President--Human Resources 1989 Thomas L. Zaricki (53)...................... Senior Vice President--Retail Operations 1993 Nancy E. Del Regno (45)..................... Vice President--Communications and Public 1995 Affairs John M. Thompson (56)....................... Vice President--Treasurer and Assistant 1982 Secretary Kevin J. Twomey (47)........................ Vice President--Controller 1995
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. 16 Each of the executive officers has been employed by the company or its subsidiaries for the preceding five years except for Messrs. Anderson, Dowd, Grant, Lawson, Winn and Zaricki and Ms. Del Regno. Mr. Anderson joined the company as Vice President--General Merchandise in July 1993. In March 1995, he was named Senior Vice President--General Merchandise. Since 1986, until joining the company, he was President of McKesson Corporation, a distributor of pharmaceutical and related products, where he was responsible for its service merchandising division. Mr. Dowd joined the company in his present position in July 1995. From 1994 until joining the company, he was Senior Vice President--Operations at Cott Corporation, a producer of retailer-branded soft drinks. From 1991 to 1994, Mr. Dowd was Executive Vice President for Kraft General Foods' KGF Service Company. Mr. Grant joined the company in his present position in March 1998. From 1991 to 1998, he was Vice President--Human Resources for Interlake Corporation in Lisle, Illinois. Mr. Lawson joined the company in his present position in June 1994. Prior to that, Mr. Lawson was a practicing attorney in Phoenix for 18 years. Mr. Winn joined the company in his present position in May 1994. He was with UtiliCorp United in Kansas City, an energy company, where he was Managing Senior Vice President and Chief Financial Officer from 1990 to 1993. Mr. Zaricki joined the company in his present position in October 1993. Since 1987, until joining the company, Mr. Zaricki was President of Arizona Supermarkets, Inc., a regional supermarket chain headquartered in Phoenix. Ms. Del Regno joined the company in her present position in February 1995. She was with PepsiCo Food Systems where she was Senior Communications Manager from 1988 to 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Fleming common stock is traded on the New York, Chicago and Pacific stock exchanges. The ticker symbol is "FLM". As of February 20, 1998, the 38.3 million outstanding shares were owned by 12,000 shareholders of record and approximately 11,000 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.
1997 1996 -------------------- -------------------- QUARTER HIGH LOW HIGH LOW - ------------------------------------------------------- --------- --------- --------- --------- First.................................................. $ 18.75 $ 15.75 $ 20.88 $ 13.63 Second................................................. 20.38 15.50 16.38 11.50 Third.................................................. 19.50 15.75 18.38 13.63 Fourth................................................. 18.94 13.38 18.25 15.63
Cash dividends on Fleming common stock have been paid for 81 consecutive years. Dividends are generally declared on a quarterly basis with holders as of the record date being entitled to receive the cash dividend on the payment date. Record and payment dates are normally as shown below:
RECORD DATES: PAYMENT DATES: - ---------------------------------- ---------------------------------- February 20 March 10 May 20 June 10 August 20 September 10 November 20 December 10
17 Cash dividends of $.02 per share were paid on or near each of the above four payment dates in 1997. The company paid a cash dividend of $.30 per share for the first quarter, and $.02 per share, per quarter for quarters two through four in 1996. ITEM 6. SELECTED FINANCIAL DATA
1993(A) 1994(B) 1995(C) 1996(D) 1997(E) --------- --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net sales.............................. $ 13,096 $ 15,724 $ 17,502 $ 16,487 $ 15,373 Earnings before extraordinary charge... 37 56 42 27 39 Net Earnings........................... 35 56 42 27 25 Diluted net earnings per common share before extraordinary charge(f)....... 1.02 1.51 1.12 .71 1.02 Diluted net earnings per share(f)...... .96 1.51 1.12 .71 .67 Total assets........................... 3,103 4,608 4,297 4,055 3,924 Long-term debt and capital leases...... 1,004 1,995 1,717 1,453 1,494 Cash dividends declared per common share................................ 1.20 1.20 1.20 .36 .08
- ------------------------ See Item 3. Legal Proceedings, notes to consolidated financial statements and the financial review included in Items 7. and 8. (a) The results in 1993 include a charge of approximately $108 million ($66 million after-tax or $1.79 per share) for additional facilities consolidations, reengineering, impairment of retail-related assets and elimination of regional operations. 1993 also reflected an extraordinary charge of $4 million ($2 million after-tax or $.06 per share) for the early retirement of debt. (b) The results in 1994 reflect the July 1994 acquisition of Scrivner Inc. (c) In 1995, management changed its estimates with respect to the general merchandising portion of the reengineering plan and reversed $9 million ($4 million after-tax or $.12 per share) of the related provision. (See note "a" above). (d) Results in 1996 include a charge of $20 million ($10 million after-tax or $.26 per share) related to the settlement of two related lawsuits against the company. (e) The results in 1997 reflect a charge of $19 million ($9 million after-tax or $.24 per share) related to the settlement of a lawsuit against the company. 1997 also reflected an extraordinary charge of $22 million ($13 million after-tax or $.35 per share) related to the recapitalization program. (f) All earnings per share amounts have been restated and are reflected as diluted as defined under SFAS No. 128-Earnings Per Share. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Several events have shaped Fleming's results of operations and capital and liquidity position during each of the past three fiscal years. Changes in the food marketing and distribution industry have reduced sales and increased competitive pressures for the company and many of its customers. In January 1994, the company announced a strategic plan to transform its operations to better serve its customers and achieve higher profitability. As part of this plan, the company consolidated food distribution facilities, reorganized its management group and reengineered the way it prices and sells grocery, frozen and dairy products and retail services. In July 1994, the company acquired Scrivner Inc. ("Scrivner"), adding $6 billion in annual sales from food distribution and more than 175 retail stores. The company also dealt with business and 18 litigation challenges during this period: the bankruptcy of a major customer in 1994, the addition by foreclosure in early 1996 of a 71-store customer in Arizona and several litigation developments. Each of these events is discussed in more detail below: CHANGING INDUSTRY ENVIRONMENT. The food marketing and distribution industry is undergoing accelerated change as producers, manufacturers, distributors and retailers seek to lower costs and increase services in an increasingly competitive environment of relatively static overall demand. Alternative format food stores (such as warehouse stores and supercenters) have gained retail food market share at the expense of 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, alternative formats and other channels of distribution. The company believes that these changes have led to reduced sales, reduced margins and lower profitability among many of its customers and at the company itself. CONSOLIDATIONS, REORGANIZATION AND REENGINEERING. In the fourth quarter of 1993, the company developed a comprehensive plan to consolidate five wholesale food facilities, reorganize its operational and managerial structure and reengineer the way it prices and markets certain goods and retail services (the "1993 Plan"). The company's goals were: (i) to gain operational efficiencies by closing certain facilities and consolidating operations into larger, more efficient facilities; (ii) to reduce costs by removing a layer of management and closing regional operations; and (iii) to combat negative industry trends by offering a flexible marketing plan designed to permit customers to reduce the cost of the goods and services purchased from the company and thereby gain a competitive advantage for Fleming. The estimated costs of significant actions believed necessary to implement the 1993 Plan were identified (such as asset impairments and severance costs) and a pre-tax charge totaling $108 million was recorded along with related reserves. Certain additional costs (such as employee training expenses and the costs of designing and implementing the flexible marketing plan) were anticipated but were not included in the charge. These additional costs are being expensed as incurred. By year-end 1993, approximately $24 million of consolidation and severance costs were charged to the 1993 reserve leaving a balance of approximately $81 million. At inception, the company expected the 1993 Plan to be completed and the reserve to be fully utilized by the end of 1996. The acquisition of Scrivner in mid-1994 (which was not anticipated when the 1993 Plan was established) and the subsequent integration of Scrivner into Fleming's operations delayed implementation of many components of the 1993 Plan. During 1994, $28 million was charged to the reserve as the company consolidated (or partially consolidated) four facilities, recognized impairments related to asset dispositions and made some planned reductions in work force. During 1995, the company charged $21 million against the 1993 reserve as continuing expenses were recognized in completing four of the planned five facilities consolidations and the anticipated asset impairments relating to retail store dispositions were recognized. During the year, the company noted certain customer resistance to transferring operations to consolidated facilities. To reduce these disruptive logistical changes, the company targeted an alternative facility for consolidation. The closure of the alternate site will be less expensive than initially estimated. Accordingly, $9 million of the 1993 reserve was reversed in the third quarter of 1995 and taken into income as a change in estimate. Many of the 1993 Plan's components are interdependent and certain actions could not begin until other actions were completed. For example, full work force reductions and certain transportation initiatives could not be implemented until the company's new marketing plan was available at the respective product supply center. During 1995 and early 1996, the company experienced unanticipated customer resistance to the changes required by the new flexible marketing plan and the pace of implementing the 1993 Plan slowed as the company developed alternatives to overcome this resistance. Consequently, actions dependent on the implementation of the new marketing plan were also 19 slowed and, in some cases, rescheduled to 1997. During 1996, only $3 million was charged against the reserve, but during 1997, $13 million was charged against the reserve. Alternative marketing plans have been developed and implementation of the 1993 Plan is expected to accelerate so as to be substantially complete by the end of 1998. While customer reaction to the initial implementation of the flexible marketing plan (which is a critical component of reengineering) caused some operational disruption and loss of sales, the company believes that the 1993 Plan will reduce costs throughout the company and strengthen the company's overall competitive position. SCRIVNER. In July 1994, Fleming purchased Scrivner, with annual sales exceeding $6 billion, for approximately $390 million in cash and the assumption of $670 million of indebtedness. During 1994 and 1995, the company consolidated nine distribution centers acquired in the Scrivner acquisition (in addition to the consolidations which were anticipated as part of the 1993 Plan). The costs of these consolidations were charged to separate purchase accounting reserves established at the time of the acquisition. The acquisition of Scrivner and its integration into Fleming caused significant delays in implementing the 1993 Plan. MEGAFOODS. In August 1994, Megafoods, Inc. and certain of its affiliates ("Megafoods" or the "debtor"), filed Chapter 11 bankruptcy proceedings in Phoenix, Arizona. The company estimates that prior to bankruptcy, annualized sales to Megafoods approximated $335 million. By 1995, sales to Megafoods were approximately $87 million and by 1996, there were no sales. The company filed claims for indebtedness for goods sold on open account, equipment leases and secured loans. Megafoods brought an adversary proceeding seeking, among other things, damages against the company. The company recorded losses resulting from deteriorating collateral values of $6.5 million in 1994 and $3.5 million in 1995, and in 1996 and 1997 recorded $5.8 million and $.8 million, respectively, to reflect continuing deterioration and the effects of the settlement of the company's claim and the debtor's allegations. At year-end 1997, approximately $2 million in assets relating to Megafoods remained on the company's books. ABCO. At year-end 1994, the company was the largest single shareholder (approximately 48%), the major supplier and the second largest creditor of ABCO Holding, Inc. ("ABCO"), a supermarket chain located in Arizona. By the fall of 1995, the company's investments in, and loans to, ABCO totaled approximately $39 million. In September 1995, ABCO defaulted on both its bank debt and its debt to the company. The company exercised a warrant to gain an additional 3% of ABCO's capital stock and purchased the bank's preferred position for $21 million. In January 1996, the company foreclosed and acquired all of ABCO's assets consisting of approximately 71 stores at the time of foreclosure. Certain of ABCO's minority shareholders have brought suit seeking rescission and/or damages. LITIGATION. In March 1996, a jury in central Texas returned verdicts in David's Supermarkets, Inc. v. Fleming ("David's") which resulted in a judgment of $211 million against Fleming. In response, the company established a reserve of $7.1 million and amended its former bank credit agreement to facilitate posting a partially collateralized supersedeas bond. Pursuant to the amendment, pricing for borrowing under the former credit agreement was increased. The judgment was vacated in June 1996, and the company's reserve was reduced to $650,000. During the first quarter of 1997, the company recorded a charge of $19.2 million to reflect the settlement of the David's case. During the third quarter of 1996, the company recorded a charge of $20 million to reflect the settlement of two lawsuits involving a failed grocery diverter, Premium Sales Corporation. During the fourth quarter of 1997, the company reached a settlement of a business dispute with its largest customer, Furr's, Inc. ("Furr's"). Pursuant to the settlement, the company will refund $800,000 per month during the remaining life of its supply contract with Furr's. See "--Litigation and Contingencies" below and "Litigation and Contingencies" in the notes to the consolidated financial statements for a further discussion of certain litigation and contingent liability issues. 20 COMPANY-OWNED STORE CLOSINGS. In the past two years, the company has divested over 80 stores. The divestitures were based on the stores' poor performance or inconsistency with the company's strategy. CREDIT POLICIES. In 1995, Fleming began imposing stricter credit policies and applying cost/ benefit analyses to loans to and investments made in its distribution customers. Traditionally, food distributors have used the availability of financial assistance as a competitive tool. Fleming believes that its stricter credit policies have resulted in decreased sales. Management believes that the combination of these events has negatively affected the company's financial performance during the past three years. However, management also believes that the company's ultimate success will depend on its ability to continue to cut costs while expanding profitable operations. The company has revised its marketing plans and is taking other steps to reverse sales declines. These initiatives include increased marketing emphasis and expanded offerings of Fleming Retail Services, streamlining and expanding Fleming Brands, developing and marketing additional foodservice products and growing retail food operations through remodels, new store development and selective acquisitions. While the company believes considerable progress has been made to date, no assurance can be given that the company will be successful in continuing to cut costs, in reversing sales declines or in increasing higher margin activities. However, starting with the fourth quarter of 1995, a trend of improvement in the company's adjusted earnings per share began to develop reflecting some success in countering the negative impact of the events outlined above. After adjusting for litigation charges, charges for the disposition of retail food operations and other nonoperating items, adjusted earnings per share for the past twelve quarters were as follows:
1995 1996 1997 --------- --------- --------- First quarter.................................... $ .40 $ .25 $ .39 Second quarter................................... $ .39 $ .30 $ .35 Third quarter.................................... $ .10 $ .19 $ .23 Fourth quarter................................... $ .11 $ .27 $ .34 Year............................................. $ 1.00 $ 1.01 $ 1.32
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:
1995 1996 1997 --------- --------- --------- Net sales........................................................................ 100.00% 100.00% 100.00% Gross margin..................................................................... 8.06 8.99 9.31 Less: Selling and administrative....................................................... 6.79 7.73 7.76 Interest expense................................................................. 1.00 .99 1.06 Interest income.................................................................. (.33) (.29) (.30) Equity investment results........................................................ .16 .11 .11 Litigation charge................................................................ -- .12 .14 Facilities consolidation......................................................... (.05) -- -- --------- --------- --------- Total............................................................................ 7.57 8.66 8.77 --------- --------- --------- Earnings before taxes............................................................ .49 .33 .54 Taxes on income.................................................................. .25 .17 .29 --------- --------- --------- Earnings before extraordinary charge............................................. .24 .16 .25 Extraordinary charge............................................................. -- -- .09 --------- --------- --------- Net earnings..................................................................... .24% .16% .16% --------- --------- --------- --------- --------- ---------
Note: The consolidated results of ABCO are included beginning December 1995. 21 1997 AND 1996 NET SALES. Sales for 1997 decreased by $1.1 billion, or 7%, to $15.37 billion from $16.49 billion for 1996. See "--General." Retail segment sales generated by the same stores in 1997 compared to 1996 decreased by 3.4%. The decrease was attributable, in part to new stores opened by competitors in some markets and aggressive marketing initiatives by certain competitors. The company measures inflation using data derived from the average cost of a ton of product sold by the company. For 1997, food price inflation was 1.3%, compared to 2.3% in 1996. GROSS MARGIN. Gross margin for 1997 decreased by $51 million, or 3%, to $1.43 billion from $1.48 billion for 1996, but increased as a percentage of net sales to 9.31% from 8.99% for 1996. The decrease in dollars followed the decline in sales. The increase in gross margin percentage was due to improved gross margins in both segments of the business brought about by numerous margin improvement initiatives. The company also achieved food distribution productivity increases during 1997 of 3.9%. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for 1997 decreased by $79 million, or 6%, to $1.19 billion from $1.27 billion for 1996, but increased as a percentage of net sales to 7.76% for 1997 from 7.73% in 1996. The decrease in dollars was principally due to improvements in operating efficiencies for company-owned stores and reductions in administrative and support functions offset in part by an increase in incentive compensation expense. The increase as a percentage of net sales is the result of the rate of sales decline being greater than the rate of expense reduction. 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 1997 decreased by approximately $3 million to $24 million from $27 million for 1996. Tighter credit practices and reduced emphasis on credit extensions to and investments in customers have resulted in less exposure and a decrease in credit loss expense. INTEREST EXPENSE. Interest expense remained unchanged for 1997 compared to 1996 at $163 million. Lower average debt levels in 1997 compared to 1996 caused interest expense to decline, but this was offset in the last half of 1997 due to interest rates on the new senior subordinated notes being higher than the rates on the refinanced debt. The company's derivative agreements have consisted of simple "floating-to-fixed rate" interest rate caps and swaps. For 1997, interest rate hedge agreements contributed $7.2 million of interest expense compared to $9.6 million in 1996, or $2.4 million lower, primarily due to a lower average amount of notional principal of debt referenced by interest rate hedges. For a description of these derivatives see "Long-term Debt" in the notes to the consolidated financial statements. INTEREST INCOME. Interest income for 1997 was $47 million compared to $49 million in 1996. The company's investment in direct financing leases decreased from 1996 to 1997 thereby decreasing interest income. Further in 1997 and 1996 the company sold (with limited recourse) $29 million and $35 million respectively, of notes receivable which also reduced interest income. EQUITY INVESTMENT RESULTS. The company's portion of operating losses from equity investments for 1997 decreased by approximately $1 million to $17 million from $18 million for 1996. The reduction in losses is due to improved results of operations in certain of the underlying equity investments. LITIGATION CHARGE. In October 1997, the company began paying Furr's $800,000 per month as part of a settlement agreement. Such payments may continue for up to 19 months. In the first quarter of 1997, the company expensed $19.2 million ($9 million after-tax or $.24 per share) in settlement of the David's litigation. In the first quarter of 1996, the company accrued $7.1 million as the result of a jury verdict 22 regarding the David's case. In the second quarter of 1996, the accrual was reversed following the vacation of the judgment resulting from the jury verdict, and a new accrual for $650,000 was established. In the third quarter of 1996, the company accrued $20 million ($10 million after-tax or $.26 per share) related to an agreement reached to settle the Premium lawsuits. See "Litigation and Contingencies" in the notes to the consolidated financial statements. TAXES ON INCOME. The effective tax rate for 1997 is 58.0% versus 51.1% for 1996. The presentation of the 1997 tax is split by reflecting a tax benefit at the statutory rate of 40% for the extraordinary charge and reflecting the balance of the tax amount on the taxes on income line. The 1996 effective rate was lower than the 1997 rate due primarily to favorable resolutions of tax assessments in 1996. EXTRAORDINARY CHARGE FROM EARLY RETIREMENT OF DEBT. During 1997, the company undertook a recapitalization program which culminated in an $850 million senior secured credit facility and the sale of $500 million of senior subordinated notes. The recapitalization program resulted in an extraordinary charge of $13.3 million, after income tax benefits of $8.9 million, or $.35 per share, in the company's third quarter ended October 4, 1997. Almost all of the charge represents a non-cash write-off of unamortized financing costs related to debt which was prepaid. See "--Liquidity and Capital Resources" for a further discussion of the recapitalization program. CERTAIN ACCOUNTING MATTERS. See notes to consolidated financial statements for a discussion of new accounting standards adopted in 1997, none of which had a material effect on disclosures, results of operations or financial position. OTHER. Several factors negatively affecting earnings in 1997 are likely to continue for the near term. Management believes that these factors include lower sales and operating losses in certain company-owned stores. Additionally, the continuing commitments under the Furr's agreement will negatively impact earnings compared to 1997. See "--Litigation and Contingencies" below and "Litigation and Contingencies" in the notes to the consolidated financial statements. 1996 AND 1995 NET SALES. Sales for 1996 decreased by $1.0 billion, or 6%, to $16.49 billion from $17.50 billion for 1995. See "--General." The company measures inflation using data derived from the average cost of a ton of product sold by the company. For 1996, food price inflation was 2.3%, compared to 1.3% in 1995. GROSS MARGIN. Gross margin for 1996 increased by $71 million, or 5%, to $1.48 billion from $1.41 billion for 1995 and increased as a percentage of net sales to 8.99% from 8.06% for 1995. The increase in gross margin was principally due to new retail operations, primarily the addition of ABCO. Retail operations typically have a higher gross margin and higher selling and administrative expenses than food distribution operations. During 1996, the company also implemented increases in certain charges to its customers and vendors, increasing gross margin comparisons to 1995. Product handling expenses, consisting of warehouse, transportation and building expenses, were lower as a percentage of net sales in 1996 compared to 1995, reflecting the cost controls and the benefits of the company's facility consolidations and transportation outsourcing efforts in 1995 and 1994. The company also achieved food distribution productivity increases during 1996 of 2.6%. Food price inflation resulted in a LIFO charge in 1996 of $6.0 million compared to a charge of $2.9 million for 1995. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses for 1996 increased by $85 million, or 7%, to $1.27 billion from $1.19 billion for 1995 and increased as a percentage of net sales to 7.73% for 1996 from 6.79% in 1995. The increase was principally due to: higher retail expenses resulting from additional retail operations; a $12 million charge related to the divestiture of retail stores; and higher legal expense in 1996 compared to 1995. During 1996, a $1.6 million gain from the sale of certain notes receivable was recorded; a similar gain of $3.9 million was recorded in 1995. The increase in corporate expenses under Operating Earnings shown in "Segment Information" in the notes to consolidated financial 23 statements include the aforementioned increase in legal expense, a write-down of certain international equity investments and increased incentive compensation expense. Credit loss expense is included in selling and administrative expenses and for 1996 decreased by $4 million to $27 million from $31 million for 1995. Tighter credit practices and reduced emphasis on credit extensions to and investments in customers have resulted in less exposure and a decrease in credit loss expense. Offsetting the decreases in 1996 from 1995 was $3.8 million of credit losses related to the bankruptcy of Megafoods, reflecting the estimated deterioration in the company's collateral. An additional $2.0 million was recorded to selling and administrative expense, but not credit loss, during the third quarter of 1996 for the expected loss on the proposed settlement. INTEREST EXPENSE. Interest expense for 1996 decreased $12 million to $163 million from $175 million for 1995. Lower average borrowing levels offset in part by higher borrowing costs for bank debt in 1996 compared to 1995 primarily accounted for the improvement. In February and April 1996, the company amended its bank credit agreement first to provide greater financing flexibility and subsequently to increase the company's capacity for letters of credit in order to partially secure a supersedeas bond in connection with the David's litigation. These amendments effectively increased the company's bank debt borrowing margin by almost .5%. In August 1996, Moody's Investors Service ("Moody's") lowered its credit ratings on the company's senior unsecured debt. The downgrade resulted in a .25% increase in the company's bank debt borrowing margin which increased interest expense on borrowing under the bank credit agreement at an estimated annualized cost of $2 million. In September 1996, Standard & Poor's Ratings Group ("S&P") lowered its credit ratings on the company and on the company's senior unsecured debt. The downgrade did not result in an additional increase in the company's bank debt borrowing margin. The company's derivative agreements consisted of simple "floating-to-fixed rate" interest rate caps and swaps. For 1996, interest rate hedge agreements contributed $10 million of interest expense, compared to $7 million in 1995, due to lower average floating interest rates. See "Long-term Debt" in the notes to the consolidated financial statements for further discussion. INTEREST INCOME. Interest income for 1996 was $49 million compared to $58 million in 1995. In 1996, the company sold (with limited recourse) $35 million of notes receivable late in the third quarter. In 1995, $77 million of notes receivable were sold (with limited recourse) in the second quarter. Both of these sales reduced the amount of notes receivable available to produce interest income. EQUITY INVESTMENT RESULTS. The company's portion of operating losses from equity investments for 1996 decreased by $9 million to $18 million from $27 million for 1995. The results of operations of ABCO, accounted for under the equity method during most of 1995, are not included in 1996 equity investment results due to the acquisition of ABCO. This resulted in an improvement in equity investment results in 1996 compared to 1995. The remainder of the improvement is due to improved results of operations in certain of the underlying equity investment entities. FACILITIES CONSOLIDATION. In the first quarter of 1995, management changed its facilities consolidation estimates with respect to the general merchandising operations portion of the consolidation, reorganization and reengineering plan. The revised estimate reflected reduced expense and cash outflow. Accordingly, during the first quarter of 1995, the company reversed $9 million of the provision for facilities consolidation. TAXES ON INCOME. The effective tax rate for both 1996 and 1995 was 51.1%. 24 LIQUIDITY AND CAPITAL RESOURCES Set forth below is certain information regarding the company's capital structure at the end of fiscal years 1996 and 1997:
CAPITAL STRUCTURE ---------------------------------------------- 1996 1997 ---------------------- ---------------------- (IN MILLIONS) Long-term debt........................................................... $ 1,216 45.5% $ 1,175 44.3% Capital lease obligations................................................ 381 14.2 388 14.6 --------- ----- --------- ----- Total debt............................................................... 1,597 59.7 1,563 58.9 Shareholders' equity..................................................... 1,076 40.3 1,090 41.1 --------- ----- --------- ----- Total capital............................................................ $ 2,673 100.0% $ 2,653 100.0% --------- ----- --------- ----- --------- ----- --------- -----
Note: The above table includes current maturities of long-term debt and current obligations under capital leases. Long-term debt was $41 million lower at year-end 1997 compared to 1996 primarily because net cash provided from operations plus a reduction in the cash balance exceeded net cash required for investing activities and payments on capital leases. Capital lease obligations increased $7 million in 1997 because leases added for new retail stores exceeded repayments. The debt-to-capital ratio at year-end 1997 was 58.9%, down from 59.7% at year-end 1996. The company's long-term target ratio is between 50% and 55%. Operating activities generated $113 million of net cash flows for 1997 compared to $328 million in 1996. The difference was principally due to changes in working capital: a lower reduction in inventories, a higher reduction in accounts payable, and a higher increase in accounts receivable. Working capital was $340 million at year-end 1997, an increase from $221 million at year-end 1996. The current ratio increased to 1.29 to 1, from 1.16 to 1 at year-end 1996. Capital expenditures were $129 million for 1997 and 1996. Total capital expenditures for 1998 are expected to be approximately $230 million. Completion of the company's recapitalization program will permit the company to increase its total spending for capital expenditures and acquisitions. The company intends to increase its retail operations by increasing investments in new and remodeled stores in the company's existing retail chains and by making selective acquisitions of supermarket chains or groups as opportunities arise. The company makes investments in and loans to certain retail customers. Net investments and loans decreased $72 million, from $240 million to $168 million due primarily to the sale of notes receivable and more restrictive credit policies. In 1997 and 1996, the company sold $29 million and $35 million of notes receivable, respectively. The company's principal sources of liquidity and capital have been cash flows from operating activities, borrowing under its credit facility, sale of notes receivable and the public and private debt capital markets. On July 25, 1997, the company entered into a new $850 million senior secured credit facility and sold $500 million of senior subordinated notes. Proceeds from the initial borrowings under the credit agreement and the sale of the subordinated notes were used to repay all outstanding bank debt under the previous credit facility and the balance, together with additional revolver borrowings, was used to redeem the company's $200 million floating rate senior notes due 2001. The recapitalization program provides the company with increased flexibility to redeploy assets and pursue increased business investment, such as the expansion of the company's retail food operations, strengthens Fleming's capital structure by reducing senior secured bank loans and repaying the floating rate senior notes, extends the average life of total debt outstanding, and reduces annual scheduled debt maturities. 25 The new $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, the new credit facility is guaranteed by substantially all company subsidiaries (see "Long-term Debt" in the notes to the consolidated financial statements). The stated interest rate on borrowings under the credit agreement is equal to a referenced index rate, normally the London interbank offered interest rate ("LIBOR"), plus a margin. The level of the margin is dependent on credit ratings on the company's senior secured bank debt. The $500 million of senior subordinated notes consists of two issues: $250 million of 10 1/2% Notes due December 1, 2004 and $250 million of 10 5/8% 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 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 earnings before interest, taxes, depreciation and amortization and net rent expense; maintenance of a ratio of inventory-plus-accounts receivable to funded bank debt (including letters of credit) of at least 1.4 to 1; and a limitation on restricted payments, including dividends. Covenants contained in the company's indentures under which other company debt instruments were issued are generally less restrictive than those of the credit agreement. The company is in compliance with all financial covenants under the credit agreement and its indentures. In addition, 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 1997, borrowings under the credit facility totaled $250 million in term loans and $30 million of revolver borrowings, and $88 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 1997, the company would have been allowed to borrow an additional $482 million under the revolving credit facility contained in the credit agreement based on the actual borrowings and letters of credit outstanding. Under the company's most restrictive borrowing covenant, which is the fixed charges coverage ratio contained in the credit agreement, $41 million of additional fixed charges could have been incurred. The composite interest rate for total debt (including capital lease obligations) before the effect of interest rate hedges was 9.9% for 1997, versus 8.6% in 1996. Including the effect of interest rate hedges, the composite interest rate of debt was 10.4% and 9.1% at the end of 1997 and 1996, respectively. At year-end 1997, the company employed interest rate swaps covering a total of $250 million of floating rate indebtedness with three counterparty banks possessing investment grade credit ratings. The swaps have an average fixed interest rate of 7.22% and an average remaining term of 2.4 years. Net interest payments made or received under interest rate swaps are included in interest expense. See "--Results of Operations-Interest Expense" above and "Long-term Debt" in the notes to the consolidated financial statements. 26 On June 27, 1997, Moody's Investors Service ("Moody's") announced it had revised its credit ratings for Fleming. Moody's downgraded its rating for the company's senior secured credit facility to Ba3 from Ba2, senior unsecured notes to B1 from Ba3, and counterparty ratings to B1 from Ba3. Moody's assigned a Ba3 rating to the company's new $850 million credit agreement, and a B3 rating for the new $500 million of senior subordinated notes. On June 30, 1997, Standard & Poor's Rating Group ("S&P") announced it had revised its outlook on Fleming to stable from negative and had affirmed the company's BB corporate credit rating. Additionally, S&P raised its rating on the company's senior unsecured notes to BB- from B+. It also assigned a B+ rating to the company's new $500 million senior subordinated notes. On July 2, 1997, S&P announced it had assigned a BB+ rating to the company's new $850 million credit facility. Dividend payments in 1997 were $.08 per share or 12% of net earnings per share, compared to $.36 per share or 50% of net earnings per share in 1996. The credit agreement and the indentures for the $500 million of senior subordinated notes limit restricted payments, including dividends, to $58 million at year-end 1997, based on a formula tied to net earnings and equity issuances. For the foreseeable future, cash flows from operating activities and the company's ability to borrow under its credit agreement are expected to be the company's principal sources of liquidity and capital. In addition, lease financing may be employed for new stores and certain equipment. Management believes these sources will be adequate to meet working capital needs, capital expenditures (including expenditures for acquisitions, if any) and other capital needs for the next 12 months. LITIGATION AND 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." See ("--General"). On October 23, 1997, Fleming and Furr's entered into an agreement providing for the settlement of their business dispute. Under the agreement, Furr's is being offered for sale through a six-month auction process which began on October 29, 1997. Fleming's El Paso product supply center (the "El Paso PSC"), together with related equipment and inventory, will be offered for sale with Furr's. Upon the sale of Furr's to a third party, Fleming would receive approximately 30% of the net proceeds. If the successful bidder does not purchase the El Paso PSC, Fleming will receive payment of certain liquidation costs for the orderly liquidation of the El Paso PSC. If Furr's is not sold during the six-month period, Furr's will have 30 days within which to elect to purchase the El Paso PSC or to pay the liquidation costs (after a nine-month transition period). Under the agreement, Fleming is paying Furr's $800,000 per month as a refund of fees and charges. The payments will cease with the expiration of the supply contract which will occur upon the earlier of (i) the sale of the El Paso PSC or (ii) the completion of the orderly liquidation of the El Paso PSC on or before June 1, 1999. While Fleming and Furr's have agreed to cooperate in the sale of Furr's, the ultimate outcome of their joint efforts cannot be predicted. However, Fleming expects that on or before June 1, 1999, the company will cease to supply Furr's, the El Paso PSC will be sold or liquidated and Fleming's substantial equity investment in Furr's will be sold and a gain realized. The settlement agreement did not cause an impairment in value of any recorded balances. While the premature loss of Furr's business will be significant in the near term, Fleming believes that the reinvestment of its employed capital in other profitable operations will offset the lost business. However, if Furr's is not sold, Fleming may experience an impairment of $8-$10 million. During 1997, Furr's purchased approximately $500 million of products from Fleming. 27 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." These and other such contingent matters are discussed in "Litigation and Contingencies" in the notes to the consolidated financial statements, which appear elsewhere herein. Also see Item 3. Legal Proceedings. 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's business, results of operations, cash flow, capital, access to capital or financial condition. Fleming has numerous computer systems which were developed employing six digit date structures (i.e., two digits each for month, day and year). Where date logic requires the year 2000 or beyond, such date structures may produce inaccurate results. Management has implemented a program to comply with year 2000 requirements on a system-by-system basis. Fleming's plan includes extensive systems testing and is expected to be substantially completed by the first quarter of 1999. The solution for each system is potentially unique and may be dependent on third-party software providers and developers. Failure to ensure that the company's computer systems are year 2000 compliant could have a material adverse effect on the company's operations. Additionally, failure of the company's suppliers or its customers to become year 2000 compliant might have a material adverse impact on the company's operations. Program costs to comply with year 2000 requirements are being expensed as incurred. Expenditures with third parties are not expected to exceed $10 million over the next two years. To compensate for the dilutive effect on results of operations, the company has delayed other non-critical development and support initiatives. Accordingly, the company expects that annual information technology expenses will not differ significantly from prior years. FORWARD-LOOKING INFORMATION This report contains forward-looking statements of expected future developments. The company wishes to ensure that such statements are accompanied by meaningful cautionary statements pursuant to the safe harbor established in the Private Securities Litigation Reform Act of 1995. The forward-looking statements in the annual report refer to, among other matters: the company's ability to implement measures to reverse sales declines, cut costs and improve earnings; the company's ability to expand portions of its business or enter new facets of its business which it believes will be more profitable than its food distribution business; the company's expectations regarding the adequacy of its capital and liquidity; and the receptiveness of the company's customers to its reengineered programs. These forward-looking statements reflect management's expectations and are based upon currently available data; however, actual results are subject to future events and uncertainties which could materially impact actual performance. The company's future performance also involves a number of risks and uncertainties. Among the factors that can cause actual performance to differ materially are: continued competitive pressures with respect to pricing and the implementation of the company's reengineering programs, the inability to achieve cost savings due to unexpected developments, changed plans regarding capital expenditures, adverse developments with respect to litigation and contingency matters, world and national economic conditions, and the impact of such conditions on consumer spending. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Part IV, Item 14(a) 1. Financial Statements. 28 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 14, 1998. 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 14, 1998. 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 14, 1998. 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 14, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements:
PAGE NUMBER ----------------- - - Consolidated Statements of Earnings--For the years ended December 27, 1997, December 28, 1996, and December 30, 1995 - - Consolidated Balance Sheets--At December 27, 1997, and December 28, 1996 - - Consolidated Statements of Cash Flows--For the years ended December 27, 1997, December 28, 1996, and December 30, 1995 - - Consolidated Statements of Shareholders' Equity--For the years ended December 27, 1997, December 28, 1996, and December 30, 1995 - - Notes to Consolidated Financial Statements--For the years ended December 27, 1997, December 28, 1996, and December 30, 1995 - - Independent Auditors' Report - - Quarterly Financial Information (Unaudited)
29 CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996 1995 ------------- ------------- ------------- Net sales........................................................... $ 15,372,666 $ 16,486,739 $ 17,501,572 Costs and expenses (income): Cost of sales..................................................... 13,941,838 15,004,715 16,091,039 Selling and administrative........................................ 1,194,570 1,273,999 1,189,199 Interest expense.................................................. 162,506 163,466 175,390 Interest income................................................... (46,638) (49,122) (58,206) Equity investment results......................................... 16,746 18,458 27,240 Litigation charge................................................. 20,959 20,650 -- Facilities consolidation.......................................... -- -- (8,982) ------------- ------------- ------------- Total costs and expenses........................................ 15,289,981 16,432,166 17,415,680 ------------- ------------- ------------- Earnings before taxes............................................... 82,685 54,573 85,892 Taxes on income..................................................... 43,963 27,887 43,891 ------------- ------------- ------------- Earnings before extraordinary charge................................ 38,722 26,686 42,001 Extraordinary charge from early retirement of debt (net of taxes).......................................................... 13,330 -- -- ------------- ------------- ------------- Net earnings........................................................ $ 25,392 $ 26,686 $ 42,001 ------------- ------------- ------------- ------------- ------------- ------------- Earnings per share: Basic and diluted before extraordinary charge..................... $1.02 $.71 $1.12 Extraordinary charge.............................................. .35 -- -- ------------- ------------- ------------- Basic and diluted net earnings.................................... $ .67 $.71 $1.12 ------------- ------------- ------------- ------------- ------------- ------------- Weighted average shares outstanding: Basic............................................................. 37,803 37,774 37,577 ------------- ------------- ------------- ------------- ------------- ------------- Diluted........................................................... 37,862 37,777 37,581 ------------- ------------- ------------- ------------- ------------- -------------
Sales to customers accounted for under the equity method were approximately $0.9 billion, $1.0 billion and $1.5 billion in 1997, 1996 and 1995, respectively. See notes to consolidated financial statements. 30 CONSOLIDATED BALANCE SHEETS AT DECEMBER 27, 1997, AND DECEMBER 28, 1996 (IN THOUSANDS) ASSETS
1997 1996 ----------- ----------- Current assets: Cash and cash equivalents............................................................ $ 30,316 $ 63,667 Receivables, net..................................................................... 334,278 329,505 Inventories.......................................................................... 1,018,666 1,051,313 Other current assets................................................................. 111,730 119,123 ----------- ----------- Total current assets............................................................. 1,494,990 1,563,608 Investments and notes receivable....................................................... 150,221 205,683 Investment in direct financing leases.................................................. 201,588 212,202 Property and equipment: Land................................................................................. 57,746 60,867 Buildings............................................................................ 426,302 416,188 Fixtures and equipment............................................................... 652,039 661,654 Leasehold improvements............................................................... 234,805 220,182 Leased assets under capital leases................................................... 227,894 203,491 ----------- ----------- 1,598,786 1,562,382 Less accumulated depreciation and amortization..................................... (648,943) (603,241) ----------- ----------- Net property and equipment....................................................... 949,843 959,141 Other assets........................................................................... 164,295 118,096 Goodwill, net.......................................................................... 963,034 996,446 ----------- ----------- Total assets........................................................................... $ 3,923,971 $ 4,055,176 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable..................................................................... $ 831,339 $ 952,769 Current maturities of long-term debt................................................. 47,608 124,613 Current obligations under capital leases............................................. 21,196 19,715 Other current liabilities............................................................ 254,454 245,774 ----------- ----------- Total current liabilities........................................................ 1,154,597 1,342,871 Long-term debt......................................................................... 1,127,311 1,091,606 Long-term obligations under capital leases............................................. 367,068 361,685 Deferred income taxes.................................................................. 61,425 37,729 Other liabilities...................................................................... 123,898 145,327 Commitments and contingencies Shareholders' equity: Common stock, $2.50 par value, authorized--100,000 shares, issued and outstanding--38,264 and 37,798 shares.............................................. 95,660 94,494 Capital in excess of par value....................................................... 504,451 503,595 Reinvested earnings.................................................................. 536,792 514,408 Accumulated other comprehensive income: Cumulative currency translation adjustment......................................... (4,922) (4,700) Additional minimum pension liability............................................... (37,715) (24,897) ----------- ----------- Accumulated other comprehensive income........................................... (42,637) (29,597) Less ESOP note....................................................................... (4,594) (6,942) ----------- ----------- Total shareholders' equity....................................................... 1,089,672 1,075,958 ----------- ----------- Total liabilities and shareholders' equity............................................. $ 3,923,971 $ 4,055,176 ----------- ----------- ----------- -----------
Receivables include $17 million and $27 million in 1997 and 1996, respectively, due from customers accounted for under the equity method. See notes to consolidated financial statements. 31 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 (IN THOUSANDS)
1997 1996 1995 ----------- ----------- ------------- Cash flows from operating activities: Net earnings........................................................... $ 25,392 $ 26,686 $ 42,001 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization........................................ 181,357 187,617 180,796 Credit losses........................................................ 24,484 26,921 30,513 Deferred income taxes................................................ 40,301 (5,451) 12,052 Equity investment results............................................ 16,746 18,458 27,240 Cost of early debt retirement........................................ 22,227 -- -- Consolidation and restructuring reserve activity..................... (12,724) (2,865) (33,062) Change in assets and liabilities, excluding effect of acquisitions: Receivables........................................................ (41,347) (13,955) 7,156 Inventories........................................................ 31,315 150,524 149,676 Accounts payable................................................... (117,219) (45,666) 6,390 Other assets and liabilities....................................... (53,116) (15,368) (18,807) Other adjustments, net............................................... (4,448) 612 (4,956) ----------- ----------- ------------- Net cash provided by operating activities............................ 112,968 327,513 398,999 ----------- ----------- ------------- Cash flows from investing activities: Collections on notes receivable........................................ 59,011 64,028 88,441 Notes receivable funded................................................ (37,537) (66,298) (103,771) Notes receivable sold.................................................. 29,272 34,980 77,063 Businesses acquired.................................................... (9,572) -- (10,654) Proceeds from sale of businesses....................................... 13,093 13,300 -- Purchase of property and equipment..................................... (129,386) (128,552) (116,769) Proceeds from sale of property and equipment........................... 15,845 15,796 29,907 Investments in customers............................................... (1,694) (365) (11,298) Proceeds from sale of investments...................................... 4,970 15,020 17,649 Other investing activities............................................. 1,895 6,843 7,297 ----------- ----------- ------------- Net cash used in investing activities................................ (54,103) (45,248) (22,135) ----------- ----------- ------------- Cash flows from financing activities: Proceeds from long-term borrowings..................................... 914,477 171,000 93,000 Principal payments on long-term debt................................... (982,982) (356,685) (452,690) Principal payments on capital lease obligations........................ (20,102) (19,622) (17,269) Sale of common stock under incentive stock and stock ownership plans... 593 2,195 7,094 Dividends paid......................................................... (3,007) (13,447) (44,749) Other financing activities............................................. (1,195) (6,465) 13,824 ----------- ----------- ------------- Net cash used in financing activities................................ (92,216) (223,024) (400,790) ----------- ----------- ------------- Net increase (decrease) in cash and cash equivalents..................... (33,351) 59,241 (23,926) Cash and cash equivalents, beginning of year............................. 63,667 4,426 28,352 ----------- ----------- ------------- Cash and cash equivalents, end of year................................... $ 30,316 $ 63,667 $ 4,426 ----------- ----------- ------------- ----------- ----------- -------------
See notes to consolidated financial statements. 32 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK CAPITAL IN -------------------- EXCESS OF REINVESTED COMPREHENSIVE TOTAL SHARES AMOUNT PAR VALUE EARNINGS INCOME ----------- --------- --------- ------------ ----------- -------------- Balance at January 1, 1995..................... $ 1,078,555 37,480 $ 93,705 $ 494,966 $ 503,962 Comprehensive income Net earnings................................. 42,001 42,001 $ 42,001 Other comprehensive income, net of tax: Currency translation adjustment (net of $0 taxes)................................... (1,577) (1,577) -------------- Comprehensive income......................... $ 40,424 -------------- -------------- Incentive stock and stock ownership plans...... 7,094 236 586 6,508 Cash dividends, $1.20 per share................ (44,749) (44,749) ESOP note payments............................. 1,998 ----------- --------- --------- ------------ ----------- Balance at December 30, 1995................... 1,083,322 37,716 94,291 501,474 501,214 Comprehensive income Net earnings................................. 26,686 26,686 $ 26,686 Other comprehensive income, net of tax: Currency translation adjustment (net of $0 taxes)................................... (151) (151) Minimum pension liability adjustment (net of $16,619 of taxes)..................... (24,897) (24,897) -------------- Comprehensive income......................... $ 1,638 -------------- -------------- Incentive stock and stock ownership plans...... 2,324 82 203 2,121 Cash dividends, $.36 per share................. (13,492) (13,492) ESOP note payments............................. 2,166 ----------- --------- --------- ------------ ----------- Balance at December 28, 1996................... 1,075,958 37,798 94,494 503,595 514,408 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) Minimum pension liability adjustment (net of $8,556 of taxes)...................... (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 ----------- --------- --------- ------------ ----------- Balance at December 27, 1997................... $ 1,089,672 38,264 $ 95,660 $ 504,451 $ 536,792 ----------- --------- --------- ------------ ----------- ----------- --------- --------- ------------ ----------- ACCUMULATED OTHER COMPREHENSIVE ESOP INCOME NOTE -------------- --------- Balance at January 1, 1995..................... $ (2,972) $ (11,106) Comprehensive income Net earnings................................. Other comprehensive income, net of tax: Currency translation adjustment (net of $0 taxes)................................... (1,577) Comprehensive income......................... Incentive stock and stock ownership plans...... Cash dividends, $1.20 per share................ ESOP note payments............................. 1,998 -------------- --------- Balance at December 30, 1995................... (4,549) (9,108) Comprehensive income Net earnings................................. Other comprehensive income, net of tax: Currency translation adjustment (net of $0 taxes)................................... (151) Minimum pension liability adjustment (net of $16,619 of taxes)..................... (24,897) Comprehensive income......................... Incentive stock and stock ownership plans...... Cash dividends, $.36 per share................. ESOP note payments............................. 2,166 -------------- --------- Balance at December 28, 1996................... (29,597) (6,942) Comprehensive income Net earnings................................. Other comprehensive income, net of tax: Currency translation adjustment (net of $0 taxes)................................... (222) Minimum pension liability adjustment (net of $8,556 of taxes)...................... (12,818) Comprehensive income......................... Incentive stock and stock ownership plans...... Cash dividends, $0.08 per share................ ESOP note payments............................. 2,348 -------------- --------- Balance at December 27, 1997................... $ (42,637) $ (4,594) -------------- --------- -------------- ---------
See notes to consolidated financial statements. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS: The company markets food and related products and offers retail services to supermarkets in 42 states. The company also operates more than 275 company-owned stores in several geographic areas. The company's activities encompass two major businesses: food distribution and company-owned retail food operations. Food and food-related product sales account for over 90 percent of the company's consolidated sales. No one customer accounts for 10 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 PER SHARE: In 1997, the company adopted SFAS No. 128-Earnings Per Share. Both basic and diluted earnings per share are computed based on net earnings divided by weighted average shares as appropriate for each calculation. As reflected in the Consolidated Statements of Earnings, differences between basic and diluted earnings per share are immaterial. 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 $18 million in 1997 and $34 million in 1996. Receivables are shown net of allowance for doubtful accounts of $19 million in 1997 and $25 million in 1996. 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 1997 and 1996 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 $36 million and $30 million at year-end 1997 and 1996, respectively. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 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--5 to 7 years. GOODWILL: The excess of purchase price over the 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 $189 million and $159 million in 1997 and 1996, respectively. IMPAIRMENT: Asset impairments are recorded when events or changes in circumstances indicate that the carrying amount of assets may not be 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 a business unit level. 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: In 1997, the company adopted SFAS No. 130-Reporting 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 affect of other comprehensive income is reflected in the Shareholders' Equity section of the Consolidated Balance Sheets. 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 on July 25, 1997. The recapitalization program resulted in an extraordinary charge of $13.3 million, after income tax benefits of $8.9 million, or $.35 per share, in the company's third quarter ended October 4, 1997. Almost all of the charge represents a non-cash write-off of unamortized financing costs related to debt which was prepaid. See the "Long-term Debt" note for further discussion of the recapitalization program. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 EARNINGS PER SHARE The following table sets forth the basic and diluted earnings per share computation for income before extraordinary charge.
1997 1996 1995 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Numerator: Basic and diluted earnings before extraordinary charge.............................................. $ 38,722 $ 26,686 $ 42,001 --------- --------- --------- --------- --------- --------- Denominator: Weighted average shares for basic earnings per share............................................... 37,803 37,774 37,577 --------- --------- --------- Effect of dilutive securities: Employee stock options.............................. 21 3 4 Restricted stock compensation....................... 38 -- -- --------- --------- --------- Dilutive potential common shares.................. 59 3 4 --------- --------- --------- Weighted average shares for diluted earnings per share............................................... 37,862 37,777 37,581 --------- --------- --------- --------- --------- --------- Basic and diluted earnings per share before extraordinary charge................................ $1.02 $.71 $1.12 --------- --------- --------- --------- --------- ---------
Options to purchase 2,410,000 shares of common stock at a weighted average exercise price of $22.81 per share were outstanding during 1997 but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. SEGMENT INFORMATION In 1997, the company adopted SFAS No. 131-Disclosures about Segments of an Enterprise and Related Information. The company derives over 90% of its net sales and operating profits from the sale of food and food-related products to external customers. Further, over 90% of the company's assets are based in and net sales derived from 42 states and no single customer amounts to 10% or more of net sales. Considering the customer types and the processes for meeting the needs of customers, senior management manages the business as two segments: food distribution and company-owned retail food operations. The food distribution segment represents the aggregation of retail services and the distribution and marketing of the following products: food, general merchandise, health and beauty care, and Fleming Brands. The aggregation is based primarily on the common customer base and the interdependent marketing and distribution efforts. The company's senior management utilizes more than one measurement and multiple views of data to assess segment performance and to allocate resources to the segments. However, the dominant measurements are consistent with the company's consolidated financial statements and, accordingly, are reported on the same basis herein. Interest expense, interest income, equity investments, corporate expenses and 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 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.
1997 1996 1995 --------- --------- --------- (IN MILLIONS) NET SALES Food distribution............................................ $ 13,864 $ 14,904 $ 16,665 Intersegment elimination..................................... (1,950) (2,123) (2,529) --------- --------- --------- Net food distribution........................................ 11,914 12,781 14,136 Retail food.................................................. 3,459 3,706 3,366 --------- --------- --------- Total........................................................ $ 15,373 $ 16,487 $ 17,502 --------- --------- --------- --------- --------- --------- OPERATING EARNINGS Food distribution............................................ $283 $302 $290 Retail food.................................................. 80 50 47 Corporate.................................................... (127) (144) (122) --------- --------- --------- Total operating earnings..................................... 236 208 215 Interest expense............................................. (162) (163) (175) Interest income.............................................. 47 49 58 Equity investment results.................................... (17) (18) (21) Litigation charge............................................ (21) (21) -- Facilities consolidation..................................... -- -- 9 --------- --------- --------- Earnings before taxes........................................ $ 83 $ 55 $ 86 --------- --------- --------- --------- --------- --------- DEPRECIATION AND AMORTIZATION Food distribution............................................ $105 $107 $117 Retail food.................................................. 55 56 43 Corporate.................................................... 21 25 21 --------- --------- --------- Total........................................................ $181 $188 $181 --------- --------- --------- --------- --------- --------- CAPITAL EXPENDITURES Food distribution............................................ $ 51 $ 59 $ 70 Retail food.................................................. 77 50 30 Corporate.................................................... 1 20 14 --------- --------- --------- Total........................................................ $129 $129 $114 --------- --------- --------- --------- --------- --------- IDENTIFIABLE ASSETS Food distribution............................................ $2,864 $3,048 $3,398 Retail food.................................................. 708 627 662 Corporate.................................................... 352 380 237 --------- --------- --------- Total........................................................ $3,924 $4,055 $4,297 --------- --------- --------- --------- --------- ---------
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 Equity investment results representing a joint venture in 1995 have been reclassified to retail operating earnings to compare to the 1996 consolidation of the joint venture. TAXES ON INCOME Components of taxes on income are as follows:
1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Current: Federal.................................................... $ (4,761) $ 24,729 $ 24,817 State...................................................... (474) 8,609 7,022 --------- --------- --------- Total current................................................ (5,235) 33,338 31,839 --------- --------- --------- Deferred: Federal.................................................... 32,519 (4,388) 9,850 State...................................................... 7,782 (1,063) 2,202 --------- --------- --------- Total deferred............................................... 40,301 (5,451) 12,052 --------- --------- --------- Taxes on income.............................................. $ 35,066 $ 27,887 $ 43,891 --------- --------- --------- --------- --------- ---------
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 statement of earnings. Deferred tax expense (benefit) relating to temporary differences includes the following components:
1997 1996 1995 --------- ---------- ---------- (IN THOUSANDS) Depreciation and amortization.............................. $ (4,818) $ (12,561) $ (23,398) Inventory.................................................. (6,228) (6,586) (2,113) Capital losses............................................. (357) (2,494) (854) Asset valuations and reserves.............................. 22,498 13,567 26,040 Equity investment results.................................. 821 526 (312) Credit losses.............................................. 23,184 3,995 2,897 Lease transactions......................................... (757) (1,298) (1,170) Associate benefits......................................... 2,727 (478) 2,249 Note sales................................................. (1,843) 315 (144) Acquired loss carryforwards................................ -- 1,616 4,422 Other...................................................... 5,074 (2,053) 4,435 --------- ---------- ---------- Deferred tax expense (benefit)............................. $ 40,301 $ (5,451) $ 12,052 --------- ---------- ---------- --------- ---------- ----------
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 Temporary differences that give rise to deferred tax assets and liabilities as of year-end 1997 and 1996 are as follows:
1997 1996 ---------- ---------- (IN THOUSANDS) Deferred tax assets: Depreciation and amortization......................................... $ 9,171 $ 9,187 Asset valuations and reserve activities............................... 39,126 60,008 Associate benefits.................................................... 93,454 83,408 Credit losses......................................................... 16,368 19,891 Equity investment results............................................. 8,440 9,202 Lease transactions.................................................... 14,067 13,308 Inventory............................................................. 22,168 16,013 Acquired loss carryforwards........................................... 4,987 4,581 Capital losses........................................................ 4,798 3,354 Other................................................................. 17,350 20,926 ---------- ---------- Gross deferred tax assets............................................. 229,929 239,878 Less valuation allowance.............................................. (4,920) (4,514) ---------- ---------- Total deferred tax assets............................................. 225,009 235,364 ---------- ---------- Deferred tax liabilities: Depreciation and amortization......................................... 112,007 116,842 Equity investment results............................................. 2,514 2,455 Lease transactions.................................................... 1,996 1,995 Inventory............................................................. 52,513 52,586 Associate benefits.................................................... 25,385 20,931 Asset valuations and reserve activities............................... 2,151 535 Note sales............................................................ 3,412 3,754 Prepaid expenses...................................................... 3,887 3,162 Other................................................................. 38,429 18,644 ---------- ---------- Total deferred tax liabilities........................................ 242,294 220,904 ---------- ---------- Net deferred tax asset (liability).................................... $ (17,285) $ 14,460 ---------- ---------- ---------- ----------
The change in net deferred asset/liability from 1996 to 1997 is allocated $40.3 million to deferred income tax expense and $8.6 million benefit to stockholders' equity. The valuation allowance relates to $4.9 million of acquired loss carryforwards that, if utilized, will be reversed to goodwill in future years. Management believes it is more likely than not that all other deferred tax assets will be realized. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
1997 1996 1995 --------- --------- --------- Statutory rate................................................. 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit................. 7.9 9.0 7.0 Acquisition-related differences................................ 14.5 6.1 8.4 Other.......................................................... .6 1.0 .7 --------- --------- --------- Effective rate................................................. 58.0% 51.1% 51.1% --------- --------- --------- --------- --------- ---------
INVESTMENTS AND NOTES RECEIVABLE Investments and notes receivable consist of the following:
1997 1996 ---------- ---------- (IN THOUSANDS) Investments in and advances to customers.............................. $ 52,019 $ 72,246 Notes receivable from customers....................................... 75,759 107,811 Other investments and receivables..................................... 22,443 25,626 ---------- ---------- Investments and notes receivable...................................... $ 150,221 $ 205,683 ---------- ---------- ---------- ----------
Investments and notes receivable are shown net of reserves of $25 million and $24 million in 1997 and 1996, respectively. The company extends long-term credit to certain retail customers. Loans are primarily collateralized by inventory and fixtures. Interest rates are above prime with terms up to 10 years. The carrying amount of notes receivable approximates fair value because of the variable interest rates charged on the notes. The company's impaired notes receivable (including current portion) are as follows:
1997 1996 --------- ----- (IN MILLIONS) Impaired notes with related allowances....................................... $16 $ 9 Credit loss allowance on impaired notes...................................... (10) (6 ) Impaired notes with no related allowances.................................... 1 12 --- --- Net impaired notes receivable................................................ $ 7 $15 --- --- --- ---
Average investments in impaired notes were as follows: 1997-$13 million; 1996-$21 million; and 1995-$30 million. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 Activity in the allowance for credit losses is as follows:
1997 1996 1995 --------- --------- --------- (IN MILLIONS) Balance, beginning of year....................................... $50 $53 $49 Charged to costs and expenses.................................... 24 27 31 Uncollectible accounts written off, net of recoveries............ (32) (35) (27) Asset impairment................................................. 2 5 -- --- --- --- Balance, end of year............................................. $44 $50 $53 --- --- --- --- --- ---
The company has sold certain notes receivable at face value with limited recourse. The outstanding balance at year-end 1997 on all notes sold is $84 million, of which the company is contingently liable for $15 million should all the notes become uncollectible. LONG-TERM DEBT Long-term debt consists of the following:
1997 1996 ------------ ------------ (IN THOUSANDS) 10.625% senior notes due 2001..................................... $ 300,000 $ 300,000 10.5% senior subordinated notes due 2004.......................... 250,000 -- 10.625% senior subordinated notes due 2007........................ 250,000 -- Term loans, due 1998 to 2004, average interest rate of 7.3%....... 249,731 591,253 Medium-term notes, due 1998 to 2003, average interest rates of 7.3% and 7.1%................................................... 89,000 99,000 Revolving credit, average interest rates of 7.1% and 6.5%, due 2003............................................................ 30,000 20,000 Mortgaged real estate notes and other debt, net of asset sale proceeds escrow, varying interest rates from 4% to 14.4%, due 1998 to 2003.................................................... 6,188 5,966 Floating rate senior notes due 2001, interest rate of 7.9%........ -- 200,000 ------------ ------------ 1,174,919 1,216,219 Less current maturities........................................... (47,608) (124,613) ------------ ------------ Long-term debt.................................................... $ 1,127,311 $ 1,091,606 ------------ ------------ ------------ ------------
FIVE-YEAR MATURITIES: Aggregate maturities of long-term debt for the next five years are as follows: 1998-$48 million; 1999-$42 million; 2000-$72 million; 2001-$338 million; and 2002-$51 million. RECAPITALIZATION PROGRAM: On July 25, 1997, the company entered into a new $850 million senior secured credit facility and sold $500 million of senior subordinated notes. Proceeds from the initial borrowings under the credit agreement and the sale of the subordinated notes were used to repay all outstanding bank debt under the previous credit facility and the balance, together with additional revolver borrowings, were used to redeem the company's $200 million floating rate senior notes due in 2001. The recapitalization program provides the company with increased flexibility to redeploy assets and pursue increased business investment, such as the expansion of the company's retail food operations, strengthens 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 Fleming's capital structure by reducing senior secured bank loans and repaying the floating rate senior notes, extends the average life of total debt outstanding, and reduces annual scheduled debt maturities. The new $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, the new 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 $500 MILLION OF SENIOR SUBORDINATED NOTES CONSISTS OF TWO ISSUES: $250 million of 10 1/22% Notes due December 1, 2004 and $250 million of 10 5/8% 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 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 earnings 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 $58 million at year-end 1997, based on a formula tied to net earnings and equity issuances. 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. In addition, 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 1997, borrowings under the credit facility totaled $250 million in term loans and $30 million of revolver borrowings, and $88 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 1997, the company would have been allowed to borrow an additional $482 million under the revolving credit facility contained in the credit agreement based on the actual borrowings and letters of credit outstanding. Under the company's most restrictive borrowing covenant, which is the fixed charges coverage ratio contained in the credit agreement, $41 million of additional fixed charges could have been incurred. MEDIUM-TERM NOTES: Between 1990 and 1993, the company registered $565 million in medium-term notes. During that period, a total of $275 million was issued. The company has no plans to issue additional medium-term notes at this time. Under the credit agreement, new issues of certain kinds of debt must have a maturity after January 2005. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 CREDIT RATINGS: On June 27, 1997, Moody's Investors Service ("Moody's") announced it had revised its credit ratings for Fleming. Moody's downgraded its rating for the company's senior secured credit facility to Ba3 from Ba2, senior unsecured notes to B1 from Ba3, and counterparty ratings to B1 from Ba3. Moody's assigned a Ba3 rating to the company's new $850 million credit agreement, and a B3 rating for the new $500 million of senior subordinated notes. On June 30, 1997, Standard & Poor's Rating Group ("S&P") announced it had revised its outlook on Fleming to stable from negative and had affirmed the company's BB corporate credit rating. Additionally, S&P raised its rating on the company's senior unsecured notes to BB- from B+. It also assigned a B+ rating to the company's new $500 million senior subordinated notes. On July 2, 1997, S&P announced it had assigned a BB+ rating to the company's new $850 million credit facility. AVERAGE INTEREST RATES: The composite interest rate for total debt (including capital lease obligations) before the effect of interest rate hedges was 9.9% for 1997, versus 8.6% in 1996. Including the effect of interest rate hedges, the composite interest rate of debt was 10.4% and 9.1% at the end of 1997 and 1996, respectively. INTEREST EXPENSE: Components of interest expense are as follows:
1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Interest costs incurred: Long-term debt......................................... $ 121,356 $ 122,859 $ 135,254 Capital lease obligations.............................. 36,414 35,656 36,132 Other.................................................. 5,922 5,055 4,712 ---------- ---------- ---------- Total incurred......................................... 163,692 163,570 176,098 Less interest capitalized................................ (1,186) (104) (708) ---------- ---------- ---------- Interest expense......................................... $ 162,506 $ 163,466 $ 175,390 ---------- ---------- ---------- ---------- ---------- ----------
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 swaps covering $250 million aggregate principal amount of floating rate indebtedness at year-end 1997, and interest rate swaps and caps covering $850 million of floating rate indebtedness at year end 1996. The agreements all mature in 2000. The counterparties to these agreements are major U.S. and international financial institutions. The interest rate applicable to most of the company's floating rate indebtedness is equal to the London interbank offered rate ("LIBOR"), plus a margin. The average fixed interest rate paid by the company on the interest rate swaps at year-end 1997 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 2.4 years at year-end 1997, 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 and caps 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 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 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 (AA- or higher from S&P or AA3 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. In 1997, interest rate hedge agreements for swaps and caps covering a total of $600 million of indebtedness were terminated. Most ($400 million) of the terminations were related to the floating-rate debt which was prepaid as part of the recapitalization program. Termination costs of $2.1 million for hedges covering debt permanently repaid were included in the extraordinary charge for early debt retirement. The remaining terminations covered hedges which management determined were no longer needed. The other termination costs are being amortized over the remaining life of the hedges terminated. 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 1997, the company's floating rate indebtedness consisted primarily 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 $.3 million and $3 million at year-end 1997 and 1996, respectively. In addition, accrued interest payable or receivable for the interest rate agreements is included in the balance sheet. Payments made or received under interest rate swap or cap 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 1997, the carrying value of debt was lower than the fair value by $44 million, or 3.7% of the carrying value. At year-end 1996, the carrying value of debt exceeded the fair value by $30 million, or 2.4% of the carrying value. For derivatives, the fair value was estimated using termination cash values. At year-end 1997, interest rate hedge agreement values would represent an obligation of $9 million, and at year-end 1996, an obligation of $20 million. 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. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 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.
1997 1996 ----- ----- (IN MILLIONS) Current assets............................................................... $ 33 $ 25 Noncurrent assets............................................................ $ 80 $ 57 Current liabilities.......................................................... $14 $8 Noncurrent liabilities....................................................... $6 $1
1997 1996 1995 --------- --------- --------- (IN MILLIONS) Net sales............................................................ $ 379 $ 298 $ 2,842 Costs and expenses................................................... $ 388 $ 314 $ 2,787 Net earnings (loss).................................................. $(4) $(8) $27
A significant number of subsidiaries have been merged into the parent company beginning in 1994, resulting in a substantial reduction in the amounts appearing in the summarized financial information. 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 $71 million and $64 million at year-end 1997 and 1996, respectively. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 Future minimum lease payment obligations for leased assets under capital leases as of year-end 1997 are set forth below:
YEARS - ------------------------------------------------------------------------------ LEASE OBLIGATIONS -------------- (IN THOUSANDS) 1998.......................................................................... $ 28,261 1999.......................................................................... 28,153 2000.......................................................................... 27,071 2001.......................................................................... 26,467 2002.......................................................................... 25,236 Later......................................................................... 220,159 -------------- Total minimum lease payments.................................................. 355,347 Less estimated executory costs................................................ (132) -------------- Net minimum lease payments.................................................... 355,215 Less interest................................................................. (167,027) -------------- Present value of net minimum lease payments................................... 188,188 Less current obligations...................................................... (9,571) -------------- Long-term obligations......................................................... $178,617 -------------- --------------
Future minimum lease payments required at year-end 1997 under operating leases that have initial noncancelable lease terms exceeding one year are presented in the following table:
FACILITY FACILITIES EQUIPMENT EQUIPMENT NET YEARS RENTALS SUBLEASED RENTALS SUBLEASED RENTALS - ----------------------------- ------------ ----------- ----------- ----------- ---------- (IN THOUSANDS) 1998......................... $ 155,414 $ (67,606) $ 24,291 $ (1,546) $ 110,553 1999......................... 139,353 (57,006) 16,487 (839) 97,995 2000......................... 125,489 (46,750) 7,941 (570) 86,110 2001......................... 115,222 (39,055) 2,870 (62) 78,975 2002......................... 107,637 (33,274) 1,459 -- 75,822 Later........................ 607,083 (127,757) 34 -- 479,360 ------------ ----------- ----------- ----------- ---------- Total lease payments......... $ 1,250,198 $ (371,448) $ 53,082 $ (3,017) $ 928,815 ------------ ----------- ----------- ----------- ---------- ------------ ----------- ----------- ----------- ----------
The following table shows the composition of total annual rental expense under noncancelable operating leases and subleases with initial terms of one year or greater:
1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Minimum rentals.......................................... $ 192,698 $ 208,250 $ 199,834 Contingent rentals....................................... 2,002 1,874 1,654 Less sublease income..................................... (75,592) (88,014) (92,108) ---------- ---------- ---------- Rental expense........................................... $ 119,108 $ 122,110 $ 109,380 ---------- ---------- ---------- ---------- ---------- ----------
DIRECT FINANCING LEASES: The company leases retail store facilities for sublease to customers with terms generally ranging from 15 to 20 years. Most leases provide for a contingent rental based on sales 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 performance in excess of specified minimums. The leases and subleases usually contain provisions for one to four renewal options of two to five years each. 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 1997:
LEASE RENTALS LEASE YEARS RECEIVABLE OBLIGATIONS - ------------------------------------------------------------------ ------------- ----------- (IN THOUSANDS) 1998.............................................................. $ 39,310 $ 30,325 1999.............................................................. 36,856 30,263 2000.............................................................. 33,817 29,029 2001.............................................................. 31,690 27,855 2002.............................................................. 29,786 27,720 Later............................................................. 202,520 190,544 ------------- ----------- Total minimum lease payments...................................... 373,979 335,736 Less estimated executory costs.................................... (1,145 ) (1,140) ------------- ----------- Net minimum lease payments........................................ 372,834 334,596 Less interest..................................................... (153,455 ) (134,520) ------------- ----------- Present value of net minimum lease payments....................... 219,379 200,076 Less current portion.............................................. (17,791 ) (11,625) ------------- ----------- Long-term portion................................................. $201,588 $188,451 ------------- ----------- ------------- -----------
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 29,000 and 125,000 new shares in 1997 and 1996, respectively. The company's employee stock ownership plan (ESOP) established in 1990 allows substantially all associates to participate. In 1990, the ESOP entered into a note with a bank to finance the purchase of the shares. In 1994, the company paid off the note and received a note from the ESOP. The ESOP will repay to the company the remaining loan balance with proceeds from company contributions. The receivable from the ESOP is presented as a reduction of shareholders' equity. The company makes contributions to the ESOP based on fixed debt service requirements of the ESOP note. Such contributions were approximately $2 million per year in 1997, 1996 and 1995. Dividends used by the ESOP for debt service and interest and compensation expense recognized by the company were not material. The company issues shares of restricted stock to key employees under plans approved by the stockholders. Performance goals and periods of restriction are established for each award. The fair value of the restricted stock at the time of the grant is recorded as unearned compensation-- restricted stock which is netted against capital in excess of par within shareholders' equity. Compensation 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 is amortized to expense when earned. At year-end 1997, 7,000 shares remained available for award under all plans. Information regarding restricted stock balances is as follows (in thousands):
1997 1996 --------- --------- Awarded restricted shares outstanding................................. 638 217 --------- --------- --------- --------- Unearned compensation--restricted stock............................... $ 11,052 $ 5,474 --------- --------- --------- ---------
The company may grant stock options to key employees through unrestricted non-qualified stock option plans. In 1997, there were no exercisable outstanding options with stock appreciation rights and in 1996 there were 7,000 shares. At year-end 1997, there were 373,000 shares available for grant under the unrestricted stock option plans. Stock option transactions are as follows:
WEIGHTED AVERAGE SHARES EXERCISE PRICE PRICE RANGE ----------- ----------------- -------------- (SHARES IN THOUSANDS) Outstanding, year-end 1994......................... 2,206 $ 28.56 $ 10.29-42.13 Granted.......................................... 99 $ 25.52 $ 19.44-26.44 Exercised........................................ (10) $ 18.09 $ 10.29-24.94 Canceled and forfeited........................... (408) $ 30.31 $ 24.81-42.13 ----- ------ -------------- Outstanding, year-end 1995......................... 1,887 $ 28.06 $ 19.44-42.13 Granted.......................................... 1,005 $ 16.67 $ 16.38-19.75 Canceled and forfeited........................... (261) $ 29.07 $ 24.81-42.13 ----- ------ -------------- Outstanding, year-end 1996......................... 2,631 $ 23.93 $ 16.38-42.13 Granted.......................................... 80 $ 17.58 $ 17.50-18.13 Exercised........................................ (8) $ 16.38 $ 16.38-16.38 Canceled and forfeited........................... (437) $ 28.48 $ 16.38-42.13 ----- ------ -------------- Outstanding, year-end 1997......................... 2,266 $ 22.65 $ 16.38-38.38 ----- ------ -------------- ----- ------ --------------
48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 Information regarding options outstanding at year-end 1997 is as follows:
ALL OUTSTANDING OPTIONS CURRENTLY OPTIONS EXERCISABLE --------------- ----------------- (SHARES IN THOUSANDS) Option price $37.06--$38.38: Number of options....................................... 178 178 Weighted average exercise price......................... $ 37.07 $ 37.07 Weighted average remaining life in years................ 2 -- ------ ------ ------ ------ Option price $24.81--$29.81: Number of options....................................... 1,082 400 Weighted average exercise price......................... $ 25.71 $ 26.27 Weighted average remaining life in years................ 6 -- ------ ------ ------ ------ Option price $16.38--$19.75: Number of options....................................... 1,006 230 Weighted average exercise price......................... $ 16.81 $ 16.73 Weighted average remaining life in years................ 9 -- ------ ------ ------ ------
In the event of a change of control, the company may accelerate the vesting and payment of any award or make a payment in lieu of an award. The company applies APB Opinion No. 25--Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the plans. 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 and earnings per share, both before extraordinary charge, would have been $37.9 million and $1.00 for 1997, $26.5 million and $.70 for 1996 and $42.0 million and $1.12 for 1995, 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 1997, 1996 and 1995 are: risk-free interest rate--6.25% to 7.00%; expected lives of options--10 years; expected volatility--30% to 50%; and expected dividend yield of 0.5% (6% for 1995 only). ASSOCIATE RETIREMENT PLANS The company sponsors retirement and profit sharing plans for substantially all non-union and some union associates. Benefit calculations for the company's defined benefit retirement 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. The following table sets forth the company's major qualified defined benefit retirement plans' funded status and the amounts recognized in the statements of earnings. Substantially all the plans' assets are invested in listed securities, short-term investments and bonds. The significant actuarial assumptions used 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 in the calculation of funded status for 1997 and 1996, respectively are: discount rate--7.00% and 7.75%; compensation increases--4.0% and 4.5%; and return on assets--9.5% for both years.
1997 1996 ---------------------------- ---------------------------- ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS ------------- ------------- ------------- ------------- (IN THOUSANDS) Actuarial present value of accumulated benefit obligations: Vested.................................... $6,040 $275,199 $5,440 $238,154 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Total..................................... $6,150 $286,619 $5,590 $245,014 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Projected benefit obligations............... $ 6,150 $ 316,271 $ 5,590 $ 274,494 Plan assets at fair value................... 10,297 252,187 8,457 228,679 ------------- ------------- ------------- ------------- Projected benefit obligation in excess of (less than) plan assets................... (4,147 ) 64,084 (2,867 ) 45,815 Unrecognized net loss....................... (25 ) (83,257 ) (282 ) (63,583 ) Unrecognized prior service cost............. (1 ) (37 ) (2 ) (434 ) Unrecognized net asset...................... 44 811 83 1,041 Additional liability........................ -- 52,830 -- 33,497 ------------- ------------- ------------- ------------- Accrued (prepaid) pension cost.............. $ (4,129 ) $ 34,431 $ (3,068 ) $ 16,336 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Net pension expense includes the following components:
1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Service cost........................................................ $10,835 $10,802 $11,348 Interest cost....................................................... 21,551 19,764 16,367 Actual return on plan assets........................................ (28,008) (22,986) (45,217) Net amortization and deferral....................................... 10,595 10,265 29,807 ---------- ---------- ---------- Net pension expense................................................. $14,973 $17,845 $12,305 ---------- ---------- ---------- ---------- ---------- ----------
The company also has nonqualified supplemental retirement plans for selected associates. These plans are unfunded with a projected benefit obligation of $29 million and $24 million, and unrecognized prior service and actuarial losses of $11 million and $9 million, at year-end 1997 and 1996, respectively, based on actuarial assumptions consistent with the funded plans. The net pension expense for the unfunded plans was $4 million for 1997 and $3 million for both 1996 and 1995. At year-end 1997, the consolidated balance sheet reflects a $63 million additional minimum liability relating to unfunded accumulated benefit obligations for all of the company's defined benefit plans, a $.4 million related intangible asset, and a $38 million reduction of shareholders' equity, net of future tax benefits. At year-end 1996, the additional minimum liability relating to unfunded accumulated benefit obligations was $42 million with a $.9 million related intangible asset and a $25 million reduction of shareholders' equity, net of future tax benefits. Contributory profit sharing plans maintained by the company are for associates who meet certain types of employment and length of service requirements. Company contributions under these defined 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 contribution plans are made at the discretion of the board of directors. Expenses for these plans were $6 million in 1997 and $3 million in both 1996 and 1995. Certain associates have pension and health care benefits provided under collectively bargained multiemployer agreements. Expenses for these benefits were $72 million, $84 million and $75 million for 1997, 1996 and 1995, respectively. In February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 132-- Employers' Disclosures about Pensions and Other Postretirement Benefits. SFAS No. 132 revises the disclosure requirements for pensions and other postretirement benefits. The company will adopt SFAS No. 132 for the fiscal year ending December 26, 1998 and expects the future disclosures to be less comprehensive. ASSOCIATE POSTRETIREMENT HEALTH CARE BENEFITS 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. Components of postretirement benefits expense are as follows:
1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Service cost..................................................... $ 137 $ 147 $ 137 Interest cost.................................................... 1,185 1,443 1,642 Amortization of net loss (gain).................................. (44) -- 141 --------- --------- --------- Postretirement expense........................................... $ 1,278 $ 1,590 $ 1,920 --------- --------- --------- --------- --------- ---------
The composition of the accumulated postretirement benefit obligation (APBO) and the amounts recognized in the balance sheets are presented below.
1997 1996 --------- --------- (IN THOUSANDS) Retirees................................................................ $ 13,480 $ 15,843 Fully eligible actives.................................................. 785 689 Others.................................................................. 2,176 1,767 APBO.................................................................... 16,441 18,299 Unrecognized net gain (loss)............................................ (848) 100 --------- --------- Accrued postretirement benefit cost..................................... $ 15,593 $ 18,399 --------- --------- --------- ---------
The weighted average discount rate used in determining the APBO was 7% and 7.75% for 1997 and 1996, respectively. For measurement purposes in 1997 and 1996, a 9% annual rate of increase in the per capita cost of covered medical care benefits was assumed. The rate was assumed to decrease to 5% in both 1997 and 1996 by the year 2005 and 2003, respectively, then remain level. An increase of 1% in the health care cost trend would increase the APBO as of December 27, 1997 by 11% and the service and interest cost components of the postretirement expense by 8%. The company also provides other benefits for certain inactive associates. Expenses related to these benefits are immaterial. 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 See "Associate Retirement Plans" note for timing of company adoption of SFAS No. 132--Employers' Disclosures about Pensions and Other Postretirement Benefits. FACILITIES CONSOLIDATION AND RESTRUCTURING In 1993, the company recorded a charge of $108 million for facilities consolidations, reengineering, impairment of retail-related assets and elimination of regional operations. Components of the charge provided for severance costs, impaired property and equipment, product handling and damage, and impaired other assets. Four distribution centers have been closed and one additional facility will be closed as part of the facilities consolidation plan. Most impaired retail-related assets have been disposed or subleased. Regional operations have been eliminated. In 1995, management changed its estimates with respect to the general merchandising operations portion of the reengineering plan and reversed $9 million of the related reserve. Although there have been no changes to the plans for consolidation and restructuring as contemplated at the end of 1993, there have been significant delays, primarily due to the integration of Scrivner, acceptance of the changes by customers and management of labor relations. Customer acceptance and labor relations continue to be important and unpredictable. The company believes that the remaining accruals are still required and estimates that the majority of the remaining balance will be utilized in 1998. Facilities consolidation and restructuring reserve activities are:
REENGINEERING/ CONSOLIDATION SEVERANCE COSTS/ASSET TOTAL COSTS IMPAIRMENTS ---------- ------------- ------------- (IN THOUSANDS) Balance, year-end 1993............................. $85,521 $25,136 $60,385 Expenditures and write-offs........................ (31,142) (2,686 ) (28,456 ) ---------- ------------- ------------- Balance, year-end 1994............................. 54,379 22,450 31,929 Credited to income................................. (8,982) -- (8,982 ) Expenditures and write-offs........................ (24,080) (6,690 ) (17,390 ) ---------- ------------- ------------- Balance, year-end 1995............................. 21,317 15,760 5,557 Expenditures and write-offs........................ (2,865) (2,642 ) (223 ) ---------- ------------- ------------- Balance, year-end 1996............................. 18,452 13,118 5,334 Expenditures and write-offs........................ (12,724) (10,846 ) (1,878 ) ---------- ------------- ------------- Balance, year-end 1997............................. $ 5,728 $ 2,272 $ 3,456 ---------- ------------- ------------- ---------- ------------- -------------
52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 SUPPLEMENTAL CASH FLOWS INFORMATION
1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Acquisitions: Fair value of assets acquired.......................... $9,572 $142,458 Less: Liabilities assumed or created......................... -- (63,873) Existing company investment.......................... -- (51,126) Cash acquired........................................ -- (16,805) ---------- ---------- ---------- Cash paid, net of cash acquired...................... $9,572 -- $ 10,654 ---------- ---------- ---------- ---------- ---------- ---------- Cash paid during the year for: Interest, net of amounts capitalized................... $ 179,180 $ 152,846 $ 171,141 ---------- ---------- ---------- ---------- ---------- ---------- Income taxes, net of refunds........................... $30,664 $32,291 $(9,593) ---------- ---------- ---------- ---------- ---------- ---------- Direct financing leases and related obligations.......... $5,092 $17,062 $28,568 ---------- ---------- ---------- ---------- ---------- ---------- Property and equipment additions by capital leases....... $28,990 $11,111 $8,840 ---------- ---------- ---------- ---------- ---------- ----------
LITIGATION AND 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 and charges related to litigation matters: PREMIUM. In 1996, the company recorded a charge of $20 million ($10 million after-tax or $.26 per share) for the settlement of two related lawsuits involving an allegedly fraudulent scheme conducted by a failed grocery diverter, Premium Sales Corporation. The settlement was consummated in 1997. DAVID'S. The company was sued by David's Supermarkets, Inc. ("David's") in 1993 for allegedly overcharging for products during a three-year period. In April 1996, judgment of $211 million was entered against the company and the company recorded a $7.1 million liability. During the second quarter of 1996, the judgment was vacated, a new trial was granted and the accrual was reduced to $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($9 million after-tax or $.24 per share). MEGAFOODS. In 1994, a former customer, Megafoods Stores, Inc. and certain of its affiliates ("Megafoods" or the "debtor") filed Chapter 11 bankruptcy proceedings. The debtor objected to the company's claims and brought adversary proceedings against the company seeking subordination of the company's claims and damages for alleged overcharges. In August 1996, the court approved a settlement of both the debtor's allegations against the company and the company's disputed claims in the bankruptcy. The debtor's plan of liquidation became effective and the settlement agreement was consummated in January 1998. The company recorded charges of approximately $3.5 million in 1995, $5.8 million in 1996 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 and $.8 million in 1997 relating to the bankruptcy. Approximately $2 million of net assets relating to Megafoods (consisting of equipment leased to the debtor's successor) remain on the company's books. FURR'S. Furr's Supermarkets, Inc. ("Furr's"), which purchased approximately $500 million of products from the company in 1997 under a supply contract originally set to expire in 2001, filed a lawsuit against the company in February 1997 claiming it was overcharged for products. Fleming denied Furr's allegations. In October 1997, Fleming and Furr's reached an agreement dismissing all litigation between the parties. Pursuant to the agreement, Furr's is being offered for sale through a six-month auction process which began on October 29, 1997. Fleming's El Paso product supply center (the "El Paso PSC"), together with related equipment and inventory, is being offered for sale with Furr's. Upon the sale of Furr's to a third party, Fleming would receive approximately 30% of the net proceeds. Under the agreement, Fleming is paying Furr's $800,000 per month as a refund of fees and charges. The payments will cease upon the expiration of the supply contract which will occur upon the earlier of (i) the sale of the El Paso PSC or (ii) the completion of the orderly liquidation of the El Paso PSC on or before June 1, 1999. The settlement did not cause an impairment in value of any recorded balances. However, if Furr's is not sold, Fleming will experience an impairment of $8-$10 million. RANDALL'S. In July 1997, Randall's Food Markets, Inc. ("Randall's"), initiated arbitration proceedings against Fleming. Randall's has been a Fleming customer for over 30 years. In 1997, Randall's purchased approximately $450 million of products from Fleming under an eight-year supply contract entered into in 1993 in connection with Fleming's purchase of certain distribution assets from Randall's. Prior to initiating the arbitration proceeding, Randall's unsuccessfully sought to terminate the supply contract. Randall's alleges that Fleming conspired with a group of manufacturers and vendors to defraud Randall's by inflating prices. Randall's also alleges that Fleming impermissibly modified the pricing mechanism of its supply contract. Randall's claims it was overcharged by approximately $54 million during a 4 1/2 year period. Randall's alleges breach of contract, fraud and RICO violations, and seeks actual, punitive and treble damages, termination of its supply contract, attorneys' fees and costs. The contract on which Randall's bases its claim prohibits either party from recovering any amount other than actual damages; recovery of consequential damages, punitive damages and all similar forms of damages are expressly prohibited. Randall's asserts that such provision is contrary to public policy and therefore not binding on it. The company believes it has complied with its obligations to Randall's in good faith and that punitive and consequential damages are not recoverable under the supply contract. The company will vigorously defend its interests. While management is unable to predict the potential range of monetary exposure to Randall's, if any, the effect of an unfavorable outcome in the arbitration or the premature loss of Randall's business could have a material adverse effect on the company. 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 lawsuits filed by certain stockholders and one purported class action lawsuit filed by a noteholder. In April 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. A complaint has been filed in the consolidated cases asserting 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 failures and 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 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 profit, and materially inflated the trading price of the company's common stock. The company denies each of these allegations. The plaintiffs seek undetermined but significant damages and management is unable to predict the ultimate outcome of these cases. However, while management believes that the cases could have a material adverse impact on interim or annual results of operations, based upon the ruling of the U.S. District Court for the Western District of Oklahoma described below, Fleming believes the cases will not have a material adverse effect on the company's liquidity or consolidated financial position. In November 1997, the company won a declaratory judgment against certain of its insurance carriers regarding directors and officers ("D&O") insurance policies issued to Fleming for the benefit of its officers and directors. On motion for summary judgment, the court ruled that the company's exposure, if any, under the class action suits is covered by certain D&O policies written by the insurance carriers (aggregating $60 million) and that the "larger settlement rule" will be applicable to the case. According to the trial court, under the larger settlement rule a D&O insurer is liable for the entire amount of coverage available under a policy even if there is some overlap in the liability created by the insured individuals and the uninsured corporation. If a corporation's liability is increased by uninsured parties beyond that of the insured individuals, then that portion of the liability is the sole obligation of the corporation. The court also held that allocation is not available to the insurance carriers as an affirmative defense. The insurance carriers have appealed. CENTURY. Century Shopping Center Fund I ("Century Fund I") commenced an action in November 1988 in the Milwaukee County Circuit Court, State of Wisconsin, seeking injunctive relief and monetary damages of an unspecified amount. The plaintiff originally obtained a temporary restraining order preventing the defendant from closing a store at the Howell Plaza Shopping Center, for which the plaintiff was the landlord, and from opening a new store at a competing shopping center located nearby. Shortly thereafter, the order was dissolved by the court and the stores opened and closed as scheduled. Following the closure of the store, a number of shopping center tenants and Century Fund I experienced financial difficulty ultimately resulting in bankruptcy. In June 1993, three former tenants of the Howell Plaza Shopping Center filed another case in the same court and in September 1993, the trustee in bankruptcy for Howell Plaza, Inc. (the predecessor to Century Fund I and its successor as defendant's landlord) filed a third case. The allegations of these cases are very similar to the allegations made in the Century Fund I case. In November 1993, Century Fund I amended its complaint to allege breach of contract, tortious interference with contract, tortious interference to business, defamation, attempted monopolization, conspiracy to monopolize, conspiracy to restrain trade and monopolization. Plaintiff claims that defendant and defendant's new landlord conspired to force the Howell Plaza Shopping Center out of business. The cases have been consolidated and are set for trial in October 1998. Plaintiffs seek actual, consequential, treble and punitive damages, attorneys' fees, court costs and other relief. In March 1997, plaintiffs supplied the company with an analysis of damages alleging actual damages, after trebling but excluding any estimated punitive damages, of approximately $18 million. In July 1997, the trial court granted plaintiffs' motion for summary judgment with respect to their breach of contract claim against Fleming (as to liability only, not as to damages). Plaintiffs have alleged $1.7 million of actual damages resulted from the breach of contract. Management is unable to predict the ultimate outcome of this matter. However, an unfavorable outcome in the litigation could have a material adverse effect on the company. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 TRU DISCOUNT FOODS. Fleming initially brought suit on a note and an open account against its former customer, Tru Discount Foods. In December 1997, the defendant amended its counter claim against the company alleging fraud, overcharges for products and violations of the Oklahoma Deceptive Trade Practices Act. Although Tru Discount Foods has not quantified damages, it has made demand in the amount of $8 million. Management is unable to predict the ultimate outcome of this matter. However, an unfavorable outcome in the litigation could have a material adverse effect on the company. OTHER. The company utilizes numerous computer systems which were developed employing six digit date structures (i.e., two digits each for the month, day and year). Where date logic requires the year 2000 or beyond, such date structures may produce inaccurate results. Management has implemented a program to comply with year 2000 requirements on a system-by-system basis. Fleming's plan includes extensive systems testing and is expected to be substantially completed by the first quarter of 1999. The solution for each system is potentially unique and may be dependent on third-party software providers and developers. Failure to ensure that the company's computer systems are year 2000 compliant could have a material adverse effect on the company's operations. Additionally, failure of the company's suppliers or its customers to become year 2000 compliant might also have a material adverse impact on the company's operations. 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 and removal, replacement or repair of its underground fuel storage tanks and for site remediation where necessary. The company has established reserves that it believes will be sufficient to satisfy the anticipated costs of all known remediation requirements. The company and others have been designated by the U.S. Environmental Protection Agency ("EPA") and by similar state agencies as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state laws, as applicable, with respect to EPA-designated Superfund sites. While liability under CERCLA for remediation at such sites is generally joint and several with other responsible parties, the company believes that, to the extent it is ultimately determined to be liable for the expense of remediation at any site, such liability will not result in a material adverse effect on its consolidated financial position or results of operations. The company is committed to maintaining the environment and protecting natural resources and human health and to achieving full compliance with all applicable laws, regulations and orders. The company has severance agreements with certain management associates. The agreements generally provide two years' salary to these associates if the associate's employment terminates within two years after a change of control. In the event of a change of control, a supplemental trust will be funded to provide for these salary obligations. At year-end 1997, the company has aggregate contingent liabilities for future minimum rental commitments made on behalf of customers with a present value of approximately $62 million. 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 regarding labor conditions, wages, workers' compensation matters and alleged discriminatory practices; 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. 56 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 27, 1997, and December 28, 1996, and the related consolidated statements of earnings, cash flows, and shareholders' equity for each of the three years in the period ended December 27, 1997. 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 27, 1997, and December 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 1997, 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 19, 1998 57 QUARTERLY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
1997 FIRST SECOND THIRD FOURTH YEAR - -------------------------------------------- ----------- ----------- ----------- ----------- ------------- Net sales................................... $ 4,752,031 $ 3,550,654 $ 3,453,261 $ 3,616,720 $ 15,372,666 Costs and expenses (income): Cost of sales............................. 4,319,349 3,219,989 3,131,023 3,271,477 13,941,838 Selling and administrative................ 363,716 274,878 272,826 283,150 1,194,570 Interest expense.......................... 48,822 36,223 39,084 38,377 162,506 Interest income........................... (14,354) (10,940) (11,116) (10,228) (46,638) Equity investment results................. 4,078 3,239 3,710 5,719 16,746 Litigation charge......................... 19,218 -- -- 1,741 20,959 ----------- ----------- ----------- ----------- ------------- Total costs and expenses................ 4,740,829 3,523,389 3,435,527 3,590,236 15,289,981 ----------- ----------- ----------- ----------- ------------- Earnings before taxes....................... 11,202 27,265 17,734 26,484 82,685 Taxes on income............................. 5,938 14,450 8,214 15,361 43,963 ----------- ----------- ----------- ----------- ------------- Earnings before extraordinary charge........ 5,264 12,815 9,520 11,123 38,722 Extraordinary charge........................ -- -- 13,330 -- 13,330 ----------- ----------- ----------- ----------- ------------- Net earnings................................ $ 5,264 $ 12,815 $ (3,810) $ 11,123 $ 25,392 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Earnings per share: Basic and diluted before extraordinary charge.................................. $.14 $.34 $ .25 $.29 $1.02 Extraordinary charge...................... .35 .35 ----------- ----------- ----------- ----------- ------------- Basic and diluted net earnings............ $.14 $.34 $(.10) $.29 $ .67 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Dividends paid per share.................... $.02 $.02 $.02 $.02 $.08 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Weighted average shares outstanding: Basic..................................... 37,801 37,804 37,804 37,804 37,803 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Diluted................................... 37,810 37,829 37,840 37,970 37,862 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- 1996 FIRST SECOND THIRD FOURTH YEAR - -------------------------------------------- ----------- ----------- ----------- ----------- ------------- Net sales................................... $ 5,168,234 $ 3,742,331 $ 3,705,970 $ 3,870,204 $ 16,486,739 Costs and expenses (income): Cost of sales............................. 4,711,114 3,397,509 3,373,525 3,522,567 15,004,715 Selling and administrative................ 397,743 301,532 281,316 293,408 1,273,999 Interest expense.......................... 52,430 37,660 34,955 38,421 163,466 Interest income........................... (15,424) (11,301) (11,610) (10,787) (49,122) Equity investment results................. 3,165 4,099 5,708 5,486 18,458 Litigation charge......................... 7,110 (6,460) 20,000 -- 20,650 ----------- ----------- ----------- ----------- ------------- Total costs and expenses................ 5,156,138 3,723,039 3,703,894 3,849,095 16,432,166 ----------- ----------- ----------- ----------- ------------- Earnings before taxes....................... 12,096 19,292 2,076 21,109 54,573 Taxes on income............................. 6,181 9,858 1,061 10,787 27,887 ----------- ----------- ----------- ----------- ------------- Net earnings................................ $ 5,915 $ 9,434 $ 1,015 $ 10,322 $ 26,686 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Basic and diluted net earnings per share.... $.16 $.25 $.03 $.27 $.71 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Dividends paid per share.................... $.30 $.02 $.02 $.02 $.36 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Weighted average shares outstanding: Basic..................................... 37,739 37,788 37,788 37,794 37,774 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- Diluted................................... 37,739 37,788 37,794 37,800 37,777 ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- -------------
58 The first quarter of 1997 includes a charge of $19 million ($9 million after income tax benefits or $.24 per share) reflecting the settlement of the David's litigation. See "Litigation and Contingencies" in the notes to the consolidated financial statements. The third quarter of 1997 reflects an extraordinary charge of $22 million ($13 million after income tax benefits or $.35 per share) related to the recapitalization program. The first quarter of 1996 includes a charge of $7 million ($3 million after income tax benefits or $.09 per share) related to a judgment in the David's litigation. During the second quarter of 1996, this judgment was set aside and vacated, and the charge was reversed. A new charge of $650,000 ($318,000 after income tax benefits or $.01 per share) was recorded. The third quarter of 1996 includes a charge of $20 million ($10 million after income tax benefits or $.26 per share) related to a settlement agreement involving Premium Sales Corporation. See "Litigation and Contingencies" in the notes to the consolidated financial statements. The fourth quarter of 1996 includes an impairment charge of $5 million ($2 million after income tax benefits or $.06 per share) classified as selling and administrative expense, related to an international investment. The first quarter of both years consists of 16 weeks; all other quarters are 12 weeks. 59 (a) 2. Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts (a) 3. (c) Exhibits:
EXHIBIT PAGE NUMBER OR INCORPORATION NUMBER BY REFERENCE TO - ---------- ------------------------------ 3.1 Certificate of Incorporation Exhibit 4.1 to Form S-8 dated September 3, 1996 3.2 By-Laws 4.0 Credit Agreement, dated as of July 25, 1997, among Fleming Exhibit 4.16 to Form 10-Q for Companies, Inc., the Lenders party thereto, BancAmerica quarter ended 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 of July 25, 1997, between Exhibit 4.17 to Form 10-Q for Fleming Companies, Inc., the company subsidiaries party quarter ended July 12, 1997 thereto and The Chase Manhattan Bank, as collateral agent 4.2 Pledge Agreement, dated as of July 25, 1997, among Fleming Exhibit 4.18 to Form 10-Q for Companies, Inc., the company subsidiaries party thereto and quarter ended July 12, 1997 The Chase Manhattan Bank, as collateral agent 4.3 Guarantee Agreement among the company subsidiaries party Exhibit 4.19 to Form 10-Q for thereto and The Chase Manhattan Bank, as collateral agent quarter ended July 12, 1997 4.4 Indenture dated as of December 15, 1994, among Fleming, the Exhibit 4.9 to Form 10-K for Subsidiary Guarantors named therein and Texas Commerce Bank year ended December 31, 1994 National Association, as Trustee, Regarding $300 million of 10 5/8% Senior Notes 4.5 Indenture, dated as of July 25, 1997, among Fleming Exhibit 4.20 to Form 10-Q for Companies, Inc., the Subsidiary Guarantors named therein and quarter ended July 12, 1997 Manufacturers and Traders Trust Company, as Trustee, regarding 10 5/8% Senior Subordinated Notes due 2007 4.6 Indenture, dated as of July 25, 1997, among Fleming Exhibit 4.21 to Form 10-Q for Companies, Inc., the Subsidiary Guarantors named therein and quarter ended July 12, 1997 Manufacturers and Traders Trust Company regarding 10 1/2% Senior Subordinated Notes due 2004 4.7 Agreement to furnish copies of other long-term debt instruments 10.0 Dividend Reinvestment and Stock Purchase Plan, as amended Exhibit 28.1 to Registration Statement No. 33-26648 and Exhibit 28.3 to Registration Statement No. 33-45190
60
EXHIBIT PAGE NUMBER OR INCORPORATION NUMBER BY REFERENCE TO - ---------- ------------------------------ 10.1* 1985 Stock Option Plan Exhibit 28(a) to Registration Statement No. 2-98602 10.2* Form of Award Agreement for 1985 Stock Option Plan (1994) Exhibit 10.6 to Form 10-K for year ended December 25, 1993 10.3* 1990 Stock Option Plan Exhibit 28.2 to Registration Statement No. 33-36586 10.4* Form of Award Agreement for 1990 Stock Option Plan (1994) Exhibit 10.8 to Form 10-K for year ended December 25, 1993 10.5* Form of Restricted Stock Award Agreement for 1990 Stock Option Plan (1997) 10.6* Fleming Management Incentive Compensation Plan Exhibit 10.4 to Registration Statement No. 33-51312 10.7* Amended and Restated Supplemental Retirement Plan Exhibit 10.10 to Form 10-K for year ended December 31, 1994 10.8* Form of Amended and Restated Supplemental Retirement Income Exhibit 10.11 to Form 10-K for Agreement year ended December 31, 1994 10.9* Form of Amended and Restated Severance Agreement between the Exhibit 10.13 to Form 10-K for Registrant and certain of its officers year ended December 31, 1994 10.10* Fleming Companies, Inc. 1990 Stock Incentive Plan dated Exhibit B to Proxy Statement February 20, 1990 for year ended December 30, 1989 10.11* Fleming Companies, Inc. 1996 Stock Incentive Plan dated Exhibit A to Proxy Statement February 27, 1996 for year ended December 30, 1995 10.12* Form of Restricted Award Agreement for 1996 Stock Incentive Plan (1997) 10.13* Phase III of Fleming Companies, Inc. Stock Incentive Plan Exhibit 10.17 to Form 10-K for year ended December 25, 1993 10.14* Amendment No. 1 to the Fleming Companies, Inc. 1996 Stock Exhibit 10.16 to Form 10-K for Incentive Plan 1996 year ended December 28, 10.15* Fleming Companies, Inc. Directors' Stock Equivalent Plan Exhibit 10.14 to Form 10-K for year ended December 28, 1991 10.16* Supplemental Income Trust Exhibit 10.20 to Form 10-K for year ended December 31, 1994
61
EXHIBIT PAGE NUMBER OR INCORPORATION NUMBER BY REFERENCE TO - ---------- ------------------------------ 10.17* First Amendment to Fleming Companies, Inc. Supplemental Exhibit 10.19 to Form 10-K for Income Trust year ended December 28, 1996 10.18* Form of Employment Agreement between Registrant and certain Exhibit 10.20 to Form 10-K for of the employees year ended December 31, 1994 10.19* Economic Value Added Incentive Bonus Plan Exhibit A to Proxy Statement for year ended December 31, 1994 10.20* Agreement between the Registrant and William J. Dowd Exhibit 10.24 to Form 10-K for year ended December 30, 1995 10.21* Amended and Restated Supplemental Retirement Income Exhibit 10.23 to Form 10-K for Agreement for Robert E. Stauth 1996 year ended December 28, 1996 10.22* Supplemental Retirement Income Agreement of Fleming Exhibit 10.24 to Form 10-K for Companies, Inc. And William J. Dowd year ended December 28, 1996 10.23* Executive Past Service Benefit Plan (November 1997) 10.24* Form of Agreement for Executive Past Service Benefit Plan (November 1997) 10.25* Executive Deferred Compensation Plan (November 1997) 10.26* Executive Deferred Compensation Trust (November 1997) 10.27* Form of Agreement for Executive Deferred Compensation Plan (November 1997) 10.28 Fleming Companies, Inc. Associate Stock Purchase Plan 10.29 Settlement Agreement between Fleming Companies, Inc. and Exhibit 10.25 to Form 10-Q for Furr's Supermarkets, Inc. dated October 23, 1997 quarter ended October 4, 1997 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: None 62 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 11th day of March 1998. FLEMING COMPANIES, INC. By: /s/ ROBERT E. STAUTH ----------------------------------------- Robert E. Stauth CHAIRMAN AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) By: /s/ HARRY L. WINN, JR. ----------------------------------------- Harry L. Winn, Jr. EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) By: /s/ KEVIN J. TWOMEY ----------------------------------------- Kevin J. Twomey VICE PRESIDENT--CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
63 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 11th day of March 1998.
NAME TITLE - ------------------------------------------------------ --------------------------------- /s/ ROBERT E. STAUTH ------------------------------------------- (Chairman of the Board) Robert E. Stauth /s/ JACK W. BAKER* ------------------------------------------- (Director) Jack W. Baker /s/ ARCHIE R. DYKES* ------------------------------------------- (Director) Archie R. Dykes /s/ CAROL B. HALLETT* ------------------------------------------- (Director) Carol B. Hallett /s/ EDWARD C. JOULLIAN III* ------------------------------------------- (Director) Edward C. Joullian III /s/ JOHN A. MCMILLAN* ------------------------------------------- (Director) John A. McMillan /s/ GUY A. OSBORN* ------------------------------------------- (Director) Guy A. Osborn ------------------------------------------- (Director) Alice M. Peterson /s/ DAVID A. RISMILLER ------------------------------------------- (Director) David A. Rismiller
*By: /s/ HARRY L. WINN, JR. -------------------------------------- Harry L. Winn, Jr. ATTORNEY-IN-FACT
- ------------------------ * A Power of Attorney authorizing Harry L. Winn, Jr. 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. 64 SCHEDULE II FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 27, 1997 DECEMBER 28, 1996, AND DECEMBER 30, 1995 (IN THOUSANDS)
ALLOWANCE FOR CREDIT LOSSES CURRENT NONCURRENT ------------ ---------- ----------- BALANCE, December 31, 1994................................................ $48,567 $39,506 $ 9,061 Charged to costs and expenses............................................. 30,513 21,611 8,902 Uncollectible accounts written-off, less recoveries....................... (25,676 ) (25,981) 305 ------------ ---------- ----------- BALANCE, December 30, 1995................................................ 53,404 35,136 18,268 Charged to costs and expenses............................................. 26,921 19,406 7,515 Uncollectible accounts written-off, less recoveries....................... (35,693 ) (29,883) (5,810 ) Asset Impairment.......................................................... 5,000 -- 5,000 ------------ ---------- ----------- BALANCE, December 28, 1996................................................ 49,632 24,659 24,973 Charged to cost and expenses.............................................. 24,484 11,989 12,495 Uncollectible accounts written-off, less recoveries....................... (32,655 ) (17,636) (15,019 ) Asset impairment.......................................................... 2,387 -- 2,387 ------------ ---------- ----------- BALANCE, December 27, 1997................................................ $43,848 $19,012 $24,836 ------------ ---------- ----------- ------------ ---------- -----------
EX-3.2 2 EXHIBIT 3.2 Adopted 04/29/81 Amended 04/26/83 Amended 04/29/87 Amended 11/03/87 Amended 08/22/89 Amended 04/30/97* Amended 01/20/98 BYLAWS OF FLEMING COMPANIES, INC. ARTICLE I OFFICES Section 1.1. PRINCIPAL OFFICE. The principal office of Fleming Companies, Inc. (the "Corporation") shall be located at 6301 Waterford Boulevard, Oklahoma City, Oklahoma. Section 1.2. OTHER OFFICES. The Corporation may also have offices at such other places both within or without the State of Oklahoma as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF SHAREHOLDERS Section 2.1. ANNUAL MEETING. The annual meeting of the shareholders shall be held on a date designated by the Board of Directors, which shall be within six months next following the end of the fiscal year of the Corporation, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. Section 2.2. SPECIAL MEETINGS. Except as otherwise prescribed by statute, special meetings of the shareholders for any purpose, may be called by the Chairman and shall be called by the Secretary at the request in writing of a majority of the Board of Directors. Business transacted at any special meeting shall be limited to the general objects stated in the call. Section 2.3. PLACE OF MEETING. Each annual meeting of the shareholders for the election of directors shall be held at the principal office of the Corporation in Oklahoma City, Oklahoma unless the Board of Directors shall by resolution, adopted at least 60 days prior to the date of such meeting, designate any other place, within or without the State of Oklahoma, as the place of such meeting. Meetings of shareholders for any other purpose may be held at such place, within or without the State of Oklahoma, and at such time as shall be determined by the Board of Directors or the Chairman, such time to be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.4. NOTICE OF MEETING. Written or printed notice stating the place and time of each annual or special meeting of the shareholders entitled to vote and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than 10 days nor more than 60 days before the date of the meeting. (See also Article IV). Section 2.5. SHAREHOLDER LIST. A share ledger in which the names of the shareholders are arranged alphabetically by classes of shares, if any, shall be maintained and open for inspection at the office of the Corporation in Oklahoma City if the meeting is to be held in Oklahoma City, or at the place of the meeting if the meeting is to be held outside of Oklahoma City, during ordinary business hours, for a period of at least 10 days prior to the meeting. The list shall also be available at the time and place of the meeting, during the whole time of the meeting, and may be inspected by any shareholder who is present. Such access to the shareholder list shall be restricted to those shareholders whose purpose in viewing the list is germane to the meeting. Section 2.6. QUORUM. The holders of voting stock of the Corporation having a majority of the voting power thereat, present in person or represented by proxy, shall be requisite for, and shall constitute, a quorum at all meetings of the shareholders of the Corporation for the transaction of business, except as otherwise provided by statute or the Corporation's Certificate of Incorporation or these Bylaws. Section 2.7. PROXIES. At every meeting of the shareholders, each shareholder having the right to vote thereat shall be entitled to vote in person or by proxy. Such proxy shall be appointed by an instrument in writing subscribed by such shareholder and bearing a date not more than three years prior to such meeting, unless such proxy provides for a longer period; and it shall be filed with the Secretary of the Corporation before, or at the time of, the meeting. Section 2.8. VOTING. At every meeting of shareholders, except as otherwise provided by law, each shareholder shall be entitled to one vote for each share of stock of the Corporation entitled to vote thereat and registered in the name of such shareholder on the books of the Corporation on the pertinent record date. When a quorum is present at any meeting of the shareholders, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, due to a provision of the statutes or the Corporation's Certificate of Incorporation or these Bylaws, a different vote is required, in which case such provision shall govern and control the decision at such question. Section 2.9. RECORD DATE. (a) In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment or any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for 2 the purpose of any other lawful action other than shareholder action by written consent, the Board of Directors may fix a record date, which shall not precede the date such record date is fixed and shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any such other action. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given. The record date for any other purpose other than shareholder action by written consent shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any shareholder of record seeking to have the shareholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Oklahoma, its principal place of business, or any officer or agent of the corporation having custody of the book in which proceedings of meetings of shareholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Section 2.10. NOMINATIONS OF DIRECTORS. Only persons who are nominated in accordance with the procedures set forth in the Bylaws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 2.10, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall 3 be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.10. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 2.10, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. Section 2.11. BUSINESS. At any meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation who is a shareholder of record at the time of giving of the notice provided for in this Section 2.11, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this section 2.11. For business to be properly brought before a shareholder meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned 4 by the shareholder and (d) any material interest of the shareholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a shareholder meeting except in accordance with the procedures set forth in this Section 2.11. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the Bylaws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.11, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. ARTICLE III DIRECTORS Section 3.1. NUMBER AND ELECTION. The property and business of the Corporation shall be managed by its Board of Directors. The number of directors which shall constitute the whole Board shall be not more than 20 and not less than three. The Board of Directors shall from time to time by a vote of a majority of the directors then in office fix within the maximum and minimum the number of directors to constitute the Board. Except as provided in Section 3.2 of these Bylaws, the directors shall be elected at the annual meeting of shareholders, or at any adjournment thereof, and each director shall be elected and shall hold office in the manner described in Section 3.12 hereof. Directors need not be shareholders of the Corporation. Section 3.2. RESIGNATIONS AND VACANCIES. Any director may resign at any time by giving written notice to the Chairman or Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If, at any time other than the annual meeting of shareholders, any vacancy occurs in the Board of Directors caused by resignation, death, retirement, disqualification or removal from office of any director or otherwise, or any new directorship is created by an increase in the number of directors pursuant to Section 3.1 of the Bylaws, a majority of the directors then in office, though less than a quorum, may choose a successor, or fill the newly created directorship, and the director so chosen shall hold office until the expiration of the term of office of the class of directors to which such director is appointed and until a successor shall be duly elected and qualified. Section 3.3. PLACE OF MEETINGS. Meetings of the Board of Directors may be held at such place or places, within or without the State of Oklahoma, as may be designated by the person or persons calling such meetings. Section 3.4. ANNUAL MEETING. A meeting of the Board of Directors, to be known as the annual meeting, shall be held following and on the same day as the meeting of shareholders at which 5 such Board of Directors is elected. This meeting shall be held for the purpose of electing the officers of the Corporation and for transacting any other business that may properly come before the meeting. No notice of this annual meeting other than these Bylaws shall be necessary in order to legally constitute the meeting, provided a quorum shall be present. Section 3.5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times as the Chairman or the Board of Directors may from time to time determine. Section 3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman and shall be called by the Secretary at the request of any two directors, to be held at such time and place, either within or without the State of Oklahoma, as shall be designated by the call and specified in the notice of such meeting; and notice thereof shall be given as provided in Section 3.7 of these Bylaws. Section 3.7. NOTICE. Except as otherwise prescribed by statute, written notice of the time and place of each regular or special meeting of the Board of Directors shall be given at least two days prior to the time of holding the meeting. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director expressly objects to the transaction of any business because the meeting is not lawfully called or convened and such objection is made prior to the transaction of such business. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in any notice, or waiver of notice, of such special meeting except that notice shall be given of any proposed amendment by these Bylaws or with respect to any other matter where notice is required by statute. (See also Article IV). Section 3.8. QUORUM. At each meeting of the Board of Directors, the presence of not less than a majority of the whole board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or the Corporation's Certificate of Incorporation or these Bylaws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.9. COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more directors of the Corporation, which, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business or affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member thereof. Each committee shall 6 keep regular minutes of its meetings and report the same to the Board of Directors when required by the Board. Section 3.10. FEES AND COMPENSATION OF DIRECTORS. Directors may receive stated salary for their services as such; or, by resolution of the Board of Directors, a fixed fee, with or without expenses of attendance, may be allowed for attendance at each regular or special meeting of the Board. Members of the board shall be allowed their reasonable traveling expenses when actually engaged in the business of the Corporation, to be audited and allowed as in other cases of demands against the Corporation. Members of standing or special committees may be allowed like fees and expenses for attending committee meetings. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.11. ACTION WITHOUT A MEETING. Any action which might be taken at a meeting of the Board of Directors may be taken without a meeting if a record or memorandum thereof be made in writing and signed by all the members of the board, and such writing is filed with the minutes of the proceedings of the board. Section 3.12. CLASSES OF DIRECTORS, AND TERMS OF OFFICE. The Board of Directors shall be divided into three classes as nearly as equal in number as possible with the term of office of one class expiring each year. Directors shall be chosen by a plurality of votes cast in an election for directors. The class of directors elected at the annual meeting of shareholders shall be elected for three-year terms. When the number of directors is changed, any newly created directorship or any decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible. Subject to the foregoing, at each annual meeting of shareholders, the successors to the class of directors whose terms shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. ARTICLE IV NOTICES Section 4.1. MANNER OF NOTICE. Whenever under the provisions of the statutes or the Corporation's Certificate of Incorporation or these Bylaws notice is required to be given to any director, member of any committee designated by the Board of Directors pursuant to authority conferred by Section 3.9 of these Bylaws, or shareholder, it shall be given in writing by depositing it, in a sealed envelope, in the mails, postage prepaid, addressed (or by delivering it to a telegraph company, charges prepaid, for transmission) to such director, member or shareholder either at the address of such director, member or shareholder as it appears on the books of the Corporation or, in the case of such a director or member, at his business address; and such notice shall be deemed to be given at the time when it is thus deposited in the mails (or delivered to the telegraph company). 7 Section 4.2. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the statutes or the Corporation's Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Any shareholder or director who attends any meeting, annual, regular or special, shall be conclusively presumed to have waived notice thereof, except where such shareholder or director expressly objects to the transaction of any business because the meeting is not lawfully called or convened and such objection is made prior to the transaction of such business. ARTICLE V OFFICERS Section 5.1. OFFICERS AND OFFICIAL POSITIONS. The Board of Directors may elect a Chairman of the Board. The office of Chairman of the Board may be named Chairman if so designated by the Board of Directors. The Board may elect a President, one or more Vice Presidents, a Secretary, a Treasurer, a Controller, such Assistant Secretaries, Assistant Treasurers, and Assistant Controllers and such other officers as the Board of Directors shall determine. Any two or more offices may be held by the same person. None of the officers need be a director or a shareholder of the Corporation or a resident of the State of Oklahoma. Section 5.2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected annually by the Board of Directors at the annual meeting of the Board. If the election of officers shall not be held at such meeting of the board, such election shall be held at a regular or special meeting of the Board of Directors as soon thereafter as may be convenient. Each officer shall hold office until a successor is chosen and qualified or until death, or until such officer shall resign, or shall have been removed in the manner hereinafter provided. Section 5.3. REMOVAL AND RESIGNATION. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office at any regular or special meeting of the Board; but such removal shall be without prejudice to the contract rights, if any, of such person so removed. Any officer may resign at any time by giving written notice to the Chairman or Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 8 Section 5.4. VACANCIES. A vacancy in any office because of death, resignation, removal, or any other cause may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting of the Board. Section 5.5. CHIEF EXECUTIVE OFFICER. If the Board of Directors has elected a Chairman, it may designate the Chairman as the Chief Executive Officer of the Corporation. If no Chairman has been elected, or in the Chairman's absence or inability to act or if no such designation has been made by the Board of Directors, the President or such other designee as the Board of Directors shall determine shall act as the Chief Executive Officer of the Corporation. The Chief Executive Officer shall (i) have the overall supervision of the business of the Corporation and shall direct the affairs and policies of the Corporation, subject to any directions which may be given by the Board of Directors, (ii) shall have authority to delegate special powers and duties to specified officers, so long as such designations shall not be inconsistent with the statutes or the Corporation's Certificate of Incorporation or these Bylaws or action of the Board of Directors and (iii) shall in general have all other powers and shall perform all other duties incident to the chief executive officer of a corporation and such other powers and duties as may be prescribed by the Board of Directors from time to time. The Chairman, if one has been elected, shall preside at all meetings of the shareholders, and of the Board of Directors. The Chairman may sign with the Secretary or an Assistant Secretary, certificates for shares of stock of the Corporation, the issuance of which shall have been duly authorized by the Board of Directors. Section 5.6. PRESIDENT. (a) If the Board of Directors has elected a Chairman and designated such officer as the Chief Executive Officer of the Corporation, the President shall be subject to the control of the Board of Directors and the Chairman, and shall have such powers and perform such duties as from time to time may be assigned by the Board of Directors or the Chairman. (b) If the Board of Directors has not elected a Chairman, or, if one has been elected and has not been designated the Chief Executive Officer of the Corporation, then the President or such other person as may be designated by the Board of Directors shall be the Chief Executive Officer of the Corporation with the powers and duties provided in Section 5.5 of these Bylaws. (c) In any event, the President shall have power to execute, and shall execute, deeds, mortgages, bonds, contracts or other instruments of the corporation except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The President may sign with the Secretary or an Assistant Secretary, certificates for shares of stock of the Corporation, the issuance of which shall have been duly authorized by the Board of Directors, and shall vote, or give a proxy to any other person to vote, all shares of stock of any other corporation standing in the name of the Corporation. Section 5.7. VICE PRESIDENTS. In the absence of the President, or in the event of his inability or refusal to act, the Vice President designated by the Board of Directors or the Chief Executive 9 Officer, shall perform all duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties, not inconsistent with the statutes or the Corporation's Certificate of Incorporation or these Bylaws or action of the Board of Directors, as from time to time may be prescribed for them, respectively, by the Chief Executive Officer. The Board of Directors may, from time to time, designate certain of the Vice Presidents as Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Vice Presidents or such other designation as the Board of Directors deems appropriate. The duties and areas of responsibility of the various Vice Presidents shall be determined by the Chairman and the Board of Directors, to the extent not inconsistent with applicable statutes or these Bylaws. Section 5.8. SECRETARY. The Secretary shall: (a) keep the minutes of the meetings of the shareholders, the Board of Directors and committees of directors, in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) have charge of the corporate records and of the seal of the Corporation; (d) affix the seal of the Corporation or a facsimile thereof, or cause it to be affixed, to all certificates for shares prior to the issuance thereof and to all documents the execution of which on behalf of the Corporation under its seal is duly authorized by the Board of Directors or otherwise in accordance with the provisions of these Bylaws; (e) keep a register of the post office address of each shareholder, director and committee member, which shall from time to time be furnished to the Secretary by such shareholder, director or member; (f) sign with the Chairman or President certificates for shares of stock of the Corporation, the issuance of which shall have been duly authorized by resolution of the Board of Directors; (g) have general charge of the stock transfer books of the Corporation; and (h) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Chairman, the President or by the Board of Directors. The Secretary may delegate such details of the performance of duties of the office of Secretary as may be appropriate in the exercise of reasonable care to one or more persons, but shall not thereby be relieved of responsibility for the performance of such duties. Section 5.9. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be a Vice President, elected and designated as Chief Financial Officer, who shall: (a) be responsible to the Board of Directors for the receipt, custody and disbursement of all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall from time to time be selected in accordance with the provisions of Section 6.4 of these Bylaws; (c) disburse the funds of the Corporation as ordered by the Board of Directors or the Chief Executive Officer or as required in the ordinary conduct of the business of the Corporation; (d) render to the Chief Executive Officer or the Board of Directors, upon request, an account of all transactions as Chief Financial Officer and on the financial condition of the Corporation; and (e) in general, perform all the duties incident to the office of Chief Financial Officer and such other duties as from time to time may be assigned by the Chairman, the President, the Board of Directors or these Bylaws. In the 10 event there be no Chief Financial Officer, the Board of Directors may designate any officer to perform the duties of the Chief Financial Officer. Section 5.10. TREASURER. The Treasurer shall have such duties and responsibilities as may, from time to time, be designated by the Board of Directors, the Chairman and the Chief Financial Officer. Section 5.11. CONTROLLER. The Controller shall be the chief accounting officer of the Corporation, and shall be responsible to the Board of Directors and the Chief Financial Officer for internal accounting and control of the books and records of the Corporation. Such responsibility includes preparation of all financial reports, tax returns and such other duties as may be assigned by the Board of Directors or the Chief Financial Officer. ARTICLE VI CONTRACTS, BORROWINGS, CHECKS AND DEPOSITS Section 6.1. CONTRACTS AND OTHER INSTRUMENTS. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 6.2. BORROWINGS. No borrowings shall be contracted on behalf of the corporation, or any division thereof, and no evidence of indebtedness shall be issued in the name of the Corporation, unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 6.3. CHECKS, DRAFTS, ETC. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner, as shall from time to time be determined by the Board of Directors. Section 6.4. DEPOSITS. All funds of the Corporation, not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Chief Financial Officer or Treasurer may select. Section 6.5. INVESTMENTS. The Board of Directors may authorize any officer or officers, agent or agents of the Corporation, to invest the funds of the Corporation in obligations of the Federal government or any agency thereof or of any state government or any agency thereof, commercial paper, real estate, equity securities or debt obligations of any other corporation and such other investments as the Board of Directors may approve, and such authority may be general or confined to specific instances. 11 ARTICLE VII CERTIFICATES OF STOCK AND THEIR TRANSFER Section 7.1. CERTIFICATES OF STOCK. The certificates of stock of the Corporation shall be in such form as may be determined by the Board of Directors, shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the name of the Corporation, the state of incorporation, the name of the registered holder, the number of shares and the par value thereof and shall be signed by the Chairman or President and by the Secretary or an Assistant Secretary. The signature of any such officer may be facsimile. In case any such officer who shall have signed or whose facsimile signature has thus been used on any such certificate shall cease to be such officer, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation, such certificate may nevertheless be delivered by the Corporation, as though the person whose facsimile signature has been used thereon had not ceased to be such officer. All certificates properly surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued to evidence transferred shares until the former certificate for at least a like number of shares shall have been surrendered and cancelled and the Corporation reimbursed for any applicable taxes on the transfer, except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms, and with such indemnity (if any) to the Corporation, as the Board of Directors may prescribe specifically or in general terms or by delegation to a transfer agent for the Corporation. (See Section 7.2.) Section 7.2. LOST OR DESTROYED CERTIFICATES. The Board of Directors in individual cases, or by general resolution or by delegation to a transfer agent, may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. Section 7.3. TRANSFERS OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and upon payment of applicable taxes with respect to such transfer, it shall be the duty of the Corporation, subject to such rules and regulations as the Board of Directors may from time to time deem advisable concerning the transfer and registration of certificates for shares of stock of the Corporation, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation on 12 behalf of the registered holder thereof or by his attorney or successor duly authorized as evidenced by documents filed with the Secretary or transfer agent of the Corporation. Section 7.4. STOCKHOLDERS OF RECORD. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares notwithstanding any express or other notice thereof, except as otherwise provided by the laws of Oklahoma. ARTICLE VIII GENERAL PROVISIONS Section 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be the 52 or 53 week period ending on the last Saturday in December in each year and beginning on the following Sunday. Section 8.2. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, and the words "Corporate Seal" and "Oklahoma" or an abbreviation thereof; and it shall otherwise be in the form approved by the Board of Directors. Such seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or otherwise reproduced. Section 8.3. INDEMNIFICATION. (a) The Corporation shall indemnify any director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture or other enterprise against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the director or officer acted in good faith and in a manner reasonably believed to be in or not opposed to the best interest of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the person did not act in good faith and in a manner reasonably believed to be in or not opposed to the best interest of the Corporation and with respect to any criminal action or proceeding have reasonable cause to believe that such conduct was unlawful. (b) The Corporation shall indemnify any director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint 13 venture, trust or other enterprise against expenses (including attorney's fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit if the director or officer acted in good faith and in a manner reasonably believed to be in or not opposed to the best interest of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in performance of duty to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine, upon application, that despite the adjudication of liability, but in the view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. (c) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized herein. (d) The Corporation may purchase (upon resolution duly adopted by the Board of Directors) and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity, or arising out of the status as such, whether or not the Corporation would have the power to indemnify the director or officer against such liability. (e) To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to herein or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred in connection therewith. (f) Every director or officer shall be entitled, without demand upon the Corporation or any action by the Corporation, to enforce such person's right to such indemnity in an action at law against the Corporation. The right of indemnification hereinabove provided shall not be deemed exclusive of any rights to which any such person may now or hereafter be otherwise entitled and specifically, without limiting the generality of the foregoing, shall not be deemed exclusive of any rights pursuant to statute or otherwise, of any such person in any such action, suit or proceeding to have assessed or allowed against the Corporation or otherwise, costs and expenses incurred therein or in connection therewith or any part thereof. (g) Any indemnification hereinabove provided, unless ordered by a court, shall be made by the Corporation only as authorized in a specific case because the Corporation has determined that the indemnitee has met the requisite standards of conduct as set forth in sub-sections (a) and (b) above. Such determination is to be made by the Board of Directors by majority vote of a quorum consisting of directors who are not parties to such action, suit or 14 proceeding; or if such a quorum is not obtainable, or even if obtainable should a quorum of disinterested directors so direct, by independent legal counsel in a written opinion; or by the shareholders. ARTICLE IX AMENDMENTS Section 9.1. IN GENERAL. Any provision of these Bylaws may be altered, amended or repealed from time to time by the affirmative vote of a majority of the stock having voting power present in person or by proxy at any annual or special meeting of shareholders at which a quorum is present, if notice of the proposed alteration, amendment or repeal is contained in the notice of such meeting, or by the affirmative vote of a majority of the directors then qualified and acting at any meeting of the Board at which a quorum is present, if notice of the proposed alteration, amendment or repeal has been given to each director. ARTICLE X SHAREHOLDERS' RIGHTS PLAN* Section 10.1 MINIMUM REQUIREMENTS. The Corporation shall not adopt or maintain a poison pill, shareholder rights plan, rights agreement or any other form of "poison pill" which is designed to or has the effect of making acquisition of large holdings of the Corporations's shares of stock more difficult or expensive (such as the 1986 "Rights Agreement"), unless such a plan is first approved by A MAJORITY shareholder vote. The company shall redeem any such rights now in effect. The affirmative vote of a majority of shares voted shall suffice to approve such a plan. Section 10.2 EFFECTIVE IMMEDIATELY. The article shall be effective immediately and automatically as of the date it is approved by the affirmative vote of the holders of a majority of the shares, present in person or by proxy at a regular or special meeting of the shareholders. Section 10.3 AMENDMENT. Notwithstanding any other provision of these bylaws, this Article may not be amended, altered, deleted or modified in any way by the Board of Directors without prior shareholder approval. * Article X, adopted by stockholders on April 30, 1997, is subject to repeal if the Corporation's appeal to the United States Court of Appeals for the Tenth Circuit in the case of Fleming Companies, Appellant, v. International Brotherhood of Teamsters, Appellee, is successful. 15 EX-4.7 3 EXHIBIT 4.7 Exhibit 4.7 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) Date March 11, 1998 By Kevin J. Twomey Vice President-Controller (Principal Accounting Officer) EX-10.5 4 EXHIBIT 10.5 1997 AWARD NO. _ FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN _________________________ FORM OF RESTRICTED STOCK AWARD AGREEMENT 1990 PLAN Participant Name: ____________________ Grant Date: _____________ Shares Subject to Restricted Stock Award: ___________ Expiration Date: _________________ 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 ___ day of ________, ____, by and between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and _________________ (herein referred to as the "Participant"); W I T N E S S E T H: WHEREAS, the Participant is a key management employee of the Company; and WHEREAS, the Company desires to encourage the Participant to remain in the employ of the Company in the future; and WHEREAS, the Company has previously adopted the Fleming Companies, Inc. 1990 Stock Incentive Plan (the "Plan"); and WHEREAS, in consideration of the premises and the mutual promises and covenants herein contained, the Company desires to provide the Participant the opportunity to acquire shares of voting common stock of the Company in exchange for the Participant's performing future services for the Company; and WHEREAS, the Company has established a trust entitled "Fleming Companies, Inc. Executive Deferred Compensation Trust" (the "Trust") as a device for assisting the Company to meet its obligations under the Plan and other employee benefit plans sponsored by the Company. 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 herein defined). 2. GRANT OF AWARD. The Company hereby grants to the Participant an award (the "Award") of One Hundred Thousand (100,000) shares of Company common stock, par value $2.50 (the "Stock"), on the terms and conditions set forth herein and in the Plan. 3. TERMS OF AWARD. (a) VESTING. Certificates representing the shares of Stock subject to the Award shall be issued in the name of and delivered to Liberty Bank and Trust Company of Oklahoma City, N.A., the trustee of the Trust (the "Trustee"). Subject to the terms of the Plan, the Participant shall become vested in the number of the shares of Stock within the Award in accordance with the vesting schedule attached hereto as Exhibit "B" and incorporated by reference, provided that such Participant has at all times remained in the full- time and continuous employment of the Company through the date of vesting. Except as provided in the Plan, in the event the Participant terminates employment for any reason whatsoever prior to the vesting of all shares of Stock subject to the Award, then, all remaining shares of Stock which have not yet been vested (including dividends paid and held by the Trustee on such shares) shall be absolutely forfeited and the Participant shall have no further interest therein of any kind whatsoever. (b) CHANGE OF CONTROL. Notwithstanding the provisions of Section 3(a) hereof, the Company and the Committee have determined that the Participant shall be deemed vested in all remaining shares of Stock subject to the Award which have not yet been vested upon a Change of Control of the Company, as such term is defined in Section 9.1 of the Plan. 4. 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 1ST DAY OF NOVEMBER, 1997. 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." 5. AUTOMATIC DEFERRAL OF VESTED SHARES AND DIVIDENDS. The Participant agrees that the grant of the Award under this Agreement is subject to the restrictions herein contained and that all shares of Stock subject to the Award and dividends thereon, if any, made under this Agreement shall be automatically and irrevocably delivered directly to the Trustee and shall not be distributed by the Trustee to the Participant until the Participant terminates employment with the Company or a Subsidiary and all the following conditions have been satisfied: -2- (a) The Participant completes at least two years of employment service with the Company or a Subsidiary; (b) The Participant satisfies the "Rule of 70" where the Participant's age PLUS completed years of employment service with the Company or a Subsidiary equals 70 or more; and (c) The Participant has attained the age of 55 and has earned at least 10 years of employment service with the Company or a Subsidiary. Provided, for purposes of determining a Participant's years of employment service with the Company or a Subsidiary, such service shall be based upon the 12 month period commencing with the Participant's initial date of hire (or date of rehire) with the Company or a Subsidiary and 12 month anniversaries of such date during which time the Participant remains in the continuous full-time employ of the Company or a Subsidiary. For purposes of calculating the years of employment service with the Company or a Subsidiary under Subsections 5(b) and 5(c) above, service will be considered both before and after the date of the Award. For purposes of calculating the years of employment service with the Company or a Subsidiary under Section 5(a) above, service will be considered as commencing on November 1, 1997. With regard to the calculation of years of employment service with respect to any Participant who is hired and then terminated employment and was subsequently rehired by the Company or a Subsidiary, then, the Committee shall make the determination and calculation as to number of completed years of employment service by disregarding the break in employment service considering such periods of employment service to be cumulative, i.e., counting one or more periods of employment. Provided further, notwithstanding the fact that the Participant has not satisfied the foregoing requirements of this Section 5, in the event that the Participant dies, incurs a Disability, or a Change of Control of the Company occurs as defined in Section 9.1 of the Plan, then (i) the Award (all shares of Stock) will be automatically vested and nonforfeitable and (ii) such vested shares of Stock and dividends attributable to the Award (all shares of Stock) will be distributed by the Trustee to the Participant (or his Beneficiary in the event of his death) within thirty (30) days following the occurrence of the event which would cause distribution of such vested shares of Stock. Provided further, the Committee will make all decisions, in its sole discretion, with regard to whether the requirements for distribution of any Award have been satisfied, and may, in its sole discretion, waive all or any restrictions with respect to any shares of Stock. -3- 6. NO RIGHTS IN STOCK. The Participant agrees that until such vested shares of Stock are distributed to him, he has no rights or interest in such shares as a shareholder of the Company or otherwise, and that such shares shall be held by the Trustee in accordance with the terms of the Trust and shall be voted by the Trustee. Specifically, the Participant hereby waives the right to require the certificate representing the shares of Stock granted under the Award to be in his name and any right to vote such shares of Stock as provided in Section 5.3 of the Plan. Further, the Participant has no interest in the Trust of any kind whatsoever. As a condition precedent to issuing a certificate representing the shares of Stock granted under the Award, the Company require the Participant to deliver to the Trustee a duly executed irrevocable stock power (in blank) covering such shares representing the certificate which will be utilized by the Trustee in the event the Participant terminates employment with the Company or a Subsidiary prior to the time he becomes vested in such shares of Stock, and will be executed by the Trustee transferring such shares of Stock to the Company. 7. NONTRANSFERABILITY OF AWARD. With respect to all shares of Stock held by the Trust which are subject to this Award, and dividends on such Stock held by the Trust, the Participant shall not have the right to sell, assign, transfer, convey, dispose, pledge, hypothecate, burden, encumber or charge shares of Stock held by the Trustee and dividends or any interest therein in any manner whatsoever. 8. NOTICES. All notices or other communications relating to the Plan and this Agreement as it relates to the Participant shall be in writing, shall be deemed to have been made if personally delivered in return for a receipt, or if mailed, by regular U.S. mail, postage prepaid, by the Company to the Participant at the following address: or such other address as the Participant may advise the Company in writing. The date of personal delivery shall be the date of giving notice, or if made by mail in the manner prescribed above, notice shall be deemed to have been given three (3) business days after the date of mailing. 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. -4- 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. 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 under the Plan and this Agreement, and the Participant or any other person shall have only the rights of a general unsecured creditor of the Company, its parent, if applicable, or a Subsidiary with respect to any rights under the Plan or this Agreement. 12. CAPTIONS. The captions of specific provisions of this Agreement are for convenience and reference only, and in no way define, describe, extend or limit the scope of this Agreement or the intent of any provision hereof. 13. COUNTERPARTS. This Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes, but all of which taken together shall form but one agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. "COMPANY" FLEMING COMPANIES, INC., an Oklahoma corporation By --------------------------------- President "PARTICIPANT" ----------------------------------- , Participant -------------- -5- 1990 PLAN --------- EXHIBIT "B" VESTING OF RESTRICTED STOCK Restricted Stock shall vest in accordance with the following terms during the "Award Period" which shall commence November 1, 1997 and shall terminate December 31, 2000 if not sooner vested. Shares not fully vested during the Award Period shall be forfeited by the Participant at the end of the Award Period. A. One-half of the number of shares of Stock in the Award will be subject to vesting based upon the Participant's continuous employment with the Company and/or any of its Subsidiaries through the vesting dates set forth on the following table: VESTING DATE NUMBER OF SHARES VESTED ------------ ----------------------- B. One-half of the number of shares of Stock in the Award will be subject to vesting based upon the Stock of the Company achieving and maintaining for 20 consecutive trading days from and after October 31, 1997, the following Current Market Values: CURRENT MARKET VALUE NUMBER OF SHARES VESTED -------------------- ----------------------- For purposes of this Agreement, "Current Market Value" shall mean the closing price for shares of Stock as reported on the New York Stock Exchange as reflected in the WALL STREET JOURNAL Southwest Edition. EX-10.12 5 EXHIBIT 10.12 1997 AWARD NO. _ FLEMING COMPANIES, INC. 1996 STOCK INCENTIVE PLAN ------------------------- FORM OF RESTRICTED STOCK AWARD AGREEMENT 1996 PLAN Participant Name: Grant Date: -------------- ------------------ Shares Subject to Restricted Stock Award: ------------ Expiration Date: ------------------- 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 1st day of November, 1997, by and between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and _____________ (herein referred to as the "Participant"); W I T N E S S E T H: WHEREAS, the Participant is a key management employee of the Company; and WHEREAS, the Company desires to encourage the Participant to remain in the employ of the Company in the future; and WHEREAS, the Company has previously adopted the Fleming Companies, Inc. 1996 Stock Incentive Plan and certain amendments thereto (the "Plan"); and WHEREAS, in consideration of the premises and the mutual promises and covenants herein contained, the Company desires to provide the Participant the opportunity to acquire shares of voting common stock of the Company in exchange for the Participant's performing future services for the Company; and WHEREAS, the Company has established a trust entitled "Fleming Companies, Inc. Executive Deferred Compensation Trust" (the "Trust") as a device for assisting the Company to meet its obligations under the Plan and other employee benefit plans sponsored by the Company. 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 One Hundred Eighty Thousand (180,000) shares of Company common stock, par value $2.50 (the "Stock"), on the terms and conditions set forth herein and in the Plan. 3. TERMS OF AWARD. (a) VESTING. Certificates representing the shares of Stock subject to the Award shall be issued in the name of and delivered to Liberty Bank and Trust Company of Oklahoma City, N.A., the trustee of the Trust (the "Trustee"). Subject to the terms of the Plan, the Participant shall become vested in the number of the shares of Stock within the Award in accordance with the vesting schedule attached hereto as Exhibit "B" and incorporated by reference, provided that such Participant has at all times remained in the full- time and continuous employment of the Company through the date of vesting. Except as provided in the Plan, in the event the Participant terminates employment for any reason whatsoever prior to the vesting of all shares of Stock subject to the Award, then, all remaining shares of Stock which have not yet been vested (including dividends paid and held by the Trustee on such shares) shall be absolutely forfeited and the Participant shall have no further interest therein of any kind whatsoever. (b) CHANGE OF CONTROL. Notwithstanding the provisions of Section 3(a) hereof, the Company and the Committee have determined that the Participant shall be deemed vested in all remaining shares of Stock subject to the Award which have not yet been vested upon a Change of Control of the Company, as such term is defined in Section 2.4(a) of the Plan. 4. 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 1ST DAY OF NOVEMBER, 1997. 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." 5. AUTOMATIC DEFERRAL OF VESTED SHARES AND DIVIDENDS. The Participant agrees that the grant of the Award under this Agreement is subject to the restrictions herein contained and that all shares of Stock subject to the Award and dividends thereon, if any, made under this Agreement shall be automatically and irrevocably delivered directly to the Trustee and shall not be distributed by the Trustee to the Participant until the Participant terminates employment with the Company or a Subsidiary and all the following conditions have been satisfied: -2- (a) The Participant completes at least two years of employment service with the Company or a Subsidiary; (b) The Participant satisfies the "Rule of 70" where the Participant's age PLUS completed years of employment service with the Company or a Subsidiary equals 70 or more; and (c) The Participant has attained the age of 55 and has earned at least 10 years of employment service with the Company or a Subsidiary. Provided, for purposes of determining a Participant's years of employment service with the Company or a Subsidiary, such service shall be based upon the 12 month period commencing with the Participant's initial date of hire (or date of rehire) with the Company or a Subsidiary and 12 month anniversaries of such date during which time the Participant remains in the continuous full-time employ of the Company or a Subsidiary. For purposes of calculating the years of employment service with the Company or a Subsidiary under Subsections 5(b) and 5(c) above, service will be considered both before and after the date of the Award. For purposes of calculating the years of employment service with the Company or a Subsidiary under Section 5(a) above, service will be considered as commencing on November 1, 1997. With regard to the calculation of years of employment service with respect to any Participant who is hired and then terminated employment and was subsequently rehired by the Company or a Subsidiary, then, the Committee shall make the determination and calculation as to number of completed years of employment service by disregarding the break in employment service considering such periods of employment service to be cumulative, i.e., counting one or more periods of employment. Provided further, notwithstanding the fact that the Participant has not satisfied the foregoing requirements of this Section 5, in the event that the Participant dies, incurs a Disability, or a Change of Control of the Company occurs as defined in Section 2.4(a) of the Plan, then (i) the Award (all shares of Stock) will be automatically fully vested and nonforfeitable and (ii) such vested shares of Stock and dividends attributable to the Award (all shares of Stock) will be distributed by the Trustee to the Participant (or his Beneficiary in the event of his death) within thirty (30) days following the occurrence of the event which would cause distribution of such vested shares of Stock. Provided further, the Committee will make all decisions, in its sole discretion, with regard to whether the requirements for distribution of any Award have been satisfied, and may, in its sole discretion, waive all or any restrictions with respect to any shares of Stock. -3- 6. NO RIGHTS IN STOCK. The Participant agrees that until such vested shares of Stock are distributed to him, he has no rights or interest in such shares as a shareholder of the Company or otherwise, and that such shares shall be held by the Trustee in accordance with the terms of the Trust and shall be voted by the Trustee. Specifically, the Participant hereby waives the right to require the certificate representing the shares of Stock granted under the Award to be in his name and any right to vote such shares of Stock as provided in Section 7.2(c) of the Plan. Further, the Participant has no interest in the Trust of any kind whatsoever. As a condition precedent to issuing a certificate representing the shares of Stock granted under the Award, the Company require and the Participant agrees to deliver to the Trustee a duly executed irrevocable stock power (in blank) covering such shares representing the certificate which will be utilized by the Trustee in the event the Participant terminates employment with the Company or a Subsidiary prior to the time he becomes vested in such shares of Stock, and will be executed by the Trustee transferring such shares of Stock to the Company. 7. NONTRANSFERABILITY OF AWARD. With respect to all shares of Stock held by the Trust which are subject to this Award, and dividends on such Stock held by the Trust, the Participant shall not have the right to sell, assign, transfer, convey, dispose, pledge, hypothecate, burden, encumber or charge shares of Stock held by the Trustee and dividends or any interest therein in any manner whatsoever. 8. NOTICES. All notices or other communications relating to the Plan and this Agreement as it relates to the Participant shall be in writing, shall be deemed to have been made if personally delivered in return for a receipt, or if mailed, by regular U.S. mail, postage prepaid, by the Company to the Participant at the following address: or such other address as the Participant may advise the Company in writing. The date of personal delivery shall be the date of giving notice, or if made by mail in the manner prescribed above, notice shall be deemed to have been given three (3) business days after the date of mailing. 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. -4- 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. 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 under the Plan and this Agreement, and the Participant or any other person shall have only the rights of a general unsecured creditor of the Company, its parent, if applicable, or a Subsidiary with respect to any rights under the Plan or this Agreement. 12. CAPTIONS. The captions of specific provisions of this Agreement are for convenience and reference only, and in no way define, describe, extend or limit the scope of this Agreement or the intent of any provision hereof. 13. COUNTERPARTS. This Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes, but all of which taken together shall form but one agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. "COMPANY" FLEMING COMPANIES, INC., an Oklahoma corporation By ------------------------------------- President "PARTICIPANT" ---------------------------------------- ------------------------, Participant -5- 1996 PLAN EXHIBIT "B" VESTING OF RESTRICTED STOCK Restricted Stock shall vest in accordance with the following terms during the "Award Period" which shall commence November 1, 1997 and shall terminate December 31, 2001 if not sooner vested. Shares not fully vested during the Award Period shall be forfeited by the Participant at the end of the Award Period. A. One-half of the number of shares of Stock in the Award will be subject to vesting based upon the Participant's continuous employment with the Company and/or any of its Subsidiaries through the vesting dates set forth on the following table: VESTING DATE NUMBER OF SHARES VESTED ------------ ----------------------- B. One-half of the number of shares of Stock in the Award will be subject to vesting based upon the Stock of the Company achieving and maintaining for 20 consecutive trading days from and after October 31, 1997, the following Current Market Values: CURRENT MARKET VALUE NUMBER OF SHARES VESTED -------------------- ----------------------- For purposes of this Agreement, "Current Market Value" shall mean the closing price for shares of Stock as reported on the New York Stock Exchange as reflected in the WALL STREET JOURNAL Southwest Edition. EX-10.23 6 EXHIBIT 10.23 FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN (Adopted Effective November 1, 1997) FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN TABLE OF CONTENTS PAGE ---- ARTICLE I Name and Purpose of Plan 1 1.1 Name of Plan 1 1.2 Purpose of Plan 1 ARTICLE II Definitions and Construction 1 2.1 Definitions 1 2.2 Construction 5 ARTICLE III Participation 5 3.1 Participation in Consideration for Future Services Only 5 3.2 The Agreement 5 ARTICLE IV Contributions 6 4.1 Payments by the Company 6 ARTICLE V Past Service Benefit 6 5.1 Past Service Benefit 6 5.2 Vesting of Past Service Benefit 7 5.3 Payment of Past Service Benefit 7 5.4 Form of Benefit 8 5.5 Postponed Retirement Date 8 ARTICLE VI Death of a Participant 8 6.1 Payment of Death Benefit 8 6.2 Beneficiary Designation 9 ARTICLE VII Early Retirement 9 7.1 Early Retirement 9 ARTICLE VIII Disability 9 8.1 Disability 9 8.2 Proof of Disability 9 -i- ARTICLE IX Change of Control 10 9.1 Acceleration of Vesting of Past Service Benefit Upon Change of Control 10 ARTICLE X Manner of Payment of Benefits 12 10.1 Payment at Actual Retirement 12 ARTICLE XI General Benefit Provisions 13 11.1 Restrictions on Alienation of Benefits 13 11.2 Release of Claims 14 11.3 Plan Unfunded - No Assignment 14 11.4 Withholding and Other Employment Taxes 14 11.5 No Trust 14 ARTICLE XII Provisions Relating to Participants 15 12.1 Information Required of Participants 15 12.2 Abandonment of Benefits 15 12.3 Benefits Payable to Incompetents 16 12.4 Conditions of Employment Not Affected by Plan 16 ARTICLE XIII Administration and Committee 16 13.1 Allocation of Responsibility for Plan Administration 16 13.2 Appointment of Committee 16 13.3 Claims Procedure 16 13.4 Review Procedure 17 13.5 Records and Reports 17 13.6 Other Committee Powers and Duties 17 13.7 Rules and Decisions 18 13.8 Committee Procedures 18 ARTICLE XIV Amendment and Termination 19 14.1 Right to Amend or Alter Plan 19 14.2 Right to Terminate Plan 19 14.3 Forfeiture of All Benefits 19 14.4 Merger of Company; Successor Must Assume Plan 19 ARTICLE XV Miscellaneous Provisions 20 15.1 Articles and Section Titles and Headings 20 15.2 Laws of Oklahoma to Govern 20 -ii- FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN upon the following terms and conditions. ARTICLE I NAME AND PURPOSE OF PLAN 1.1 NAME OF PLAN. This Plan shall be hereafter known as the FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN. 1.2 PURPOSE OF PLAN. The Plan is established and maintained by the Company solely for the purpose of providing benefits for certain Associates of the Company who (i) were participants in the Amended and Restated Supplemental Retirement Income Plan of Fleming Companies, Inc. and Its Subsidiaries which was terminated as to such Associates effective November 1, 1997, and (ii) have been selected for participation in this Plan by the Committee. It is intended that this Plan be unfunded for federal income tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE II DEFINITIONS AND CONSTRUCTION 2.1 DEFINITIONS. Where the following capitalized words and phrases appear in this instrument, they shall have the respective meanings set forth below unless a different context is clearly expressed herein. (a) ACCOUNT: The word "Account" shall mean the account established under Section 5.1(b) to which will be credited each Participant's Past Service Benefit and earnings thereon. (b) ACT: The word "Act" shall mean Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. (c) ACTUARY: The word "Actuary" shall mean an enrolled actuary selected from time to time by the Committee to provide actuarial services for the Plan who, as of the Effective Date, was Watson, Wyatt & Company. (d) AGREEMENT: The word "Agreement" shall mean that certain "Agreement for Past Service Benefit" which will be entered into by and between the Company and the Participant together with any amendments thereto. (e) ASSOCIATE: The word "Associate" shall mean any person, employed by the Company on the basis of an employer-employee relationship, who receives remuneration for personal services rendered to the Company and who is either a highly compensated employee or a select management employee. (f) BENEFICIARY: The word "Beneficiary" shall mean that person designated by the Participant pursuant to Section 6.2 hereof who would be entitled to receive his Past Service Benefit upon the death of the Participant. (g) BOARD: The word "Board" shall mean the Board of Directors of the Company. (h) CAUSE: The word "Cause" shall mean the termination from employment with the Company or a Subsidiary for one of the following reasons: (i) the conviction of the Participant of a felony by a federal or state court of competent jurisdiction; (ii) 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; (iii) the Participant's "willful" failure to follow a direct, reasonable and lawful written order from his supervisor, within the reasonable scope of the Partici- pant's duties, which failure is not cured within 30 days; or (iv) the Participant's failure to perform his specified duties and responsibilities for a period of 45 days as determined by his supervisor after a warning in writing. Further, for purposes of this Subsection (h): (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 Company. (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 at a meeting of the Board called and held for such purpose (after reasonable notice to the Participant and an -2- opportunity for the Participant, together with the Par- ticipant's counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Participant was guilty of conduct set forth in clauses (i), (ii), (iii) or (iv) above and specifying the particulars thereof in detail. (i) CHANGE OF CONTROL: The words "Change of Control" shall have the meaning set forth in Section 9.1 of this Plan. (j) CODE: The word "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (k) COMMITTEE: The word "Committee" shall mean the Compensation and Organization Committee appointed by the Board of Directors of the Company under Article XIII herein to administer the Plan. (l) COMPANY: The word "Company" shall mean Fleming Companies, Inc., an Oklahoma corporation, or its successor. (m) DISABILITY: The word "Disability" shall mean a condition whereby a Participant has become totally and permanently disabled within the meaning of the Long-Term Disability Plan as in effect as of the Effective Date of this Plan. (n) DISABILITY RETIREMENT DATE: The words "Disability Retirement Date" shall mean the first day of the month after which a Participant terminating employment has satisfied all conditions specified in the foregoing Subsection for Disability. (o) EARLY RETIREMENT DATE: The words "Early Retirement Date" shall mean the first day of the month coinciding with or following the date a Participant terminates employment with the Company or any Subsidiary after (i) earning at least 10 Years of Employment Service and (ii) attaining at least age 55. (p) EFFECTIVE DATE: The words "Effective Date" shall mean the 1st day of November, 1997. (q) LONG-TERM DISABILITY PLAN: The words "Long-Term Disability Plan" shall mean the "Long-Term Disability Benefit Plan of Fleming Companies, Inc. and Its Subsidiaries." -3- (r) NORMAL RETIREMENT AGE: The words "Normal Retirement Age" shall mean the 65th birthday of a Participant. (s) NORMAL RETIREMENT DATE: The words "Normal Retirement Date" shall mean the first day of the month coinciding with or following a Participant's Normal Retirement Age. (t) PARTICIPANT: The word "Participant" shall mean an Associate who has been selected for participation in the Plan as of the Effective Date, and whose name is listed on Exhibit "A" attached hereto. (u) PAST SERVICE BENEFIT: The words "Past Service Benefit" shall mean the benefit which has been credited to a Participant and adjusted pursuant to Section 5.1 hereof. (v) PLAN: The word "Plan" shall mean the "Fleming Companies, Inc. Executive Past Service Benefit Plan," as set forth in this instrument, and as hereafter amended from time to time. (w) POSTPONED RETIREMENT DATE: The words "Postponed Retirement Date" shall mean the first day of the month coinciding with or next following the date that a Participant retires under Section 5.5 herein subsequent to his Normal Retirement Date. (x) PRIOR PLAN: The words "Prior Plan" shall mean the Amended and Restated Supplemental Retirement Income Plan of Fleming Companies, Inc. and Its Subsidiaries" which was terminated as to the Participants effective November 1, 1997. (y) RETIREMENT DATE: The words "Retirement Date" shall mean a Participant's Early Retirement Date, Disability Retirement Date, Normal Retirement Date, or Postponed Retirement Date, whichever applies. (z) SUBSIDIARY: The word "Subsidiary" shall mean any corporation with 80% or more of its voting capital stock being owned by the Company. (aa) TRUST: The word "Trust" shall mean the Fleming Companies, Inc. Executive Deferred Compensation Trust which has been established and may be used by the Company as the device for assisting the Company to meet its obligations under the Plan. -4- (bb) TRUSTEE OR TRUSTEES: The words "Trustee" or "Trustees" means the entity who has been designated by the Company to serve as Trustee of the Trust. (cc) YEAR: The word "Year" shall mean the annual period beginning on the first day following the last Saturday of December, and ending on the last Saturday of December of the calendar year immediately following. (dd) YEAR OF EMPLOYMENT SERVICE: The words "Year of Employment Service" shall mean the 12 month period commencing with the Participant's initial date of hire (or date of rehire) with the Company or Subsidiary and 12 month anniversaries of such date during which time the Participant remained in the continuous full-time employ of the Company or a Subsidiary. For the purposes of calculating a Year of Employment Service, service both before and after the Effective Date of this Plan will be considered. With regard to the calculation of Years of Employment Service with respect to any Participant who was hired and then terminated employment and subsequently was rehired by the Company or a Subsidiary, then, the Committee shall make the determination and calculation as to the number of completed Years of Employment Service by disregarding the break in employment service and considering such periods of employment service to be cumulative, i.e., counting one or more periods of employment. 2.2 CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. Any word appearing herein in the plural shall include the singular, where appropriate, and likewise the singular shall include the plural, unless the context clearly indicates to the contrary. ARTICLE III PARTICIPATION 3.1 PARTICIPATION IN CONSIDERATION FOR FUTURE SERVICES ONLY. The only Participants in the Plan are those listed on Exhibit "A" attached hereto, and no additional Associates will be eligible to participate in the Plan. The Past Service Benefit will be deemed to be for all purposes in consideration of future services which will be rendered by such Participant to the Company. 3.2 THE AGREEMENT. Each Participant shall, as a condition of participation, complete and return to the Committee the Agreement which evidences participation in the Plan and the Participant's agreement to the terms and conditions thereof. -5- ARTICLE IV CONTRIBUTIONS 4.1 PAYMENTS BY THE COMPANY. The payments required to fund the cost of the benefits provided by the Plan shall be made solely by the Company. ARTICLE V PAST SERVICE BENEFIT 5.1 PAST SERVICE BENEFIT. (a) AMOUNT OF PAST SERVICE BENEFIT. Each of the Participants have been selected for participation in the Plan and have previously been a Participant in the Prior Plan. While eligible to participate in the Prior Plan, no Participant had earned any vested or accrued benefit in the Prior Plan as of the date of its termination. Notwithstanding the fact that the Participants have not earned any benefit under the Prior Plan, the Company desires to provide to each Participant the opportunity to earn a supplemental retirement benefit in the form of the Past Service Benefit calculated, in part, by considering his employment service with the Company earned prior to November 1, 1997. The Actuary has determined the value of the Past Service Benefit based upon sound actuarial principles as of November 1, 1997. The amount of Past Service Benefit for each Participant is the amount which is set forth opposite his name on Exhibit "A" attached hereto. (b) ADJUSTMENTS TO PAST SERVICE BENEFIT. With respect to the Past Service Benefit credited to each Participant, there shall be established a separate account (the "Account") to which will be credited the amount of Past Service Benefit. There shall also be credited to such Account earnings in an amount equal to the greater of (i) interest at the rate equal to 1% below the prime rate of interest published in THE WALL STREET JOURNAL (Southwest Edition) in the Money Rate Section at the beginning of each calendar quarter (the "Rate of Interest") determined quarterly, or (ii) the actual earnings of any assets held in the Trust. Earnings of the Trust shall be credited in the ratio that the balance in each Participant's Account determined at the end of the previous quarter bears to the balance of all Accounts of all Participants in the Trust determined at the end of the previous quarter. The Accounts established pursuant to this Section 5.1(b) are fictitious and are solely for -6- recordkeeping purposes and shall not be considered to be funded with assets set aside or segregated for any Participant, but such Accounts are only established for recordkeeping purposes to determine the amount of earnings which will be credited to the Past Service Benefit and such earnings shall be credited as provided herein until a Participant's Past Service Benefit has been fully paid. 5.2 VESTING OF PAST SERVICE BENEFIT. (a) VESTING. A Participant shall only be vested in his Past Service Benefit upon completion of all of the following: (i) Completing two continuous Years of Employment Service with the Company or any Subsidiary commencing November 1, 1997; (ii) Attaining his Early Retirement Date; and (iii) Satisfying the "Rule of 70" which means the Participant's age and Years of Employment Service must equal or exceed 70. Provided, if not sooner vested, a Participant shall be 100% vested in his Past Service Benefit upon a Change of Control, his death or Disability. (b) FORFEITURE. In the event that a Participant terminates employment prior to having satisfied the requirements for vesting as described under Section 5.2(a) above, or if any of the provisions of Section 14.3 are applicable to such Participant, then, the Past Service Benefit of such Participant shall be forfeited in its entirety and the Participant or his Beneficiary shall have no right, claim or interest to any Past Service Benefit under this Plan or the Agreement. (c) POWER TO ACCELERATE VESTING. Notwithstanding any other provisions of this Plan to the contrary, the Committee may, in its sole and absolute discretion, waive, modify or amend any of the terms and provisions of this Section 5.2 with respect to any Participant with regard to the acceleration of the time during which a Participant's Past Service Benefit may be vested or otherwise payable pursuant to Section 5.3 below. 5.3 PAYMENT OF PAST SERVICE BENEFIT. Except in the case of termination of employment due to death, Disability, or termination upon or after a Change of Control, no portion of Participant's Past Service Benefit to which he may be entitled shall be payable -7- prior to the date that (i) he satisfies all of the requirements for vesting in his Past Service Benefit under Section 5.2(a) above, and (ii) the Participant terminates employment with the Company or a Subsidiary. Payment of the vested Past Service Benefit to a Participant shall commence no later than 30 days following the Participant's termination of employment or date of death, as the case may be. 5.4 FORM OF BENEFIT. A Participant shall be entitled to receive and be paid his vested Past Service Benefit as provided in Article X hereof, and such payment will be made in cash. 5.5 POSTPONED RETIREMENT DATE. If a Participant continues his employment with the Company or Subsidiary to a date after his Normal Retirement Date, referred to as his Postponed Retirement Date, his Past Service Benefit shall be deferred until his Postponed Retirement Date. Benefits to which he shall be entitled as of his Postponed Retirement Date shall be his Past Service Benefit as of his Normal Retirement Date with adjustment after such date in accordance with Section 5.1(b) hereof. ARTICLE VI DEATH OF A PARTICIPANT 6.1 PAYMENT OF DEATH BENEFIT. (a) BEFORE TERMINATION OF EMPLOYMENT. In the event that a Participant dies while employed by the Company or any Subsidiary, then, such Participant's Past Service Benefit shall be paid to the Participant's designated Beneficiary in the same manner as he has previously elected in his Agreement unless the Committee approves an optional form of payment under Section 10.1 hereof. (b) AFTER TERMINATION OF EMPLOYMENT. In the event that a Participant dies after he has terminated employment with the Company or any Subsidiary and he has not yet received all the Past Service Benefit to which he is otherwise entitled under this Plan, then, the remaining portion of the Past Service Benefit which would otherwise have been paid to the Participant had he survived would then be paid to the Participant's Beneficiary in the same form elected by the Participant pursuant to Article X hereof. (c) SPECIAL DEATH BENEFIT. In the event that a Participant has elected to receive his Supplemental Normal Retirement Income for the "Life of Participant Only" (Option 1) and such Participant dies prior to the time that benefits actually commence pursuant to the terms of this Plan, then, the Beneficiary of such -8- deceased Participant shall receive the actuarial equivalent of such Participant's Supplemental Normal Retirement Income paid as a "50% Joint Annuitant Survivor Benefit" (Option 2) as described in Section 10.1 hereof. 6.2 BENEFICIARY DESIGNATION. The Participant shall designate a Beneficiary in his Agreement who will receive the deceased Participant's Past Service Benefit. Such Beneficiary may be changed by the Participant upon notice to the Company pursuant to the terms of the Agreement. In the event that the Beneficiary designated to receive the Past Service Benefit otherwise payable to a Participant hereunder is not then surviving at the date of the Participant's death, then, such Past Service Benefit shall be paid to the Beneficiary designated by the Participant who is then surviving and if there is no Beneficiary then surviving, such benefits will automatically be paid to the estate of such Participant. ARTICLE VII EARLY RETIREMENT 7.1 EARLY RETIREMENT. A Participant who has attained his Early Retirement Date and who is vested in his Past Service Benefit as provided in Section 5.2(a) hereof may retire early from the Company or any Subsidiary and commence payment of his Past Service Benefit in the form elected by the Participant under Article X hereof. ARTICLE VIII DISABILITY 8.1 DISABILITY. In the event that a Participant incurs a Disability and he terminates employment with the Company or any Subsidiary (the "Disability Retirement Date"), then, in such event, the Participant shall be entitled to receive his Past Service Benefit in the form as elected by the Participant in accordance with Article X hereof. 8.2 PROOF OF DISABILITY. After a Participant's Disability Retirement Date the Committee may require that the Participant's continuing Disability be verified by medical examination at a location convenient to the Participant; provided, such Participant shall not be required to submit to more than one examination in a 12 month period. If a Participant fails to allow such verification to occur, or if it does occur and the Participant is no longer suffering a Disability as determined by the Committee, then, the Committee may cease further payments of such Past Service Benefit. -9- ARTICLE IX CHANGE OF CONTROL 9.1 ACCELERATION OF VESTING OF PAST SERVICE BENEFIT UPON CHANGE OF CONTROL. In the event that there is a "Change of Control," as defined below, then, subject to Section 14.3 hereof, each Participant shall be fully vested in his Past Service Benefit with payment of such Past Service Benefit to be paid in the form as elected by the Participant as provided in Section 10.1 hereof immediately following his termination of employment. Anything in this Plan to the contrary notwithstanding, if a Participant's employment with the Company or a Subsidiary is terminated on or 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 Plan as to such terminated Participant, a Change of Control shall be determined to have occurred as of the date immediately prior to the date of such termination. For the purposes of this Plan, the term "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more (the "Triggering Percentage") of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common 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 "Out- standing Company Voting Securities"); provided, however, in the event the "Incumbent Board" (as such term is hereinafter defined) in accordance with any share rights agreement to which the Company is a party that may be in effect (the "Rights Agreement") lowers the threshold amounts set forth in the Rights Agreement, the Triggering Percentage shall be automatically reduced to equal the reduced threshold amount set by the Incumbent Board pursuant to the Rights Agreement; and provided, further, however, that the following acquisi- tions 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, (iv) any acquisition previously approved by at least a majority of the members of the Incumbent Board, (v) any acquisition approved by at least a majority of the -10- members of the Incumbent Board within five (5) business days after the Company has notice of such acquisition, or (vi) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii), and (iii) of subsection (c) of this Section 9.1; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, appointment or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for purposes of this definition, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, share exchange, merger or consolidation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Out- standing 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 enti- tled 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, (ii) 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 -11- Business Combination, and (iii) 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 (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or, (ii) 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. ARTICLE X MANNER OF PAYMENT OF BENEFITS 10.1 PAYMENT AT ACTUAL RETIREMENT. Except as provided in Section 9.1 herein, with respect to termination upon or following a Change of Control, each Participant shall be paid his Past -12- Service Benefit upon terminating his employment with the Company or any Subsidiary on his applicable Retirement Date. The Past Service Benefit will be paid in one of the optional forms described below and elected by the Participant in his Agreement. Except as pro vided in Section 10.2 below, such elections are irrevocable. The optional forms of payment permitted under the Plan are as follows: OPTIONAL FORMS OF PAYMENT Life of Participant Only 50% Joint Annuitant Survivor Benefit 75% Joint Annuitant Survivor Benefit 100% Joint Annuitant Survivor Benefit 5 Year Period Certain 10 Year Period Certain 15 Year Period Certain A description of the optional forms of payment is contained in Exhibit "B" attached hereto. The Actuary for the Plan shall actuarially adjust the amount of Past Service Benefit otherwise payable to the Participant as if such payment was to be made on a single life basis to reflect the age of the Participant or his Beneficiary, as the case may be, and the optional form of benefit elected by the Participant. Provided, notwithstanding that the Participant has elected the optional form of benefit as provided in this Section 10.1, at any time prior to the date the payment of the Participant's Past Service Benefit commences, the Participant (or his Beneficiary in the case of death) may make a written request to the Committee that his Past Service Benefit be paid in any of the optional forms of payment described above or in the form of a single lump sum payment, and, if the Committee approves such request considering all relevant facts and circumstances, payment may be made in one of such optional forms of payment or in a lump sum. The decision to make payment in one of the optional forms of payment or in a lump sum shall be made in the Committee's sole discretion; and, if payment is made in one of such optional forms of payment or in a lump sum for one Participant, this in no way requires the Committee to make payment in the same manner for any other Participant. ARTICLE XI GENERAL BENEFIT PROVISIONS 11.1 RESTRICTIONS ON ALIENATION OF BENEFITS. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. If any Participant or Beneficiary under this Plan -13- should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under this Plan, then such right or benefit shall, in the discretion of the Committee, be held or applied for the benefit of such Partici pant or Beneficiary, his or her spouse, children, or other dependents, or any of them, in such manner and in such portion as the Committee, in its sole and absolute discretion, may deem proper. 11.2 RELEASE OF CLAIMS. The Participant was previously eligible to participate in the Prior Plan. The Prior Plan was terminated effective as of November 1, 1997. At the time of termination of the Prior Plan, the Participant did not have any vested or accrued benefit in the Prior Plan. However, because the Participant will be provided the opportunity to earn the Past Service Benefit under this Plan, the Company will require in the Agreement that the Participant release any and all claims, rights or benefits which he may have otherwise had with respect to any benefits which would have otherwise been paid pursuant to the terms of the Prior Plan. 11.3 PLAN UNFUNDED - NO ASSIGNMENT. The Plan at all times shall be entirely unfunded as provided under Title I of the Act and no provision shall at any time be made with respect to segregating from claims of creditors any assets of the Company, its parent, if applicable, a Subsidiary for payment of any benefits hereunder. No Participant, Beneficiary or any other person shall have any interest in any particular assets of the Company, its parent, if applicable, or any Subsidiary by reason of the right to receive a benefit under the Plan and any such Participant, Beneficiary or 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. No right or benefit under this Plan shall in any manner be subject to anticipa tion, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment or charge by creditors of any Participant or Beneficiary, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, attach, garnish or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. 11.4 WITHHOLDING AND OTHER EMPLOYMENT TAXES. The Company shall comply with all federal and state laws and regulations respecting the withholding, deposit and payment of any income or other taxes relating to any payments made under this Plan. 11.5 NO TRUST. No action under this Plan by the Company, its Board or the Committee shall be construed as creating a trust, escrow or other secured or segregated fund in favor of the Participant, his Beneficiary, or any other persons otherwise entitled to his Past Service Benefit. The status of the Participant and his Beneficiary with respect to any liabilities assumed by -14- the Company hereunder shall be solely those of unsecured creditors of the Company, its parent, if applicable, or any Subsidiary. Any asset acquired or held by the Company, its parent, if applicable, or any Subsidiary in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust, escrow or other secured or segregated fund for the benefit of the Participant or his Beneficiaries or to be security for the performance of the obligations of the Company, its parent, if applicable, or any Subsidiary, but shall be, and remain a general, unpledged, unrestricted asset of the Company or any Subsidiary at all times subject to the claims of general creditors of the Company or any Subsidiary. However, the Company may contribute assets to the Trust to pay benefits under the Plan. ARTICLE XII PROVISIONS RELATING TO PARTICIPANTS 12.1 INFORMATION REQUIRED OF PARTICIPANTS. Payment of Benefits shall begin as of the payments date(s) provided in this Plan and no formal claim shall be required therefor; provided, in the interest of orderly administration of the Plan, the Committee may make reasonable requests of Participants and Beneficiaries to furnish information which is reasonably necessary and appropriate to the orderly administration of the Plan, and, to that limited extent, payments under the Plan are conditioned upon the Partici- pants and Beneficiaries promptly furnishing true, full and complete information as the Committee may reasonably request. 12.2 ABANDONMENT OF BENEFITS. Each Participant and Beneficiary shall file with the Committee, from time to time in writing, his post office address and each change of post office address, and any communication addressed to a Participant or Beneficiary at his last post office address filed with the Committee, or if no such address was filed, then at his last post office address as shown on the Company's records, shall be binding on the Participant or his Beneficiary for all purposes of the Plan, and the Committee shall not be obliged to search for or ascertain the whereabouts of any Participant or Beneficiary; provided, that the Committee shall mail an annual notice of unpaid benefits to such person at such last post office address. If the Committee furnishes such annual notice to any Participant, or Beneficiary, that he is entitled to a distribution, and the Participant or Beneficiary fails to claim such distribution or make his whereabouts known to the Committee within three years thereafter, such benefits shall be disposed of as follows: (a) if the whereabouts of such Participant or Beneficiary are known to the Committee, payment shall be made to such Participant or Beneficiary; or -15- (b) if the whereabouts of such Participant and his Beneficiary are unknown to the Committee, the Committee may direct the distribution of a Participant's benefits on the same basis as though the Participant had died without designating a Beneficiary as provided in Subsection 6.2 hereof. 12.3 BENEFITS PAYABLE TO INCOMPETENTS. Any benefits payable hereunder to a minor or other person under legal disability may be made, at the discretion of the Committee, (i) directly to such person, or (ii) to a parent, spouse, relative by blood or marriage, or the legal representative of such person. The Committee shall not be required to see to the application of any such payment, and the payee's receipt shall be a full and final discharge of the Committee's responsibility hereunder. 12.4 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN. The establishment and maintenance of the Plan shall not be construed as conferring any legal rights upon any Participant to the continuation of employment with the Company. ARTICLE XIII ADMINISTRATION AND COMMITTEE 13.1 ALLOCATION OF RESPONSIBILITY FOR PLAN ADMINISTRATION. The Committee shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under the Plan. In general, the Company shall have the sole responsibility for appointing and removing Committee members, as provided in Section 13.2 herein. The Company shall have the sole responsibility for amending or terminating, in whole or in part, this Plan. The Committee shall have the sole responsibility for the administration of the Plan which responsibility is specifically described in this Plan. 13.2 APPOINTMENT OF COMMITTEE. The Plan shall be administered by the Committee which shall be appointed by and serve at the pleasure of the Board. All usual and reasonable expenses of the Committee may be paid in whole or in part by the Company. 13.3 CLAIMS PROCEDURE. The Committee shall make all determinations as to the right of any person to benefits. If any request for a benefit is wholly or partially denied, the Committee shall notify the person requesting the benefits, in writing, of such denial, including in such notification the following information: (a) the specific reason or reasons for such denial; -16- (b) the specific references to the pertinent Plan provisions upon which the denial is based; (c) a description of any additional material and information which may be needed to clarify the request, including an explanation of why such information is required; and (d) an examination of this Plan's review procedure with respect to denial of benefits. Provided, that any such notice to be delivered to any Participant or beneficiary shall be mailed by certified or registered mail and shall be written to the best of the Committee's ability in a manner that may be understood without legal counsel. 13.4 REVIEW PROCEDURE. Any Participant or Beneficiary whose claim has been denied in accordance with Section 13.3 herein may appeal to the Committee for review of such denial by making a written request therefor within 60 days of receipt of the notification of such denial. Such Participant or Beneficiary may examine documents pertinent to the review and may submit to the Committee written issues and comments. Within 60 days after receipt of the request for review, the Committee shall communicate to the claimant, in writing, its decision, and the communication shall set forth the reason or reasons for the decision and specific reference to those Plan provisions upon which the decision is based. 13.5 RECORDS AND REPORTS. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with the Act and governmental regulations issued thereunder relating to records of the Participant's accounts and benefits which may be paid under the Plan; and to notify Participants and Beneficiaries as required. 13.6 OTHER COMMITTEE POWERS AND DUTIES. The Committee shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a) to construe and interpret the Plan in its sole and absolute discretion, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (b) to prescribe procedures to be followed by Participants or Beneficiaries filing applications for benefits; (c) to prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan; -17- (d) to receive from the Company and from Participants and Beneficiaries such information as shall be necessary for the proper administration of the Plan; (e) to furnish the Company, upon request, such reports with respect to the administration of the Plan as are reasonable and appropriate; (f) to appoint and employ individuals and any other agents it deems advisable, including legal counsel, to assist in the administration of the Plan and to render advice with respect to any responsibility of the Committee, or any of its individual members, under the Plan; (g) to allocate among themselves who shall be responsible for specific duties and to designate fiduciaries (other than Committee members) to carry out responsibilities under the Plan; provided that any such allocations shall be reduced to writing, signed by all Committee members, and filed in a permanent Committee minute book; and (h) to maintain continuing review of the Act, the Code and the implementing regulations thereto and suggest changes and modifications to the Company in connection with delegations of responsibility, as appropriate, and amendments to the Plan. 13.7 RULES AND DECISIONS. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. All rules and decisions of the Committee shall be uniformly and consistently applied to all Participants and beneficiaries in similar circumstances. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant or Beneficiary, the Company, or the legal counsel of the Company. 13.8 COMMITTEE PROCEDURES. The Committee may act at a meeting or in writing without a meeting. The Committee shall have a chairman, and appoint a secretary, who may or may not be a Committee member. The secretary shall keep a record of all meetings in a permanent Committee minute book and forward all necessary communications to the Company. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. All decisions of the Committee shall be made by the vote of the majority including actions in writing taken without a meeting. A dissenting Committee member who, within a reasonable time after he has knowledge of any action or failure to act by the majority, registers his dissent in writing delivered to the other Committee members, to the extent permitted by law, shall not be responsible for any such action or failure to act. -18- ARTICLE XIV AMENDMENT AND TERMINATION 14.1 RIGHT TO AMEND OR ALTER PLAN. The Plan may be amended by the Committee from time to time in any respect whatever by resolution of the Committee specifying such amendment; provided, however, this Plan may not be amended, modified or altered in any manner which adversely affects any Participant without the written consent of the affected Participant. 14.2 RIGHT TO TERMINATE PLAN. The Committee expressly reserves the right to terminate this Plan in whole or in part at any time; provided, however, this Plan may not be terminated without the written consent of the affected Participant. 14.3 FORFEITURE OF ALL BENEFITS. In the event that the Participant (i) is discharged from employment service with the Company or a Subsidiary for Cause, or (ii) commits any other act or acts which are injurious and adversely impacts the Company or any Subsidiary in any manner whatsoever and would be expected to substantially enrich the Participant, then, in such events, the Committee, in its sole discretion, may determine that any benefit which would otherwise be provided to the Participant or his Beneficiary under the Agreement or the Plan shall be forfeited in its entirety, and it shall thereafter be deemed as if the Participant never was selected for participation in the Plan. Provided, however, that the provisions of this Section 14.3 shall not be applicable in the event a Change of Control has occurred. 14.4 MERGER OF COMPANY; SUCCESSOR MUST ASSUME PLAN. 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 the Company's and any Subsidiary's obligations under this Plan in the same manner and to the same extent that the Company or such Subsidiary would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any succession shall be a breach by the Company of its obligations under this Plan and shall entitle a Participant to compensation from the Company in the same amount and on the same terms as the Participant would be entitled to hereunder if the Participant terminated employment 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. -19- ARTICLE XV MISCELLANEOUS PROVISIONS 15.1 ARTICLES AND SECTION TITLES AND HEADINGS. The titles and headings at the beginning of each Article and Section shall not be considered in construing the meaning of any provisions in this Plan. 15.2 LAWS OF OKLAHOMA TO GOVERN. The provisions of this Plan shall be construed, administered and enforced according to the laws of the State of Oklahoma. All contributions to the Trust, if any, shall be deemed to take place in the State of Oklahoma. EXECUTED as of the 1st day of November, 1997. FLEMING COMPANIES, INC., a corporation By: ---------------------------------------- Robert E. Stauth, Chairman and Chief Executive Officer "COMPANY" -20- EXHIBIT "B" DESCRIPTION OF OPTIONAL FORMS OF PAYMENT OPTION 1 - Life of Participant Only: A Supplemental Normal Retirement Income will be paid for the Participant's life only. Upon the Participant's death, all payments of Supplemental Normal Retirement Income shall cease. OPTION 2 - 50% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 50% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further payments will be paid under Option 2 or this Agreement. OPTION 3 - 75% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 75% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further payments will be due under Option 3 or this Agreement. OPTION 4 - 100% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the -21- Participant's death 100% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further payments will be due under Option 4 or this Agreement. OPTION 5 - 5 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income will be paid for a period of 5 years certain. After the expiration of such 5 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 5 year period certain, then, the balance of such payments due only during such 5 year period will be paid to the Participant's surviving Beneficiary. After the expiration of such 5 year period, then all payments shall cease. In the event of the expiration of such 5 year period, and the Participant dies, then, no further benefits will be paid under Option 5 or this Agreement. OPTION 6 - 10 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income shall be paid for a period of 10 years certain. After the expiration of such 10 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 10 year period certain, then, the balance of such payments due only during such 10 year period will be paid to the Participant's surviving Beneficiary. After the expiration of such 10 year period, then all payments shall cease. In the event of the -22- expiration of such 10 year period, and the Participant dies, then, no further benefits will be paid under Option 6 or this Agreement. OPTION 7 - 15 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income shall be paid for a period of 15 years certain. After the expiration of such 15 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 15 year period certain, then, the balance of such payments due only during such 15 year period will be paid to the Participant's surviving Beneficiary. After the expiration of such 15 year period, then all payments shall cease. In the event of the expiration of such 15 year period, and the Participant dies, then, no further benefits will be paid under Option 7 or this Agreement. -23- EX-10.24 7 EXHIBIT 10.24 FORM OF AGREEMENT FOR FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN ------------------- PARTICIPANT ------------------- DATE AGREEMENT FOR FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN THIS AGREEMENT FOR FLEMING COMPANIES, INC. EXECUTIVE PAST SERVICE BENEFIT PLAN (the "Agreement") is made as of the ____ day of _________, ____ by and between _________________, an individual (herein referred to as the "Participant") and FLEMING COMPANIES, INC. (the "Company") with respect to the following: WHEREAS, the Company has adopted that certain non-qualified deferred compensation plan known as "Fleming Companies, Inc. Executive Past Service Benefit Plan" (the "Plan"); and WHEREAS, the Plan was established by the Company for the purpose of providing supplemental retirement income under a nonqualified plan of deferred compensation for a select group of key management Associates of the Company; and WHEREAS, the Participant was formerly a participant in the Amended and Restated Supplemental Retirement Income Plan of Fleming Companies, Inc. and Its Subsidiaries (the "Prior Plan") which was terminated as to the Participant effective November 1, 1997; and WHEREAS, at the time of the termination of the Prior Plan the Participant had not accrued any benefit nor was he vested in any rights under the Prior Plan; and WHEREAS, the Company in recognition of the Participant's past and future services with the Company has selected the Participant for participation in the Plan by establishing for him a Past Service Benefit as provided herein which will be paid following his termination of employment in accordance with the terms of the Plan; and WHEREAS, the Company and the Participant desire to enter into this Agreement to evidence the Participant's participation in the Plan and his agreement to be bound by the terms and provisions of the Plan and this Agreement. NOW, THEREFORE, in consideration of mutual covenants hereinafter contained, the parties hereto agree as follows. All capitalized words used in this Agreement shall have the same meaning ascribed to such terms in the Plan unless specifically denoted otherwise. 1. THE PLAN AND THE AMOUNT OF PAST SERVICE BENEFIT. A copy of the Plan is attached hereto as Exhibit "A" and is incorporated by reference herein and made a part hereof for all purposes, and when taken with this Agreement shall govern the Participant's rights and those of the Company with respect to the Participant's benefits under the Plan. The Participant has been credited with $2,364,000 in the form of the Past Service Benefit pursuant to the terms of the Plan. The Past Service Benefit will be credited to the Account established for the Participant under the Plan and the Trust related thereto. 2. MANNER OF PAYMENT OF PAST SERVICE BENEFIT. As of the date of this Agreement, the Participant must elect the form under which his Past Service Benefit will be paid in the future following the Participant's termination of employment under the terms of the Plan. Please check the form in which the Participant's Past Service is to be paid in the box provided below: (Please Check and Initial One Box Only) OPTIONAL FORMS OF PAYMENT 1. [ ] Life of Participant Only 2. [ ] 50% Joint Annuitant Survivor Benefit 3. [ ] 75% Joint Annuitant Survivor Benefit 4. [ ] 100% Joint Annuitant Survivor Benefit 5. [ ] 5 Year Period Certain 6. [ ] 10 Year Period Certain 7. [ ] 15 Year Period Certain The actual amounts payable at retirement or death will depend upon the Participant's age and/or the age of his Beneficiary and the form of payment elected by the Participant. Refer to Exhibit "B" for a complete description of the Methods of Payment. Payments to which the Participant is entitled pursuant to the terms of the Plan will commence within 30 days following your termination of employment and will continue to be paid in accordance with the terms of the manner of payment elected by the Participant. With the consent of the Committee, and if requested by the Participant or his Beneficiary in the case of the Participant's death, the Participant or his Beneficiary may request that the Participant's Past Service Benefit be paid in any of the optional forms described above or in a single lump sum payment. See Section 10.1 of the Plan. Provided, in the event that a Participant has elected to receive his Past Service Benefit for the Life of Participant Only (Option 1 above) and such Participant dies prior to the time his benefits commence in accordance with the terms of the Plan, then, the deceased Participant's Beneficiary shall automatically receive a benefit based upon the actuarial equivalent of the Participant's Past Service Benefit, which will be paid as a 50% Joint Annuitant Survivor Benefit (Option 2 above). -2- 3. AMENDMENT OR TERMINATION. This Agreement may be amended, altered or terminated by the Company from time to time upon notice to the Participant as provided in paragraph 12 below; provided, however, this Agreement may not be amended, modified or altered or terminated in any manner which adversely affects the Participant without the consent of the Participant. 4. EXPENSES. The expenses of administering this Agreement shall be borne by the Company and shall not be charged against the Participant's Past Service Benefit. 5. APPLICABLE LAW. The provisions of this Agreement shall be construed, administered and enforced according to the laws of the State of Oklahoma. 6. NO ASSIGNABILITY. Neither the Participant, his Beneficiary, nor any other person shall acquire any right to or interest in any Past Service Benefit and accruals thereon, otherwise than by actual payment in accordance with the provisions of the Plan and this Agreement, or have any power to transfer, assign, anticipate, pledge, mortgage or otherwise encumber or alienate any rights hereunder in advance of any of the payments to be made pursuant to the Agreement or any portion thereof which is expressly declared to be nonassign able 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. 7. AGREEMENT DOES NOT GUARANTEE CONTINUED EMPLOYMENT OF PARTICIPANT. The execution of this Agreement by the Company and the Participant, in no way whatsoever guarantees the continuation of employment of the Participant with the Company. 8. 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 any payments or rights to payments under this Agreement. 9. DESIGNATION OF BENEFICIARY. (a) The Participant, hereby designate the following individual as his Beneficiary to receive any Past Service Benefit (including any benefit to be paid to such Beneficiary as the surviving "joint annuitant" pursuant to Section 2 hereof) payable to the Participant under this Agreement or the Plan in the event of the Participant's death: Name Address Relationship -3- (b) The Participant understands that during his lifetime, the Participant may at any time change the Beneficiary designated herein by delivering to the Committee a new designation of a Beneficiary executed by the Participant and the Committee. 10. RELATIONSHIP BETWEEN AGREEMENT AND PLAN. This Agreement has been entered into by and between the Company and the Participant in accordance with and pursuant to authority granted to the Committee pursuant to the terms and provisions of the Plan. IN THE EVENT THAT THERE DEVELOPS A CONFLICT BETWEEN THIS AGREEMENT AND THE TERMS AND PROVISIONS OF THE PLAN, THE TERMS AND PROVISIONS OF THE PLAN, AS INTERPRETED BY THE COMMITTEE IN ITS SOLE DISCRETION, SHALL CONTROL AND BE FINAL AND CONCLUSIVE. 11. LIMITATION ON PAYMENT OF BENEFITS. The payment of the Past Service Benefit as provided in this Agreement shall accrue and be payable to the Participant or his Beneficiary, as the case may be, only at such times and upon the occurrence of such conditions as heretofore described. In no event whatsoever shall the Participant or his Beneficiary have any right, claim, or interest of any kind whatsoever in any future payments of such Past Service Benefit and such payments shall accrue and be payable only on a monthly basis as provided hereinabove. 12. NOTICES. All notices that are required or may be given pursuant to this Agreement must be in writing and delivered personally, by a recognized courier service, by a recognized overnight delivery service, by facsimile or by registered or certified mail, postage prepaid, to the parties at the following addresses (or to the attention of such other person or such other address as either party may provide to the other party by notice in accordance with this paragraph 12: if to the Company: Fleming Companies, Inc. 6301 Waterford Blvd. Oklahoma City, OK 73126 Attn: Larry A. Wagner Senior Vice President - Human Resources Facsimile: (405) 840-7226 -4- if to the Participant: 13. AGREEMENT SUPERSEDES ALL OTHER BENEFITS AND RELEASE OF CLAIMS. Effective as of the date of the execution and delivery of this Agreement, this Agreement shall supersede and replace any and all other agreements entered into by and between the Company or any Subsidiary and the Participant with respect to the providing of supplemental retirement benefits on a nonqualified basis pursuant to the Prior Plan which was terminated by the Company effective November 1, 1997. The Participant agrees that as of the date of termination of the Prior Plan, he was not entitled to any benefit under the Prior Plan and any rights or interest in the Prior Plan were subject to total forfeiture as of November 1, 1997. Further, recognizing that the Participant has been selected by the Committee to participate in this Plan and the Fleming Companies, Inc. Executive Deferred Compensation Plan, both of which may provide substantial benefits to the Participant, the Participant hereby releases the Company, its officer, directors, agents and assigns from any and all obligations under the Prior Plan and agrees that the Participant will not bring any action, claim or demand of any kind whatsoever with respect to any benefits to which the Partici- pant would have otherwise been entitled had the Participant continued partici- pating in the Prior Plan. 14. BENEFIT SUBJECT TO CLAIMS OF CREDITORS. The Participant and his Beneficiary 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 receive a benefit under the Plan or this Agreement, and the Participant and his Beneficiary 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. 15. EFFECTIVE DATE. This Agreement shall be effective from and after the day and year first above written. DATED the day and year first above written. FLEMING COMPANIES, INC., an Oklahoma corporation By -------------------------------------- Larry A. Wagner, Senior Vice President-Human Resources "COMPANY" -5- ---------------------------------------- ---------------------------------------- "PARTICIPANT" -6- EXHIBIT "B" DESCRIPTION OF OPTIONAL FORMS OF PAYMENT OPTION 1 - Life of Participant Only: A Past Service Benefit will be paid for the Participant's life only. Upon the Participant's death, all payments of Past Service Benefit shall cease. OPTION 2 - 50% Joint Annuitant Survivor Benefit: A reduced amount of Past Service Benefit will be paid to Participant for the Participant's life, then, at the Participant's death 50% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased Participant, or should otherwise die after the Participant's death, then no further payments will be paid under OPTION 2 or this Agreement. OPTION 3 - 75% Joint Annuitant Survivor Benefit: A reduced amount of Past Service Benefit will be paid to Participant for the Participant's life, then, at the Participant's death 75% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased Participant, or should otherwise die after the Participant's death, then no further payments will be due under OPTION 3 or this Agreement. OPTION 4 - 100% Joint Annuitant Survivor Benefit: A reduced amount of Past Service Benefit will be paid to Participant for the Participant's life, then, at the Participant's death 100% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased Participant, or should otherwise die after the Participant's death, then no further payments will be due under OPTION 4 or this Agreement. OPTION 5 - 5 Year Period Certain: A reduced amount of Past Service Benefit will be paid for a period of 5 years certain. After the expiration of such 5 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 5 year period certain, then, the balance of such payments due only during such 5 year period will be paid to the Participant's surviving Beneficiary. After the expiration of such 5 year period, then all payments shall cease. In the event of the expiration of such 5 year period, and Participant die, then, no further benefits will be paid under OPTION 5 or this Agreement. OPTION 6 - 10 Year Period Certain: A reduced amount of Past Service Benefit shall be paid for a period of 10 years certain. After the expiration of such 10 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 10 year period certain, then, the balance of such payments due only during such 10 year period will be paid to the Partic- ipant's surviving Beneficiary. After the expiration of such 10 year period, then all payments shall cease. In the event of the expiration of such 10 year period, and Participant die, then, no further benefits will be paid under OPTION 6 or this Agreement. -2- OPTION 7 - 15 Year Period Certain: A reduced amount of Past Service Benefit shall be paid for a period of 15 years certain. After the expiration of such 15 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 15 year period certain, then, the balance of such payments due only during such 15 year period will be paid to the Partic- ipant's surviving Beneficiary. After the expiration of such 15 year period, then all payments shall cease. In the event of the expiration of such 15 year period, and Participant die, then, no further benefits will be paid under OPTION 7 or this Agreement. -3- EX-10.25 8 EXHIBIT 10.25 FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN (Adopted Effective November 1, 1997) FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN TABLE OF CONTENTS PAGE ---- ARTICLE I Name and Purpose of Plan 1 1.1 Name of Plan 1 1.2 Purpose of Plan 1 ARTICLE II Definitions and Construction 1 2.1 Definitions 1 2.2 Construction 7 ARTICLE III Participation 7 3.1 Selection for Participation 7 3.2 Participation in Consideration for Future Services Only 7 3.3 Other Agreements 7 ARTICLE IV Contributions 7 4.1 Payments by the Company and/or Subsidiary 7 ARTICLE V Supplemental Normal Retirement Income 8 5.1 Amount 8 5.2 Form of Benefit 8 5.3 Commencement of Benefit 8 5.4 Postponed Retirement Date 8 5.5 Payment of Supplemental Normal Retirement Income 9 ARTICLE VI Death of a Participant 9 6.1 Payment of Supplemental Death Benefit 9 6.2 Beneficiary Designation 10 ARTICLE VII Early Retirement 10 7.1 Supplemental Early Retirement Income 10 -i- ARTICLE VIII Disability 11 8.1 Supplemental Disability Retirement Income 11 8.2 Proof of Disability 11 ARTICLE IX Termination of Employment 12 9.1 Termination of Employment Prior to Retirement Date 12 9.2 Acceleration of Vesting of Supplemental Normal Retirement Income Upon Change in Control 12 ARTICLE X Manner of Payment of Benefits 15 10.1 Payment at Actual Retirement 15 10.2 Committee May Approve Change of Form of Payment 16 ARTICLE XI General Benefit Provisions 16 11.1 Reemployed Participants Who Had Been Receiving Benefits 16 11.2 Restrictions on Alienation of Benefits 16 11.3 No Trust 17 11.4 Plan Unfunded - No Assignment 17 11.5 Withholding and Other Employment Taxes 17 ARTICLE XII Provisions Relating to Participants 18 12.1 Information Required of Participants 18 12.2 Abandonment of Benefits 18 12.3 Benefits Payable to Incompetents 18 12.4 Conditions of Employment Not Affected by Plan 19 ARTICLE XIII Administration 19 13.1 Allocation of Responsibility for Plan Administration 19 13.2 Appointment of Committee 19 13.3 Claims Procedure 19 13.4 Review Procedure 20 13.5 Records and Reports 20 13.6 Other Committee Powers and Duties 20 13.7 Rules and Decisions 21 13.8 Committee Procedures 21 -ii- ARTICLE XIV Amendment and Termination 21 14.1 Right to Amend or Alter Plan 21 14.2 Right to Terminate Plan 22 14.3 Merger of Company or Termination of Qualified Plan 22 14.4 Forfeiture of All Benefits 22 ARTICLE XV Miscellaneous Provisions 23 15.1 Articles and Section Titles and Headings 23 15.2 Laws of Oklahoma to Govern 23 -iii- FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN upon the following terms and conditions. ARTICLE I NAME AND PURPOSE OF PLAN 1.1 NAME OF PLAN. This Plan shall be hereafter known as the FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN. 1.2 PURPOSE OF PLAN. The Plan is established and maintained by the Company solely for the purpose of providing benefits for certain Associates of the Company, or any Subsidiary who (i) participate in the Consolidated Retirement Plan for Fleming Companies, Inc. and Its Subsidiaries and (ii) have limitations on benefits imposed by Sections 415 and/or 401(a)(17) of the Internal Revenue Code of 1986, as amended, on qualified retirement plans to which those Sections are applicable. It is intended that this Plan be unfunded for federal income tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE II DEFINITIONS AND CONSTRUCTION 2.1 DEFINITIONS. Where the following capitalized words and phrases appear in this instrument, they shall have the respective meanings set forth below unless a different context is clearly expressed herein. (a) ACT: The word "Act" shall mean Public Law. No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. (b) ACTUARIAL EQUIVALENT: The words "Actuarial Equivalent" shall mean the equivalent of the Supplemental Normal Retirement Income as of the applicable Retirement Date otherwise payable to a Participant in the mode of a single life annuity commencing on his Normal Retirement Date, determined using the actuarial assumptions and factors stated in the Qualified Plan. (c) ACTUARY: The word "Actuary" shall mean an enrolled actuary selected from time to time by the Committee to provide actuarial services for the Plan who as of the Effective Date was Watson, Wyatt & Company. (d) AGREEMENT: The word "Agreement" shall mean that certain "Agreement for the Fleming Companies, Inc. Executive Deferred Compensation Plan" which will be entered into by and between the Company and the Participant together with any amendments thereto. (e) ASSOCIATE: The word "Associate" shall mean any person, employed by the Employer on the basis of an employer-employee relationship, who receives remuneration for personal services rendered to the Employer and who is either a highly compensated employee or a select management employee. (f) AUTHORIZED LEAVE OF ABSENCE: The words "Authorized Leave of Absence" shall mean any extraordinary absence authorized by the Committee within its sole discretion. (g) ANNUAL FINAL COMPENSATION: The words "Annual Final Compensation" shall mean the average annual total compensation earned by a Participant during the three consecutive calendar years of his employment immediately preceding his Normal Retirement Date or his earlier termination of employment, as the case may be, which shall include the following: (i) the total of all amounts paid to a Participant by the Employer as regular salary or wages including overtime, commissions, bonuses, jury pay, vacation pay, sick pay and holiday pay, but excluding other forms of extraordinary compensation reported on the Participant's Form W-2 to the Internal Revenue Service such as final payments of the balance of the bonus bank under the Economic Value Added Incentive Bonus Plan for Fleming Companies, Inc. and Its Subsidiaries, allow ances or reimbursement for moving expenses, automobiles, income recognized on the exercise of stock options or upon receipt of an award of stock; provided, Annual Final Compensation shall further be adjusted to include the amounts provided in the following Subsection (ii); (ii) any amount (x) deferred by a Participant pursuant to Section 401(k) of the Code with respect to an employee benefit plan sponsored by the Employer or Section 125 of the Code with respect to a "cafeteria plan" sponsored by the Employer and (y) which would be included as "compensation" as defined in the Qualified Plan. -2- (h) BENEFICIARY: The word "Beneficiary" shall mean that person designated by the Participant pursuant to Section 6.2 hereof who would be entitled to receive his Supplemental Normal Retirement Income upon the death of the Participant. (i) BOARD: The word "Board" shall mean the Board of Directors of the Company. (j) CAUSE: The word "Cause" shall mean the termination from employment with the Company or a Subsidiary for one of the following reasons: (i) the conviction of the Participant of a felony by a federal or state court of competent jurisdiction; (ii) 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; (iii) the Participant's "willful" failure to follow a direct, reasonable and lawful written order from his supervisor, within the reasonable scope of the Partici- pant's duties, which failure is not cured within 30 days; or (iv) the Participant's failure to perform his specified duties and responsibilities for a period of 45 days as determined by his supervisor after a warning in writing. Further, for purposes of this Subsection (j): (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 Company. (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 at a meeting of the Board called and held for such purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with the Par ticipant's counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Participant was guilty of conduct set forth in clauses (i), -3- (ii), (iii) or (iv) above and specifying the particulars thereof in detail. (k) CHANGE OF CONTROL: The words "Change of Control" shall have the meaning set forth in Section 9.2 of this Plan. (l) CODE: The word "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (m) COMMITTEE: The word "Committee" shall mean the Compensation and Organization Committee appointed by the Board under Article XIII herein to administer the Plan. (n) COMPANY: The word "Company" shall mean Fleming Companies, Inc., an Oklahoma corporation, or its successor. (o) DISABILITY: The word "Disability" shall mean a condition whereby a Participant has become totally and permanently disabled within the meaning of the Long-Term Disability Plan as in effect as of the Effective Date of this Plan. (p) DISABILITY RETIREMENT DATE: The words "Disability Retirement Date" shall mean the first day of the month after which a Participant terminating employment has satisfied all conditions specified in the foregoing Subsection for Disability. (q) EARLY RETIREMENT DATE: The words "Early Retirement Date" shall mean the first day of the month coinciding with or following the date a Participant terminates employment with the Employer after (i) earning at least 10 Years of Credited Service and (ii) attaining at least age 55. (r) EFFECTIVE DATE: The words "Effective Date" shall mean the 1st day of November, 1997. (s) ELIGIBLE SPOUSE: The words "Eligible Spouse" shall mean the spouse to whom the Participant is married for the one-year period preceding his date of death or the date on which payment of his Supplemental Normal Retirement Income will commence. (t) EMPLOYER: The word "Employer" shall mean either the Company or any Subsidiary. -4- (u) LIMITATIONS ON BENEFITS: The words "Limitations on Benefits" shall mean the limitations imposed by Sections 415 and/or 401(a)(17) of the Code on the accrual of the Qualified Plan Benefits under the Qualified Plan. (v) LONG-TERM DISABILITY PLAN: The words "Long-Term Disability Plan" shall mean the "Long-Term Disability Benefit Plan of Fleming Companies, Inc. and Its Subsidiaries." (w) NORMAL RETIREMENT AGE: The words "Normal Retirement Age" shall mean the 65th birthday of a Participant. (x) NORMAL RETIREMENT DATE: The words "Normal Retirement Date" shall mean the first day of the month coinciding with or following a Participant's Normal Retirement Age. (y) PARTICIPANT: The word "Participant" shall mean an Associate who during a Year shall meet the eligibility requirements of Article III herein for participation or reparticipation, as the case may be. The initial participants selected for participation as of the Effective Date are listed on Exhibit "A" attached hereto. (z) PLAN: The word "Plan" shall mean the Fleming Companies, Inc. Executive Deferred Compensation Plan, as set forth in this instrument, and as hereafter amended from time to time. (aa) POSTPONED RETIREMENT DATE: The words "Postponed Retirement Date" shall mean the first day of the month coinciding with or next following the date that a Participant retires under Section 5.5 herein subsequent to his Normal Retirement Date. (bb) QUALIFIED PLAN BENEFIT: The words "Qualified Plan Benefit" shall mean the accrued benefit earned at any point in time by a Participant pursuant to the Qualified Plan. (cc) QUALIFIED PLAN: The words "Qualified Plan" shall mean the employee pension plan sponsored by the Company which is qualified under Section 401(a) and Section 501(a) of the Code which is known as the "Consolidated Retirement Plan for Fleming Companies, Inc. and Its Subsidiaries." -5- (dd) RETIREMENT DATE: The words "Retirement Date" shall mean a Participant's Early Retirement Date, Disability Retirement Date, Normal Retirement Date, or Postponed Retirement Date, whichever applies. (ee) SUBSIDIARY: The word "Subsidiary" shall mean any corporation with 80% or more of its voting capital stock being owned by the Company. (ff) SUPPLEMENTAL DEATH BENEFIT: The words "Supplemental Death Benefit" shall mean that additional benefit which could be paid to the Beneficiary of a deceased Participant all as provided by Article VI hereof. (gg) SUPPLEMENTAL DISABILITY RETIREMENT INCOME: The words "Supplemental Disability Retirement Income" shall mean a monthly benefit computed in accordance with Section 8.1 herein. (hh) SUPPLEMENTAL EARLY RETIREMENT INCOME: The words "Supplemental Early Retirement Income" shall mean a monthly benefit computed in accordance with Section 7.1 herein. (ii) SUPPLEMENTAL NORMAL RETIREMENT INCOME: The words "Supplemental Normal Retirement Income" shall mean a monthly benefit computed in accordance with Section 5.1 herein. (jj) TRUST: The word "Trust" shall mean the Fleming Companies, Inc. Executive Deferred Compensation Trust which has been established and may be used by the Company, its parent, or any Subsidiary as the device for assisting the Company to meet its obligations under the Plan. (kk) TRUSTEE OR TRUSTEES: The words "Trustee" or "Trustees" means the entity who has been designated by the Company to serve as Trustee of the Trust. (ll) YEAR: The word "Year" shall mean the annual period beginning on the first day following the last Saturday of December, and ending on the last Saturday of December of the calendar year immediately following. (mm) YEAR OF CREDITED SERVICE: The words "Year of Credited Service" shall have the same meaning and be calculated in the same manner as "Years of Credited Service" are computed under the Qualified Plan. -6- 2.2 CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. Any word appearing herein in the plural shall include the singular, where appropriate, and likewise the singular shall include the plural, unless the context clearly indicates to the contrary. ARTICLE III PARTICIPATION 3.1 SELECTION FOR PARTICIPATION. A Participant who (i) is eligible to receive a Qualified Plan Benefit, but the amount of such benefit is reduced by reason of the application of the Limitations on Benefits imposed by application of Sections 415 and 401(a)(17) of the Code, as in effect at any time while the Participant is accruing a Qualified Plan Benefit, or as in effect at any time thereafter, (ii) is among a group of key management employees and who are included in a classification to whom coverage under this Plan has been extended and (iii) has been selected by the Committee to participate in the Plan, shall be eligible to receive a Supplemental Normal Retirement Income in accordance with the terms of the Plan. If a Participant described in the preceding sentence dies prior to commencement of payment of his Qualified Plan Retirement Benefit, the Beneficiary shall be eligible to receive a Supplemental Death Benefit. 3.2 PARTICIPATION IN CONSIDERATION FOR FUTURE SERVICES ONLY. Selection of an Associate by the Committee for participation in the Plan will be limited to those Associates who meet the qualification requirements heretofore described and will be deemed to be for all purposes in consideration of future services which will be rendered by such Associate to the Company or its Subsidiaries in order to retain such Associates and to ensure the continued growth, development and business of the Company and its Subsidiaries. 3.3 OTHER AGREEMENTS. Any Associate having been selected by the Committee as a Participant, including the Participants listed on Exhibit "A," shall, as a condition of participation, complete and return to the Committee the Agreement and any and all other agreements which relate to the election by the Participant to participate in the Plan and to the agreement by the Par- ticipant to the terms and conditions hereof and thereof. ARTICLE IV CONTRIBUTIONS 4.1 PAYMENTS BY THE COMPANY AND/OR SUBSIDIARY. The payments required to fund the cost of the benefits provided by the Plan shall be made solely by the Company. -7- ARTICLE V SUPPLEMENTAL NORMAL RETIREMENT INCOME 5.1 AMOUNT. The Supplemental Normal Retirement Income payable to an eligible Participant shall be equal to the result derived by subtracting the amount determined in clause (b) below from the amount determined in clause (a) below where: (a) is the monthly amount of the Qualified Plan Benefit to which the Participant would have been entitled under the Qualified Plan if such benefit were computed without giving effect to the Limitations on Benefits; and (b) is the monthly amount of the Qualified Plan Benefit which would be actually payable to the Participant under the Qualified Plan at the applicable point in time assuming the Participant (x) terminated employment with the Company or any Subsidiary, (y) had attained his Early Retirement Date (or other Retirement Date for which he would be actually eligible) and (z) commenced receipt of his Qualified Plan Benefit. The amounts described in (a) and (b) above shall be computed as of the date of termination of employment of the Participant with the Company and all Subsidiaries in the form of a straight life annuity payable over the lifetime of the Participant (calculated in the same manner as provided under the Qualified Plan) assuming payment was to commence at the Participant's Normal Retirement Date. Payment of the Supplemental Normal Retirement Income will commence as provided under 5.3 below. 5.2 FORM OF BENEFIT. A Participant shall be entitled to receive and be paid his Supplemental Normal Retirement Income as provided in Article X hereof. The Participant's election under the Qualified Plan of any optional form of payment of his Qualified Plan Benefit shall not be applicable to and shall not determine the form of payment of his Supplemental Normal Retirement Income under this Plan, and such payment will be made in cash. 5.3 COMMENCEMENT OF BENEFIT. Subject to earlier payment upon termination at or after a Change of Control, payment of the Supplemental Normal Retirement Income to a Participant shall commence on approximately the same date as payment of the Qualified Plan Benefit to the Participant commences; provided, the Committee may approve a request by the Participant that payments may commence at an earlier date upon termination of employment of the Partici- pant. 5.4 POSTPONED RETIREMENT DATE. If a Participant continues his employment with the Employer to a date after his Normal Retirement Date ("Postponed Retirement Date"), his Supplemental Normal Retirement Income shall be deferred until his Postponed -8- Retirement Date. Benefits to which he shall be entitled as of his benefit commencement date shall be his Supplemental Normal Retirement Income earned at his Normal Retirement Date without adjustment after such date. 5.5 PAYMENT OF SUPPLEMENTAL NORMAL RETIREMENT INCOME. Notwithstanding any provision contained in this Plan to the contrary and except in the case of a Change of Control as specified in Section 9.2 of this Plan, no portion of Participant's Supplemental Normal Retirement Income to which he may be entitled shall be payable (i) prior to the date that he first satisfies the requirements for retiring on his applicable Retirement Date and (ii) unless he actually terminates employment with the Employer on the applicable Retirement Date. Except as provided in Section 9.2 of this Plan, in the event benefits commence prior to a Participant's Normal Retirement Date, then, such benefits shall be adjusted as provided in Article VI in the event of a payment of a Supplemental Death Benefit, as provided in Article VII in the event of a Supplemental Early Retirement Income, and as provided in Article VIII in the event of a Supplemental Disability Retirement Income. ARTICLE VI DEATH OF A PARTICIPANT 6.1 PAYMENT OF SUPPLEMENTAL DEATH BENEFIT. (a) If a Participant's Qualified Plan Benefit is to be paid due to the death of the Participant while employed by the Company or a Subsidiary, the Beneficiary shall be entitled to receive a Supplemental Death Benefit to be calculated as provided in Article V hereof and will be based upon the Supplemental Normal Retirement Income earned by the Participant as of his date of death. Provided, however, in making such calculation under Article V hereof, the Participant shall be credited with Years of Credited Service equal to the greater of his actual Years of Credited Service or ten (10) Years of Credited Service. The Supplemental Death Benefit will be paid in the same manner as he has previously elected in his Agreement subject to Subsection (c) below or unless the Committee approves an optional form of benefit under Section 10.2 hereof. (b) The foregoing Subsection (a) notwithstanding, in the event of the death of Participant who is in the employ of the Company or a Subsidiary prior to his Early Retirement Date, no benefit will be paid to the Beneficiary of the Participant in the form of a Supplemental Death Benefit until the date such Participant would have otherwise attained his Early Retirement Date assuming he had continued in the employ of the Company. In the event -9- of the death of the Beneficiary prior to such date, then the Supplemental Death Benefit will be paid as provided under Section 6.2 below. If the Participant dies on or after his Early Retirement Date, then his Supplemental Death Benefit will be paid to his Beneficiary in the form elected by the Participant unless the Committee approves a different form under Section 10.2 herein, as hereinabove provided. (c) SPECIAL DEATH BENEFIT. In the event that a Participant has elected to receive his Supplemental Normal Retirement Income for the "Life of Participant Only" (Option 1) and such Participant dies prior to the time that benefits actually commence pursuant to the terms of this Plan, then, the Beneficiary of such deceased Participant shall receive the Actuarial Equivalent of such Participant's Supplemental Normal Retirement Income paid as a "50% Joint Annuitant Survivor Benefit" (Option 2) as described in Section 10.1 hereof. 6.2 BENEFICIARY DESIGNATION. The Participant shall designate a Beneficiary in his Agreement who will receive the deceased Participant's Supplemental Death Benefit. Such Beneficiary may be changed by the Participant upon notice to the Company pursuant to the terms of the Agreement. The Participant's Supplemental Death Benefit shall be paid to the Beneficiary designated by the Participant who is then surviving, and if there is no Beneficiary then surviving, such benefits will automatically be paid to the surviving Eligible Spouse of such Participant who will be deemed to be the Participant's Beneficiary in such case, and if there is no surviving Eligible Spouse or other surviving Beneficiary, then no Supplemental Death Benefit will be paid under this Plan. ARTICLE VII EARLY RETIREMENT 7.1 SUPPLEMENTAL EARLY RETIREMENT INCOME. A Participant who has attained his Early Retirement Date may retire early and receive his Supplemental Early Retirement Income which shall commence as of such Participant's Early Retirement Date. The monthly amount of a Supplemental Early Retirement Income to which a Participant shall be entitled shall be (i) based on his Supplemental Normal Retirement Income which has been earned by the Participant as of his Early Retirement Date and (ii) paid in the manner elected by the Participant as provided in Section 10.1. An early retiree's Supplemental Normal Retirement Income shall be actuarially adjusted as of the date of the commencement of payments by multiplying the Participant's Supplemental Normal Retirement Income by the "early retirement adjustment factors" described below. To determine a Participant's Supplemental Early Retirement -10- Income, his Supplemental Normal Retirement Income is multiplied by the product resulting from multiplying the applicable percentage set out below by the number of years and completed months that benefits are to commence prior to the Participant's age 62; provided, however, that the Committee may in its sole discretion waive the application of the "early retirement adjustment factors." The applicable percentage of actuarial reduction will be determined at the time payment of benefits commences based upon the title of the Participant with the Company or any Subsidiary as of the date closest to the date benefits commence. EARLY RETIREMENT ADJUSTMENT FACTORS ------------------ EARLY RETIREMENT POSITION ADJUSTMENT FACTORS -------- ------------------ Chief Executive Officer 3% Executive Vice President 4% Senior Vice President/Vice President/Other 5% EXAMPLE: If a Senior Vice President retires at age 59 1/2 and commences receipt of his benefits, then, the reduction would be 12 1/2% (2 1/2 years before 62 : 2 1/2 x 5% = 12 1/2%). ARTICLE VIII DISABILITY 8.1 SUPPLEMENTAL DISABILITY RETIREMENT INCOME. If a Participant has satisfied all conditions of Disability, he shall be entitled to his Supplemental Disability Retirement Income. The monthly amount of a Supplemental Disability Retirement Income to which a Participant shall be (i) based on the amount of Supplemental Normal Retirement Income earned by the Participant as of his Disability Retirement Date and (ii) paid in the form elected by the Participant under his Agreement and as described in Section 10.1. Payment of Supplemental Disability Retirement Income benefits shall not commence (i) prior to his Early Retirement Date assuming such Participant continues in the employ of the Employer, and (ii) until such Participant is no longer receiving benefits pursuant to the Long-Term Disability Plan. A Participant's Supplemental Disability Retirement Income will be adjusted in the same manner as Supplemental Early Retirement Income as provided in Section 7.1 hereof if benefits commence prior to attainment of the age of 62 years. 8.2 PROOF OF DISABILITY. After a Participant's Disability Retirement Date the Committee may require that the Participant's continuing Disability be verified by medical examination at -11- a location convenient to the Participant; provided, such Participant shall not be required to submit to more than one examination in a 12 month period. If, at any time prior to the Participant's Normal Retirement Age, the Committee determines that he no longer has a Disability, or if the Participant shall refuse to submit to a medical examination, the Committee shall direct that in computing such Participant's Supplemental Disability Retirement Income, only "Years of Credited Service" earned prior to such determination by the Committee be considered. ARTICLE IX TERMINATION OF EMPLOYMENT 9.1 TERMINATION OF EMPLOYMENT PRIOR TO RETIREMENT DATE. (a) VESTING. The vesting schedule in the Qualified Plan, as it exists from time to time, shall be applied to determine if a Partici- pant is vested in his Supplemental Normal Retirement Income under this Plan. Unless a Participant has earned a vested accrued benefit under the Qualified Plan, or unless there has been a Change of Control as provided in Section 9.2 below, he shall not be entitled to any benefit under this Plan. Unless sooner vested, the Participant will be fully vested in his Supplemental Normal Retirement Income on his Retirement Date or date of death. (b) PAYMENT OF VESTED BENEFIT. A Participant's Supplemental Normal Retirement Income will be paid pursuant to Article X hereof. 9.2 ACCELERATION OF VESTING OF SUPPLEMENTAL NORMAL RETIREMENT INCOME UPON CHANGE OF CONTROL. In the event that there is a "Change of Control" as defined below then, each Participant shall be fully vested in his Supplemental Normal Retirement Income earned as of the date of the Change of Control (or earned after such date) with such Supplemental Normal Retirement Income to be paid in the form elected by the Participant as provided in Section 10.1 hereof immediately following his termination of employment. Such Supplemental Normal Retirement Income shall not be reduced by any Early Retirement Adjustment Factors as provided in Article VII hereof. It shall be calculated based upon (i) such Participant's actual Annual Final Compensation earned by such Participant as the date of the Change of Control, or the date of his termina- tion of employment whichever produces the greatest amount of Supplemental Normal Retirement Income, and (ii) the greater of such Participant's actual Years of Credited Service or ten (10) Years of Credited Service. In each case, the Participant shall have been deemed to have reached 65 years of age. Anything in this Plan to the contrary notwithstanding, if a Participant's employment with the Employer is terminated on or prior to the date on which a -12- 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 Plan as to such terminated Participant, a Change of Control shall be deemed to have occurred as of the date immediately prior to the date of such termination. For the purposes of this Plan, the term "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more (the "Triggering Percentage") of either (i) the then outstanding shares of Common Stock of the Company (the "Outstanding Company Common 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 "Out- standing Company Voting Securities"); provided, however, in the event the "Incumbent Board" (as such term is hereinafter defined) in accordance with any share rights agreement to which the Company is a party that may be in effect (the "Rights Agreement") lowers the threshold amounts set forth in the Rights Agreement, the Triggering Percentage shall be automatically reduced to equal the reduced threshold amount set by the Incumbent Board pursuant to the Rights Agreement; and provided, further, however, that the following acquisi- tions 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, (iv) any acquisition previously approved by at least a majority of the members of the Incumbent Board, (v) 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 (vi) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii), and (iii) of subsection (c) of this Section 9.2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, appointment or nomination for election by the Company's shareholders, was approved by a vote of at least a -13- majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for purposes of this definition, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, share exchange, merger or consolidation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Out- standing 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 enti- tled 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, (ii) 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 (iii) 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 (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or, (ii) 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 -14- 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. ARTICLE X MANNER OF PAYMENT OF BENEFITS 10.1 PAYMENT AT ACTUAL RETIREMENT. Upon the Participant terminating his employment with the Employer on his applicable Retirement Date or at termination upon or following a Change of Control, then, such Participant shall be paid a benefit calculated as provided herein; and, such benefit shall be paid as Supplemental Early Retirement Income, Supplemental Disability Retire- ment Income, Supplemental Normal Retirement Income or as provided in Section 9.2 herein due to termination upon or after a Change of Control, as the case may be. A Participant shall be entitled to receive the Actuarial Equivalent of such benefits calculated as a single life annuity and paid in one of the optional forms of payment described below and elected by the Participant in his Agreement. Except as provided in Section 10.2 below, such elections are irrevocable and will be made by the Participant on the date the Participant becomes a participant in the Plan pursuant to the terms of the Agreement. -15- The optional forms of payment permitted under the Plan are as follows: OPTIONAL FORMS OF PAYMENT Life of Participant Only 50% Joint Annuitant Survivor Benefit 75% Joint Annuitant Survivor Benefit 100% Joint Annuitant Survivor Benefit 5 Year Period Certain 10 Year Period Certain 15 Year Period Certain A description of the optional forms of payment is contained on Exhibit "B" attached hereto. The Actuary shall actuarially adjust the amount of Supplemental Normal Retirement Income otherwise payable to the Participant if such payment was to be made on a single life basis to reflect the age of the Participant, his Beneficiary or his Eligible Spouse, as the case may be, and the form of payment elected. 10.2 COMMITTEE MAY APPROVE CHANGE OF FORM OF PAYMENT. In the event that a Participant or his Beneficiary (in the event of death) desires to change any form of payment previously elected by the Participant under his Agreement to another optional form of payment described above, then, the Participant, or his Beneficiary (in the case of death), may make a written request to the Committee to change the elected form of payment to any of the other optional form of payment described above. The decision by the Committee to agree to make any such changes shall be in the sole discretion of the Committee and shall be final and conclusive. ARTICLE XI GENERAL BENEFIT PROVISIONS 11.1 REEMPLOYED PARTICIPANTS WHO HAD BEEN RECEIVING BENEFITS. In the case of a Participant who was previously receiving benefits under any provision of this Plan and is reemployed with the Employer and who is again selected for participation in the Plan, the amount of previous benefits paid shall be taken into account and shall serve to actuarially reduce the Participant's Supplemental Normal Retirement Income payable at his subsequent Retirement Date. 11.2 RESTRICTIONS ON ALIENATION OF BENEFITS. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to -16- such benefit. If any Participant or Beneficiary under this Plan should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under this Plan, then such right or benefit shall, in the discretion of the Committee, be held or applied for the benefit of such Participant or Beneficiary, his or her spouse, children, or other dependents, or any of them, in such manner and in such portion as the Committee, in its sole and absolute discretion, may deem proper. 11.3 NO TRUST. No action under this Plan by the Company, the Board or the Committee shall be construed as creating a trust, escrow or other secured or segregated fund in favor of the Participant, his Beneficiary, or any other persons otherwise entitled to his Supplemental Normal Retirement Income. The status of the Participant and his Beneficiary with respect to any liabilities assumed by the Company hereunder shall be solely those of unsecured creditors of the Company, its parent, if applicable, or any Subsidiary. Any asset acquired or held by the Company, its parent, if applicable, or any Subsidiary in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust, escrow or other secured or segregated fund for the benefit of the Participant or his Beneficiaries or to be security for the performance of the obligations of the Company, its parent, if applicable, or any Subsidiary, but shall be, and remain a general, unpledged, unrestricted asset of the Company, it parent, if applicable, or any Subsidiary at all times subject to the claims of general creditors of the Company or any Subsidiary. However, the Company may contribute assets to the Trust to pay benefits under the Plan. 11.4 PLAN UNFUNDED - NO ASSIGNMENT. The Plan at all times shall be entirely unfunded as provided under Title I of the Act and no provision shall at any time be made with respect to segregating from claims of creditors any assets of the Company, its parent, if applicable, a Subsidiary for payment of any benefits hereunder. No Participant, Beneficiary or any other person shall have any interest in any particular assets of the Company, its parent, if applicable, or any Subsidiary by reason of the right to receive a benefit under the Plan and any such Participant, Beneficiary or 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. No right or benefit under this Plan shall in any manner be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment or charge by creditors of any Participant or Beneficiary, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, attach, garnish or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. -17- 11.5 WITHHOLDING AND OTHER EMPLOYMENT TAXES. The Company shall comply with all federal and state laws and regulations respecting the withholding, deposit and payment of any income or other taxes relating to any payments made under this Plan. ARTICLE XII PROVISIONS RELATING TO PARTICIPANTS 12.1 INFORMATION REQUIRED OF PARTICIPANTS. Payment of Benefits shall begin as of the payments date(s) provided in this Plan and no formal claim shall be required therefor; provided, in the interest of orderly administration of the Plan, the Committee may make reasonable requests of Participants and Beneficiaries to furnish information which is reasonably necessary and appropriate to the orderly administration of the Plan, and, to that limited extent, payments under the Plan are conditioned upon the Partici- pants and Beneficiaries promptly furnishing true, full and complete information as the Committee may reasonably request. 12.2 ABANDONMENT OF BENEFITS. Each Participant and Beneficiary shall file with the Committee, from time to time in writing, his post office address and each change of post office address, and any communication addressed to a Participant or Beneficiary at his last post office address filed with the Committee, or if no such address was filed, then at his last post office address as shown on the Employer's records, shall be binding on the Participant or his Beneficiary for all purposes of the Plan, and the Committee shall not be obliged to search for or ascertain the whereabouts of any Participant or Beneficiary; provided, that the Committee shall mail an annual notice of unpaid pension benefits to such person at such last post office address. If the Committee furnishes such annual notice to any Participant or Beneficiary that he is entitled to a distribution, and the Participant or Beneficiary fails to claim such distribution or make his whereabouts known to the Committee within three years thereafter, such benefits shall be disposed of as follows: (a) if the whereabouts of such Participant or Beneficiary are known to the Committee, payment shall be made to such Participant or Beneficiary; or (b) if the whereabouts of such Participant or Beneficiary are unknown to the Committee, the Committee may direct the distribution of a Participant's pension benefits on the same basis as though the Participant had died without designating a Beneficiary as provided in Subsection 6.2 hereof. -18- 12.3 BENEFITS PAYABLE TO INCOMPETENTS. Any benefits payable hereunder to a minor or other person under legal disability may be made, at the discretion of the Committee, (i) directly to such person, or (ii) to a parent, spouse, relative by blood or marriage, or the legal representative of such person. The Committee shall not be required to see to the application of any such payment, and the payee's receipt shall be a full and final discharge of the Committee's responsibility hereunder. 12.4 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN. The establishment and maintenance of the Plan shall not be construed as conferring any legal rights upon any Participant to the continuation of employment with the Employer. ARTICLE XIII ADMINISTRATION 13.1 ALLOCATION OF RESPONSIBILITY FOR PLAN ADMINISTRATION. The Committee shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under the Plan. In general, the Company shall have the sole responsibility for appointing and removing Committee members, as provided in Section 13.2 herein. The Company shall have the sole responsibility for amending or terminating, in whole or in part, this Plan. The Committee shall have the sole responsibility for the administration of the Plan which responsibility is specifically described in this Plan. 13.2 APPOINTMENT OF COMMITTEE. The Plan shall be administered by the Committee which shall be appointed by and serve at the pleasure of the Board. All usual and reasonable expenses of the Committee may be paid in whole or in part by the Company. 13.3 CLAIMS PROCEDURE. The Committee shall make all determinations as to the right of any person to benefits. If any request for a benefit is wholly or partially denied, the Committee shall notify the person requesting the benefits, in writing, of such denial, including in such notification the following information: (a) the specific reason or reasons for such denial; (b) the specific references to the pertinent Plan provisions upon which the denial is based; (c) a description of any additional material and information which may be needed to clarify the request, including an explanation of why such information is required; and -19- (d) an examination of this Plan's review procedure with respect to denial of benefits. Provided, that any such notice to be delivered to any Participant or beneficiary shall be mailed by certified or registered mail and shall be written to the best of the Committee's ability in a manner that may be understood without legal counsel. 13.4 REVIEW PROCEDURE. Any Participant or Beneficiary whose claim has been denied in accordance with Section 13.3 herein may appeal to the Committee for review of such denial by making a written request therefor within 60 days of receipt of the notification of such denial. Such Participant or Beneficiary may examine documents pertinent to the review and may submit to the Committee written issues and comments. Within 60 days after receipt of the request for review, the Committee shall communicate to the claimant, in writing, its decision, and the communication shall set forth the reason or reasons for the decision and specific reference to those Plan provisions upon which the decision is based. 13.5 RECORDS AND REPORTS. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with the Act and governmental regulations issued thereunder relating to records of the Participant's accounts and benefits which may be paid under the Plan; and to notify Participants and Beneficiaries as required. 13.6 OTHER COMMITTEE POWERS AND DUTIES. The Committee shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a) to construe and interpret the Plan in its sole and absolute discretion, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (b) to prescribe procedures to be followed by Participants or Beneficiaries filing applications for benefits; (c) to prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan; (d) to receive from the Employer and from Participants and Beneficiaries such information as shall be necessary for the proper administration of the Plan; (e) to furnish the Employer, upon request, such reports with respect to the administration of the Plan as are reasonable and appropriate; -20- (f) to appoint and employ individuals and any other agents it deems advisable, including legal counsel, to assist in the administration of the Plan and to render advice with respect to any responsibility of the Committee, or any of its individual members, under the Plan; (g) to allocate among themselves who shall be responsible for specific duties and to designate fiduciaries (other than Committee members) to carry out responsibilities under the Plan; provided that any such allocations shall be reduced to writing, signed by all Committee members, and filed in a permanent Committee minute book; and (h) to maintain continuing review of the Act, the Code, and the implementing regulations thereto and suggest changes and modifications to the Employer in connection with delegations of responsibility, as appropriate, and amendments to the Plan. 13.7 RULES AND DECISIONS. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. All rules and decisions of the Committee shall be uniformly and consistently applied to all Participants and beneficiaries in similar circumstances. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant or Beneficiary, the Employer or the legal counsel of the Company. 13.8 COMMITTEE PROCEDURES. The Committee may act at a meeting or in writing without a meeting. The Committee shall have a chairman, and appoint a secretary, who may or may not be a Committee member. The secretary shall keep a record of all meetings in a permanent Committee minute book and forward all necessary communications to the Employer. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. All decisions of the Committee shall be made by the vote of the majority including actions in writing taken without a meeting. A dissenting Committee member who, within a reasonable time after he has knowledge of any action or failure to act by the majority, registers his dissent in writing delivered to the other Committee members, to the extent permitted by law, shall not be responsible for any such action or failure to act. ARTICLE XIV AMENDMENT AND TERMINATION 14.1 RIGHT TO AMEND OR ALTER PLAN. The Plan may be amended by the Committee from time to time in any respect whatever by resolution of the Committee specifying such amendment; provided, however, this Plan may not be amended in any manner which adversely -21- affects the Supplemental Normal Retirement Income earned by the Participant as of the date of such amendment without the written consent of the affected Participant. 14.2 RIGHT TO TERMINATE PLAN. The Committee expressly reserves the right to terminate this Plan in whole or in part at any time; provided, however, this Plan may not be terminated if such termination adversely affects the Supplemental Normal Retirement Income earned by the Participant as of the date of termination without the written consent of the affected Participant. If the Plan is terminated, as provided herein or under Subsection 14.3(b) below, then (i) each Participant will be fully vested in his then earned Supplemental Normal Retirement Income and (ii) the Plan shall continue with respect to the Supplemental Normal Retirement Income earned as of such date of termination until all benefits have been paid to the Participants. 14.3 MERGER OF COMPANY OR TERMINATION OF QUALIFIED PLAN. (a) MERGER OF COMPANY; SUCCESSOR MUST ASSUME PLAN. 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 the Company's and any Subsidiary's obligations under this Plan in the same manner and to the same extent that the Company or such Subsidiary would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any succession shall be a breach by the Company of its obligations under this Plan and shall entitle a Participant to compensation from the Company in the same amount and on the same terms as the Participant would be entitled to hereunder if the Participant terminated employment immediately 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. (b) TERMINATION OF QUALIFIED PLAN. In the event of the termination of the Company's Qualified Plan, then, this Plan shall terminate and in calculating any Supplemental Normal Retirement Income which would otherwise be paid to Participant under this Plan, the Qualified Plan Benefit earned by Participant will be calculated as of such termination date and will be applied at such time to determine the amount of Supplemental Normal Retirement Income to which Participant would be entitled under this Plan. -22- 14.4 FORFEITURE OF ALL BENEFITS. In the event that the Participant (i) is discharged from employment service with the Employer for Cause or (ii) commits any other act or acts which are injurious and adversely impacts the Employer in any manner whatsoever and would be expected to substantially enrich the Participant, then, in such events, the Committee, in its sole discretion, may determine that any benefit which would otherwise be provided to the Participant, his Beneficiary under the Agreement or the Plan shall be forfeited in its entirety, and it shall thereafter be deemed as if the Participant never was selected for participation in the Plan. Provided, however, that the provisions of this Section 14.4 shall not be applicable in the event a Change of Control has occurred. ARTICLE XV MISCELLANEOUS PROVISIONS 15.1 ARTICLES AND SECTION TITLES AND HEADINGS. The titles and headings at the beginning of each Article and Section shall not be considered in construing the meaning of any provisions in this Plan. 15.2 LAWS OF OKLAHOMA TO GOVERN. The provisions of this Plan shall be construed, administered and enforced according to the laws of the State of Oklahoma. All contributions to the Trust, if any, shall be deemed to take place in the State of Oklahoma. EXECUTED as of the 1st day of November, 1997. FLEMING COMPANIES, INC., a corporation By: ------------------------------------ Robert E. Stauth, Chairman and Chief Executive Officer "COMPANY" -23- EXHIBIT "B" DESCRIPTION OF OPTIONAL FORMS OF PAYMENT OPTION 1 - Life of Participant Only: A Supplemental Normal Retirement Income will be paid for the Participant's life only. Upon the Participant's death, all payments of Supplemental Normal Retirement Income shall cease. OPTION 2 - 50% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 50% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Partici- pant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further pay ments will be paid under Option 2 or this Agreement. OPTION 3 - 75% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 75% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Partici- pant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further pay ments will be due under Option 3 or this Agree- ment. OPTION 4 - 100% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 100% of such amount shall be paid to the Par- ticipant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further payments will be due under Option 4 or this Agreement. OPTION 5 - 5 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income will be paid for a period of 5 years certain. After the expiration of such 5 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 5 year period certain, then, the balance of such payments due only during such 5 year period will be paid to the Participant's sur- viving Beneficiary. After the expiration of such 5 year period, then all payments shall cease. In the event of the expiration of such 5 year period, and the Participant dies, then, no further benefits will be paid under Option 5 or this Agreement. OPTION 6 - 10 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income shall be paid for a period of 10 years certain. After the expiration of such 10 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 10 year period certain, then, the balance of such payments due only during such 10 year period will be paid to the Participant's sur- viving Beneficiary. After the expiration of such 10 year period, then all payments shall cease. In the event of the expiration of such 10 year period, and the Participant dies, then, no further benefits will be paid under Option 6 or this Agreement. OPTION 7 - 15 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income shall be paid for a period of 15 years certain. After the expiration of such 15 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 15 year period certain, then, the balance of such payments due only during such 15 year period will be paid to the Participant's sur- viving Beneficiary. After the expiration of such 15 year period, then all payments shall cease. In the event of the expiration of such 15 year period, and the Participant dies, then, no further benefits will be paid under Option 7 or this Agreement. EX-10.26 9 EXHIBIT 10.26 FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION TRUST FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION TRUST TABLE OF CONTENTS Page ---- Section 1 Establishment of Trust 1 Section 2 Payments to Participants and Their Beneficiaries 2 Section 3 Trustee Responsibility Regarding Payments to Trust Beneficiary When Company is Insolvent 3 Section 4 Payments to Company 4 Section 5 Investment Authority 5 Section 6 Disposition of Income 5 Section 7 Accounting by Trustee 5 Section 8 Responsibility of Trustee 6 Section 9 Compensation and Expenses of Trustee 7 Section 10 Resignation and Removal of Trustee 7 Section 11 Appointment of Successor 7 Section 12 Amendment or Termination 8 Section 13 Miscellaneous 8 Section 14 Effective Date 8 -i- FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION TRUST THIS AGREEMENT FOR THE FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION TRUST (the "Trust Agreement") made as of this ____ day of __________, 1997, by and between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and BANK ONE TRUST COMPANY, N.A., a national banking association (formerly the Liberty Bank and Trust Company of Oklahoma City, N.A.) (the "Trustee"). This Trust Agreement provides for the establish ment of a trust to be known as the "Fleming Companies, Inc. Executive Deferred Compensation Trust" (the "Trust") to provide a source for payments required to be made under the plans and related agreements (collectively, the "Plans") sponsored by the Company on behalf of certain of its key management associates (the "Participants"). WHEREAS, Company has adopted and/or is a party to the Plans listed on Exhibit "A" attached hereto; WHEREAS, Company has incurred or expects to incur liability under the terms of the Plans with respect to the individuals participating in the Plans; and WHEREAS, Company wishes to establish the Trust and to contribute to the Trust assets that shall be held therein, subject to the claims of creditors in the event of Company's "Insolvency," as herein defined, until paid to Participants and their beneficiaries in such manner and at such times as specified in the Plans; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended; and WHEREAS, it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. ESTABLISHMENT OF TRUST (a) Company hereby deposits with Trustee, in trust, One Hundred Dollars ($100.00), which constitutes the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. (b) The Trust hereby established is revocable by Company; it shall become irrevocable upon a change of control, as such term is defined in the Plans ("Change of Control"). (c) The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Participants and their beneficiaries and the general creditors of Company, its Subsidiaries and its parent, if applicable, as (as defined in the Plan ) herein set forth. The Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of the Participants and their beneficiaries against Company, its Subsidiaries or its parent, if applicable. Any assets held by the Trust will be subject to the claims of general creditors of the Company, its Subsidiaries and its parent, if applicable, or its subsidiaries under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee (which may include securities issued by Company) as provided in this Trust Agreement. In addition, Company may designate the Participants to be entitled to receive any payments from the amounts so deposited, provided, such payments shall only be made in accordance with the terms and provisions of the Plans. Neither Trustee nor any Participant or beneficiary shall have any right to compel such additional deposits. (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 Plans as of the date on which the Change of Control occurred. Section 2. PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES. (a) Company shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Participant (and his or her beneficiaries) and provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid -2- (as provided for or available under the Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company. (b) The entitlement of a Participant or his or her beneficiaries to benefits under the Plans shall be determined in accordance with the terms of the Plans by Company or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. (c) Company may make payment of benefits directly to the Participants or their beneficiaries as they become due under the terms of the Plans. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plans, Company shall make the balance of each such payment as it falls due. Trustee shall notify Company where principal and earnings are not sufficient. Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT. (a) Trustee shall cease payment of benefits to Participants and their beneficiaries if Company is Insolvent. Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Company, its Subsidiaries and its parent, if applicable, under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of Company shall have the duty to inform Trustee in writing of the Insolvency of the Company, its Subsidiaries or its parent, if applicable. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company, its Subsidiaries or its parent, if applicable, has become Insolvent, Trustee shall determine whether Company, its Subsidiaries or its parent, if -3- applicable, is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to the Participants or their beneficiaries. (2) Unless Trustee has actual knowledge of the Insolvency of the Company, its Subsidiaries or its parent, if applicable, or has received notice from Company or a person claiming to be a creditor alleging that Company, its Subsidiaries or its parent, if applicable, is Insolvent, Trustee shall have no duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning the solvency of the Company, its Subsidiaries or its parent, if applicable, as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning the solvency of the Company, its Subsidiaries and its parent, if applicable. (3) If at any time Trustee has determined that Company, its Subsidiaries and its parent, if applicable, is Insolvent, Trustee shall discontinue payments to the Participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the general creditors of the Company, its Subsidiaries or its parent, if applicable, including the Partici- pants. Nothing in this Trust Agreement shall in any way diminish any rights of Participants or their beneficiaries to pursue their rights as general creditors of Company, its Subsidiaries or its parent, if applicable, with respect to benefits due under the Plans or otherwise. (4) Trustee shall resume the payment of benefits to Participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. PAYMENTS TO COMPANY. (a) Except as provided in Section 3 hereof and Section 4(b) below, after the Trust has become irrevocable, Company shall have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payments of benefits have been made to Participants and their beneficiaries -4- pursuant to the terms of the Plans, and such determination shall be made by the Company. (b) In the event that the Trust incurs realized earnings which are taxable to the Company, the Trustee will reimburse the Company in an amount necessary to meet all of the Company's income tax obligations (federal, state and local). The determination of the amount to be reimbursed to the Company shall be determined by the Company and the Company shall provide a worksheet of the calculations of such tax liability to the Trustee. Section 5. INVESTMENT AUTHORITY. (a) Trustee may invest in or hold securities issued by Company. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Participants. Dividend rights with respect to Trust assets will rest with the Trust and voting rights shall be exercised by the Trustee. All investment decisions with regard to the investment and reinvestment of the Trust assets will be made by Trustee. (b) Company shall have the right at anytime, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust, provided the asset or assets substituted is acceptable to Trustee. This right is exercisable by Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. (c) In the event the Trust holds any life insurance policies, the Trustee may surrender, cash in, and/or borrow against such policies in order to provide benefits in accordance with the Payment Schedules. Section 6. DISPOSITION OF INCOME. During the term of this Trust, all income received by the Trust, net of expenses, payments to Participants and taxes, shall be accumulated and reinvested by Trustee. Section 7. ACCOUNTING BY TRUSTEE. Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within sixty (60) days following the close of each calendar year and within sixty (60) days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its adminis- tration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements -5- and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 8. RESPONSIBILITY OF TRUSTEE. (a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by Company. In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If Trustee undertakes or defends any litigation arising in connection with this Trust, Company agrees to indemnify Trustee against Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. (c) Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. (d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) Trustee shall have, without exclusion, all powers conferred on Trustee by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) However, notwithstanding the provisions of Section 8(e) above, Trustee may loan to Company the proceeds of any borrowing against an insurance policy held as an asset of the Trust. -6- (g) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 9. COMPENSATION AND EXPENSES OF TRUSTEE. Company shall pay all of Trustee's fees and expenses as well as administrative expenses attributable to the Trust. If not so paid, the fees and expenses shall be paid from the Trust. Section 10. RESIGNATION AND REMOVAL OF TRUSTEE. (a) Trustee may resign at any time by written notice to Company, which shall be effective sixty (60) days after receipt of such notice unless Company and Trustee agree otherwise. (b) Trustee may be removed by Company on thirty (30) days notice or upon shorter notice accepted by Trustee. (c) Upon a Change of Control, Trustee may not be removed by Company or its successor for five (5) years. (d) If Trustee resigns within five (5) years of a Change of Control, Company shall apply to a court of competent jurisdiction for the appointment of a successor Trustee or for instructions. (e) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within ninety (90) days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. (f) If Trustee resigns or is removed, a successor shall be appointed, in accordance with section 11 hereof, as of the effective date of resignation or removal under paragraphs (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. Section 11. APPOINTMENT OF SUCCESSOR. If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall -7- have all the rights and powers of the former Trustee, including ownership rights in Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. Section 12. AMENDMENT OR TERMINATION. (a) This Trust Agreement may be amended by a written instrument executed by Trustee and Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable after it has become irrevocable in accordance with Section 1(b) hereof. (b) The Trust shall not terminate until the date on which Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans unless sooner revoked in accordance with Section 1(b) hereof. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. (c) Upon written approval of all Participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plans, Company may terminate this Trust prior to the time all benefit payments under the Plans have been made. All assets in the Trust at termination shall be returned to Company. (d) This Trust Agreement may not be amended by Company for five (5) years following a Change of Control without the consent of all Participants. Section 13. MISCELLANEOUS. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of Oklahoma. Section 14. EFFECTIVE DATE. The effective date of this Trust Agreement shall be as of the date hereof. -8- FLEMING COMPANIES, INC., an Oklahoma corporation By: --------------------------------- Larry A. Wagner, Senior Vice President-Human Resources "COMPANY" BANK ONE TRUST COMPANY, N.A. (formerly the Liberty Bank and Trust Company of Oklahoma City, N.A.) By: --------------------------------- Name: --------------------------- Title: Senior Vice President & Senior Trust Officer "TRUSTEE" -9- EX-10.27 10 EXHIBIT 10.27 FORM OF AGREEMENT FOR FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN --------------- PARTICIPANT --------------- DATE AGREEMENT FOR FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN THIS AGREEMENT FOR FLEMING COMPANIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN (the "Agreement") is made as of the ___ day of __________, ____ by and between _______________, an individual (herein referred to as the "Participant") and FLEMING COMPANIES, INC. (the "Company") with respect to the following: WHEREAS, the Company has adopted that certain non-qualified deferred compensation plan known as "Fleming Companies, Inc. Executive Deferred Compensation Plan" (the "Plan") which is an "excess plan" providing for benefits to the Participants in the Plan in excess of the limitations on benefits under qualified plans imposed by Sections 415 and/or 401(a)(17) of the Internal Revenue Code of 1986, as amended; and WHEREAS, the Company and the Participant desire to enter into this Agreement to evidence the Participant's participation in the Plan and his agreement to be bound by the terms and provisions of the Plan and this Agreement. NOW, THEREFORE, in consideration of mutual covenants hereinafter contained, the parties hereto agree as follows. All capitalized words used in this Agreement shall have the same meaning ascribed to such terms in the Plan unless specifically denoted otherwise. 1. PURPOSE OF PLAN. The purpose of the Plan and this Agreement is to provide to the Participant, the opportunity to earn supplemental retirement income as provided in the Plan in order to retain the Participant, as a key management Associate, with the Company. Payment of the Supplemental Normal Retirement Income shall be made to the Participant in consideration of future services rendered by the Participant and shall be paid to the Participant or the Participant's Beneficiary as hereinafter provided. A copy of the Plan is attached hereto as Exhibit "A," and is incorporated by reference herein and made a part hereof for all purposes and when taken with this Agreement, shall govern the Participant's rights and those of the Company with respect to the Participant's benefits under the Plan. 2. CALCULATION AND MANNER OF PAYMENT OF SUPPLEMENTAL NORMAL RETIREMENT INCOME. (a) GENERAL. The Participant is also a participant in the Qualified Plan sponsored by the Company. Further, the Participant have also earned a benefit in the form of a Normal Retirement Income pursuant to the terms of the Qualified Plan as of the Effective Date or a date subsequent thereto. The Participant's Supplemental Normal Retirement Income will equal the difference 93 between the Participant's Qualified Plan Benefit and the benefit which would otherwise be provided to the Participant under the Qualified Plan without considering the limitations imposed by Internal Revenue Service under Section 415 and/or 401(a)(17) of the Code which limits the amount of compensation which may be considered for calculation of benefits under the Qualified Plan. An example of the calculation of the calculation of a Supplemental Normal Retirement Income under the Plan is described on Exhibit "B" attached hereto. (b) MANNER OF PAYMENT OF SUPPLEMENTAL NORMAL RETIREMENT INCOME. As of the date of this Agreement, the Participant must elect the form under which his Supplemental Normal Retirement Income will be paid in the future following the Participant's termination of employment under the terms of the Plan. Please check the form in which the Participant's Supplemental Normal Retirement Income will be paid in the box provided below: (Please Check and Initial One Box Only) OPTIONAL FORMS OF PAYMENT ------------------------- 1. [ ] Life of Participant Only 2. [ ] 50% Joint Annuitant Survivor Benefit 3. [ ] 75% Joint Annuitant Survivor Benefit 4. [ ] 100% Joint Annuitant Survivor Benefit 5. [ ] 5 Year Period Certain 6. [ ] 10 Year Period Certain 7. [ ] 15 Year Period Certain The actual amounts payable at retirement or death will depend upon the Participant's age and/or the age of his Beneficiary and form of payment elected by the Participant. With the consent of the Committee, and if requested by the Participant or his Beneficiary in the case of the Participant's death, the Participant or his Beneficiary may request that the Participant's Supplemental Normal Retirement Income be paid in any of the optional forms described above. See Section 10.1 of the Plan. Further, in the event that a Participant has elected to receive his Supplemental Normal Retirement Income for the "Life of Participant Only" (Option 1) and such Participant dies, before payment of such benefit would otherwise commence in accordance with the terms of the Plan, then, such deceased Participant's Beneficiary shall be automatically paid a "survivor benefit" in the form of a "50% Joint Annuitant Survivor Benefit" (Option 2). Refer to Exhibit "C" for a complete Description of Payment. -2- 3. COMMENCEMENT OF SUPPLEMENTAL RETIREMENT INCOME. Subject to the provisions of Section 9.2 of the Plan with respect to termination following a Change of Control, based upon the manner of payment elected by the Participant for payment of the Participant's Supplemental Normal Retirement Income, payments shall commence as of the Participant's Early Retirement Date, Normal Retirement Date, Disability Retirement Date, Postponed Retirement Date, or date of death, as the case may be, and will continue to be paid in accordance with the form of payment elected by the Participant. 4. AMENDMENT OR TERMINATION. This Agreement may be amended, altered or terminated by the Company from time to time upon notice to the Participant as provided in paragraph 13 below; provided, however, this Agreement may not be amended, modified, or altered or terminated in any manner which adversely affects the Participant's Supplemental Normal Retirement Income earned as of the date of amendment or termination, as the case may be, without the consent of the Participant. Further, in such event of termination, the Participant's Supplemental Normal Retirement Income earned as of such date will be paid pursuant to the Plan. 5. EXPENSES. The expenses of administering this Agreement shall be borne by the Company and shall not be charged against the Participant's Supplemental Normal Retirement Income. 6. APPLICABLE LAW. The provisions of this Agreement shall be construed, administered and enforced according to the laws of the State of Oklahoma. 7. NO ASSIGNABILITY. Neither the Participant, his Beneficiary, nor any other person shall acquire any right to or interest in any Supplemental Normal Retirement Income and accruals thereon, 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 or alienate any rights hereunder in advance of any of the payments to be made pursuant to the 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. 8. AGREEMENT DOES NOT GUARANTEE CONTINUED EMPLOYMENT OF PARTICIPANT. The execution of this Agreement by the Company and the Participant, in no way whatsoever guarantees the continuation of employment of the Participant with the Company. 9. 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 -3- other taxes relating to any payments or rights to payments under this Agreement. 10. DESIGNATION OF BENEFICIARY. (a) The Participant, as the Participant, hereby designate the following individual as his Beneficiary to receive any Supplemental Death Benefit (including any benefit to be paid to such Beneficiary as the surviving "joint annuitant" pursuant to Section 2(b) hereof) payable to the Participant under this Agreement or the Plan in the event of the Participant's death: Name Address Relationship (b) The Participant understand that during his lifetime, the Participant may at any time change the Beneficiary designated herein by delivering to the Committee a new designation of a Beneficiary, executed by the Participant and the Committee. If the Participant desires to change a beneficiary designation, please contact the Senior Vice President, Human Resources for a new beneficiary designation form. 11. RELATIONSHIP BETWEEN AGREEMENT AND PLAN. This Agreement has been entered into by and between the Company and the Participant in accordance with and pursuant to authority granted to the Committee pursuant to the terms and provisions of the Plan. IN THE EVENT THAT THERE DEVELOPS A CONFLICT BETWEEN THIS AGREEMENT AND THE TERMS AND PROVISIONS OF THE PLAN, THE TERMS AND PROVISIONS OF THE PLAN, AS INTERPRETED BY THE COMMITTEE IN ITS SOLE DISCRETION, SHALL CONTROL AND BE FINAL AND CONCLUSIVE. 12. LIMITATION ON PAYMENT OF BENEFITS. The payment of the Supplemental Normal Retirement Income as provided in this Agreement shall accrue and be payable to the Participant or his Beneficiary, as the case may be, only at such times and upon the occurrence of such conditions as heretofore described. In no event whatsoever shall the Participant or the Participant's Beneficiary have any right, claim, or interest of any kind whatsoever in any future payments of such Supplemental Normal Retirement Income and such payments shall accrue and be payable only on a monthly basis as provided hereinabove. In no event may the Participant or the Participant's Beneficiary be entitled to receive a lump sum payment or other sum approximating the right to receive any future payments of Supplemental Normal Retirement Income hereunder. 13. NOTICES. All notices that are required or may be given pursuant to this Agreement must be in writing and delivered -4- personally, by a recognized courier service, by a recognized overnight delivery service, by facsimile or by registered or certified mail, postage prepaid, to the parties at the following addresses (or to the attention of such other person or such other address as either party may provide to the other party by notice in accordance with this paragraph 13: if to the Company: Fleming Companies, Inc. 6301 Waterford Blvd. Oklahoma City, OK 73126 Attn: Larry A. Wagner Senior Vice President - Human Resources Facsimile: (405) 840-7226 if to the Participant: 14. AGREEMENT SUPERSEDES ALL OTHER BENEFITS AND RELEASE OF CLAIMS. Effective as of the date of the execution and delivery of this Agreement, this Agreement shall supersede and replace any and all other agreements entered into by and between the Company or any Subsidiary and the Participant with respect to the providing of supplemental retirement benefits on a nonqualified basis pursuant to the Prior Plan which was terminated by the Company effective November 1, 1997. The Participant agrees that as of the date of termination of the Prior Plan, the Participant was not entitled to any benefit under the Prior Plan and any rights or interest in the Prior Plan were subject to total forfeiture as of November 1, 1997. Further, recognizing that the Participant has been selected by the Committee to participate in this Plan and the Fleming Companies, Inc. Executive Past Service Benefit Plan, both of which may provide substantial benefits to the Participant, the Participant hereby releases the Company, its officers, directors, agents and assigns from any and all obligations under the Prior Plan and agrees that the Participant will not bring any action, claim or demand of any kind whatsoever with respect to any benefits to which the Participant would have otherwise been entitled had the Participant continued participating in the Prior Plan. -5- 15. BENEFIT SUBJECT TO CLAIMS OF CREDITORS. The Participant and his Beneficiary 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 receive a benefit under the Plan or this Agreement, and the Participant and his Beneficiary 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. 16. EFFECTIVE DATE. This Agreement shall be effective from and after the day and year first above written. DATED the day and year first above written. FLEMING COMPANIES, INC., an Oklahoma corporation By --------------------------------------------- Larry A. Wagner, Senior Vice President-Human Resources "COMPANY" ---------------------------------- ----------------------- "PARTICIPANT" -6- EXHIBIT "C" DESCRIPTION OF OPTIONAL FORMS OF PAYMENT OPTION 1 - Life of Participant Only: A Supplemental Normal Retirement Income will be paid for the Participant's life only. Upon the Participant's death, all payments of Supplemental Normal Retirement Income shall cease. OPTION 2 - 50% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 50% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further payments will be paid under OPTION 2 or this Agreement. OPTION 3 - 75% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 75% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further payments will be due under OPTION 3 or this Agreement. OPTION 4 - 100% Joint Annuitant Survivor Benefit: A reduced amount of Supplemental Normal Retirement Income will be paid to the Participant for the Participant's life, then, at the Participant's death 100% of such amount shall be paid to the Participant's surviving Beneficiary. In the event that the Participant's surviving Beneficiary has predeceased the Participant, or should otherwise die after the Participant's death, then no further payments will be due under OPTION 4 or this Agreement. OPTION 5 - 5 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income will be paid for a period of 5 years certain. After the expiration of such 5 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 5 year period certain, then, the balance of such payments due only during such 5 year period will be paid to the Participant's surviving Beneficiary. After the expiration of such 5 year period, then all payments shall cease. In the event of the expiration of such 5 year period, and the Participant dies, then, no further benefits will be paid under OPTION 5 or this Agreement. OPTION 6 - 10 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income shall be paid for a period of 10 years certain. After the expiration of such 10 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 10 year period certain, then, the balance of such payments due only during such 10 year period will be paid to the Participant's surviving Beneficiary. After the expiration of such 10 year period, then all payments shall cease. In the event of the expiration of such 10 year period, and the Participant dies, then, no further benefits will be paid under OPTION 6 or this Agreement. OPTION 7 - 15 Year Period Certain: A reduced amount of Supplemental Normal Retirement Income shall be paid for a period of 15 years certain. After the expiration of such 15 year period, payments shall then continue for the Participant's life in the same amount. In the event of the Participant's death during the 15 year period certain, then, the balance of such payments due only during such 15 year period will be paid to the Participant's surviving Beneficiary. After the expiration of such 15 year period, then all payments shall cease. In the event of the expiration of such 15 year period, and the Participant dies, then, no further benefits will be paid under OPTION 7 or this Agreement. -3- EX-10.28 11 EXHIBIT 10.28 FLEMING COMPANIES, INC. ASSOCIATE STOCK PURCHASE PLAN Effective Date: July 1, 1997 FLEMING COMPANIES, INC. ASSOCIATE STOCK PURCHASE PLAN TABLE OF CONTENTS ARTICLE I NAME AND PURPOSE OF PLAN . . . . . . . . . . . . . . . . . B-1 1.1 Name of Plan. . . . . . . . . . . . . . . . . . . . . B-1 1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . B-1 ARTICLE II DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . B-1 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . B-1 2.2 Construction. . . . . . . . . . . . . . . . . . . . . B-3 ARTICLE III FUNDING AND EARLY WITHDRAWAL OF ACCOUNTS . . . . . . . . . B-3 3.1 Stock Purchase Accounts . . . . . . . . . . . . . . . B-3 3.2 Participant's Contributions . . . . . . . . . . . . . B-3 3.3 Continued Participation; Voluntary Withdrawal from Plan . . . . . . . . . . . . . . . . . . . . . . B-4 3.4 Withdrawal by Terminating Participant . . . . . . . . B-4 3.5 Reparticipation . . . . . . . . . . . . . . . . . . . B-4 3.6 Interest Accrual. . . . . . . . . . . . . . . . . . . B-4 ARTICLE IV EXERCISE OF STOCK OPTION . . . . . . . . . . . . . . . . . B-5 4.1 Exercise. . . . . . . . . . . . . . . . . . . . . . . B-5 4.2 Amount of Shares of Stock . . . . . . . . . . . . . . B-5 4.3 Distribution. . . . . . . . . . . . . . . . . . . . . B-5 4.4 Issuance of Shares; Stock Certificates. . . . . . . . B-6 ARTICLE V MAXIMUM SHARES OF STOCK AVAILABLE . . . . . . . . . . . . B-6 5.1 Maximum Number of Shares Available to Participants. . B-6 5.2 Maximum Authorized Shares . . . . . . . . . . . . . . B-6 5.3 Termination of Offering for the Second and Subsequent Purchase Periods . . . . . . . . . . . . . B-6 ARTICLE VI ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . B-6 6.1 Appointment of Committee. . . . . . . . . . . . . . . B-6 6.2 Committee Powers and Duties . . . . . . . . . . . . . B-6 6.3 Committee to Make Rules and Interpret Plan. . . . . . B-6 ARTICLE VII AMENDMENT OF THE PLAN. . . . . . . . . . . . . . . . . . . B-7 ARTICLE VIII RECAPITALIZATION AND EFFECT OF CERTAIN TRANSACTIONS. . . . B-7 8.1 Stock Adjustments . . . . . . . . . . . . . . . . . . B-7 8.2 Effect of Certain Transactions. . . . . . . . . . . . B-7 ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . B-8 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . B-8 9.2 Application of the Funds. . . . . . . . . . . . . . . B-8 9.3 Repurchase of Stock . . . . . . . . . . . . . . . . . B-8 9.4 Alternate Contribution Methods. . . . . . . . . . . . B-8 9.5 Nonassignability. . . . . . . . . . . . . . . . . . . B-8 9.6 Government Regulation . . . . . . . . . . . . . . . . B-8 -i- 9.7 Effective Date of Plan. . . . . . . . . . . . . . . . B-8 9.8 Termination of Plan . . . . . . . . . . . . . . . . . B-8 9.9 No Obligations to Exercise Stock Option . . . . . . . B-8 9.10 Right to Continued Employment . . . . . . . . . . . . B-9 9.11 Reliance on Reports . . . . . . . . . . . . . . . . . B-9 9.12 Applicable Law. . . . . . . . . . . . . . . . . . . . B-9 9.13 Construction. . . . . . . . . . . . . . . . . . . . . B-9 -ii- FLEMING COMPANIES, INC. ASSOCIATE STOCK PURCHASE PLAN ARTICLE I NAME AND PURPOSE OF PLAN 1.1 NAME OF PLAN. This Plan shall be known as: Fleming Companies, Inc. Associate Stock Purchase Plan. 1.2 PURPOSE. The Fleming Companies, Inc. Associate Stock Purchase Plan, by offering Associates the opportunity to purchase the Company's Stock through payroll deductions, is intended to encourage participation in the ownership and economic progress of the Company. Associates may only be granted Stock Options to purchase Stock. Except as otherwise provided in the Plan, by reason of their employment relationship with the Company and/or the Employer, all Associates of all Employers will be eligible to participate in the Plan. ARTICLE II DEFINITIONS 2.1 DEFINITIONS. Where the following capitalized words and phrases appear in either a singular or plural form in this instrument, they shall have the respective meanings set forth below unless a different context is clearly expressed herein. (a) ACCOUNT AND ACCOUNT BALANCE: (i) The word "Account" shall mean the record established and maintained to record the interest in the Plan of each Participant in accordance with Article III. (ii) The words "Account Balance" shall mean the credited balance standing in a Participant's Account from time to time. (b) ASSOCIATE: The word "Associate" shall mean any person employed by the Employer on the basis of an employer-employee relationship who receives remuneration for personal services rendered to the Employer. (c) BOARD: The word "Board" shall mean the Board of Directors of the Company. (d) CODE: The word "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (e) COMMITTEE: The word "Committee" shall mean the Compensation Committee of the Board referred to in Article VI. (f) COMPANY: The word "Company" shall mean Fleming Companies, Inc.. an Oklahoma corporation. (g) EMPLOYER: The word "Employer" shall mean the Company and any Subsidiary of the Company. (h) EXERCISE DATE: The words "Exercise Date" shall mean June 30 of any year during which the Plan is in existence, being June 30, 1998, 1999, 2000, 2001 and 2002. B-1 (i) FAIR MARKET VALUE: The words "Fair Market Value" shall mean (A) during such time as the Stock is listed upon the New York Stock Exchange or other exchanges or the NASDAQ/National Market System, the closing price of the Stock on such stock exchange or exchanges or the NASDAQ/ National Market System on the day for which such value is to be determined, or if no sale of the Stock shall have been made on any such stock exchange or the NASDAQ/National Market System that day, on the next preceding day on which there was a sale of such Stock or (B) during any such time as the Stock is not listed upon an established stock exchange or the NASDAQ/National Market System, the mean between dealer "bid" and "ask" prices of the Stock in the over-the-counter market on the day for which such value is to be determined, as reported by the National Association of Securities Dealers, Inc. (j) GRANTING DATE: The words "Granting Date" shall mean the beginning of each applicable Purchase Period, being July 1, 1997, 1998, 1999, 2000, 2001 and 2002. (k) OPTION AGREEMENT: The words "Option Agreement" shall mean an agreement to be executed by the Participant and the Company, which shall comply with the terms of the Plan and shall be in such form as the Committee agrees upon from time to time. (l) OPTION PRICE: The words "Option Price" shall mean the price which shall be paid by the Participant from his Account for any Stock purchased on an applicable Exercise Date pursuant to any Stock Option granted to such Participant; provided, such option price shall be the lesser of: (i) 85% of the per share Fair Market Value on the Granting Date of the Purchase Period applicable to such Participant: or (ii) 85% of the per share Fair Market Value on the Exercise Date of the Purchase Period applicable to such Participant. Provided, in no event shall the Option Price per share be less than the par value of the Stock. (m) PARTICIPANT: The word "Participant" shall mean an Associate (i) who executes with the Company an Option Agreement on or prior to a Granting Date, (ii) who on such Granting Date has been continuously employed by the Employer for at least six months, and (iii) whose customary employment is more than 20 hours per week and more than five months in any calendar year. Provided, for purposes of calculating the foregoing six month service requirement for an Associate, all employment service with the Company and its subsidiaries will be recognized. The word "Participant" shall also include the legal representative of a deceased Participant, and a Participant who, within three months prior to the end of the applicable Purchase Period for which he is a Participant, terminates his employment with the Employer on account of (i) retirement on or after age 55, (ii) retirement because of disability, (iii) lay off by the Employer, or (iv) an authorized leave of absence granted by the Employer. "Disability" for purposes of this Subsection (m) shall mean a physical or mental condition which, in the judgment of the Committee, totally and permanently prevents a Participant from engaging in any substantial gainful employment with the Employer. A determination that disability exists shall be based upon independent medical evidence satisfactory to the Committee. In the event that any Employer ceases to be a Subsidiary of the Company, the Associates of such Employer will be deemed to have terminated employment as of such date. (n) PLAN: The word "Plan" shall mean this Fleming Companies, Inc. Associate Stock Purchase Plan, and any amendments thereto. (o) PURCHASE PERIOD: The words "Purchase Period" shall mean any one year period commencing on July 1 and ending on June 30 of each year during which the Plan is in existence, as follows: (i) "First Purchase Period"--July 1, 1997 through June 30, 1998. B-2 (ii) "Second Purchase Period"--July 1, 1998 through June 30, 1999. (iii) "Third Purchase Period"--July 1, 1999 through June 30, 2000. (iv) "Fourth Purchase Period"--July 1, 2000 through June 30, 2001. (v) "Fifth Purchase Period"--July 1, 2001 through June 30, 2002. (p) STOCK: The word "Stock" shall mean any of the total number of shares of common stock of the Company being authorized for issuance pursuant to the terms of the Plan in accordance with Article V. (q) STOCK OPTION: The words "Stock Option" shall mean the right of a Participant on an applicable Exercise Date to purchase the number of whole shares of Stock as provided in Article IV. (r) SUBSIDIARY: The word "Subsidiary" shall mean any present or future subsidiary corporation of the Company as defined in Section 424 of the Code. (s) TERMINATING PARTICIPANT: The words "Terminating Participant" shall mean a Participant who terminates his employment for reasons other than those set forth in Subsection 2.1(m). 2.2 CONSTRUCTION. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, unless the context clearly indicates to the contrary. Any word appearing herein in the plural shall include the singular, where appropriate, and likewise the singular shall include the plural, unless the context clearly indicates to the contrary. ARTICLE III FUNDING AND EARLY WITHDRAWAL OF ACCOUNTS 3.1 STOCK PURCHASE ACCOUNTS. As of the applicable Granting Date, there shall be established and maintained under the Plan in the name of each Participant (who is a Participant with respect to the Purchase Period pertaining to such Granting Date) an Account which shall be debited and credited in accordance with the following Sections of this Article III. 3.2 PARTICIPANT'S CONTRIBUTIONS. By becoming a Participant, authorization shall be deemed to be automatically given by the Participant for his periodic contributions which shall be credited to his Account calculated as follows: FIRST: The Participant's basic compensation rate (excluding any form of extraordinary compensation such as overtime, prizes, bonuses, commissions, reimbursed relocation expenses and the like), as of the date ("Determination Date") which is three months prior to the applicable Granting Date, shall be determined and annualized ("Annual Compensation"). Increases in such basic compensation rate after such Determination Date shall be disregarded for that Purchase Period, Decreases in such basic compensation rate shall be adjusted as provided hereinafter. SECOND: Prior to the applicable Granting Date, the Participant shall elect in his Option Agreement filed with the Committee a percentage of either 1%, 2%, 3%, 4%, 5%, or 6% ("Contribution Rate"); provided, an election, once effective with respect to the first Purchase Period applicable to such Participant following such election cannot thereafter be changed; and provided, a Participant may elect to change his Contribution Rate for succeeding Purchase Periods by notifying the Committee within 10 days of any succeeding Granting Date. If a Participant receives a "hardship withdrawal" from a cash or deferred arrangement established by B-3 the Employer under Code Section 401(k), he shall be prohibited from making contributions to his Account under this Plan for a period of 12 months after receipt of such hardship distribution. THIRD: The Participant's Annual Compensation for the applicable Purchase Period shall be multiplied by his Contribution Rate, and the product thereof shall equal his aggregate maximum contributions ("Aggregate Contributions") to be made under the Plan for the applicable Purchase Period. FOURTH: A Participant's Aggregate Contributions shall be divided by the number of his payroll payment dates falling within the applicable Purchase Period to determine the dollar amount of equal periodic contributions which shall be withheld by the Employer by payroll deduction. If a Participant's number of payroll payment dates thereafter shall be changed, appropriate adjustment shall be made so that equal periodic contributions shall be made. Provided, in the event that a Participant incurs a decrease in his basic compensation during any Purchase Period, and such Participant is not a Terminating Participant or has not voluntarily withdrawn from the Plan, then, in such event, and if requested by the Participant, appropriate adjustments will be made by the Committee to reduce the maximum amount of periodic contributions which such Participant would otherwise make pursuant to the Plan to his Stock Purchase Account. The reduction shall occur by determining the Participant's reduced basic compensation rate and then multiplying such rate by the Contribution Rate which such Participant had previously elected for that Purchase Period. This reduced amount thereafter will be credited to the Stock Purchase Account of such Participant for the balance of the applicable Purchase Period. 3.3 CONTINUED PARTICIPATION; VOLUNTARY WITHDRAWAL FROM PLAN. Once a Participant elects to participate in the Plan, he shall thereafter remain as a Participant until expiration or termination of the Plan, unless he otherwise withdraws from, or otherwise becomes ineligible to participate in the Plan. A legal representative of a deceased participant and a Participant who terminates employment for any reasons specified in Subsection 2.1(m) within three months prior to the end of the applicable Purchase Period will continue to be a Participant in the Plan until the next succeeding Exercise Date unless such Participant or his representative (in the event of the Participant's death) elects to withdraw from the Plan pursuant to this Section 3.3. A Participant may withdraw from the Plan at any time by filing a written notice with the Committee of withdrawal prior to the next applicable Exercise Date. Upon a Participant's withdrawal, his entire Account Balance, if any, on the date of withdrawal shall be refunded to him. 3.4 WITHDRAWAL BY TERMINATING PARTICIPANT. A Terminating Participant shall be deemed to have made an election to withdraw from the Plan on the date his employment terminates. Upon such withdrawal, his entire Account Balance, if any, on the date of withdrawal, shall be refunded to him. 3.5 REPARTICIPATION. A Participant who withdraws under Section 3.3 within any Purchase Period shall not be eligible to reenter the Plan with respect to the same Purchase Period; provided, a Participant who withdraws from the Plan under Section 3.3 prior to the end of any Purchase Period shall not be precluded from becoming a Participant with respect to any succeeding Purchase Period if he satisfies the eligibility requirements of the Plan. 3.6 INTEREST ACCRUAL. With respect to the refund or distribution of an Account Balance under either of Sections 3.3 or 3.4, no interest shall be paid or payable. If the Plan is terminated under either of Sections 8.2 or 9.8, the refund of an Account Balance shall be with interest at a per annum rate of 5% and shall be computed upon the average balance in such Participant's Account for the period of time following the Granting Date applicable to such Participant and ending on the day of the withdrawal or distribution. B-4 ARTICLE IV EXERCISE OF STOCK OPTION 4.1 EXERCISE. If a Participant has not made an earlier election to withdraw pursuant to either of Sections 3.3 or 3.4, he shall be deemed to have elected to exercise his Stock Option as of each Exercise Date with respect to the applicable Purchase Periods. 4.2 AMOUNT OF SHARES OF STOCK. (a) Subject to the Subsection (b) following, the whole number of shares of Stock to which a Participant shall be entitled ("Total Stock Entitlement") upon the applicable Exercise Date shall be determined under the following formula: ACCOUNT BALANCE --------------- = Total Stock Entitlement Option Price Provided, the Account Balance for purposes of this Section 4.2 shall be determined without crediting any interest thereon. (b) The Total Stock Entitlement computed for each Participant shall be reduced to the extent that any of the following Subsections shall apply: (i) No Participant shall be entitled to participate in the Plan to a greater extent than that permitted under Section 423(b)(3) of the Code. Thus, no Employee may be granted a Stock Option if such Employee, immediately after the Stock Option is granted, owns stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of its parent or any Subsidiary (if applicable). For purposes of this Subsection, the rules of Section 424(d) of the Code shall apply in determining the stock ownership of an individual, and stock which the Employee may purchase under all outstanding stock options shall be treated as stock owned by the Employee. (ii) No Participant shall be entitled to participate in the Plan to a greater extent than that permitted under Section 423(b)(8) of the Code. Thus, no Employee may be granted a Stock Option which permits his rights to purchase stock under all such "employee stock ownership plans" of the Company and its parent or any Subsidiary (if applicable) intended to qualify under Section 423 of the Code to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time such Stock Option is granted) for each calendar year in which such Stock Option is outstanding at any time. For purposes of this Subsection, (1) the right to purchase stock under an option accrues when the option (or any portion thereof) first becomes exercisable during the calendar year; (2) the right to purchase stock under an option accrues at the rate provided in the option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such stock option is granted) for any one calendar year; and (3) a right to purchase stock which has accrued under one option granted pursuant to any such plan may not be carried over to any other such stock option. 4.3 DISTRIBUTION. A Participant's Total Stock Entitlement as determined under Section 4.2 shall be distributed to him pursuant to Section 4.4(b) together with any cash which is not applied toward the purchase of whole shares of Stock. No interest shall be payable upon such refunded Account Balance. B-5 4.4 ISSUANCE OF SHARES; STOCK CERTIFICATES. (a) The shares of Stock purchased by a Participant on the applicable Exercise Date shall for all purposes, be deemed to have been issued and sold at the close of business on such Exercise Date. Prior to that time, none of the rights or privileges of a stockholder of the Company shall exist with respect to such shares. (b) As soon as practicable after each Exercise Date, the Company shall issue and deliver a certificate, registered in the Participant's name, for the number of shares of Stock purchased. ARTICLE V MAXIMUM SHARES OF STOCK AVAILABLE 5.1 MAXIMUM NUMBER OF SHARES AVAILABLE TO PARTICIPANTS. If on the Exercise Date of any Purchase Period the Total Stock Entitlement for all Participants, determined under Section 4.2 hereof exceeds the number of shares of Stock available for issuance under the Plan, there shall be a proportionate reduction for the ensuing applicable Purchase Period of each Participant's Total Stock Entitlement in order to eliminate such excess. 5.2 MAXIMUM AUTHORIZED SHARES. Subject to adjustment under Article VIII, the maximum number of shares of Stock which may be issued under the Plan shall not in the aggregate exceed 60,000 shares of Stock. 5.3 TERMINATION OF OFFERING FOR THE SECOND AND SUBSEQUENT PURCHASE PERIODS. If in the opinion of the Committee, there is insufficient Stock available for Stock Options at any Granting Date after the July 1, 1997 Granting Date, the Committee may terminate the offering contemplated for any or all succeeding Purchase Periods. ARTICLE VI ADMINISTRATION 6.1 APPOINTMENT OF COMMITTEE. The Plan shall be administered by the Committee appointed by the Board and consisting of not less than two members from the Board none of whom shall be employees of the Company or a subsidiary of the Company while serving on the Committee. The members of the Committee shall serve at the pleasure of the Board and shall be ineligible to participate under the Plan. Any member may serve concurrently as a member of any other administrative committee of any other plan of the Company or its affiliates entitling participants therein to acquire stock, stock options or deferred compensation rights including stock appreciation rights. 6.2 COMMITTEE POWERS AND DUTIES. The Committee shall have all the powers and authorities which are reasonably appropriate and necessary to discharge its duties under the Plan. 6.3 COMMITTEE TO MAKE RULES AND INTERPRET PLAN. The Committee, in its sole discretion, shall have the authority, subject to the provisions of the Plan, to establish, adopt, or revise rules and regulations with respect to the administration of the Plan and to make all such determinations relating to the Plan as it may deem necessary or advisable for the administration of the Plan. The Committee's interpretation of the Plan and all decisions and determinations by the Committee with respect to the Plan shall be final, binding, and conclusive on all parties unless otherwise determined by the Board. B-6 ARTICLE VII AMENDMENT OF THE PLAN The Board may at any time, or from time to time, amend the Plan in any respect consistent with Sections 421 and 423 of the Code, except that, without approval of the stockholders, no amendment shall (i) increase the maximum number of shares reserved under the Plan other than as provided in Article VIII, or (ii) make the Plan available to any person who is not a Participant. ARTICLE VIII RECAPITALIZATION AND EFFECT OF CERTAIN TRANSACTIONS 8.1 STOCK ADJUSTMENTS. In the event that the shares of Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock split, combination of shares or otherwise), or if the number of such shares of Stock shall be increased through the payment of a stock dividend, then there shall be substituted for or added to each share available under and subject to the Plan as provided in Section 5.3 hereof, and each share theretofore appropriated or thereafter subject or which may become subject to Stock Options under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of Stock shall be so changed or for which each such share shall be exchanged or to which each such share shall be entitled, as the case may be, on a fair and equivalent basis in accordance with the applicable provisions of Section 424 of the Code; provided, in no such event will such adjustment result in a modification of any Stock Option as defined in Section 424(h) of the Code. In the event there shall be any other change in the number or kind of the outstanding shares of Stock, or any stock or other securities into which the Stock shall have been changed or for which it shall have been exchanged, then if the Committee shall, in its sole discretion, determine that such change equitably requires an adjustment in the shares available under and subject to the Plan, or in any Stock Option theretofore granted or which may be granted under the Plan, such adjustments shall be made in accordance with such determination, except that no adjustment of the number of shares of Stock available under the Plan or to which any Stock Option relates that would otherwise be required shall be made unless and until such adjustment either by itself or with other adjustments not previously made would require an increase or decrease of at least 1% in the number of shares of Stock available under the Plan or to which a Stock Option relates immediately prior to the making of such adjustment (the "Minimum Adjustment"). Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment together with other adjustments required by this Section 8.1 and not previously made would result in a Minimum Adjustment. Notwithstanding the foregoing, any adjustment required by this Section 8.1 which otherwise would not result in a Minimum Adjustment shall be made with respect to shares of Stock relating to any Stock Option immediately prior to exercise, payment or settlement of such Stock Option. No fractional shares of Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. Any adjustments under this Section 8.1 shall be made according to the sole discretion of the Company, and its decision shall be binding and conclusive. 8.2 EFFECT OF CERTAIN TRANSACTIONS. Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any Stock Option hereunder shall pertain to and apply to the shares of stock of the Company; but a dissolution or liquidation of the Company or merger or consolidation in which the Company is not the surviving or the resulting corporation shall cause the Plan and any Stock Option hereunder to terminate upon the effective date of such dissolution, liquidation, merger or consolidation, and the Account Balance of each Participant shall be refunded to him. Provided, that for the purpose of this Section 8.2, 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 the identity, form or place of organization of the Company accomplished in accordance with Section 368(a)(1)(F) of the Code, then, such event shall not cause a termination. B-7 ARTICLE IX MISCELLANEOUS 9.1 NOTICES. Any notice which a Participant files pursuant to the Plan shall be on the form prescribed by the Committee and shall be effective when received by the Committee. 9.2 APPLICATION OF THE FUNDS. All funds received by the Company under the Plan may be used for any corporate purpose. 9.3 REPURCHASE OF STOCK. The Company shall not be required to repurchase from any Participant shares of Stock which he acquired under the Plan. 9.4 ALTERNATE CONTRIBUTION METHODS. If authorized payroll deductions of a Participant's periodic contributions under Section 3.2 are not permitted by reason of the provisions of any law applicable to an Employer, the Committee shall adopt an appropriate alternative method under which affected Participants may make payment for shares of Stock purchased hereunder which would otherwise have been made pursuant to Section 3.2. 9.5 NONASSIGNABILITY. Stock Options are exercisable only by the Participant during his lifetime, or by his estate or the person who acquires the right to exercise such Stock Option upon his death by bequest or inheritance, and are not transferable by him other than by will or the laws of descent and distribution. No Stock Option shall be subject in any manner to alienation, anticipation, sale, transfer, assignment, pledge, or encumbrance, except for transfer by will or the laws of descent and distribution. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to subject to execution, attachment or similar process, any Stock Option contrary to the provisions hereof, shall be void and ineffective, shall give no right to any purported transferee, and may, at the sole discretion of the Committee, result in forfeiture of the Stock Option involved in such attempt. 9.6 GOVERNMENT REGULATION. The Company's obligation to sell and deliver the Stock under the Plan is at all times subject to any and all approvals, rules and regulations of any governmental authority required in connection with the authorization, issuance, sale or delivery of such Stock. In addition, the rights of Participants under the Plan who are subject to Section 16 of the Securities Exchange Act of 1934, as amended ("Section 16"), are subject to compliance by such Participants with the applicable provisions of Section 16 and the rules and regulations promulgated thereunder. 9.7 EFFECTIVE DATE OF PLAN. The Plan shall become effective on July 1, 1997, if prior to that date the Plan has been approved by the holders of a majority of the common stock of the Company present, or represented, and entitled to vote at a meeting called for such purposes. 9.8 TERMINATION OF PLAN. The Plan shall continue in effect through June 30, 2002, unless terminated pursuant to Section 8.2 or by the Board, which shall have the right to terminate the Plan at any time. Upon the termination of the Plan pursuant to this Section 9.8 or Section 8.2, the Account Balance of each Participant shall be refunded to him. 9.9 NO OBLIGATIONS TO EXERCISE STOCK OPTION. The granting of a Stock Option shall impose no obligation upon the Participant to exercise his Stock Option. 9.10 RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan shall not give any Participant any right to remain in the employ of the Employer. The Employer reserves the right to terminate any Participant at any time. Further, the adoption of this Plan shall not be deemed to give any Participant or any other individual any right to be selected as a Participant or to be granted a Stock Option. B-8 9.11 RELIANCE ON REPORTS. Each member of the Committee and each member of the Board shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of the Company and upon any other information furnished in connection with the Plan by any person or persons other than himself. In no event shall any person who is or shall have been a member of the Committee or of the Board be liable for any determination made or other action taken or any omission to act in reliance upon any such report or information or for any action taken, including the furnishing of information, or failure to act, if in good faith. 9.12 APPLICABLE LAW. This Plan shall be governed by and interpreted in accordance with the laws of the State of Oklahoma. 9.13 CONSTRUCTION. It is intended that this Plan shall qualify in accordance with Sections 421 and 423 of the Code, and the provisions of this Plan shall be interpreted and applied in a manner consistent with such intent. Pursuant to the terms of the Plan and the applicable provisions of the Code, all Participants in the Plan will have the same rights and privileges and all such Participants will be treated in an equal, uniform and nondiscriminatory manner. B-9 EX-12 12 EXHIBIT 12 Exhibit 12 FLEMING COMPANIES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FISCAL YEAR ENDED THE LAST SATURDAY IN DECEMBER 1993 1994 1995 1996 1997 (IN THOUSANDS OF DOLLARS) Earnings: Pre-tax income $ 72,078 $112,337 $ 85,892 $ 54,573 $ 82,685 Fixed charges, net 102,311 148,125 212,173 204,527 199,329 Total earnings $174,389 $260,462 $298,065 $259,100 $282,014 Fixed charges: Interest expense $ 78,029 $120,071 $175,390 $163,466 $162,506 Portion of rental charges deemed to be interest 22,969 27,746 36,456 40,699 36,456 Capitalized interest and debt issuance cost amortization 1,005 364 708 104 1,186 Total fixed charges $102,003 $148,181 $212,554 $204,269 $200,148 Ratio of earnings to fixed charges 1.71 1.76 1.40 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. EX-21 13 EXHIBIT 21 Exhibit 21 FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Fleming Companies, Inc. had the following subsidiaries at year-end 1997: ABCO Holding, Inc. ABCO Markets Inc. ABCO Realty Corp. Big W of Florida, Inc. Fleming Foreign Sales Corporation Fleming International Ltd. Fleming Supermarkets of Florida, Inc. Fleming Transportation Service, Inc. Fleming Wholesale, Inc. Gateway Insurance Agency, Inc. LAS, Inc. Netco Foods, Inc. Northwest Foods, L.L.C. Piggly Wiggly Company Progressive Realty, Inc. Retail Investments, Inc. Retail Supermarkets, Inc. RFS Marketing Services, Inc. Richmar Foods, Inc. SAV-U-FOODS, Inc. Scrivner Transportation, Inc. Smartrans, Inc. Timber Ridge Foods, L.L.C. University Foods, Inc. EX-23 14 EXHIBIT 23 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in: (i) Registration Statement No. 2-98602 (1985 Stock Option Plan) on Form S-8; (ii) Registration Statement No. 33-36586 (1990 Fleming Stock Option Plan) on Form S-8; (iii) Registration Statement No. 33-56241 (Dividend Reinvestment and Stock Purchase Plan) on Form S-3; (iv) Registration Statement No. 333-11317 (1996 Fleming Incentive Stock Option Plan) on Form S-8; (v) Registration Statement No. 333-35703 (Senior Subordinated Notes) on Form S-4; (vi) Registration Statement No. 333-28219 (Associate Stock Purchase Plan) on Form S-8; of our report dated February 19, 1998 appearing in this Annual Report on Form 10-K of Fleming Companies, Inc. for the year ended December 27, 1997. DELOITTE & TOUCHE LLP Oklahoma City, Oklahoma March 11, 1998 EX-24 15 EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY We, the undersigned officers and directors of Fleming Companies, Inc. (hereinafter the "Company"), hereby severally constitute Robert E. Stauth, Harry L. Winn, Jr. and David R. Almond, and each of them severally, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names as officers or directors, or both, of the Company, the Annual Report on Form 10-K for the fiscal year ended December 27, 1997, 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 24th day of February, 1998. Signature Title --------- ----- ROBERT E. STAUTH Chairman and Chief Executive - -------------------------- Officer (principal executive Robert E. Stauth officer) HARRY L. WINN, JR. Executive Vice President and - -------------------------- Chief Financial Officer Harry L. Winn, Jr. (principal financial officer) KEVIN J. TWOMEY Vice President - Controller - -------------------------- (principal accounting officer) Kevin J. Twomey JACK W. BAKER - -------------------------- Director Jack W. Baker ARCHIE R. DYKES - -------------------------- Director Archie R. Dykes CAROL B. HALLETT - -------------------------- Director Carol B. Hallett EDWARD C. JOULLIAN III - -------------------------- Director Edward C. Joullian III JOHN A. MCMILLAN - -------------------------- Director John A. McMillan GUY A. OSBORN - -------------------------- Director Guy A. Osborn - -------------------------- Director Alice M. Peterson DAVID A. RISMILLER - -------------------------- Director David A. Rismiller EX-27 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR DECEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-27-1997 DEC-28-1996 DEC-27-1997 30,316 0 353,290 19,012 1,018,666 1,494,990 1,598,786 648,943 3,923,971 1,154,597 1,127,311 0 0 95,660 994,012 3,923,971 15,372,666 15,372,666 13,941,838 15,102,991 0 24,484 162,506 82,685 43,963 38,722 0 (13,330) 0 25,392 .67 .67 EPS amounts since year-end 1995 have not changed due to adopting SFAS No. 128.
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