-----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, IY5fbJvmAU6Q0FGU9QYaKUyS8bU3iDFIimIuMDXUHX+QtUPigDvy0/4D2qsDsxc/ K5jGcBbBGOCfzRPWnit3tA== 0001047469-99-009554.txt : 19990315 0001047469-99-009554.hdr.sgml : 19990315 ACCESSION NUMBER: 0001047469-99-009554 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19981226 FILED AS OF DATE: 19990312 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: 99564188 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 10K405 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 26, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8140 FLEMING COMPANIES, INC. (Exact name of registrant as specified in its charter) Oklahoma 48-0222760 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6301 Waterford Boulevard, Box 26647 Oklahoma City, Oklahoma 73126 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (405) 840-7200 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED Common Stock, $2.50 Par Value New York Stock Exchange Pacific Stock Exchange Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X] The aggregate market value of the common shares (based upon the closing price on March 1, 1999 of these shares on the New York Stock Exchange) of Fleming Companies, Inc. held by nonaffiliates was approximately $283 million. As of March 2, 1999, 38,400,000 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 19, 1999. PART I ITEM 1. BUSINESS GENERAL Fleming Companies, Inc. ("Fleming" or the "company") began operations in 1915 in Topeka, Kansas as a small food wholesaler. Today, Fleming's food distribution operation ("food distribution") is one of the largest food and general merchandise distributors in the United States supplying supermarkets and smaller grocery stores in 42 states. Fleming's retail food operation ("retail food") is a major food retailer in the United States, operating more than 280 supermarkets in 15 states. Business Strategy. At the end of 1998, Fleming completed a comprehensive study of all facets of its operations and employed a new chairman and chief executive officer. The study resulted in a strategic plan to be implemented over the next two years that will fundamentally shift Fleming's business by more clearly focusing on core strategic assets in its food distribution and retail food segments. The strategic plan involves three key strategies to restore sales and earnings growth: focus resources to improve performance, build sales and revenues more aggressively in our wholesale business and company-owned retail stores, and reduce overhead and operating costs to improve profitability system-wide. The three strategies are further defined in the following four major initiatives: Consolidate food distribution operations. We have announced that seven food distribution operating units will be divested. The divestiture of these seven operating units has the potential to optimize other food distribution operations and more effectively and efficiently support the company's retail customers. During 1998, the company completed the divestiture of two operating units, El Paso, TX and Portland, OR and by mid-1999, five additional operating units, Houston, TX; Huntingdon, PA; Laurens, IA; Johnson City, TN; and Sikeston, MO will be divested. The customers at six of the seven operating units will be transferred and serviced primarily by the operating units located in Nashville, TN; Memphis, TN; Massillon, OH; Lincoln, NE; Kansas City, MO; La Crosse, WI; and Garland and Lubbock, TX. During 1998, the Portland operating unit was sold to Associated Grocers of Seattle (AG) as part of the formation of a joint venture marketing company known as AG/Fleming. Grow food distribution. The strategic growth in food distribution will consist of the implementation of an aggressive new business development program that will leverage the power of Fleming's consolidated food distribution operations to earn a greater share of business from existing customers and to attract new customers. The growth strategies for each targeted market are based on detailed market-by-market studies completed during 1998 and the competitive advantages anticipated from the consolidations. Improve retail food performance. In company-owned retail food operations, the company will concentrate on further developing the top-performing chains and groups which include Baker's(TM), Rainbow Foods(R) and Sentry(R) Foods/SuPeRSaVeR(TM). This includes the divestiture of the Hyde Park Market(TM) chain which consists of 10 stores in Florida and the Consumers Food & Drug(TM) chain which consists of 21 stores headquartered in Missouri. To strengthen the top-performing retail food operations, the company will spend additional capital for new store development and remodels. Reduce overhead expenses. To support improved operating efficiency, overhead expenses will be reduced. Staff functions at all levels of the organization will be examined and appropriately reset to reflect the configuration of the food distribution and retail food segments. As part of the ongoing process of evaluating strategic options, the company will continue to review the performance of all operating units. Fleming generated net sales of $15.1 billion, $15.4 billion and $16.5 billion for 1998, 1997 and 1996, respectively. As a result of a $668 million pre-tax charge related to the strategic plan, the net loss for fiscal 1998 was $511 million. Fleming's businesses generated net earnings of $32 million (before strategic plan charges), $25 million and $27 million for fiscal 1998, 1997 and 1996, respectively. Additionally, the company generated net cash flows from operations of $149 million, $113 million and $328 million for the same periods, respectively, before payments related to the strategic plan. The combined businesses generated $421 million, $454 million and $435 million of adjusted EBITDA for fiscal 1998, 1997 and 1996, respectively. "Adjusted EBITDA" is earnings before extraordinary items, interest expense, income taxes, depreciation and amortization, equity investment results and one-time adjustments (e.g., strategic plan charges and specific litigation charges). FOOD DISTRIBUTION SEGMENT The food distribution segment sells food and non-food products to retail grocers and offers a variety of retail support services to independently-owned and company-owned retail food stores. Net sales for the food distribution segment were $11.5 billion for fiscal 1998, excluding sales to the retail food segment. Sales to the retail food segment totaled $2.1 billion during 1998. Customers Served. During 1998 the food distribution segment served a wide variety of retail stores located in 42 states. The segment's customers range from small convenience outlets to large supercenters with the format of the retail stores being a function of size and marketing approach. The segment serves customers operating as conventional supermarkets (averaging approximately 23,000 total square feet), superstores (supermarkets of 30,000 square feet or more), supercenters (a combination of discount store and supermarket encompassing 110,000 square feet or more), warehouse stores ("no-frills" operations of various large sizes), combination stores (which have a high percentage of non-food offerings) and convenience stores (generally under 4,000 square feet and offering only a limited assortment of products). The company also licenses or grants franchises to retailers to use certain registered trade names such as Piggly Wiggly(R), Food 4 Less(R) (a registered servicemark of Food 4 Less Supermarkets, Inc.), Sentry(R) Foods, Super 1 Foods(R), Festival Foods(R), Jubilee Foods(R), Jamboree Foods(R), MEGAMARKET(R), Shop 'N Kart(R), American Family(R), Big Star(R), Big T(R), Buy for Less(R), County Pride Markets(R), Buy Way(R), Pic-Pac(R), Shop N Bag(R), Super Save(R), Super Duper(R), Super Foods(TM), Super Thrift(R), Thriftway(R), and Value King(R). 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(R) (IGA(R) is a registered trademark/servicemark of IGA, Inc.) or Piggly Wiggly(R) banner or under one of a number of banners representing a price impact retail format. Fleming Banner Group stores are owned by customers, many of which license their store banner from Fleming. The company's top 10 external customers accounted for approximately 17% of total company net sales during 1998. No single customer represented more than 3.6% of total company net sales. During 1998, Randall's, the company's largest customer, announced that it would begin complete self-distribution during 1999. It is currently expected that Randall's will cease doing business with Fleming during the second or third quarter of 1999. Also during 1998, Furr's, the company's third largest customer, acquired Fleming's El Paso operating unit. Furr's is now self-distributing all products excluding general merchandise which Fleming continues to supply. During early 1999, United Supermarkets, the company's fourth largest customer, announced that it will be moving to self-distribution in the year 2000. Pricing. The food distribution segment uses market research and cost analyses as a basis for pricing its products and services. In all operating units, Retail Services are individually and competitively priced. The company has three marketing programs: FlexMate(TM), FlexPro(TM) and FlexStar(TM). The FlexMate(TM) marketing program has a presentation to customers of a quoted sell price. The quoted sell price is generally a selling price that includes a mark-up. The FlexMate(TM) marketing program is available as an option in all operating units for grocery, frozen and dairy products. In all operating units, a price plus mark-up method is applied for meat, produce, bakery goods, delicatessen products, tobacco supplies, general merchandise and health and beauty care products. Under FlexMate(TM) a distribution fee is added to the product price for various product categories. Under some marketing programs, freight charges are also added to offset in whole or in part Fleming's cost of delivery services provided. Any cash discounts, certain allowances, and service income earned from vendors may be retained by the food distribution segment. This has generally been referred to as the "traditional pricing" method. 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. 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). 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: Living Well(TM) and Nature's Finest(R), which are premium brands; BestYet(R), SuperTru(R) and Marquee(R), which are national quality brands; and Rainbow(R), Fleming's value brand. Fleming offers two private labels, IGA(R) and Piggly Wiggly(R), 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. 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 operating units) 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. Development. This retail service uses the latest technology in market analysis, surveys and store development techniques to assist retailers in finding new locations, expanding or remodeling existing 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. 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, strategic planning and computer based training. 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. Category Management. Inventory control programs are being used to more effectively manage product selection, and to provide instant retail shelf management, perpetual inventory and computer-assisted ordering capability. 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: Technology. These services include POS equipment purchasing and leasing programs with the three largest vendors of scanning equipment; electronic payment systems; credit/debit/EBT; direct store delivery and receiving systems; electronic shelf labels; in-store file managers; and total store technology solutions. VISIONET(R). 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. Facilities and Transportation. At the end of 1998 the food distribution segment operated 31 full-line food product supply centers which are responsible for the distribution of national brands and Fleming Brands, including groceries, meat, dairy and delicatessen products, frozen foods, produce, bakery goods and a variety of related food and non-food items. Six general merchandise and specialty food operating units distribute health and beauty care items and other items of general merchandise and specialty foods. Two operating units serve convenience stores. All facilities are equipped with modern material handling equipment for receiving, storing and shipping large quantities of merchandise. Upon the completion of the divestiture of the 5 operating units scheduled during 1999, the food distribution segment will operate 26 full-line food operating units. The food distribution segment's food and general merchandise operating units comprise more than 19 million square feet of warehouse space. Additionally, the food distribution segment rents, on a short-term basis, approximately 4 million square feet of off-site temporary storage space. Upon the completion of the divestiture of the 5 operating units scheduled during 1999, the food distribution segment facilities in operation will comprise approximately 17 million square feet of warehouse space and will continue to rent approximately 4 million square feet of off-site temporary storage space. 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 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. Capital Invested in Customers. As part of its services to retailers, the company provides capital to certain customers by extending credit for inventory purchases, by becoming primarily or secondarily liable for store leases, by leasing equipment to retailers, by making secured loans and by making equity investments in customers: - 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. - Store and Equipment Leases. The company leases stores for sublease to certain customers. At year-end 1998, 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. Loans are approved by the company's business development committee following written approval standards. The company makes loans to customers primarily for store expansions or improvements. These loans are typically secured by inventory and store fixtures, bear interest at rates above the prime rate, and are for terms of up to 10 years. During fiscal years 1997 and 1996, the company sold, with limited recourse, $29 million and $35 million, respectively, of notes evidencing such loans. No loans were sold in 1998. 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 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 equity investments are highly leveraged, and the company believes its equity investments are highly illiquid. In making credit and investment decisions, Fleming considers many factors, including estimated return on capital, risk and the benefits to be derived. At year-end 1998, Fleming had loans outstanding to customers totaling $115 million ($27 million of which were to retailers in which the company had an equity investment) and equity investments in customers totaling $5 million. The company also has investments in customers through direct financing leases, lease guarantees, operating leases or credit extensions for inventory purchases. The present values of the company's obligations under direct financing leases and lease guarantees were $172 million and $56 million, respectively, at year-end 1998. Fleming's credit loss expense from receivables as well as from investments in customers was $23 million in 1998, $24 million in 1997 and $27 million in 1996. See "Investments and Notes Receivable" and "Lease Agreements" in the notes to the consolidated financial statements. RETAIL FOOD SEGMENT Retail food segment supermarkets are operated as 14 distinct local chains or groups in 15 states, under 13 banners, each with local management and localized marketing skills. The retail food segment supermarkets also share certain common administrative and support systems which are centrally monitored and administered for increased efficiencies. At year-end 1998, the retail food segment owned and operated more than 280 supermarkets with an aggregate of approximately 11.5 million square feet of retail space. The retail food segment's supermarkets are all served by food distribution segment operating units. Net sales of the retail food segment were $3.6 billion in fiscal 1998. Formats of retail food segment supermarkets 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(TM) operates 54 stores, of which a majority are "Desert Market" format conventional supermarkets, averaging 36,200 square feet. Baker's(TM). Located primarily in Omaha, Nebraska and Oklahoma City, Oklahoma, Baker's(TM) operates 22 stores which are primarily superstores in format with a value-pricing strategy. Baker's(TM) stores average 53,500 square feet. Boogaarts(R) Food Stores. There are 24 Boogaarts stores, 22 in Kansas and 2 in Nebraska, with an average size of 16,300 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. As a result of Fleming's strategic plan, Consumers will be divested. Hyde Park Market(TM). Located in south Florida, primarily in Miami, there are 10 Hyde Park Market(TM) stores with an average size of 20,200 square feet. The stores are operated as conventional supermarkets with a value-pricing strategy. As a result of Fleming's strategic plan, Hyde Park will be divested. New York Retail. The two groups consist of 21 Jubilee Foods(R) stores and 4 Market Basket(TM) stores, operating in western New York and Pennsylvania. These stores are conventional supermarkets with a competitive-pricing strategy. The Jubilee Foods(R) stores average 25,200 square feet and the Market Basket(TM) stores average 9,300 square feet in size. Penn Retail. This group is made up of 19 conventional supermarkets with a competitive-pricing strategy. It includes Festival Foods(R) and Jubilee Foods(R) operating primarily in Pennsylvania with several located in Maryland. The average size is approximately 36,600 square feet. Rainbow Foods(R). With 41 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 58,700 square feet. RichMar. Fleming owns a 90% equity interest in RichMar, which operates 8 Food 4 Less(R) supermarkets in California. They are operated as price impact stores and average 51,700 square feet per store. Sentry(R) Foods/SuPeRSaVeR(TM). Located in Wisconsin, these two groups include 13 Sentry(R) Foods stores, which are conventional-format supermarkets with an average size of 34,500 square feet, and 23 SuPeRSaVeR(TM) stores, which are price impact stores with a lowest-in-the-area pricing strategy. SuPeRSaVeR(TM) stores average over 62,300 square feet. Thompson Food Basket(R). Located in Illinois and Iowa, these 13 stores average 31,400 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(R) supermarkets in the Salt Lake City area, with an average size of 56,600 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 supermarkets provide added purchasing power as they enable Fleming to commit to certain promotional efforts at the retail level. The company, through its owned supermarkets, is able to retain many of the promotional savings offered by vendors in exchange for volume increases. Additional information regarding the company's two operating segments is contained in "Segment Information" in the notes to the consolidated financial statements which are included in Item 8 of this report. PRODUCTS The food distribution segment and the retail food segment supply Fleming's customers with a full line of national brands and Fleming Brands, including groceries, meat, dairy and delicatessen products, frozen foods, produce, bakery goods and a variety of general merchandise, health and beauty care and other related items. During 1998 the average number of stock keeping units ("SKUs") carried in full-line food distribution operating units was approximately 14,200 including approximately 2,300 perishable products. General merchandise and specialty food operating units carried an average of approximately 19,500 SKUs. 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. SUPPLIERS Fleming purchases its products from numerous vendors and growers. As a large customer, Fleming is able to secure favorable terms and volume discounts on many of its purchases, leading to lower unit costs. The company purchases products from a diverse group of suppliers and believes it has adequate sources of supply for substantially all of its products. COMPETITION The 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 1998, the company had approximately 38,900 full-time and part-time employees, with approximately 11,600 employed by the food distribution segment, approximately 25,500 by the retail food segment and approximately 1,800 employed in corporate and other functions. Approximately half of the company's associates are covered by collective bargaining agreements with the International Brotherhood of Teamsters; Chauffeurs, Warehousemen and Helpers of America; the United Food and Commercial Workers; the International Longshoremen's and Warehousemen's Union; and the Retail Warehouse and Department Store Union. Most of such agreements expire at various times throughout the next five years. The company believes it has satisfactory relationships with its unions. RISK FACTORS All statements other than statements of historical facts included in this report including, without limitation, statements under the captions "Risk Factors," "Management's Discussion and Analysis" and "Business," regarding the company's financial position, business strategy and plans and objectives of management of the company for future operations, constitute forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Cautionary statements describing important factors that could cause actual results to differ materially from the company's expectations are disclosed hereunder and elsewhere in this report. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements. Changing Environment. The food distribution and retail food segments are undergoing accelerated change as distributors and retailers seek to lower costs and increase services in an increasingly competitive environment of relatively static overall demand. The growing trend of large self-distributing chains to consolidate to reduce costs and gain effeciencies is an example of this. Eating away from home and alternative format food stores (such as warehouse stores and supercenters) have taken market share from traditional supermarket operators, including independent grocers, many of whom are Fleming customers. Vendors, seeking to ensure that more of their promotional fees and allowances are used by retailers to increase sales volume, increasingly direct promotional dollars to large self-distributing chains. The company believes that these changes have led to reduced sales, reduced margins and lower profitability among many of its customers and, consequently, at the company itself. Failure to implement the company's strategies, developed in response to these changing market conditions, could have a material adverse effect on the company. Sales Declines. Net sales have declined each year since 1995 and the company anticipates that net sales for 1999 will be lower than for 1998. See Item 7. Management's Discussion and Analysis. Although Fleming is taking steps to reverse sales declines and to enhance its overall profitability (see -General), no assurance can be given that the company will be successful in these efforts. Leverage. The company has substantial indebtedness in relation to its shareholders' equity. The degree to which the company is leveraged could have important consequences including the following: (i) the company's ability to obtain other financing in the future may be impaired; (ii) a substantial portion of the company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness; and (iii) a high degree of leverage may make the company more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. Fleming's ability to make scheduled payments on or refinance its indebtedness depends on its financial and operating performance, which may fluctuate significantly from quarter to quarter and is subject to prevailing economic conditions and to financial, business and other factors beyond the company's control. If Fleming is unable to generate sufficient cash flow to meet its debt obligations, the company may be required to renegotiate the payment terms or refinance all or a portion of its indebtedness, to sell assets or to obtain additional financing. If Fleming could not satisfy its obligations related to such indebtedness, substantially all of the company's long-term debt could be in default and could be declared immediately due and payable. There can be no assurance that the company could repay all such indebtedness in such event. The company's credit agreement and the indentures for certain of its outstanding indebtedness contain numerous restrictive covenants which limit the discretion of the company's management with respect to certain business matters. These covenants place significant restrictions on, among other things, the ability of the company and its subsidiaries to incur additional indebtedness, to create liens or other encumbrances, to pay dividends, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets to, or merge or consolidate with, another entity which is not wholly owned by the company. Competition. The food distribution segment is in a highly competitive market. The company faces competition from local, regional and national food distributors on the basis of price, quality and assortment, schedules and reliability of deliveries and the range and quality of services provided. The company also competes with retail supermarket chains that provide their own distribution functions, purchasing directly from producers and distributing products to their supermarkets for sale to the consumer. Consolidation of distribution operations may produce even stronger competition for the food distribution segment. In its retail food segment, Fleming competes with other food outlets on the basis of price, quality and assortment, store location and format, sales promotions, advertising, availability of parking, hours of operation and store appeal. Traditional mass merchandisers have gained a growing foothold in food marketing and distribution with alternative store formats, such as warehouse stores and supercenters, which depend on concentrated buying power and low-cost distribution technology. Market share of stores with alternative formats is expected to continue to grow in the future. Retail consolidations not only produce stronger competition in the retail food segment, but may also result in declining sales in the food distribution segment due to customers being acquired by self-distributing chains. To meet the challenges of a rapidly changing and highly competitive environment, the company must maintain operational flexibility and effectively implement its strategies across many market segments. The company's failure to successfully respond to these competing pressures or to implement its strategies effectively could have a material adverse effect on the company. Certain Litigation. Fleming is involved in substantial litigation which exposes the company to material loss contingencies. See Item 7. Management's Discussion and Analysis-Contingencies, Item 3. Legal Proceedings and "Litigation Charges" and "Contingencies" in the notes to the consolidated financial statements. Year-2000 Compliance. The company relies on numerous computer software systems and micro processors which were initially designed without an ability to correctly recognize 2000 as a valid year. See Item 7. Management's Discussion and Analysis-Contingencies. Failure to ensure that the company's computer systems are year-2000 compliant could have a material adverse effect on the company's operations. 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. Potential Losses From Investments in Retailers. The company provides subleases and extends loans to and makes investments in many of its retail customers, often in conjunction with the establishment of long-term supply contracts. Loans to customers are generally not investment grade and, along with equity investments in customers, are highly illiquid. The company also makes investments in customers through direct financing leases, lease guarantees, operating leases, credit extensions for inventory purchases and the recourse portion of notes sold evidencing such loans. See "-Capital Invested in Customers", Item 7. Management's Discussion and Analysis, and Fleming's consolidated financial statements and the notes thereto included elsewhere in this report. The company also invests in real estate to assure market access or to secure supply points. See "Lease Agreements" in the notes to the consolidated financial statements. Although the company has strict credit policies and applies cost/benefit analyses to loans to and investments in customers, there can be no assurance that credit losses from existing or future investments or commitments will not have a material adverse effect on the company's results of operations or financial condition. ITEM 2. PROPERTIES The following table sets forth facilities information with respect to Fleming's Food Distribution segment.
Approximate Square Feet Owned or Location ( in 000's) Leased Food Distribution Altoona, PA (1) 172 Owned Buffalo, NY 417 Leased Ewa Beach, HI 196 Leased Fresno, CA 326 Owned Garland, TX 1,180 Owned Geneva, AL 345 Leased Houston, TX (3) 662 Leased Huntingdon, PA (3) 253 Owned Johnson City, TN (3) 298 Owned Kansas City, KS 929 Leased La Crosse, WI 907 Owned Lafayette, LA 437 Owned Laurens, IA (3) 368 Owned Lincoln, NE 304 Leased Lubbock, TX 400 Owned Marshfield, WI (1) 157 Owned Massillon, OH 815 Owned Memphis, TN 765 Owned Miami, FL 764 Owned Milwaukee, WI 600 Owned Minneapolis, MN 480 Owned Nashville, TN 734 Leased North East, MD (2) 128 Owned Oklahoma City, OK 410 Leased Peoria, IL 325 Owned Philadelphia, PA (2) 832 Leased Phoenix, AZ 912 Owned Sacramento, CA 719 Owned Salt Lake City, UT 433 Owned San Antonio, TX 514 Leased Sikeston, MO (3) 571 Owned Superior, WI 371 Owned Warsaw, NC 334 Owned/Leased York, PA 450 Owned 17,508 General Merchandise Group Dallas, TX 262 Owned/Leased King of Prussia, PA 377 Leased La Crosse, WI 163 Owned Memphis, TN 339 Owned/Leased Sacramento, CA 294 Leased Topeka, KS 179 Leased 1,614 Outside Storage Outside storage facilities - typically rented on a short-term basis. 4,425 Total for Food Distribution 23,547
(1) Food distribution includes two convenience store divisions. (2) Comprise the Philadelphia distribution operation. (3) Locations being divested as part of the strategic plan. The following table sets forth general information with respect to Fleming's retail food segment. These retail stores are primarily leased.
Retail Chain Location Number Approximate Combined or Group of Stores of Stores Square Feet (in 000's) ABCO Foods AZ 54 1,954 Baker's NE,OK 22 1,177 Boogaarts KS,NE 24 393 Jubilee Foods NY,PA 25 631 Market Basket NY,PA 4 37 Consumers (4) MO,AR,KS 21 900 Penn Retail PA,MD 19 760 Hyde Park Market (4) FL 10 202 Rainbow Foods MN,WI 41 2,408 Sentry Foods WI 13 449 SuPeRSaVeR WI 23 1,433 Thompson Food Basket IL,IA 13 409 RichMar CA 8 414 University Foods UT 5 283 ---- ------ Total for Retail Food 282 11,450
(4) Chains being divested as part of the strategic plan. Fleming's corporate offices are located in Oklahoma City, Oklahoma in leased office space totaling approximately 356,000 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 Charges" and "Contingencies" in the notes to the consolidated financial statements which are included in Item 8 of this report. (1) Class Action Suits. In 1996, the company and certain of its present and former officers and directors (Robert E. Stauth, R. Randolph Devening, Harry L. Winn, Kevin J. Twomey and Donald N. Eyler) were named as defendants in nine purported class action suits filed by certain stockholders (Kenneth Steiner, Lawrence B. Hollin, Ronald T. Goldstein, General Telcom Money Purchase Plan & Trust, Bright Trading, Inc., City of Philadelphia, Gerald Pindus, Charles Hinton and Lawrence M. Wells, among others) and one purported class action suit filed by a noteholder (Robert Mark), each in the U.S. District Court for the Western District of Oklahoma (Mr. Devening was not named in the noteholder case). In 1997, the court consolidated the stockholder cases as City of Philadelphia, et al. v. Fleming Companies, Inc., et al. (the noteholder case was also consolidated, but only for pre-trial purposes). During 1998 the noteholder case was dismissed and during 1999 the consolidated case was also dismissed, each without prejudice. The court has given the plaintiffs the opportunity to restate their claims. The complaint filed in the consolidated cases asserts liability for the company's alleged failure to properly account for and disclose the contingent liability created by the David's litigation and by the company's alleged "deceptive business practices." The plaintiffs claim that these alleged practices led to the David's litigation and to other material contingent liabilities, caused the company to change its manner of doing business at great cost and loss of profit, and materially inflated the trading price of the company's common stock. The company denies each of these allegations. The plaintiffs seek undetermined but significant damages. In 1997, the company won a declaratory judgment in the U.S. District Court for the Western District of Oklahoma against certain of its insurance carriers regarding policies issued to Fleming for the benefit of its officers and directors ("D&O policies"). On motion for summary judgment, the court ruled that the company's exposure, if any, under the class action suits is covered by D&O policies written by the insurance carriers (aggregating $60 million in coverage) and that the "larger settlement rule" will be applicable to the case. According to the trial court, under the larger settlement rule a D&O insurer is liable for the entire amount of coverage available under a policy even if there is some overlap in the liability created by the insured individuals and the uninsured corporation. If a corporation's liability is increased by uninsured parties beyond that of the insured individuals, then that portion of the liability is the sole obligation of the corporation. The court also held that allocation is not available to the insurance carriers as an affirmative defense. The insurance carriers have appealed. (2) 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, R.D. Harrison (subsequently dismissed), Lawrence M. Jones, R. Randolph Devening, Donald N. Eyler, E. Dean Werries and James E. Stuard), 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 defendant 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 others, 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 (Rosenberg v. Stauth, et al.), the plaintiff sued the same and additional present and former officers and directors (E. Stephen Davis, Thomas L. Zaricki, Gerald G. Austin and Glenn E. Mealman). 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 (a former customer) 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. With the leave of the court, plaintiffs filed an amended complaint in October 1998. On November 4, 1998, a special committee of Fleming's Board of Directors filed a motion to intervene in the case and requested ninety days within which to elect to assume control of the case. The motion is currently pending. (3) Tobacco Cases. In August 1996, Richard E. Ieyoub, 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. The suit sought recovery of state health-care and related expenditures allegedly caused by tobacco products. In 1998, the case was settled (without liability to Fleming) and releases delivered pending final court approval. Notices of suit or intention to sue have been filed by 27 individuals in the Court of Common Pleas of Philadelphia County, and by 3 individuals in the Court of Common Pleas of Dauphin County, Pennsylvania; one individual brought suit in the Circuit Court of Shelby County, Tennessee; one individual brought suit in the Tenth Judicial District Court for the Parish of Natchitoches, Louisiana; and one individual brought suit in the 38th Judicial District Court, Cameron Parish, Louisiana. Each case named as co-defendants at least one major manufacturer of tobacco products and the company or a current or former company subsidiary, among others. With respect to each case, the company is being indemnified and defended by a substantial third-party co-defendant. Pursuant to a tolling agreement among the parties, all of the cases which were already pending in Pennsylvania (save two) were dismissed in 1998 without prejudice and may be refiled at a later date. (4) Don's United Super (and related cases). In 1998, the company and two retired executives were named in a suit filed in the United States District Court for the Western District of Missouri by approximately 20 current and former customers of the company (Don's United Super, et al. v. Fleming, et al.). Plaintiffs operate retail grocery stores in the St. Joseph and Kansas City metropolitan areas. Six plaintiffs who were parties to supply contracts containing arbitration clauses were permitted to withdraw from the case. Previously, two cases had been filed in the same court (R&D Foods, Inc. et al. v. Fleming, et al. and Robandee United Super, Inc. et al. v. Fleming, et al.) by 10 customers, some of whom are plaintiffs in the Don's case. The earlier two cases, which principally seek an accounting of the company's expenditure of certain joint advertising funds, have been consolidated. All causes of action in these cases have been stayed pending the arbitration of the causes of action relating to supply contracts containing arbitration clauses. The Don's suit alleges product overcharges, breach of contract, misrepresentation, fraud, and RICO violations and seeks recovery of actual, punitive and treble damages and a declaration that certain contracts are voidable at the option of the plaintiffs. Damages have not been quantified. However, with respect to some plaintiffs, the time period during which the alleged overcharges took place exceeds 25 years and the company anticipates that the plaintiffs will allege substantial monetary damages. In October 1998, a group of 14 retailers (ten of whom had been or are currently plaintiffs in the Don's case and/or the Robandee case whose claims were sent to arbitration or stayed pending arbitration) filed a new action against the company and two former officers, one of whom was a director, in the Western District of Missouri (Coddington Enterprises, Inc. et al. v. Dean Werries, et al.). The plaintiffs assert claims virtually identical to those set forth in the Don's complaint and have not quantified damages. (5) Storehouse Markets. In 1998, the company and one of its associates were named in a suit filed in the United States District for the District of Utah by three current and former customers of the company (Storehouse Markets, Inc., et al. v. Fleming Companies, Inc., et al.). The plaintiffs' allege product overcharges, fraudulent misrepresentation, fraudulent nondisclosure and concealment, breach of contract, breach of duty of good faith and fair dealing and RICO violations and seek declaration of class action status and recovery of actual, punitive and treble damages. Damages have not been quantified. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of the company as of March 1, 1999:
Year First Became Name (age) Present Position An Officer Mark S. Hansen (44) Chairman and Chief Executive Officer 1998 William J. Dowd (56) President and Chief Operating Officer 1995 E. Stephen Davis (58) Executive Vice President- Food Distribution 1981 David R. Almond (58) Senior Vice President- General Counsel and Secretary 1989 Mark K. Batenic (50) Senior Vice President-Sales and Business Development, Food Distribution 1994 Scott M. Northcutt (37) Senior Vice President-Human Resources 1999 Dixon E. Simpson (56) Senior Vice President-Retail Services 1993 Nancy E. Del Regno (46) Vice President-Communications and Public Affairs 1995 John M. Thompson (57) Vice President-Treasurer and Assistant Secretary 1982 Kevin J. Twomey (48) 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. Each of the executive officers has been employed by the company or its subsidiaries for the preceding five years except for Messrs. Hansen, Dowd and Northcutt and Ms. Del Regno. Mr. Hansen joined the company in his present position in November 1998. From 1997 until joining the company, he was Chairman and Chief Executive Officer of SAM's Club, a division of Wal-Mart Stores, Inc. From 1989 to 1997, he served in multiple capacities at PETsMART, Inc., including President and Chief Executive Officer. Mr. 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. Northcutt joined the company in his present position in January 1999. From 1997 until joining the company, he was Vice President-People Group at SAM's Club, a division of Wal-Mart Stores, Inc. From 1988 to 1996, he served as Vice President-Human Resources and later as Vice President-Store Operations at Dollar General Corporation. 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 23, 1999, the 38.4 million outstanding shares were owned by 15,700 shareholders of record and approximately 9,400 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.
1998 1997 Quarter High Low High Low First $20.63 $13.44 $18.75 $15.75 Second 19.69 17.19 20.38 15.50 Third 17.25 11.63 19.50 15.75 Fourth 12.25 9.13 18.94 13.38
Cash dividends on Fleming common stock have been paid for 82 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
Cash dividends of $.02 per share were paid on or near each of the above four payment dates in 1997 and 1998. ITEM 6. SELECTED FINANCIAL DATA
(In millions, except per share amounts) 1998(a) 1997(b) 1996(c) 1995(d) 1994(e) Net sales $15,069 $15,373 $16,487 $17,502 $15,724 Earnings (loss) before extraordinary charge (511) 39 27 42 56 Net earnings (loss) (511) 25 27 42 56 Diluted net earnings (loss) per common share before extraordinary charge (13.48) 1.02 .71 1.12 1.51 Diluted net earnings (loss) per share (13.48) .67 .71 1.12 1.51 Total assets 3,491 3,924 4,055 4,297 4,608 Long-term debt and capital leases 1,503 1,494 1,453 1,717 1,995 Cash dividends declared per common share .08 .08 .36 1.20 1.20
See Item 3. Legal Proceedings, notes to consolidated financial statements and the financial review included in Items 7. and 8. (a) The results in 1998 reflect an impairment/restructuring charge with related costs totaling $668 million ($543 million after-tax or $14.33 per share) related to the company's newly adopted strategic plan. (b) 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. (c) 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. (d) In 1995, management changed its estimates with respect to the general merchandising portion of the 1993 reengineering plan and reversed $9 million ($4 million after-tax or $.12 per share) of the related provision. (e) The results in 1994 reflect the July 1994 acquisition of Scrivner Inc. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The company's performance for the past three years was disappointing and concerning. In early 1998 the Board of Directors and senior management began an extensive strategic planning process that evaluated all aspects of the business. With the help of a consulting firm, the evaluation and planning process was completed in eight months. On November 30, 1998, a new chairman and chief executive officer was employed and on December 6, 1998, a new strategic plan was approved and implementation efforts began. The strategic plan involves three key strategies to restore sales and earnings growth: focus resources to improve performance, build sales and revenues more aggressively in our wholesale business and company-owned retail stores, and reduce overhead and operating costs to improve profitability system-wide. The three strategies are further defined in the following four major initiatives: - Consolidate food distribution operations. This initially requires divestiture of seven operating units - two in 1998 and five in 1999. Although there will be some loss in sales, many of the customers at these seven operating units will be transferred and serviced by remaining operating units. Transferring customer business to a higher volume, better utilized facility benefits the customer with better product variety and improved buying opportunities. The company benefits with better coverage of fixed expenses. Although the divestitures will proceed as quickly as practical, the company is very sensitive to customer requirements and will pace the divestitures to meet those requirements. The capital returned from the divestitures will be reinvested in the business. - Grow food distribution sales aggressively. Higher volume, better-utilized food distribution operations and the dynamics of the market place represent an opportunity for sales growth. The improved efficiency and effectiveness of the remaining food distribution operations enhance their competitiveness and the company intends to capitalize on these improvements. Growth is expected from increasing the amount of sales with existing customers and attracting new customers. - Improve retail food performance. This not only requires divestiture of under-performing company-owned retail chains or groups but also requires increased investments in market leading chains or groups. New stores and remodels are expected to improve performance. Improved performance is also expected from the market leading chains through adoption of best practices. - Reduce overhead expense. Overhead will be reduced at both the corporate and operating unit levels through organization and process changes. In addition, several initiatives to reduce complexity in business systems are underway. These initiatives are expected to reduce costs and improve the company's profitability and competitiveness. Implementation of the strategic plan will take approximately two years. A two year time frame design accomodates the company's limited resources and customers' seasonal marketing requirements. Additional expenses will continue for some time beyond two years because certain disposition related costs can only be expensed when incurred. A pre-tax expense of $668 million was recorded in 1998 related to the strategic plan. Only $74 million of the expense is expected to require cash expenditures. The remaining $594 million of the expense consisted of noncash items. The total $668 million expense consisted of: - Impairment of assets of $590 million. The impairment components were $372 million for goodwill and $218 million for other long-lived assets. The strategic plan process included a detailed study of current and projected cash flows. This new information combined with the recent loss of significant customers and a Food Distributors International (FDI) study on changes in the food industry were impairment indicators that prompted the charge. - Restructuring charges of $63 million. The restructuring charges consisted primarily of severance, lease liabilities and pension withdrawal liabilities. - Other disposition related costs of $15 million. These costs consist primarily of professional fees, inventory valuation adjustments and other costs. After tax, the expense was $543 million in 1998 or $14.33 loss per share. Additional pre-tax expense of approximately $114 million is expected over the next two years as implementation of the strategic plan continues. Approximately $75 million of these future expenses are expected to require cash expenditures. The remaining $39 million of the future expense relates to noncash items. These future expenses will consist primarily of severance, real estate-related divestiture expenses, pension withdrawal liabilities and other costs expensed when incurred. The expected benefits of the plan are improved earnings and increased sales. Based on management's plan, earnings are expected to improve every year approaching one percent of net sales and exceed $3 per share by the year 2003. Sales are also expected to increase, but the growth will not be evident in 1999 and 2000 because of the previously announced loss of three significant customers. Under the plan being implemented, the company has assessed the strategic significance of all operating units. Further, the current performance of several operating units with strategic significance needs improvement and the strategic plan should result in their improved performance. However, in the event that improvement is not forthcoming, additional divestitures will be considered. 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:
1998 1997 1996 Net sales 100.00 % 100.00 % 100.00 % Gross margin 9.79 9.31 8.99 Less: Selling and administrative 8.47 7.76 7.73 Interest expense 1.07 1.06 .99 Interest income (.24) (.30) (.29) Equity investment results .08 .11 .11 Litigation charges .05 .14 .12 Impairment/restructuring charge 4.33 - - Total expenses 13.76 8.77 8.66 Earnings (loss) before taxes (3.97) .54 .33 Taxes on income (loss) (.58) .29 .17 Earnings (loss) before extraordinary charge (3.39) .25 .16 Extraordinary charge - .09 - Net earnings (loss) (3.39)% .16 % .16 %
1998 and 1997 Net Sales. Sales for 1998 decreased by $.3 billion, or 2%, to $15.07 billion from $15.37 billion for 1997. Net sales for the food distribution segment were $11.5 billion in 1998 compared to $11.9 billion in 1997. The loss of sales from Furr's as well as the prospective loss of sales from Randall's and United moving to self-distribution will result in sales comparisons to prior periods being negative for some time. Retail food segment sales were $3.6 billion in 1998 compared to $3.5 billion in 1997. The increase in sales was due primarily to new stores added in 1998. This was offset partially by a decrease in same store sales in 1998 compared to 1997 of 3.6% and closing non-performing stores. The company measures inflation using data derived from the average cost of a ton of product sold by the company. For 1998, food price inflation was 2.1%, compared to 1.3% in 1997. Gross Margin. Gross margin for 1998 increased by $44 million, or 3%, to $1.48 billion from $1.43 billion for 1997, and increased as a percentage of net sales to 9.79% from 9.31% for 1997. The increase was due, in part, to an overall increase in the retail food segment, which has the better margins of the two segments, and the impact of gains from dispositions that occurred in 1997, but not in 1998. Gross margin also reflects favorable adjustments for closed stores due to better-than-expected lease buyouts. These increases in gross margin were partly offset by costs relating to the strategic plan in 1998 primarily relating to inventory valuation adjustments. Product handling expenses, consisting of warehouse, transportation and building expenses, were lower as a percentage of net sales in 1998 compared to 1997, reflecting continued productivity improvements. Selling and Administrative Expenses. Selling and administrative expenses for 1998 increased by $82 million, or 7%, to $1.28 billion from $1.19 billion for 1997, and increased as a percentage of net sales to 8.47% for 1998 from 7.76% in 1997. The increase was partly due to increased operating expense in the retail food segment. Selling expense was higher than the previous year as the company continues to work at reversing recent sales declines. The increase was also partly due to costs relating to the strategic plan. The company has a significant amount of credit extended to certain customers through various methods. These methods include customary and extended credit terms for inventory purchases and equity investments in and secured and unsecured loans to certain customers. Secured loans generally have terms up to ten years. Credit loss expense is included in selling and administrative expenses and for 1998 decreased by approximately $1 million to $23 million from $24 million for 1997. Credit loss expense has consistently improved over the last few years due to lower sales, tighter credit practices and reduced emphasis on credit extensions to and investments in customers. Although the company plans to continue these ongoing credit practices, it is not expected that the credit loss expense will remain at the levels experienced in 1998 and 1997. Operating earnings for the food distribution segment decreased by $24 million, or 8%, to $259 million from $283 million for 1997, and decreased as a percentage of food distribution net sales to 2.26% from 2.38%. 1998 operating earnings were adversely affected by inventory valuation adjustments and other costs related to the strategic plan as well as lower sales. Operating earnings for the retail food segment decreased by $18 million, or 23%, to $62 million from $80 million for 1997, and decreased as a percentage of retail food sales to 1.73% from 2.31%. Operating earnings for the retail food segment were adversely affected primarily by a 3.6% decrease in same-store sales and by higher labor costs. Corporate expenses decreased in 1998 compared to 1997 due to lower incentive compensation, which was partially offset by severance expense and professional fees under the strategic plan as well as an increase in the LIFO charge. Interest Expense. Interest expense in 1998 was $1 million lower than 1997 due primarily to a reduction of interest accruals relating to a favorable settlement of tax assessments. Without this reduction, interest expense in 1998 would have been $2 million greater than 1997 due to higher average fixed-rate debt balances. The company's derivative agreements consist of simple "floating-to-fixed rate" interest rate swaps. For 1998, interest rate hedge agreements contributed $4.3 million of interest expense compared to $7.2 million in 1997, or $2.9 million lower. This was due to a lower average amount of notional principal of debt referenced by the hedge agreements. For a description of these derivatives see Item 7A. Quantitative and Qualitative Disclosures About Market Risk and "Long-Term Debt" in the notes to the consolidated financial statements. Interest Income. Interest income for 1998 was $10 million lower than 1997 due to lower average balances and interest rates for the company's notes receivable and investment in direct financing leases. Equity Investment Results. The company's portion of operating losses from equity investments for 1998 decreased by approximately $5 million to $12 million from $17 million for 1997. The reduction in losses is due to improved results of operations in certain of the underlying equity investments. Litigation Charges. In October 1997, the company began paying Furr's $800,000 per month as part of a settlement agreement which ceased in October 1998. Payments to Furr's totaled $7.8 million in 1998. In the first quarter of 1997, the company expensed $19.2 million in settlement of the David's litigation. See "Litigation Charges" in the notes to the consolidated financial statements. Impairment/Restructuring Charge. In December 1998, the company announced the implementation of a strategic plan designed to improve the competitiveness of the retailers the company serves and improve the company's performance by building stronger operations that can better support long-term growth. The pre-tax charge recorded in 1998 for the plan was $668 million. After tax, the expense was $543 million in 1998 or $14.33 loss per share. The $114 million of costs relating to the strategic plan not yet charged against income will be recorded over the next 2 years at the time such costs are accruable. Taxes On Income. The effective tax rate for 1998 is 14.6% versus 58.0% for 1997. The 1998 effective rate is low due primarily to the impairment of non-deductible goodwill written off as part of the strategic plan. The presentation of the 1997 tax is split by reflecting a tax benefit at the statutory rate of 40% for the extraordinary charge and reflecting the balance of the tax amount on the taxes on income line. See "Taxes on Income" in the notes to the consolidated financial statements. Extraordinary Charge From Early Retirement of Debt. During 1997, the company undertook a recapitalization program which culminated in an $850 million senior secured credit facility and the sale of $500 million of senior subordinated notes. The recapitalization program resulted in an extraordinary charge of $13.3 million, after income tax benefits of $8.9 million, or $.35 per share, in the company's third quarter 1997. Almost all of the charge represents a non-cash write-off of unamortized financing costs related to debt which was prepaid. Certain Accounting Matters. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and is effective for fiscal years beginning after June 15, 1999. The company will adopt SFAS No. 133 by the required effective date. The company has not determined the impact on its financial statements from adopting the new standard. Other. Several factors negatively affecting earnings in 1998 are likely to continue for the near term. Management believes that these factors include lower sales and operating losses in certain company-owned retail stores. 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. Net sales for the food distribution segment were $11.9 billion in 1997 compared to $12.8 billion in 1996. Several factors, none of which are individually material, adversely affected food distribution's net sales including: an increasingly competitive environment, stricter credit practices, and unfavorable media related to adverse litigation. Retail food segment sales were $3.5 billion in 1997 compared to $3.7 billion in 1996. Retail food 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. 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. Credit loss expense 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. Operating earnings for the food distribution segment decreased by $19 million, or 6%, to $283 million from $302 million for 1996, and decreased as a percentage of food distribution sales to 2.38% from 2.36%. 1998 operating earnings were adversely affected by lower sales, offset in part by improved gross margins, expense controls and lower credit loss expense. Operating earnings for the retail food segment increased by $30 million, or 60%, to $80 million from $50 million for 1996, and decreased as a percentage of retail food sales to 2.31% from 1.35%. Operating earnings for the retail food segment were positively affected in 1997 by improved gross margins and effective expense control, which were partially offset by lower sales. Corporate expenses decreased in 1997 compared to 1996 due to improvements in managing staff expenses. 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 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. 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 Charges. In October 1997, the company began paying Furr's $800,000 per month as part of a settlement agreement which ceased in October 1998. Payments to Furr's totaled $1.7 million in 1998. 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 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. 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. LIQUIDITY AND CAPITAL RESOURCES Set forth below is certain information regarding the company's capital structure at the end of fiscal years 1998 and 1997:
Capital Structure (In millions) 1998 1997 Long-term debt $1,185 55.5% $1,175 44.3% Capital lease obligations 381 17.8 388 14.6 Total debt 1,566 73.3 1,563 58.9 Shareholders' equity 570 26.7 1,090 41.1 Total capital $2,136 100.0% $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 $10 million higher at year-end 1998 compared to 1997 because cash requirements for capital expenditures, the net increase in working capital, business acquisitions, fundings of notes receivable and other items exceeded cash provided from operations, sales of assets, collections on notes receivable and the decrease in cash. Capital lease obligations were $7 million lower because repayments exceeded leases added for new retail stores. The debt-to-capital ratio at year-end 1998 was 73.3% up from 58.9% at year-end 1997. The significant increase is due to the reduction in shareholders' equity caused by the expense related to the strategic plan. Operating activities generated $141 million of net cash flows for 1998 compared to $113 million for 1997. The difference was due essentially to an increase in accounts payable offset in part by higher accounts receivable and lower cash earnings. Working capital was $307 million at year-end 1998, a decrease from $340 million at year-end 1997. The current ratio decreased to 1.24 to 1, from 1.29 to 1 at year-end 1997. Capital expenditures were $200 million in 1998, an increase of $71 million compared to 1997. Total capital expenditures in 1999 are expected to be approximately $200 million. The company's strategic plan involves the divesting of a number of food distribution and retail food facilities and other assets, and focusing resources in the remaining food distribution and retail food operations. The company intends to increase its retail operations by making investments in its existing stores and by adding approximately 20 stores per year for the foreseeable future. Acquisitions of supermarket chains or groups or other food distribution operations will be made only on a selective basis. Over the next few years, the implementation of the strategic plan is expected to result in fewer, higher-volume, more efficient food distribution operating units; fewer and more profitable retail food stores; reduced overhead expenses; and substantial increases in net earnings. Cash costs related to the implementation and completion of these initiatives (on a pre-tax basis) were $10 million in 1998, and are estimated to be $54 million in 1999, $42 million in 2000, and $43 million thereafter. Management believes working capital reductions, proceeds from the sale of assets, and increased earnings related to the successful implementation of the strategic plan are expected to provide substantially more than enough cash flow to cover these incremental costs. The company makes investments in and loans to certain retail customers. Net investments and loans decreased $31 million in 1998, from $168 million to $137 million, due in part to the impairment and restructuring charge applicable to these accounts as well as to a reduced level of investment in these assets by the company. In 1998, the company's primary sources of liquidity were cash flows from operating activities, borrowings under its credit facility, and the sale of certain assets and investments. The company's principal sources of capital, excluding shareholders' equity, are banks and other lenders and lessors. The company's 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 final maturity of July 25, 2004. Up to $300 million of the revolver may be used for issuing letters of credit, and borrowings and letters of credit issued under the credit facility may be used for general corporate purposes. Outstanding borrowings and letters of credit 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 of or other equity interests owned by the company in its subsidiaries. In addition, the 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 credit agreement and the indentures under which other company debt instruments were issued contain customary covenants associated with similar facilities. The credit agreement currently contains the following more significant financial covenants: maintenance of a fixed charge coverage ratio of at least 1.7 to 1, based on adjusted earnings, as defined, before interest, taxes, depreciation and amortization and net rent expense; maintenance of a ratio of inventory-plus-accounts receivable to funded bank debt (including letters of credit) of at least 1.4 to 1; and a limitation on restricted payments, including dividends. Covenants contained in the company's indentures under which other company debt instruments were issued are generally less restrictive than those of the credit agreement. The company is in compliance with all financial covenants under the credit agreement and its indentures. The credit facility may be terminated in the event of a defined change in control. Under the company's indentures, noteholders may require the company to repurchase notes in the event a defined change of control coupled with a defined decline in credit ratings. At year-end 1998, borrowings under the credit facility totaled $224 million in term loans and $89 million of revolver borrowings, and $80 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 revolver. At year-end 1998, the company would have been allowed to borrow an additional $431 million under the revolving credit facility contained in the credit agreement based on actual borrowings and letters of credit outstanding. Under the company's most restrictive borrowing covenant, which is the fixed charge coverage ratio contained in the credit agreement, $35 million of additional annualized fixed charges could have been incurred. On December 7, 1998, Standard & Poor's rating group ("S&P") announced it had placed its BB corporate credit rating, BB- senior unsecured debt rating, B+ subordinated debt rating, and BB+ bank loan rating for the company on CreditWatch with negative implications. The CreditWatch listing followed the company's December 7, 1998 announcement of its new strategic plan. S&P said that its action reflected its concern and opinion that, despite the positive moves included in the new strategic plan, it would be difficult for Fleming to restore measures of earnings and cash flow protection to levels appropriate for the current rating. On December 8, 1998, Moody's Investors Service ("Moody's") announced it had confirmed its credit ratings of the company and had changed its rating outlook from stable to negative following the company's December 7, 1998 announcement of its new strategic plan. Moody's confirmed its Ba3 senior secured bank agreements rating, B1 senior unsecured sinking fund debentures, medium-term notes, senior notes, and issuer rating, and B3 senior subordinated unsecured notes rating. In addition, Moody's said failure of the company to achieve cost reductions or operational disruptions from the execution of the new strategic initiatives could negatively impact financial returns and exert downward pressure on the ratings. Dividend payments in 1998 were $0.08 per share, or $3 million, which was the same per share and total amount as in 1997. The credit agreement and the indentures for the $500 million of senior subordinated notes limit restricted payments, including dividends, to $70 million at year-end 1998, based on a formula tied to net earnings and equity issuances. For the foreseeable future, the company's principal sources of liquidity and capital are expected to be cash flows from operating activities and the company's ability to borrow under its credit agreement. In addition, lease financing may be employed for new retail stores and certain equipment. Management believes these sources will be adequate to meet working capital needs, capital expenditures (including expenditures for acquisitions, if any), strategic plan implementation costs and other capital needs for the next 12 months. CONTINGENCIES From time to time the company faces litigation or other contingent loss situations resulting from owning and operating its assets, conducting its business or complying (or allegedly failing to comply) with federal, state and local laws, rules and regulations which may subject the company to material contingent liabilities. In accordance with applicable accounting standards, the company records as a liability amounts reflecting such exposure when a material loss is deemed by management to be both "probable" and "quantifiable" or "reasonably estimable." Furthermore, the company discloses material loss contingencies in the notes to its financial statements when the likelihood of a material loss has been determined to be greater than "remote" but less than "probable." Such contingent matters are discussed in "Contingencies" in the notes to the consolidated financial statements. An adverse outcome experienced in one or more of such matters, or an increase in the likelihood of such an outcome, could have a material adverse effect on the company. Also see Item 3. Legal Proceedings. Fleming has numerous computer systems which were developed employing six digit date structures (i.e., two digits each for month, day and year). Where date logic requires the year 2000 or beyond, such date structures may produce inaccurate results. Management has implemented a program to comply with year-2000 requirements on a system-by-system basis including both information technology (IT) and non-IT systems (e.g., microcontrollers). Fleming's plan includes extensive systems testing and is expected to be substantially completed by the third quarter of 1999. Code for the company's largest and most comprehensive system, FOODS, has been completely remediated, reinstalled and tested. Based on these tests, the company believes FOODS and the related systems which run the company's distribution system will be year-2000 ready and in place at all food distribution operating units. At year-end 1998, the company was substantially complete with the replacement and upgrading necessary to make its nearly 5,000 PCs year-2000 ready. Although the company believes contingency plans will not be necessary based on progress to date, contingency plans have been developed for each critical system. The content of the contingency plans varies depending on the system and the assessed probability of failure and such plans are modified periodically based on remediation and testing. The alternatives include reallocating internal resources, obtaining additional outside resources, implementing temporary manual processes or temporarily rolling back internal clocks. Although the company is developing greater levels of confidence regarding its internal systems, failure to ensure that the company's computer systems are year-2000 compliant could have a material adverse effect on the company's operations. The company is also assessing the status of its vendors' and customers' year-2000 readiness through meetings, discussions, notices and questionnaires. Vendor and customer responses and feedback are varied and in some cases inconclusive. Accordingly, the company believes the most likely worst case scenerio could be customers' failure to serve and retain consumers resulting in a negative impact on the company's sales. 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. Program costs to comply with year-2000 requirements are being expensed as incurred. Total expenditures to third parties in 1997 through completion in 1999 are not expected to exceed $10 million, none of which is incremental. Through the end of 1998, these third party expenditures totaled approximately $7 million. 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 includes statements that (a) predict or forecast future events or results, (b) depend on future events for their accuracy, or (c) embody assumptions which may prove to have been inaccurate, including the company's ability to successfully achieve the goals of its strategic plan and reverse sales declines, cut costs and improve earnings; the company's assessment of the probability and materiality of losses associated with litigation and other contingent liabilities; the company's ability to develop and implement year-2000 systems solutions; the company's ability to expand portions of its business or enter new facets of its business; and the company's expectations regarding the adequacy of capital and liquidity. These forward-looking statements and the company's business and prospects are subject to a number of factors which could cause actual results to differ materially including the: risks associated with the successful execution of the company's strategic business plan; adverse effects of the changing industry environment and increased competition; continuing sales declines and loss of customers; exposure to litigation and other contingent losses; failure of the company to achieve necessary cost savings; failure of the company, its vendors or its customers to develop and implement year-2000 system solutions; and the negative effects of the company's substantial indebtedness and the limitations imposed by restrictive covenants contained in the company's debt instruments. These and other factors are described in this report under Item 1. Business -- Risk Factors and in other periodic reports available from the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's exposure to pricing risk in the financial markets consists of changes in interest rates related to its investment in notes receivable, the balance of debt obligations outstanding, and derivatives employed to hedge interest rate changes on variable rate debt. The company does not use foreign currency exchange rate forward contracts or commodity contracts and does not have any material foreign currency exposure. The company does not use financial instruments or derivatives for any trading purposes. Fleming uses derivatives, currently consisting of simple floating-to-fixed interest rate swap transactions, to hedge its exposure to changing interest rates for its variable interest rate debt obligations. In the normal course of business Fleming carries notes receivable because the company makes long-term loans to certain retail customers (see "Investments and Notes Receivable" in the notes to the consolidated financial statements). A portion of the notes receivable carries a variable interest rate, which is based on a prime rate index published in a major financial publication and is reset quarterly. The remaining portion carries fixed interest rates negotiated with each retail customer. No derivatives have been employed to hedge the company's exposure to variable interest rates on notes receivable primarily because these notes are considered to be a partial hedge for debt with variable interest rates. In order to help maintain liquidity and finance business operations, Fleming obtains long-term credit commitments from banks and other financial institutions under which term loans and revolving loans are made. Such loans carry variable interest rates based on the London interbank offered interest rate ("LIBOR") plus a borrowing margin for different interest periods, such as one week, one month, and other periods up to one year. To assist in managing its debt maturities and diversify its sources of debt capital, Fleming also uses long-term debt which carries fixed interest rates. Fleming management maintains a written policy statement which governs its financial risk management activities including the use of financial derivatives. The policy statement says that the company will engage in a financial risk management process to manage its defined exposures to uncertain future changes in interest rates and foreign exchange rates which impact net earnings. The primary purpose of this process is to control and limit the volatility of net earnings according to pre-established targets for exposure to such changes in a manner which does not result in unreasonable or unmanageable additional risks or expense. The financial risk management process works under the oversight of a special management group to ensure certain policy objectives are achieved. Such objectives include, and are not limited to, the following: to act in accordance with authority granted by resolution of the Board of Directors, which specifically permits the use of derivatives to hedge interest rate or foreign exchange rate risks and which prohibits the use of derivatives for the purpose of speculation; to define and measure the company's financial risks associated with interest and foreign exchange rates as well as with derivatives instruments to be used for hedging; and to establish exposure targets and to manage performance against those targets. Changes in interest rates may have a material impact on Fleming's interest expense and interest income, as well as to the fair values for its investment in notes receivable, outstanding debt obligations and financial derivatives used. The table below presents a summary of the categories of Fleming's financial instruments according to their respective interest rate profiles. For notes receivable, the table shows the principal amount of cash the company expects to collect each year according to the scheduled maturities, as well as the average interest rates applicable to such maturities. For debt obligations, the table shows the principal amount of cash the company expects to pay each year according to the scheduled maturities, as well as the average interest rates applicable to such maturities. For derivatives, the table shows when the notional principal contracts terminate.
(IN MILLIONS, EXCEPT RATES) SUMMARY OF FINANCIAL INSTRUMENTS AT 12/26/98 MATURITIES OF PRINCIPAL BY FISCAL YEAR FAIR VALUE 1999 2000 2001 2002 2003 THEREAFTER NOTES RECEIVABLE WITH VARIABLE INTEREST RATES Principal receivable $72.0 $11.4 $11.4 $10.2 $8.7 $7.4 $22.9 Average variable rate receivable 10.6% Based on the referenced Prime Rate plus a margin NOTES RECEIVABLE WITH FIXED INTEREST RATES Principal receivable $50.8 $11.4 $5.1 $2.8 $2.1 $1.9 $27.5 Average fixed rate receivable 5.2% 2.4% 3.9% 4.6% 5.2% 6.0% 6.8% DEBT WITH VARIABLE INTEREST RATES Principal payable $313.3 $24.9 $34.9 $34.9 $39.9 $128.9 $49.9 Average variable rate payable 6.8% Based on LIBOR plus a margin DEBT WITH FIXED INTEREST RATES Principal payable $845.7 $16.2 $36.7 $302.7 $10.5 $5.5 $500.4 Average fixed rate payable 10.3% 7.4% 6.6% 10.6% 8.9% 9.1% 10.6% VARIABLE-TO-FIXED RATE SWAPS Amount payable $9.5 $ - $250.0 (not payable) Average fixed rate payable 7.2% 7.2% 7.2% Average variable rate receivable 5.2% Based on LIBOR
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Part IV, Item 14(a) 1. Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the company's proxy statement in connection with its annual meeting of shareholders to be held on May 19, 1999. 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 19, 1999. 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 19, 1999. 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 19, 1999. 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 26, 1998, December 27, 1997, and December 28, 1996 - Consolidated Balance Sheets At December 26, 1998, and December 27, 1997 - Consolidated Statements of Cash Flows For the years ended December 26, 1998, December 27, 1997, and December 28, 1996 - Consolidated Statements of Shareholders' Equity For the years ended December 26, 1998, December 27, 1997, and December 28, 1996 - Notes to Consolidated Financial Statements For the years ended December 26, 1998, December 27, 1997, and December 28, 1996 - Independent Auditors' Report - Quarterly Financial Information (Unaudited)
Consolidated Statements of Operations For the years ended December 26, 1998, December 27, 1997, and December 28, 1996 (In thousands, except per share amounts)
1998 1997 1996 Net sales $15,069,335 $15,372,666 $16,486,739 Costs and expenses (income): Cost of sales 13,594,241 13,941,838 15,004,715 Selling and administrative 1,276,312 1,194,570 1,273,999 Interest expense 161,581 162,506 163,466 Interest income (36,736) (46,638) (49,122) Equity investment results 11,622 16,746 18,458 Litigation charges 7,780 20,959 20,650 Impairment/restructuring charge 652,737 - - Total costs and expenses 15,667,537 15,289,981 16,432,166 Earnings (loss) before taxes (598,202) 82,685 54,573 Taxes on income (loss) (87,607) 43,963 27,887 Earnings (loss) before extraordinary charge (510,595) 38,722 26,686 Extraordinary charge from early retirement of debt (net of taxes) - (13,330) - Net earnings (loss) $ (510,595) $ 25,392 $ 26,686 Earnings (loss) per share: Basic and diluted before extraordinary charge $(13.48) $1.02 $.71 Extraordinary charge - (.35) - Basic and diluted net earnings (loss) $(13.48) $ .67 $.71 Weighted average shares outstanding: Basic 37,887 37,803 37,774 Diluted 37,887 37,862 37,777
Sales to customers accounted for under the equity method were approximately $0.6 billion, $0.9 billion and $1.0 billion in 1998, 1997 and 1996, respectively. See notes to consolidated financial statements. Consolidated Balance Sheets
At December 26, 1998, and December 27, 1997 (In thousands) Assets 1998 1997 Current assets: Cash and cash equivalents $ 5,967 $ 30,316 Receivables, net 450,905 334,278 Inventories 984,287 1,018,666 Other current assets 146,757 111,730 Total current assets 1,587,916 1,494,990 Investments and notes receivable 119,468 150,221 Investment in direct financing leases 177,783 201,588 Property and equipment: Land 49,494 57,746 Buildings 408,739 426,302 Fixtures and equipment 663,724 652,039 Leasehold improvements 225,010 234,805 Leased assets under capital leases 207,917 227,894 1,554,884 1,598,786 Less accumulated depreciation and amortization (734,819) (648,943) Net property and equipment 820,065 949,843 Deferred income taxes 51,497 - Other assets 154,524 164,295 Goodwill, net 579,579 963,034 Total assets $3,490,832 $3,923,971 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 945,475 $ 831,339 Current maturities of long-term debt 41,368 47,608 Current obligations under capital leases 21,668 21,196 Other current liabilities 272,573 254,454 Total current liabilities 1,281,084 1,154,597 Long-term debt 1,143,900 1,127,311 Long-term obligations under capital leases 359,462 367,068 Deferred income taxes - 61,425 Other liabilities 136,455 123,898 Commitments and contingencies Shareholders' equity: Common stock, $2.50 par value, authorized - 100,000 shares, issued and outstanding - 38,542 and 38,264 shares 96,356 95,660 Capital in excess of par value 509,602 504,451 Reinvested earnings 23,155 536,792 Accumulated other comprehensive income: Cumulative currency translation adjustment - (4,922) Additional minimum pension liability (57,133) (37,715) Accumulated other comprehensive income (57,133) (42,637) Less ESOP note (2,049) (4,594) Total shareholders' equity 569,931 1,089,672 Total liabilities and shareholders' equity $3,490,832 $3,923,971
Receivables include $5 million and $17 million in 1998 and 1997, respectively, due from customers accounted for under the equity method. See notes to consolidated financial statements.
Consolidated Statements of Cash Flows For the years ended December 26, 1998, December 27, 1997, and December 28, 1996 (In thousands) 1998 1997 1996 Cash flows from operating activities: Net earnings (loss) $(510,595) $ 25,392 $ 26,686 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 185,368 181,357 187,617 Credit losses 23,498 24,484 26,921 Deferred income taxes (117,239) 40,301 (5,451) Equity investment results 11,622 16,746 18,458 Impairment/restructuring and related charges 668,027 - - Cash payments on impairment/restructuring and related charges (7,522) - - Cost of early debt retirement - 22,227 - Consolidation and restructuring reserve activity (4,708) (12,724) (2,865) Change in assets and liabilities, excluding effect of acquisitions: Receivables (156,822) (41,347) (13,955) Inventories 6,922 31,315 150,524 Accounts payable 114,136 (117,219) (45,666) Other assets and liabilities (67,243) (53,116) (15,368) Other adjustments, net (4,365) (4,448) 612 Net cash provided by operating activities 141,079 112,968 327,513 Cash flows from investing activities: Collections on notes receivable 38,076 59,011 64,028 Notes receivable funded (28,946) (37,537) (66,298) Notes receivable sold - 29,272 34,980 Businesses acquired (30,225) (9,572) - Proceeds from sale of businesses 32,277 13,093 13,300 Purchase of property and equipment (200,211) (129,386) (128,552) Proceeds from sale of property and equipment 17,056 15,845 15,796 Investments in customers (1,009) (1,694) (365) Proceeds from sale of investments 3,529 4,970 15,020 Other investing activities 6,141 1,895 6,843 Net cash used in investing activities (163,312) (54,103) (45,248) Cash flows from financing activities: Proceeds from long-term borrowings 170,000 914,477 171,000 Principal payments on long-term debt (159,651) (982,982) (356,685) Principal payments on capital lease obligations (13,356) (20,102) (19,622) Sale of common stock under incentive stock and stock ownership plans 4,830 593 2,195 Dividends paid (3,048) (3,007) (13,447) Other financing activities (891) (1,195) (6,465) Net cash used in financing activities (2,116) (92,216) (223,024) Net increase (decrease) in cash and cash equivalents (24,349) (33,351) 59,241 Cash and cash equivalents, beginning of year 30,316 63,667 4,426 Cash and cash equivalents, end of year $ 5,967 $ 30,316 $ 63,667
See notes to consolidated financial statements. Consolidated Statements of Shareholders' Equity For the years ended December 26, 1998, December 27, 1997, and December 28, 1996 (In thousands, except per share amounts)
Accumulated Capital Other Common Stock in excess Reinvested Comprehensive Comprehensive ESOP Total Shares Amount of par value Earnings Income Income Note Balance at December 31, 1995 $1,083,322 37,716 $94,291 $501,474 $501,214 $(4,549) $(9,108) 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) (151) Minimum pension liability adjustment (net of $16,619 of taxes) (24,897) (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 2,166 Balance at December 28, 1996 1,075,958 37,798 94,494 503,595 514,408 (29,597) (6,942) Comprehensive income Net earnings 25,392 25,392 $ 25,392 Other comprehensive income, net of tax Currency translation adjustment (net of $0 taxes) (222) (222) (222) Minimum pension liability adjustment (net of $8,556 of taxes) (12,818) (12,818) (12,818) Comprehensive income $ 12,352 Incentive stock and stock ownership plans 2,022 466 1,166 856 Cash dividends, $0.08 per share (3,008) (3,008) ESOP note payments 2,348 2,348 Balance at December 27, 1997 1,089,672 38,264 95,660 504,451 536,792 (42,637) (4,594) Comprehensive income Net loss (510,595) (510,595) $(510,595) Other comprehensive income, net of tax Currency translation adjustment (net of $0 taxes) 4,922 4,922 4,922 Minimum pension liability adjustment (net of $12,914 of taxes) (19,418) (19,418) (19,418) Comprehensive income $(525,091) Incentive stock and stock ownership plans 5,847 279 696 5,151 Cash dividends, $0.08 per share (3,042) (3,042) ESOP note payments 2,545 2,545 Balance at December 26, 1998 $ 569,931 38,543 $96,356 $509,602 $ 23,155 $(57,133) $(2,049)
See notes to consolidated financial statements. Notes to Consolidated Financial Statements For the years ended December 26, 1998, December 27, 1997, and December 28, 1996 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 280 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 3.6 percent or more of consolidated sales. Fiscal Year: The company's fiscal year ends on the last Saturday in December. Basis of Presentation: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation: The consolidated financial statements include all subsidiaries. Material intercompany items have been eliminated. The equity method of accounting is usually used for investments in certain entities in which the company has an investment in common stock of between 20% and 50% or such investment is temporary. Under the equity method, original investments are recorded at cost and adjusted by the company's share of earnings or losses of these entities and for declines in estimated realizable values deemed to be other than temporary. Reclassifications: Certain reclassifications have been made to prior year amounts to conform to current year classifications. Basic and Diluted Net Earnings (Loss) Per Share: Both basic and diluted earnings per share are computed based on net earnings (loss) divided by weighted average shares as appropriate for each calculation subject to anti-dilution limitations. Taxes on Income: Deferred income taxes arise from temporary differences between financial and tax bases of certain assets and liabilities. Cash and Cash Equivalents: Cash equivalents consist of liquid investments readily convertible to cash with an original maturity of three months or less. The carrying amount for cash equivalents is a reasonable estimate of fair value. Receivables: Receivables include the current portion of customer notes receivable of $17 million in 1998 and $18 million in 1997. Receivables are shown net of allowance for doubtful accounts of $28 million in 1998 and $19 million in 1997. 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 1998 and 1997 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 $44 million and $36 million at year-end 1998 and 1997, respectively. In 1998, the liquidation of certain LIFO layers related to business closings decreased cost of products sold by approximately $3 million. Property and Equipment: Property and equipment are recorded at cost or, for leased assets under capital leases, at the present value of minimum lease payments. Depreciation, as well as amortization of assets under capital leases, is based on the estimated useful asset lives using the straight-line method. The estimated useful lives used in computing depreciation and amortization are: buildings and major improvements - 20 to 40 years; warehouse, transportation and other equipment - 3 to 10 years; and data processing equipment and software - 3 to 7 years. Goodwill: The excess of purchase price over the fair value of net assets of businesses acquired is amortized on the straight-line method over periods not exceeding 40 years. Goodwill is shown net of accumulated amortization of $176 million and $189 million in 1998 and 1997, respectively. Impairment: Asset impairments are recorded when the carrying amount of assets are not recoverable. Impairment is assessed and measured, by asset type, as follows: notes receivable - fair value of the collateral for each note; and, long-lived assets, goodwill and other intangibles - estimate of the future cash flows expected to result from the use of the asset and its eventual disposition aggregated to the operating unit level for food distribution and chain or group level for retail food. Financial Instruments: Interest rate hedge transactions and other financial instruments are utilized to manage interest rate exposure. The methods and assumptions used to estimate the fair value of significant financial instruments are discussed in the "Investments and Notes Receivable" and "Long-term Debt" notes. Stock-Based Compensation: The company applies APB Opinion No. 25 - Accounting for Stock Issued to Employees and related Interpretations in accounting for its plans. Comprehensive Income: Comprehensive income is reflected in the Consolidated Statements of Shareholders' Equity. Other comprehensive income is comprised of foreign currency translation adjustments and minimum pension liability adjustments. The cumulative effect of other comprehensive income is reflected in the Shareholders' Equity section of the Consolidated Balance Sheets. Pension and Other Postretirement Benefits: In 1998, the company adopted SFAS No. 132-Employers' Disclosures about Pensions and Other Postretirement Benefits ("SFAS No 132"). SFAS No. 132 revises the disclosure requirements for pensions and other postretirement benefit plans. Impairment/Restructuring Charge and Related Costs In December 1998, the company announced the implementation of a strategic plan designed to improve the competitiveness of the retailers the company serves and improve the company's performance by building stronger operations that can better support long-term growth ("strategic plan"). The strategic plan consists of four major initiatives: - Consolidate food distribution operations. This initially requires divestiture of seven operating units - two in 1998 and five in 1999. Although there will be some loss in sales, many of the customers at these seven operating units will be transferred and serviced by remaining operating units. Transferring customer business to a higher volume, better utilized facility benefits the customer with better product variety and improved buying opportunities. The company benefits with better coverage of fixed expenses. - Grow food distribution sales aggressively. Higher volume, better-utilized food distribution operations and the dynamics of the market place represent an opportunity for sales growth. The improved efficiency and effectiveness of the remaining food distribution operations enhances their competitiveness and the company intends to capitalize on these improvements. - Improve retail food performance. This not only requires divestiture of under-performing company-owned retail chains or groups, but also requires increased investments in market leading chains or groups. - Reduce overhead expense. Overhead will be reduced at both the corporate and operating unit levels through organization and process changes. In addition, several initiatives to reduce complexity in business systems are underway. These initiatives should reduce costs and improve the company's profitability and competitiveness. The total pre-tax charge of the strategic plan is presently estimated at $782 million. The pre-tax charge recorded in 1998 was $668 million ("1998 charge") of which $661 million was recorded in the fourth quarter. The remaining $7 million was recorded in previous quarters which have been reclassified to be consistent with year-end reporting. After tax, the expense was $543 million in 1998 or $14.33 loss per share. The $114 million of costs relating to the strategic plan not yet charged against income will be recorded over the next 2 years at the time such costs are accruable. The $668 million charge was included on several lines of the 1998 Consolidated Statements of Operations as follows: $9 million was included in cost of sales and was primarily related to inventory valuation adjustments; $6 million was included in selling and administrative expense as disposition related costs recognized on a periodic basis; and the remaining $653 million was included in the impairment/restructuring charge line. The 1998 charge consisted of the following components: - Impairment of assets of $590 million. The impairment components were $372 million for goodwill and $218 million for other long-lived assets. - Restructuring charges of $63 million. The restructuring charges consisted primarily of severance, lease liabilities and pension withdrawal liabilities. - Other disposition and related costs of $15 million. These costs consist primarily of professional fees, inventory valuation adjustments and other costs. The 1998 charge relates to the company's segments as follows: $491 million relates to the food distribution segment and $153 million relates to the retail food segment with the balance relating to corporate overhead expenses. The 1998 charge included amounts related to workforce reductions as follows:
($'s in thousands) Amount Headcount 1998 Charge $25,441 1,430 Terminations (3,458) (170) Ending Liability $21,983 1,260
Additionally, the 1998 charge included amounts related primarily to lease obligations totaling approximately $38 million that will be reduced over the expected remaining lease terms. Asset impairments were recognized in accordance with SFAS No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and such assets were written down to their estimated fair values based on estimated proceeds of operating units to be sold or discounted cash flow projections. The operating costs of operating units to be sold or closed are treated as normal operations during the period they remain in use. Salaries, wages and benefits of employees at these operating units are charged to operations during the time such employees are actively employed. Depreciation expense is continued for assets that the company is unable to remove from operations. Litigation Charges Furr's Supermarkets, Inc. ("Furr's") filed suit against the company in 1997 claiming it was overcharged for products. During 1997, Fleming and Furr's reached an agreement dismissing all litigation between them. Pursuant to the settlement, Furr's purchased Fleming's El Paso product supply center in 1998, together with related inventory and equipment. As part of the settlement, Fleming paid Furr's $1.7 million in 1997 and $7.8 million in 1998 as a refund of fees and charges. The company was sued by David's Supermarkets, Inc. ("David's") in 1993 for allegedly overcharging for products. In 1996, judgment was entered against the company for $211 million; the judgment was subsequently vacated and a new trial granted. At the end of 1996 the company had an accrual of $650,000. The company denied the plaintiff's allegations; however, to eliminate the uncertainty and expense of protracted litigation, the company paid $19.9 million to the plaintiff in April 1997 in exchange for dismissal, with prejudice, of all plaintiff's claims against the company, resulting in a charge to first quarter 1997 earnings of $19.2 million. In 1996, the company recorded a charge of $20 million for the settlement, which occurred in 1997, of two related lawsuits involving an allegedly fraudulent scheme conducted by a failed grocery diverter, Premium Sales Corporation. Extraordinary Charge During 1997, the company undertook a recapitalization program which culminated in an $850 million senior secured credit facility and the sale of $500 million of senior subordinated notes. The recapitalization program resulted in an extraordinary charge of $13.3 million, after income tax benefits of $8.9 million, or $.35 per share. Almost all of the charge represents a non-cash write-off of unamortized financing costs related to debt which was prepaid. See the "Long-term Debt" note for further discussion of the recapitalization program. Per Share Results The following table sets forth the basic and diluted per share computations for income (loss) before extraordinary charge.
(In thousands, except per share amounts) 1998 1997 1996 Numerator: Basic and diluted earnings (loss) before extraordinary charge $(510,595) $38,722 $26,686 Denominator: Weighted average shares for basic earnings per share 37,887 37,803 37,774 Effect of dilutive securities: Employee stock options - 21 3 Restricted stock compensation - 38 - Dilutive potential common shares - 59 3 Weighted average shares for diluted earnings per share 37,887 37,862 37,777 Basic and diluted earnings (loss) per share before extraordinary charge $(13.48) $1.02 $.71
The company did not reflect 172,000 weighted average potential shares for the 1998 diluted calculation because they would be antidilutive. Options to purchase 2.4 million shares of common stock at a weighted average exercise price of $19.37 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 The company derives over 90% of its net sales and operating profits from the sale of food and food-related products. Further, over 90% of the company's assets are based in and net sales derived from 42 states and no single customer amounts to 3.6% or more of net sales for any of the years reported. Considering the customer types and the processes for meeting the needs of customers, senior management manages the business as two segments: 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, other unusual charges and income taxes are managed separately by senior management and those items are not allocated to the business segments. Intersegment transactions are reflected at cost. The following table sets forth the composition of the segment's and total company's net sales, operating earnings, depreciation and amortization, capital expenditures and identifiable assets.
(In millions) 1998 1997 1996 Net Sales Food distribution $13,561 $13,864 $14,904 Intersegment elimination (2,081) (1,950) (2,123) Net food distribution 11,480 11,914 12,781 Retail food 3,589 3,459 3,706 Total $15,069 $15,373 $16,487 Operating Earnings Food distribution $ 259 $283 $302 Retail food 62 80 50 Corporate (122) (127) (144) Total operating earnings 199 236 208 Interest expense (161) (162) (163) Interest income 37 47 49 Equity investment results (12) (17) (18) Litigation charges (8) (21) (21) Impairment/restructuring charge (653) - - Earnings (loss) before taxes $(598) $ 83 $ 55 Depreciation and Amortization Food distribution $107 $105 $107 Retail food 61 55 56 Corporate 17 21 25 Total $185 $181 $188 Capital Expenditures Food distribution $ 81 $ 51 $ 59 Retail food 118 77 50 Corporate 1 1 20 Total $200 $129 $129 Identifiable Assets Food distribution $2,502 $2,864 $3,048 Retail food 683 708 627 Corporate 306 352 380 Total $3,491 $3,924 $4,055
Taxes on Income Components of taxes on income are as follows:
(In thousands) 1998 1997 1996 Current: Federal $ 23,896 $(4,761) $24,729 State 5,737 (474) 8,609 Total current 29,633 (5,235) 33,338 Deferred: Federal (94,254) 32,519 (4,388) State (22,986) 7,782 (1,063) Total deferred (117,240) 40,301 (5,451) Taxes on income $(87,607) $35,066 $27,887
Taxes on income in the above table includes a tax benefit of $8,897,000 in 1997 which is reported net in the extraordinary charge from the early retirement of debt in the consolidated statements of operations. Deferred tax expense (benefit) relating to temporary differences includes the following components:
(In thousands) 1998 1997 1996 Depreciation and amortization $ (64,132) $(4,818) $(12,561) Inventory (6,839) (6,228) (6,586) Capital losses 251 (357) (2,494) Asset valuations and reserves 9,302 22,498 13,567 Equity investment results (403) 821 526 Credit losses (7,825) 23,184 3,995 Lease transactions (34,718) (757) (1,298) Associate benefits 3,200 2,727 (478) Note sales (217) (1,843) 315 Acquired loss carryforwards - - 1,616 Other (15,859) 5,074 (2,053) Deferred tax expense (benefit) $(117,240) $40,301 $ (5,451)
Temporary differences that give rise to deferred tax assets and liabilities as of year-end 1998 and 1997 are as follows:
(In thousands) 1998 1997 Deferred tax assets: Depreciation and amortization $ 76,175 $ 9,171 Asset valuations and reserve activities 34,238 39,126 Associate benefits 111,591 93,454 Credit losses 21,656 16,368 Equity investment results 9,196 8,440 Lease transactions 48,340 14,067 Inventory 31,328 22,168 Acquired loss carryforwards 4,997 4,987 Capital losses 4,549 4,798 Other 29,865 17,350 Gross deferred tax assets 371,935 229,929 Less valuation allowance (4,929) (4,920) Total deferred tax assets 367,006 225,009 Deferred tax liabilities: Depreciation and amortization 114,878 112,007 Equity investment results 2,867 2,514 Lease transactions 1,551 1,996 Inventory 54,835 52,513 Associate benefits 33,809 25,385 Asset valuations and reserve activities 6,565 2,151 Note sales 3,418 3,412 Prepaid expenses 3,421 3,887 Capital losses 1,090 - Other 31,703 38,429 Total deferred tax liabilities 254,137 242,294 Net deferred tax asset (liability) $112,869 $(17,285)
The change in net deferred asset/liability from 1997 to 1998 is allocated $117.2 million to deferred income tax benefit and $12.9 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. The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
1998 1997 1996 Statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 6.8 7.9 9.0 Acquisition-related differences 12.3 14.5 6.1 Other (.4) .6 1.0 Effective rate on operations 53.7% 58.0% 51.1% Impairment/restructuring and related charges (39.1) - - Effective rate after impairment/ restructuring and related charges 14.6% 58.0% 51.1%
Investments and Notes Receivable Investments and notes receivable consist of the following:
(In thousands) 1998 1997 Investments in and advances to customers $30,371 $52,019 Notes receivable from customers 71,751 75,759 Other investments and receivables 17,346 22,443 Investments and notes receivable $119,468 $150,221
Investments and notes receivable are shown net of reserves of $27 million and $25 million in 1998 and 1997, 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 certain notes and because of the allowance for credit losses. The company's impaired notes receivable (including current portion) are as follows:
(In thousands) 1998 1997 Impaired notes with related allowances $55,031 $16,002 Credit loss allowance on impaired notes (26,260) (10,194) Impaired notes with no related allowances 366 1,000 Net impaired notes receivable $29,137 $ 6,808
Average investments in impaired notes were as follows: 1998-$59 million; 1997-$13 million; and 1996-$21 million. Activity in the allowance for credit losses is as follows:
(In thousands) 1998 1997 1996 Balance, beginning of year $43,848 $49,632 $53,404 Charged to costs and expenses 23,498 24,484 26,921 Uncollectible accounts written off, net of recoveries (20,114) (32,655) (35,693) Asset impairment - 2,387 5,000 Balance, end of year $47,232 $43,848 $49,632
The company sold certain notes receivable at face value with limited recourse during 1997 and 1996. The outstanding balance at year-end 1998 on all notes sold is $43 million, of which the company is contingently liable for $9 million should all the notes become uncollectible. Long-term Debt Long-term debt consists of the following:
(In thousands) 1998 1997 10.625% senior notes due 2001 $ 300,000 $ 300,000 10.5% senior subordinated notes due 2004 250,000 250,000 - - 10.625% senior subordinated notes due 2007 250,000 250,000 Term loans, due 1999 to 2004, average interest rate of 7.0% and 7.3% 224,269 249,731 Revolving credit, average interest rates of 6.5% and 7.1%, due 2003 89,000 30,000 Medium-term notes, due 1999 to 2003, average interest rates of 7.2% and 7.3% 69,000 89,000 Mortgaged real estate notes and other debt, net of asset sale proceeds escrow, varying interest rates from 4% to 14.4%, due 2001 to 2005 2,999 6,188 1,185,268 1,174,919 Less current maturities (41,368) (47,608) Long-term debt $1,143,900 $1,127,311
Five-year Maturities: Aggregate maturities of long-term debt for the next five years are as follows: 1999-$41 million; 2000-$72 million; 2001-$338 million; 2002-$51 million; and 2003-$135 million. The 10.625% $300 million senior notes were issued in 1994 and mature December 15, 2001. The senior notes are unsecured senior obligations of the company, ranking the same as all other existing and future senior indebtedness and senior in right of payment to the subordinated notes. The senior notes are effectively subordinated to secured senior indebtedness of the company with respect to assets securing such indebtedness, including loans under the company's senior secured credit facility. The senior notes are guaranteed by substantially all of the company's subsidiaries (see -Subsidiary Guarantee of Senior Notes below). The senior subordinated notes consists of two issues: $250 million of 10.5% Notes due December 1, 2004 and $250 million of 10.625% Notes due July 31, 2007. The subordinated notes are general unsecured obligations of the company, subordinated in right of payment to all existing and future senior indebtedness of the company, and senior to or of equal rank with all future subordinated indebtedness of the company. The company currently has no other subordinated indebtedness outstanding. The company's $850 million senior secured credit facility consists of a $600 million revolving credit facility, with a final maturity of July 25, 2003, and a $250 million amortizing term loan, with a maturity of July 25, 2004. Up to $300 million of the revolver may be used for issuing letters of credit. Borrowings and letters of credit issued under the new credit facility may be used for general corporate purposes and are secured by a first priority security interest in the accounts receivable and inventories of the company and its subsidiaries and in the capital stock or other equity interests owned by the company in its subsidiaries. In addition, this credit facility is guaranteed by substantially all company subsidiaries. The stated interest rate on borrowings under the credit agreement is equal to a referenced index interest rate, normally the London interbank offered interest rate ("LIBOR"), plus a margin. The level of the margin is dependent on credit ratings on the company's senior secured bank debt. The credit agreement and the indentures under which other company debt instruments were issued contain customary covenants associated with similar facilities. The credit agreement currently contains the following more significant financial covenants: maintenance of a fixed charge coverage ratio of at least 1.7 to 1, based on adjusted earnings, as defined, before interest, taxes, depreciation and amortization and net rent expense; maintenance of a ratio of inventory-plus-accounts receivable to funded bank debt (including letters of credit) of at least 1.4 to 1; and a limitation on restricted payments, including dividends, up to $70 million at year-end 1998, based on a formula tied to net earnings and equity issuances. Under the credit agreement, new issues of certain kinds of debt must have a maturity after January 2005. Covenants contained in the company's indentures under which other company debt instruments were issued are generally less restrictive than those of the credit agreement. The company is in compliance with all financial covenants under the credit agreement and its indentures. The credit facility may be terminated in the event of a defined change of control. Under the company's indentures, noteholders may require the company to repurchase notes in the event of a defined change of control coupled with a defined decline in credit ratings. At year-end 1998, borrowings under the credit facility totaled $224 million in term loans and $89 million of revolver borrowings, and $80 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 1998, the company would have been allowed to borrow an additional $431 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, $35 million of additional fixed charges could have been incurred. The company's credit agreement and indentures limit restricted payments, including dividends, to $70 million at year-end 1998, based on a defined formula. 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. Credit Ratings: On December 7, 1998, Standard & Poor's rating group ("S&P") announced it had placed its BB corporate credit rating, BB- senior unsecured debt rating, B+ subordinated debt rating, and BB+ bank loan rating for the company on CreditWatch with negative implications. The CreditWatch listing followed the company's December 7, 1998 announcement of its new strategic plan. On December 8, 1998, Moody's Investors Service ("Moody's") announced it had confirmed its credit ratings of the company and had changed its rating outlook from stable to negative following the company's December 7, 1998 announcement of its new strategic plan. Moody's confirmed its Ba3 senior secured bank agreements rating, B1 senior unsecured sinking fund debentures, medium-term notes, senior notes, and issuer rating, and B3 senior subordinated unsecured notes rating. Average Interest Rates: The average interest rate for total debt (including capital lease obligations) before the effect of interest rate hedges was 10.1% for 1998, versus 10.6% in 1997. Including the effect of interest rate hedges, the interest rate of debt was 10.4% and 11.1% at the end of 1998 and 1997, respectively. Interest Expense: Components of interest expense are as follows:
(In thousands) 1998 1997 1996 Interest costs incurred: Long-term debt $123,054 $121,356 $122,859 Capital lease obligations 37,542 36,414 35,656 Other 1,589 5,922 5,055 Total incurred 162,185 163,692 163,570 Less interest capitalized (604) (1,186) (104) Interest expense $161,581 $162,506 $163,466
Derivatives: The company enters into interest rate hedge agreements with the objective of managing interest costs and exposure to changing interest rates. The classes of derivative financial instruments used have included interest rate swaps and caps. The company's policy regarding derivatives is to engage in a financial risk management process to manage its defined exposures to uncertain future changes in interest rates which impact net earnings. Strategies for achieving the company's objectives have resulted in the company maintaining interest rate swap agreements covering $250 million aggregate principal amount of floating rate indebtedness at year-end 1998. The agreements all mature in 2000. The counterparties to these agreements are three major U.S. and international financial institutions. The interest rate applicable to most of the company's floating rate indebtedness is equal to LIBOR, plus a margin. The average fixed interest rate paid by the company on the interest rate swaps at year-end 1998 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 1.4 years at year-end 1998, provide for the company to receive substantially the same LIBOR that the company pays on its floating rate indebtedness. The notional amounts of interest rate swaps did not represent amounts exchanged by the parties and are not a measure of the company's exposure to credit or market risks. The amounts exchanged are calculated on the basis of the notional amounts and the other terms of the hedge agreements. Notional amounts are not included in the consolidated balance sheet. The company believes its exposure to potential loss due to counterparty nonperformance is minimized primarily due to the relatively strong credit ratings of the counterparty banks for their unsecured long-term debt (A- or higher from S&P or A3 or higher from Moody's) and the size and diversity of the counterparty banks. The hedge agreements are subject to market risk to the extent that market interest rates for similar instruments decrease and the company terminates the hedges prior to maturity. Fleming's financial risk management policy requires that any interest rate hedge agreement be matched to designated interest-bearing assets or debt instruments. All of the company's hedge agreements have been matched to its floating rate indebtedness. At year-end 1998, the company's floating rate indebtedness consisted of the term loans and revolver loans under the credit agreement. Accordingly, all outstanding swaps are matched swaps and the settlement accounting method is employed. Derivative financial instruments are reported in the balance sheet where the company has made or received a cash payment upon entering into or terminating the transaction. The carrying amount is amortized over the shorter of the initial life of the hedge agreement or the maturity of the hedged item. The company had a financial basis of zero and $0.3 million at year-end 1998 and 1997, 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 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 1998, the carrying value of debt was higher than the fair value by $26 million, or 2.2% of the carrying value. 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. The fair value of notes receivable is comparable to the carrying value because of the variable interest rates charged on certain notes and because of the allowance for credit losses. For derivatives, the fair value was estimated using termination cash values. At year-end 1998 and 1997, interest rate hedge agreement values would represent an obligation of $9 million. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 - -Accounting for Derivative Instruments and Hedging Activities ("SFAS No 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and is effective for fiscal years beginning after June 15, 1999. The company will adopt SFAS No. 133 by the required effective date. The company has not yet determined the impact on its financial statements from adopting the new standard. Subsidiary Guarantee of Senior Notes: The senior notes are guaranteed by all direct and indirect subsidiaries of the company (except for certain inconsequential subsidiaries), all of which are wholly-owned. The guarantees are joint and several, full, complete and unconditional. There are currently no restrictions on the ability of the subsidiary guarantors to transfer funds to the company in the form of cash dividends, loans or advances. Financial statements for the subsidiary guarantors are not presented herein because the operations and financial position of such subsidiaries are not material. The summarized financial information, which includes allocations of material corporate-related expenses, for the combined subsidiary guarantors may not necessarily be indicative of the results of operations or financial position had the subsidiary guarantors been operated as independent entities.
(In millions) 1998 1997 Current assets $30 $33 Noncurrent assets $52 $80 Current liabilities $14 $14 Noncurrent liabilities $7 $6 (In millions) 1998 1997 1996 Net sales $362 $379 $298 Costs and expenses $393 $388 $314 Net (loss) $(10) $(4) $(8)
The 1998 loss includes impairment/restructuring and other costs related to the strategic plan totaling $19 million pre-tax ($15 million after-tax). 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 $70 million and $71 million at year-end 1998 and 1997, respectively. Future minimum lease payment obligations for leased assets under capital leases as of year-end 1998 are set forth below:
(In thousands) Lease Years Obligations 1999 $ 30,709 2000 29,692 2001 29,147 2002 28,122 2003 27,939 Later 266,813 Total minimum lease payments 412,422 Less estimated executory costs (165) Net minimum lease payments 412,257 Less interest (204,632) Present value of net minimum lease payments 207,625 Less current obligations (9,956) Long-term obligations $197,669
Future minimum lease payments required at year-end 1998 under operating leases that have initial noncancelable lease terms exceeding one year are presented in the following table:
(In thousands) Facility Facilities Equipment Equipment Net Years Rentals Subleased Rentals Subleased Rentals 1999 $ 146,551 $ (58,122) $16,310 $ (839) $103,900 2000 131,866 (48,588) 10,463 (570) 93,171 2001 121,790 (41,500) 4,644 ( 62) 84,872 2002 114,659 (36,621) 2,213 - 80,251 2003 102,638 (27,352) 158 - 75,444 Later 544,372 (95,464) 49 - 448,957 Total lease payments $1,161,876 $(307,647) $33,837 $(1,471) $886,595
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:
(In thousands) 1998 1997 1996 Minimum rentals $178,294 $192,698 $208,250 Contingent rentals 1,971 2,002 1,874 Less sublease income (71,269) (82,509) (88,014) Rental expense $108,996 $112,191 $122,110
Direct Financing Leases: The company leases retail store facilities with terms generally ranging from 15 to 20 years which are subsequently subleased to customers. Most leases provide for a percentage rental based on sales performance in excess of specified minimum rentals. The leases usually contain provisions for one to four renewal options of five years each. The sublease to the customer is normally for an initial five year term with automatic five-year renewals at Fleming's discretion, which corresponds to the length of the initial term of the prime lease. The following table shows the future minimum rentals receivable under direct financing leases and future minimum lease payment obligations under capital leases in effect at year-end 1998:
(In thousands) Lease Rentals Lease Years Receivable Obligations 1999 $ 34,966 $ 28,278 2000 32,327 27,095 2001 29,989 25,931 2002 28,478 25,763 2003 27,047 25,315 Later 170,865 162,579 Total minimum lease payments 323,672 294,961 Less estimated executory costs (877) (872) Net minimum lease payments 322,795 294,089 Less interest (128,176) (120,584) Present value of net minimum lease payments 194,619 173,505 Less current portion (16,836) (11,712) Long-term portion $177,783 $161,793
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 33,000 and 29,000 new shares in 1998 and 1997, 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 $2.5 million in 1998 and $2 million per year in 1997 and 1996. 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 is amortized to expense when earned. During 1998, the company granted 32,000 shares of restricted stock with a weighted average grant date fair value of $300,000. At year-end 1998, 166,000 shares remained available for award under all plans. Information regarding restricted stock balances is as follows (in thousands):
1998 1997 Awarded restricted shares outstanding 420 638 Unearned compensation - restricted stock $6,199 $11,887
The company may grant stock options to key employees through unrestricted non-qualified stock option plans. The stock options have a maximum term of 10 years and have time and/or performance based vesting requirements. At year-end 1998, there were 116,000 shares available for grant under the unrestricted stock option plans. Stock option transactions are as follows:
(Shares in thousands) Shares Weighted Average Price Range Exercise Price 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 Granted 550 $10.18 $9.72 - 18.19 Exercised (3) $16.38 $16.38 - 16.38 Canceled and forfeited (403) $25.40 $16.38 - 37.06 Outstanding, year-end 1998 2,410 $19.35 $9.72 - 38.38
Information regarding options outstanding at year-end 1998 is as follows:
All Options (Shares in thousands) Outstanding Currently Options Exercisable Option price $29.75 - $38.38: Number of options 145 145 Weighted average exercise price $37.08 $37.08 Weighted average remaining life in years 1 Option price $19.44 - $28.38: Number of options 897 402 Weighted average exercise price $24.71 $24.37 Weighted average remaining life in years 5 Option price $9.72 - $18.19: Number of options 1,368 431 Weighted average exercise price $13.96 $16.52 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. Total compensation cost recognized in income for stock based employee compensation awards was $3,160,000, $1,493,000 and $71,000 for 1998, 1997 and 1996, respectively. If compensation cost had been recognized for the stock-based compensation plans based on fair values of the awards at the grant dates consistent with the method of SFAS No. 123 - Accounting for Stock-Based Compensation, reported net earnings (loss) and earnings (loss) per share, both before extraordinary charge, would have been $(511.7) million and $(13.48) for 1998, $37.9 million and $1.00 for 1997 and $26.5 million and $.70 for 1996, respectively. The weighted average fair value on the date of grant of the individual options granted during 1998, 1997 and 1996 was estimated at $4.82, $8.81 and $12.56, 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 1998, 1997 and 1996 are: risk-free interest rate - 4.50% to 7.00%; expected lives of options - 10 years; expected volatility - 30% to 50%; and expected dividend yield of 0.5% to 0.8%. Associate Retirement Plans and Postretirement Benefits The company sponsors pension and postretirement benefit plans for substantially all non-union and some union associates. Benefit calculations for the company's defined benefit pension plans are primarily a function of years of service and final average earnings at the time of retirement. Final average earnings are the average of the highest five years of compensation during the last 10 years of employment. The company funds these plans by contributing the actuarially computed amounts that meet funding requirements. Substantially all the plans' assets are invested in listed securities, short-term investments, bonds and real estate. The company also has unfunded nonqualified supplemental retirement plans for selected associates. The company offers a comprehensive major medical plan to eligible retired associates who meet certain age and years of service requirements. This unfunded defined benefit plan generally provides medical benefits until Medicare insurance commences. The following table provides a reconciliation of benefit obligations, plan assets and funded status of the plans mentioned above.
Other (In thousands) Pension Benefits Postretirement Benefits 1998 1997 1998 1997 Change in benefit obligation: Balance at beginning of year $350,993 $304,723 $16,441 $19,628 Service cost 12,981 11,359 139 137 Interest cost 25,334 23,525 1,052 1,185 Plan participants' contributions - - 851 775 Actuarial gain/loss 50,009 32,826 2,932 (410) Amendments 1,132 - - - Benefits paid (21,892) (25,292) (4,911) (4,874) SFAS #88 curtailment 47 3,852 - - Balance at end of year $418,604 $350,993 $16,504 $16,441 Change in plan assets: Fair value at beginning of year $262,484 $236,661 $ - $ - Actual return on assets 31,415 28,007 - - Employer contribution 44,532 23,108 4,911 4,874 Benefits paid (21,892) (25,292) (4,911) (4,874) Fair value at end of year $316,539 $262,484 $ - $ - Funded status $(102,065) $(88,509) $(16,504) $(16,441) Unrecognized actuarial loss 127,984 93,262 3,781 848 Unrecognized prior service cost 1,481 704 - - Unrecognized net transition asset (588) (856) - - Net amount recognized $ 26,812 $ 4,601 $(12,723) $(15,593) Amounts recognized in the consolidated balance sheet: Prepaid benefit cost $ - $ 4,129 $ - $ - Accrued benefit liability (69,714) (62,817) (12,723) (15,593) Intangible asset 1,304 399 - - Accumulated other comprehensive income 95,222 62,890 - - Net amount recognized $26,812 $ 4,601 $(12,723) $(15,593)
The following year-end assumptions were used for the plans mentioned above.
Other Pension Benefits Postretirement Benefits 1998 1997 1998 1997 Discount rate (weighted average) 6.50% 7.00% 6.50% 7.00% Expected return on plan assets 9.50% 9.50% - - Rate of compensation increase 4.00% 4.00% - -
Net periodic pension and other postretirement benefit costs include the following components:
Other (In thousands) Pension Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 Service cost $12,981 $11,359 $11,109 $ 139 $ 137 $ 147 Interest cost 25,334 23,525 21,506 1,052 1,185 1,443 Expected return on plan assets (25,234) (28,008) (22,986) - - - Amortization of actuarial loss 9,105 11,533 11,169 - (44) - Amortization of prior service cost 354 549 731 - - - Amortization of net transition asset (268) (220) (220) - - - Cost of termination benefits - - - - 15 - Net periodic benefit cost $22,272 $18,738 $21,309 $1,191 $1,293 $1,590
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $419 million, $385 million, and $317 million, respectively, as of December 26, 1998 and $351 million, $319 million, and $262 million, respectively, as of December 27, 1997. For measurement purposes in 1998 and 1997, a 9% annual rate of increase in the per capita cost of covered medical care benefits was assumed. In both 1998 and 1997, the rate for 1999 was assumed to remain at 9%, then decrease to 5% by the year 2007 and 2005, respectively, then remain level. The effect of one-percentage point increase in assumed medical cost trend rates would have increased the accumulated postretirement benefit obligation as of December 31, 1998 from $16.5 to $17.4 million, and increased the total of the service cost and interest cost components of the net periodic cost from $1.19 million to $1.25 million. The effect of one-percentage point decrease in assumed medical cost trend rates would have decreased the accumulated postretirement benefit obligation as of December 31, 1998 from $16.5 to $15.7 million, and decreased the total of the service cost and interest cost components of the net periodic cost from $1.19 million to $1.14 million. In some of the retail operations, contributory profit sharing plans are maintained by the company for associates who meet certain types of employment and length of service requirements. Company contributions under these defined contribution plans are made at the discretion of the Board of Directors and totaled $3 million in 1998 and $4 million in both 1997 and 1996. Certain associates have pension and health care benefits provided under collectively bargained multiemployer agreements. Expenses for these benefits were $80 million, $81 million and $84 million for 1998, 1997 and 1996, respectively. 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 food distribution operating units were closed and one additional facility was to 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. In 1998, an eight-month study of all facets of the company's operations was undertaken by the Board of Directors, senior management and an outside consulting firm. A decision made early in this study was to reverse the remaining reserve related to the one additional facility that was to be closed. Facilities consolidation and restructuring reserve activities are:
Reengineering/ Consolidation Severance Costs/Asset (In thousands) Total Costs Impairments 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 Credited to income (3,700) - (3,700) Expenditures and write-offs (1,008) (2,272) 1,264 Balance, year-end 1998 $1,020 $ - $1,020 Supplemental Cash Flows Information (In thousands) 1998 1997 1996 Acquisitions: Fair value of assets acquired $32,080 $9,572 Less: Liabilities assumed or created (1,792) - Existing company investment (63) - Cash paid, net of cash acquired $30,225 $9,572 - Cash paid during the year for: Interest, net of amounts capitalized $182,449 $179,180 $152,846 Income taxes, net of refunds $23,822 $30,664 $32,291 Direct financing leases and related obligations $9,349 $5,092 $17,062 Property and equipment additions by capital leases $70,684 $28,990 $11,111
Contingencies In accordance with applicable accounting standards, the company records a charge reflecting contingent liabilities (including those associated with litigation matters) when management determines that a material loss is "probable" and either "quantifiable" or "reasonably estimable." Additionally, the company discloses material loss contingencies when the likelihood of a material loss is deemed to be greater than "remote" but less than "probable." Set forth below is information regarding certain material loss contingencies: Class Action Suits. In 1996, the company and certain of its present and former officers and directors were named as defendants in nine purported class action suits filed by certain stockholders and one purported class action suit filed by a noteholder. In 1997, the court consolidated the stockholder cases (the noteholder case was also consolidated, but only for pre-trial purposes). During 1998 the noteholder case was dismissed and during 1999 the consolidated case was also dismissed, each without prejudice. The court has given the plaintiffs the opportunity to restate their claims. The complaint filed in the consolidated cases asserts liability for the company's alleged failure to properly account for and disclose the contingent liability created by the David's litigation and by the company's alleged "deceptive business practices." The plaintiffs claim that these alleged practices led to the David's litigation and to other material contingent liabilities, caused the company to change its manner of doing business at great cost and loss of profit, and materially inflated the trading price of the company's common stock. The company denies each of these allegations. The plaintiffs seek undetermined but significant damages. However, if the district court ruling described below is upheld, Fleming believes the litigation will not have a material adverse effect on the company. In 1997, the company won a declaratory judgment against certain of its insurance carriers regarding policies issued to Fleming for the benefit of its officers and directors ("D&O policies"). On motion for summary judgment, the court ruled that the company's exposure, if any, under the class action suits is covered by D&O policies written by the insurance carriers (aggregating $60 million in coverage) and that the "larger settlement rule" will be applicable to the case. According to the trial court, under the larger settlement rule a D&O insurer is liable for the entire amount of coverage available under a policy even if there is some overlap in the liability created by the insured individuals and the uninsured corporation. If a corporation's liability is increased by uninsured parties beyond that of the insured individuals, then that portion of the liability is the sole obligation of the corporation. The court also held that allocation is not available to the insurance carriers as an affirmative defense. The insurance carriers have appealed. Tru Discount Foods. Fleming brought suit in 1994 on a note and an open account against its former customer, Tru Discount Foods. The case was initially referred to arbitration but later restored to the trial court; Fleming appealed. In 1997, the defendant amended its counter claim against the company alleging fraud, overcharges for products and violations of the Oklahoma Deceptive Trade Practices Act. In 1998, the appellate court reversed the trial court and directed that the matter be sent again to arbitration. 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 could have a material adverse effect on the company. Don's United Super (and related cases). In 1998, the company and two retired executives were named in a suit filed by approximately 20 current and former customers of the company (Don's United Super, et al. v. Fleming, et al.). Plaintiffs operate retail grocery stores in the St. Joseph and Kansas City metropolitan areas. Six plaintiffs who were parties to supply contracts containing arbitration clauses were permitted to withdraw from the case. Previously, two cases had been filed in the same court (R&D Foods, Inc. et al. v. Fleming, et al. and Robandee United Super, Inc. et al. v. Fleming, et al.) by 10 customers, some of whom are plaintiffs in the Don's case. The earlier two cases, which principally seek an accounting of the company's expenditure of certain joint advertising funds, have been consolidated. All causes of action in these cases have been stayed pending the arbitration of the causes of action relating to supply contracts containing arbitration clauses. The Don's suit alleges product overcharges, breach of contract, misrepresentation, fraud, and RICO violations and seeks recovery of actual, punitive and treble damages and a declaration that certain contracts are voidable at the option of the plaintiffs. Damages have not been quantified. However, with respect to some plaintiffs, the time period during which the alleged overcharges took place exceeds 25 years and the company anticipates that the plaintiffs will allege substantial monetary damages. In October 1998, a group of 14 retailers (ten of whom had been or are currently plaintiffs in the Don's case and/or the Robandee case whose claims were sent to arbitration or stayed pending arbitration) filed a new action against the company and two former officers, one of whom was a director (Coddington Enterprises, Inc. et al. v. Dean Werries, et al.). The plaintiffs assert claims virtually identical to those set forth in the Don's complaint and have not quantified damages. The company intends to vigorously defend its interests in these cases. Although management is currently unable to predict the ultimate outcome of this litigation, based upon the plaintiffs' allegations, an unfavorable outcome could have a material adverse effect on the company. Storehouse Markets. In 1998, the company and one of its associates were named in a suit filed by three current and former customers of the company (Storehouse Markets, Inc., et al. v. Fleming Companies, Inc., et al.). The plaintiffs allege product overcharges, fraudulent misrepresentation, fraudulent nondisclosure and concealment, breach of contract, breach of duty of good faith and fair dealing and RICO violations and seek declaration of class action status and recovery of actual, punitive and treble damages. Damages have not been quantified. However, the company anticipates that the plaintiffs will seek substantial monetary damages. The company intends to vigorously defend its interests in this case but is currently unable to predict the ultimate outcome. Based upon the plaintiffs' allegations, an unfavorable outcome could have a material adverse effect on the company. Y2K. 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 third quarter of 1999. Although the company is developing greater levels of confidence regarding its internal systems, failure to ensure that the company's computer systems are year-2000 compliant could have a material adverse effect on the company's operations. In addition, failure of the company's customers or vendors to become year-2000 compliant could also have a material adverse effect on the company's operations. Program costs to comply with year-2000 requirements are being expensed as incurred. Through the end of 1998, total expenditures to third parties were approximately $7 million. Other. The company's facilities and operations are subject to various laws, regulations and judicial and administrative orders concerning protection of the environment and human health, including provisions regarding the transportation, storage, distribution, disposal or discharge of certain materials. In conformity with these provisions, the company has a comprehensive program for testing, removal, replacement or repair of its underground fuel storage tanks and for site remediation where necessary. The company has established reserves that it believes will be sufficient to satisfy the anticipated costs of all known remediation requirements. The company and others have been designated by the U.S. Environmental Protection Agency ("EPA") and by similar state agencies as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state laws, as applicable, with respect to EPA-designated Superfund sites. While liability under CERCLA for remediation at such sites is generally joint and several with other responsible parties, the company believes that, to the extent it is ultimately determined to be liable for the expense of remediation at any site, such liability will not result in a material adverse effect on its consolidated financial position or results of operations. The company is committed to maintaining the environment and protecting natural resources and human health and to achieving full compliance with all applicable laws, regulations and orders. The company is a party to various other litigation and contingent loss situations arising in the ordinary course of its business including: disputes with customers and former customers; disputes with owners and former owners of financially troubled or failed customers; disputes with employees and former employees regarding labor conditions, wages, workers' compensation matters and alleged discriminatory practices; disputes with insurance carriers; tax assessments and other matters, some of which are for substantial amounts. However, the company does not believe any such action will result in a material adverse effect on the company. Independent Auditors' Report To the Board of Directors and Shareholders Fleming Companies, Inc. We have audited the accompanying consolidated balance sheets of Fleming Companies, Inc. and subsidiaries as of December 26, 1998, and December 27, 1997, and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the three years in the period ended December 26, 1998. 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 26, 1998, and December 27, 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 26, 1998, in conformity with generally accepted accounting principles. Also, in our opinion such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Oklahoma City, Oklahoma February 18, 1999 Quarterly Financial Information (In thousands, except per share amounts) (Unaudited)
1998 First Second Third Fourth Year Net sales $4,567,126 $3,505,943 $3,438,766 $3,557,500 $15,069,335 Costs and expenses (income): Cost of sales 4,118,032 3,158,295 3,108,993 3,208,921 13,594,241 Selling and administrative 371,546 290,025 290,875 323,866 1,276,312 Interest expense 51,202 35,861 37,348 37,170 161,581 Interest income (11,305) (8,308) (8,559) (8,564) (36,736) Equity investment results 3,589 3,248 2,669 2,116 11,622 Litigation charges 2,954 2,216 2,215 395 7,780 Impair/restructuring charge (267) 916 6,038 646,050 652,737 Total costs and expenses 4,535,751 3,482,253 3,439,579 4,209,954 15,667,537 Earnings (loss) before taxes 31,375 23,690 (813) (652,454) (598,202) Taxes on income (loss) 16,105 10,051 1,512 (115,275) (87,607) Net earnings (loss) $ 15,270 $ 13,639 $ (2,325) $ (537,179) $ (510,595) Basic and diluted net income (loss) per share $.40 $.36 $(.06) $ (14.11) $(13.48) Dividends paid per share $.02 $.02 $.02 $.02 $.08 Weighted average shares outstanding: Basic 37,804 37,859 38,039 38,084 37,887 Diluted 37,972 38,027 38,039 38,084 37,887 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 charges 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
The first three quarters of 1998 have been restated to reclassify certain expenses related to the strategic plan in the impairment/restructuring charge line. The fourth quarter of 1998 includes a charge of $661 million ($539 million after income tax benefit or $14.17 per share) related to the company's strategic plan. 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. 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 both years consists of 16 weeks; all other quarters are 12 weeks. (a) 2. Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts (a) 3. (c) Exhibits:
Page Number or Exhibit Incorporation by Number Reference to 3.1 Certificate of Incorporation Exhibit 4.1 to Form S-8 dated September 3, 1996 3.2 By-Laws Exhibit 3.2 to Form 10-K for year ended December 27, 1997 4.0 Credit Agreement, dated as of Exhibit 4.16 to Form July 25, 1997, among Fleming 10-Q for quarter ended Companies, Inc., the Lenders party July 12, 1997 thereto, BancAmerica Securities, Inc., as syndication agent, Societe Generale, as documentation agent and The Chase Manhattan Bank, as administrative agent 4.1 Security Agreement dated as of Exhibit 4.17 to Form July 25, 1997, between Fleming 10-Q for quarter ended Companies, Inc., the company July 12, 1997 subsidiaries party thereto and The Chase Manhattan Bank, as collateral agent 4.2 Pledge Agreement, dated as of Exhibit 4.18 to Form July 25, 1997, among Fleming 10-Q for quarter ended Companies, Inc., the company July 12, 1997 subsidiaries party thereto and The Chase Manhattan Bank, as collateral agent 4.3 Guarantee Agreement among the Exhibit 4.19 to Form company subsidiaries party thereto 10-Q for quarter ended and The Chase Manhattan Bank, as July 12, 1997 collateral agent 4.4 Indenture dated as of Exhibit 4.9 to December 15, 1994, among Fleming, Form 10-K for year the Subsidiary Guarantors named ended December 31, therein and Texas Commerce Bank 1994 National Association, as Trustee, Regarding $300 million of 10 5/8% Senior Notes 4.5 Indenture, dated as of July 25, 1997, Exhibit 4.20 to Form among Fleming Companies, Inc., the 10-Q for quarter ended Subsidiary Guarantors named therein July 12, 1997 and 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, Exhibit 4.21 to Form among Fleming Companies, Inc., the 10-Q for quarter ended Subsidiary Guarantors named therein July 12, 1997 and Manufacturers and Traders Trust Company regarding 10 1/2% Senior Subordinated Notes due 2004 4.7 First Amendment, dated as of October Exhibit 4.8 to Form 5, 1998, to Credit Agreement dated 10-Q for quarter ended July 25, 1997 October 3, 1998 4.8 Agreement to furnish copies of other long-term debt instruments 10.0 Dividend Reinvestment and Exhibit 28.1 to Stock Purchase Plan, as Registration amended Statement No. 33-26648 and Exhibit 28.3 to Registration Statement No. 33-45190 10.1* 1985 Stock Option Plan Exhibit 28(a) to Registration Statement No. 2-98602 10.2* Form of Award Agreement for Exhibit 10.6 to 1985 Stock Option Plan (1994) 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 Exhibit 10.8 to 1990 Stock Option Plan (1994) Form 10-K for year ended December 25, 1993 10.5* Form of Restricted Stock Award Exhibit 10.5 to Agreement for 1990 Stock Option Form 10-K for year Plan (1997) ended December 27, 1997 10.6* Fleming Management Incentive Exhibit 10.4 to Compensation Plan Registration Statement No. 33-51312 10.7* Amended and Restated Supplemental Exhibit 10.10 to Retirement Plan Form 10-K for year ended December 31, 1994 10.8* Form of Amended and Restated Exhibit 10.11 to Supplemental Retirement Form 10-K for year Income Agreement ended December 31, 1994 10.9* Form of Amended and Restated Exhibit 10.13 to Severance Agreement between the Form 10-K for year Registrant and certain of its ended December 31, officers 1994 10.10* Fleming Companies, Inc. 1996 Exhibit A to Stock Incentive Plan dated Proxy Statement February 27, 1996 for year ended December 30, 1995 10.11* Form of Restricted Award Agreement Exhibit 10.12 to for 1996 Stock Incentive Plan (1997) Form 10-K for year ended December 27, 1997 10.12* Phase III of Fleming Companies, Exhibit 10.17 to Inc. Stock Incentive Plan Form 10-K for year ended December 25, 1993 10.13* Amendment No. 1 to the Exhibit 10.16 to Fleming Companies, Inc. 1996 Form 10-K for year Stock Incentive Plan ended December 28, 1996 10.14* Supplemental Income Trust Exhibit 10.20 to Form 10-K for year ended December 31, 1994 10.15* First Amendment to Fleming Exhibit 10.19 to Companies, Inc. Supplemental Form 10-K for year Income Trust ended December 28, 1996 10.16* Form of Employment Agreement Exhibit 10.20 to between Registrant and certain Form 10-K for year of the employees ended December 31, 1994 10.17* Economic Value Added Incentive Exhibit A to Proxy Bonus Plan Statement for year ended December 31, 1994 10.18* Agreement between the Exhibit 10.24 to Registrant and Form 10-K for year William J. Dowd ended December 30, 1995 10.19* Amended and Restated Exhibit 10.23 to Supplemental Retirement Form 10-K for year Income Agreement for ended December 28, Robert E. Stauth 1996 10.20* Supplemental Retirement Exhibit 10.24 to Income Agreement of Fleming Form 10-K for year Companies, Inc. And William ended December 28, J. Dowd 1996 10.21* Executive Past Service Benefit Exhibit 10.23 to Plan (November 1997) Form 10-K for year ended December 27, 1997 10.22* Form of Agreement for Executive Exhibit 10.24 to Past Service Benefit Plan Form 10-K for year (November 1997) ended December 27, 1997 10.23* Executive Deferred Compensation Exhibit 10.25 to Plan (November 1997) Form 10-K for year ended December 27, 1997 10.24* Executive Deferred Compensation Exhibit 10.26 to Trust (November 1997) Form 10-K for year ended December 27, 1997 10.25* Form of Agreement for Executive Exhibit 10.27 to Deferred Compensation Plan (November Form 10-K for year 1997) ended December 27, 1997 10.26 Fleming Companies, Inc. Associate Exhibit 10.28 to Stock Purchase Plan Form 10-K for year ended December 27, 1997 10.27 Settlement Agreement between Exhibit 10.25 to Form Fleming Companies, Inc. and 10-Q for quarter ended Furr's Supermarkets, Inc. dated October 4, 1997 October 23, 1997 10.28* Form of Amended and Restated Agreement Exhibit 10.30 to Form for Fleming Companies, Inc. Executive 10-Q for quarter ended Past Service Benefit Plan October 3, 1998 10.29* Form of Amended and Restated Agreement Exhibit 10.31 to Form for Fleming Companies, Inc. Executive 10-Q for quarter ended Deferred Compensation Plan October 3, 1998 10.30* Amended and Restated Supplemental Exhibit 10.32 to Form Retirement Income Agreement between 10-Q for quarter ended William J. Dowd and Fleming Companies, October 3, 1998 Inc. dated August 18, 1998 10.31* Form of Amended and Restated Restricted Exhibit 10.33 to Form Stock Award Agreement under Fleming 10-Q for quarter ended Companies, Inc. 1996 Stock Incentive October 3, 1998 Plan 10.32* Form of Amended and Restated Non- Exhibit 10.34 to Form Qualified Stock Option Agreement 10-Q for quarter ended under the Fleming Companies, Inc. October 3, 1998 1996 Stock Incentive Plan 10.33* First Amendment to Economic Value Added Exhibit 10.36 to Form Incentive Bonus Plan for Fleming 10-Q for quarter ended Companies, Inc. October 3, 1998 10.34* Amendment No. 2 to Economic Value Added Exhibit 10.37 to Form Incentive Bonus Plan for Fleming 10-Q for quarter ended Companies, Inc. October 3, 1998 10.35* Form of Amendment to Certain Employment Exhibit 10.38 to Form Agreements 10-Q for quarter ended October 3, 1998 10.36* Form of First Amendment to Restricted Exhibit 10.39 to Form Stock Award Agreement for Fleming 10-Q for quarter ended Companies, Inc. 1996 Stock Incentive October 3, 1998 Plan 10.37* Settlement and Severance Agreement by Exhibit 10.40 to Form and between Fleming Companies, Inc. 10-Q for quarter ended and Robert E. Stauth dated August 28, October 3, 1998 1998 10.38* 1999 Stock Incentive Plan 10.39* Form of Non-Qualified Stock Option Agreement for 1999 Stock Incentive Plan 10.40* Corporate officer Incentive Plan 10.41* Employment Agreement for Mark Hansen dated as of November 30, 1998 10.42* Restricted Stock Agreement under 1990 Stock Incentive Plan for Mark Hansen dated as of November 30, 1998 10.43* Form of Amendment to Employment Agreement between Registrant and certain executives dated as of March 2, 1999 10.44* Amendment No. One to 1990 Stock Option Plan 10.45* Fleming Companies, Inc. 1990 Stock Incentive Plan (as amended) 10.46* Fleming Companies, Inc. Amended and Restated Directors' Compensation and Stock Equivalent Unit Plan 10.47* Severance Agreement for Thomas L. Zaricki dated January 29, 1999 10.48* Severance Agreement for Harry L. Winn, Jr. dated February 22, 1999 12 Computation of ratio of earnings to fixed charges 21 Subsidiaries of the Registrant 23 Consent of Deloitte & Touche LLP 24 Power of Attorney 27 Financial Data Schedule
* Management contract, compensatory plan or arrangement. (b) Reports on Form 8-K: On November 30, 1998, registrant announced that the Board of Directors had elected Mark S. Hansen as chairman and chief executive officer. On December 7, 1998, registrant announced the approval of the strategic plan by the Board of Directors. 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 12th day of March 1999. FLEMING COMPANIES, INC. MARK S. HANSEN By: Mark S. Hansen Chairman and Chief Executive Officer (Principal executive and financial officer) KEVIN TWOMEY By: Kevin Twomey Senior Vice President - Controller (Principal accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 12th day of March 1999. MARK S. HANSEN JACK W. BAKER * HERBERT M. BAUM * Mark S. Hansen Jack W. Baker Herbert M. Baum (Chairman of the Board) (Director) (Director) ARCHIE R. DYKES * CAROL B. HALLETT * EDWARD C. JOULLIAN III * Archie R. Dykes Carol B. Hallett Edward C. Joullian III (Director) (Director) (Director) GUY A. OSBORN * DAVID A. RISMILLER * Guy A. Osborn Alice M. Peterson David A. Rismiller (Director) (Director) (Director) DAVID R.ALMOND David R. Almond (Attorney-in-fact) *A Power of Attorney authorizing David R. Almond to sign the Annual Report on Form 10-K on behalf of each of the indicated directors of Fleming Companies, Inc. has been filed herein as Exhibit 24. SCHEDULE II FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 26, 1998 DECEMBER 27, 1997, AND DECEMBER 28, 1996 (In thousands)
Allowance for Credit Losses Current Noncurrent 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 Charged to cost and expenses 23,498 9,979 13,519 Uncollectible accounts written-off, less recoveries (20,114) (9,012) (11,102) BALANCE, December 26, 1998 $47,232 $19,979 $27,253
EX-4.8 2 EXHIBIT 4.8 Exhibit 4.8 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES The Registrant has various long-term debt agreements which define the rights of the holders of the related debt securities of the Registrant. The Registrant agrees to furnish copies of any unfiled debt agreements to the Commission upon request. FLEMING COMPANIES, INC. (Registrant) KEVIN TWOMEY Date: March 12, 1999 By Kevin Twomey Senior Vice President-Controller (Principal Accounting Officer) EX-10.38 3 EXHIBIT 10.38 Exhibit 10.38 FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN TABLE OF CONTENTS
PAGE ---- ARTICLE I PURPOSE......................................................................................1 Section 1.1 PURPOSE................................................................................1 Section 1.2 ESTABLISHMENT..........................................................................1 Section 1.3 SHARES SUBJECT TO THE PLAN.............................................................1 ARTICLE II DEFINITIONS..................................................................................1 ARTICLE III ADMINISTRATION...............................................................................5 Section 3.1 ADMINISTRATION OF THE PLAN; THE COMMITTEE.................................................5 Section 3.2 COMMITTEE TO MAKE RULES AND INTERPRET PLAN................................................6 ARTICLE IV GRANT OF AWARDS; DIRECTORS' RESTRICTED STOCK AWARDS; SHARES SUBJECT TO THE PLAN...................................................................6 Section 4.1 COMMITTEE TO GRANT AWARDS TO ELIGIBLE ASSOCIATES..........................................6 Section 4.2 DIRECTORS' RESTRICTED STOCK AWARDS........................................................7 ARTICLE V ELIGIBILITY..................................................................................7 ARTICLE VI STOCK OPTIONS................................................................................8 Section 6.1 GRANT OF OPTIONS..........................................................................8 Section 6.2 CONDITIONS OF OPTIONS.....................................................................8 ARTICLE VII RESTRICTED STOCK AWARDS......................................................................9 Section 7.1 GRANT OF RESTRICTED STOCK AWARDS..........................................................9 Section 7.2 CONDITIONS OF RESTRICTED STOCK AWARDS.....................................................9 ARTICLE VIII ISSUANCE OF DIRECTORS' RESTRICTED STOCK.....................................................10 Section 8.1 ISSUANCE AND NUMBER OF SHARES OF RESTRICTED STOCK........................................10 Section 8.2 RESTRICTED STOCK HELD IN ESCROW; VESTING; FORFEITURE.....................................10 (a) CERTIFICATES.............................................................................10 (b) DIVIDENDS AND VOTING.....................................................................10 (c) VESTING..................................................................................10 (d) THE ACCOUNTANT...........................................................................11 (e) OTHER RESTRICTIONS.......................................................................11 (f) FORFEITURE...............................................................................11 (g) SECURITIES LAWS..........................................................................11 Section 8.3 ESCROW AGENT.............................................................................11 Section 8.4 RESTRICTIONS ON ALIENATION OF BENEFITS. ................................................11 ARTICLE IX SETTLEMENT OF DIRECTORS' RESTRICTED STOCK ACCOUNTS..........................................11 Section 9.1 SETTLEMENT OF RESTRICTED STOCK ACCOUNTS..................................................11 Section 9.2 DISTRIBUTION OF DIRECTORS' RESTRICTED STOCK..............................................11 Section 9.3 BENEFICIARIES............................................................................12 ARTICLE X STOCK ADJUSTMENTS...........................................................................12
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ARTICLE XI GENERAL.....................................................................................13 Section 11.1 AMENDMENT OR TERMINATION OF PLAN.......................................................13 Section 11.2 TERMINATION OF EMPLOYMENT; TERMINATION OF SERVICE......................................13 Section 11.3 LIMITED TRANSFERABILITY - OPTIONS......................................................13 Section 11.4 WITHHOLDING TAXES......................................................................14 Section 11.5 DIVIDENDS AND DIVIDEND EQUIVALENTS - AWARDS............................................14 Section 11.6 CHANGE OF CONTROL......................................................................14 Section 11.7 AMENDMENTS TO AWARDS...................................................................14 Section 11.8 REGULATORY APPROVAL AND LISTINGS.......................................................14 Section 11.9 RIGHT TO CONTINUED EMPLOYMENT..........................................................15 Section 11.10 NO RIGHT TO CONTINUE AS A DIRECTOR.....................................................15 Section 11.11 RELIANCE ON REPORTS....................................................................15 Section 11.12 CONSTRUCTION...........................................................................15 Section 11.13 GOVERNING LAW..........................................................................15
-ii- ARTICLE I PURPOSE SECTION 1.1 PURPOSE. This 1999 Stock Incentive Plan (the "Plan") is established by Fleming Companies, Inc. (the "Company") to create incentives which are designed to motivate participants ("Eligible Associates" and "Eligible Directors") to put forth maximum effort toward the success and growth of the Company and to enable the Company to attract and retain experienced individuals who by their position, ability and diligence are able to make important contributions to the Company's success. Toward these objectives, the Plan provides for the granting of Options and Restricted Stock Awards to Eligible Associates (the "Stock Incentive Feature") and the issuance of Directors' Restricted Stock to Eligible Directors in lieu of his Base Compensation (the "Directors' Stock Feature") subject to the conditions set forth in the Plan. SECTION 1.2 ESTABLISHMENT. The Stock Incentive Feature is effective as of November 30, 1998 and for a period of ten years thereafter. The Directors' Stock Feature shall be effective July 1, 1999 and for a period of five and one-half years thereafter. The Plan shall continue in effect until all matters relating to the payment of Awards and the issuance of Directors' Restricted Stock and administration of the Plan have been settled. The Plan shall be approved by the holders of a majority of the outstanding shares of Common Stock, present, or represented, and entitled to vote at a meeting called for such purpose, which approval must occur within the period ending twelve months after the date the Plan is adopted by the Board. Pending such approval by the shareholders, Awards of Options under the Stock Incentive Feature may be granted to Eligible Associates, but no such Awards may be exercised prior to receipt of shareholder approval. In the event shareholder approval is not obtained within such twelve-month period, all such Awards shall be void. No Directors' Restricted Stock Awards will be made and no Eligible Director shall receive shares of Directors' Restricted Stock in lieu of his Base Compensation until after the shareholders shall have approved the Plan. SECTION 1.3 SHARES SUBJECT TO THE PLAN. Subject to the limitations set forth in the Plan, Awards may be made under this Plan for a total of Two Million Five Hundred Thousand (2,500,000) shares of Common Stock to Eligible Associates and grants of Two Hundred Thousand (200,000) shares of Directors' Restricted Stock to Eligible Directors. ARTICLE II DEFINITIONS SECTION 2.1 "Accountant" means the office of the Company's independent certified public accountant located in the city where the Company's principal executive offices are located. SECTION 2.2 "Award" means, individually or collectively, any Option or Restricted Stock Award granted under the Stock Incentive Feature to an Eligible Associate by the Committee pursuant to such terms, conditions, restrictions, and/or limitations, if any, as the Committee may establish by the Award Agreement or otherwise. SECTION 2.3 "Award Agreement" means any written instrument that establishes the terms, conditions, restrictions, and/or limitations applicable to an Award in addition to those established by this Plan and by the Committee's exercise of its administrative powers. SECTION 2.4 "Base Compensation" means the annual retainer paid to Eligible Directors under the Directors' Plan. SECTION 2.5 "Beneficiary" shall mean that person or persons designated by an Eligible Director in accordance with Section 9.3 who may be entitled to receive such Eligible Director's Directors' Restricted Stock in the event of the death of the Eligible Director. SECTION 2.6 "Board" means the Board of Directors of the Company. SECTION 2.7 "Change of Control Event" means each of the following: (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 "Outstanding Company Voting Securities"); provided, however, in the event the "Incumbent Board" (as such term is hereinafter defined) pursuant to authority granted in any rights agreement to which the Company is a party (the "Rights Agreement") lowers the acquisition threshold percentages set forth in such Rights Agreement, the Triggering Percentage shall be automatically reduced to equal the threshold percentages set pursuant to authority granted to the board in the Rights Agreement; and provided, further, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (x), (y), and (z) of subsection (c) of this Section 2.7; 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 or acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction will own the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (z) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of (x) a complete liquidation or dissolution of the Company or, (y) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 50% of, respectively, the -2- then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition, and (C) at least a majority of the members of the board of directors of such corporation will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company. SECTION 2.8 "Code" means the Internal Revenue Code of 1986, as amended. References in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section. SECTION 2.9 "Committee" shall have the meaning set forth in Section 3.1. SECTION 2.10 "Common Stock" means the common stock, par value $2.50 per share, of the Company, and after substitution, such other stock as shall be substituted therefor as provided in Article X. SECTION 2.11 "Company" means Fleming Companies, Inc., an Oklahoma corporation. SECTION 2.12 "Compensation Committee" means the Compensation and Organization Committee of the Board. SECTION 2.13 "Controller" means the controller of the Company duly elected by the Board. SECTION 2.14 "Date of Grant" means the date on which the granting of an Award to an Eligible Associate is authorized by the Committee or such later date as may be specified by the Committee in such authorization. SECTION 2.15 "Directors' Plan" means the Amended and Restated Directors' Compensation and Stock Equivalent Unit Plan adopted by the Board in February 1997. SECTION 2.16 "Directors' Restricted Stock" means shares of Common Stock which an Eligible Director has earned as provided in Article VIII of the Plan. SECTION 2.17 "Directors' Restricted Stock Account" shall mean the account of an Eligible Director established with the Escrow Agent under the Escrow. SECTION 2.18 "Directors' Restricted Stock Award" shall mean the issuance of Directors' Restricted Stock under Article VIII of the Plan. SECTION 2.19 "Directors' Stock Feature" shall have the meaning set forth in Section 1.1. SECTION 2.20 "Eligible Associate" means any key associate of the Company or a Subsidiary. SECTION 2.21 "Eligible Director" means any member of the Board who is also not an associate of the -3- Company. SECTION 2.22 "Escrow" means that separate arrangement under which Directors' Restricted Stock will be held pending distribution to the Eligible Director on Vesting or as otherwise provided in the Plan. SECTION 2.23 "Escrow Agent" means the Secretary. SECTION 2.24 "Exchange Act" means the Securities Exchange Act of 1934, as amended. SECTION 2.25 "Executive Officer Participants" means Participants who are subject to the provisions of Section 16 of the Exchange Act. SECTION 2.26 "Fair Market Value" means (A) during such time as the Common Stock is listed upon the New York Stock Exchange or other exchanges or the NASDAQ/National Market System, the average of the highest and lowest sales prices of the Common Stock as reported by 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 Common 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 Common Stock or (B) during any such time as the Common 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 Common 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. SECTION 2.27 "Fiscal Year" means a year comprised of 13 Periods ending on the last Saturday in December in each such year. SECTION 2.28 "GAAP" means Generally Accepted Accounting Principles. SECTION 2.29 "Incentive Stock Option" means an Option within the meaning of Section 422 of the Code. SECTION 2.30 "Net Earnings From Operations" means the net sales of the Company for the period or duration of the determination, calculated in accordance with GAAP, as applied by the Company on a consistent basis, MINUS the total costs and expenses for such period determined in accordance with GAAP, as applied by the Company on a consistent basis, excluding extraordinary items of revenue and expense and excluding revenue and expense items related to strategic plan implementation. SECTION 2.31 "Non-Executive Officer Participants" means Participants who are not subject to the provisions of Section 16 of the Exchange Act. SECTION 2.32 "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. SECTION 2.33 "Option" means an Award granted under Article VI of the Plan and includes both Nonqualified Stock Options and Incentive Stock Options to purchase shares of Common Stock. SECTION 2.34 "Participant" means an Eligible Associate of the Company or a Subsidiary to whom an Award has been granted by the Committee under the Stock Incentive Feature or an Eligible Director who is entitled to receive Directors' Restricted Stock under the Directors' Stock Feature. SECTION 2.35 "Period" means any of 13 periods in any Fiscal Year, each containing four weeks, as established by the Company for accounting purposes. SECTION 2.36 "Plan" means Fleming Companies, Inc. 1999 Stock Incentive Plan. -4- SECTION 2.37 "Regular Award Committee" means a committee comprised of the Company's chief executive officer and the Company's senior executive officer for human resources. SECTION 2.38 "Restricted Stock Award" means an Award granted to an Eligible Associate under Article VII of the Plan. SECTION 2.39 "Secretary" means the corporate secretary of the Company duly elected by the Board. SECTION 2.40 "Stock Incentive Feature" shall have the meaning set forth in Section 1.1. SECTION 2.41 "Subsidiary" shall have the same meaning set forth in Section 424 of the Code. SECTION 2.42 "Termination of Service" means termination of service as a Director under any of the following circumstances: (1) Where the Eligible Director voluntarily resigns or retires; (2) Where the Eligible Director is not re-elected (or elected in the case of an appointed director) to the Board by the shareholders; or (3) Where the Eligible Director dies or is unable to serve as a Director by reason of disability. SECTION 2.43 "Vest" or "Vesting" or "Vested" shall have the meaning set forth in Section 8.2(c). ARTICLE III ADMINISTRATION SECTION 3.1 ADMINISTRATION OF THE PLAN; THE COMMITTEE. For purposes of administration, the Stock Incentive Feature shall be deemed to consist of two separate stock incentive plans, a "Non-Executive Officer Participant Plan" which is limited to Non-Executive Officer Participants and an "Executive Officer Participant Plan" which is limited to Executive Officer Participants. Except for administration and the category of Eligible Associates eligible to receive Awards under the Stock Incentive Feature, the terms of the Non-Executive Officer Participant Plan and the Executive Officer Participant Plan are identical. The Non-Executive Officer Participant Plan shall be administered by both the Regular Award Committee and the Compensation Committee. The Regular Award Committee may only act within guidelines established by the Compensation Committee. The Executive Officer Participant Plan and the Directors' Stock Feature shall be administered by the Compensation Committee. With respect to the Non-Executive Officer Participant Plan and to decisions relating to Non-Executive Officer Participants, including the grant of Awards, the term "Committee" shall mean both the Regular Award Committee and the Compensation Committee; and with respect to the Executive Officer Participant Plan and to decisions relating to the Executive Officer Participants, including the granting of Awards, and with respect to any decisions relating to the administration of the Directors' Stock Feature, the term "Committee" shall mean only the Compensation Committee. Unless otherwise provided in the by-laws of the Company or the resolutions adopted from time to time by the Board establishing the Committee, the Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Committee shall hold -5- meetings at such times and places as it may determine. A majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present or acts reduced to or approved in writing by a majority of the members of the Committee shall be the valid acts of the Committee. Subject to the provisions of the Plan, the Committee shall have exclusive power to: (a) Select the Eligible Associates to participate in the Stock Incentive Feature and determine the eligibility of Directors to be Eligible Directors and to participate in the Directors' Stock Feature. (b) Determine the time or times when Awards will be made. (c) Determine the form of an Award, whether an Option or a Restricted Stock Award, the number of shares of Common Stock subject to the Award, all the terms, conditions (including performance requirements), restrictions and/or limitations, if any, of an Award, including the time and conditions of exercise or vesting, and the terms of any Award Agreement, which may include the waiver or amendment of prior terms and conditions or acceleration or early vesting or payment of an Award under certain circumstances determined by the Committee. (d) Determine whether Awards will be granted singly or in combination. (e) Accelerate the vesting, exercise or payment of an Award and the award of Directors' Restricted Stock or the performance period of an Award when such action or actions would be in the best interest of the Company. (f) Take any and all other action it deems necessary or advisable for the proper operation or administration of the Plan. SECTION 3.2 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 such rules and regulations 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 or any Awards or the issuance of Directors' Restricted Stock and all decisions and determinations by the Committee with respect to the Plan shall be final, binding, and conclusive on all parties. ARTICLE IV GRANT OF AWARDS; DIRECTORS' RESTRICTED STOCK AWARDS; SHARES SUBJECT TO THE PLAN SECTION 4.1 COMMITTEE TO GRANT AWARDS TO ELIGIBLE ASSOCIATES. The Committee may, from time to time, grant Awards to one or more Eligible Associates, provided, however, that: (a) Subject to Article X, the aggregate number of shares of Common Stock made subject to the Award of Options to any Eligible Associate in any Fiscal Year of the Company may not exceed 275,000. (b) Subject to Article X, in no event shall more than 300,000 shares of Common Stock subject to the Plan be awarded to Eligible Associates as Restricted Stock Awards (the "Restricted Stock Award Limit"). (c) Any shares of Common Stock related to Awards which terminate by expiration, forfeiture, cancellation or otherwise without the issuance of shares of Common Stock or are exchanged in the Committee's -6- discretion for Awards not involving Common Stock, shall be available again for grant under the Plan and shall not be counted against the Restricted Stock Award Limit. (d) Common Stock delivered by the Company in payment of any Award under the Plan may be authorized and unissued Common Stock or Common Stock held in the treasury of the Company. (e) The Committee shall, in its sole discretion, determine the manner in which fractional shares arising under this Plan shall be treated. (f) The Compensation Committee shall from time to time establish guidelines for the Regular Award Committee regarding the grant of Awards to Eligible Associates. (g) Separate certificates representing Common Stock to be delivered to an Eligible Associate Participant upon the exercise of any Option will be issued to such Participant. SECTION 4.2 DIRECTORS' RESTRICTED STOCK AWARDS. The issuance of Director's Restricted Stock to Eligible Directors under Article VIII shall be automatic, provided, however, that: (a) Subject to Article X, in no event shall more than 200,000 shares of Common Stock subject to the Plan be issued to Eligible Director Participants as Directors' Restricted Stock. (b) Any Directors' Restricted Stock Award which is forfeited for any reason including failure to Vest shall be available again for grant under the Plan as Directors' Restricted Stock. (c) Common Stock delivered by the Company as Directors' Restricted Stock may be authorized and unissued Common Stock or Common Stock held in the treasury of the Company. (d) Separate certificates representing Directors' Restricted Stock shall be delivered to the Eligible Directors upon Vesting. ARTICLE V ELIGIBILITY Subject to the provisions of the Plan, the Committee shall, from time to time, select from the Eligible Associates those to whom Awards shall be granted and shall determine the type or types of Awards to be made and shall establish in the related Award Agreements the terms, conditions, restrictions and/or limitations, if any, applicable to the Awards in addition to those set forth in the Plan and the administrative rules and regulations issued by the Committee. Each Eligible Director shall be entitled to receive Directors' Restricted Stock under Article VIII of the Plan. If an Eligible Director subsequently becomes an associate (employee) of the Company (or any Subsidiary), but does not incur a Termination of Service, such Director shall (a) continue to be a Participant for Directors' Restricted Stock previously issued and (b) cease eligibility with respect to all future issuance of Directors' Restricted Stock. ARTICLE VI STOCK OPTIONS -7- SECTION 6.1 GRANT OF OPTIONS. The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant Options to Eligible Associates. These Options may be Incentive Stock Options or Nonqualified Stock Options, or a combination of both. Each grant of an Option shall be evidenced by an Award Agreement executed by the Company and the Eligible Associate Participant, and shall contain such terms and conditions and be in such form as the Committee may from time to time approve, subject to the requirements of Section 6.2. SECTION 6.2 CONDITIONS OF OPTIONS. Each Option so granted shall be subject to the following conditions: (a) EXERCISE PRICE. As limited by Section 6.2(e) below, each Option shall state the exercise price which shall be set by the Committee at the Date of Grant; provided, however, no Option shall be granted at an exercise price which is less than the Fair Market Value of the Common Stock on the Date of Grant. (b) FORM OF PAYMENT. The exercise price of an Option may be paid (i) in cash or by check, bank draft or money order payable to the order of the Company; (ii) by delivering shares of Common Stock having a Fair Market Value on the date of payment equal to the amount of the exercise price; or (iii) a combination of the foregoing. In addition to the foregoing, any Option granted under the Plan may be exercised by a broker-dealer acting on behalf of an Eligible Associate Participant if (A) the broker-dealer has received from the Eligible Associate Participant or the Company a notice evidencing the exercise of such Option and instructions signed by the Eligible Associate Participant requesting the Company to deliver the shares of Common Stock subject to such Option to the broker-dealer on behalf of the Eligible Associate Participant and specifying the account into which such shares should be deposited, (B) adequate provision has been made with respect to the payment of any withholding taxes due upon such exercise or, in the case of an Incentive Stock Option, upon the disposition of such shares and (C) the broker-dealer and the Eligible Associate Participant have otherwise complied with Section 220.3(e)(4) of Regulation T, 12 CFR, Part 220 and any successor rules and regulations applicable to such exercise. (c) EXERCISE OF OPTIONS. Options granted under the Plan shall be exercisable, in whole or in such installments and at such times, and shall expire at such time, as shall be provided by the Committee in the Award Agreement. Exercise of an Option shall be by written notice to the Secretary two business days in advance of such exercise stating the election to exercise in the form and manner determined by the Committee. Every share of Common Stock acquired through the exercise of an Option shall be deemed to be fully paid at the time of exercise and payment of the exercise price. (d) OTHER TERMS AND CONDITIONS. Among other conditions that may be imposed by the Committee, if deemed appropriate, are those relating to (i) the period or periods and the conditions of exercisability of any Option; (ii) the minimum periods during which Participants must be employed by the Company or its Subsidiaries, or must hold Options before they may be exercised; (iii) the minimum periods during which shares acquired upon exercise must be held before sale or transfer shall be permitted; (iv) conditions under which such Options or shares may be subject to forfeiture; (v) the frequency of exercise or the minimum or maximum number of shares that may be acquired at any one time and (vi) the achievement by the Company of specified performance criteria. (e) SPECIAL RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS. Options issued in the form of Incentive Stock Options shall, in addition to being subject to all applicable terms, conditions, restrictions and/or limitations established by the Committee, comply with the requirements of Section 422 of the Code, including, without limitation, the requirement that the exercise price of an Incentive Stock Option not be less than 100% of the Fair Market Value of the Common Stock on the Date of Grant, the requirement that each Incentive Stock Option, unless sooner exercised, terminated or cancelled, expire no later than 10 years from its Date of Grant, and the requirement that the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under this Plan or any other plan of the Company or any Subsidiary) not exceed $100,000. -8- (f) APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock pursuant to Options will be used for general corporate purposes. (g) SHAREHOLDER RIGHTS. No Participant shall have a right as a shareholder with respect to any share of Common Stock subject to an Option prior to purchase of such shares of Common Stock by exercise of the Option. ARTICLE VII RESTRICTED STOCK AWARDS SECTION 7.1 GRANT OF RESTRICTED STOCK AWARDS. The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as it may determine, grant a Restricted Stock Award to any Eligible Associate. Restricted Stock Awards shall be awarded in such number and at such times during the term of the Plan as the Committee shall determine. Each Restricted Stock Award may be evidenced in such manner as the Committee deems appropriate, including, without limitation, a book-entry registration or issuance of a stock certificate or certificates, and by an Award Agreement setting forth the terms of such Restricted Stock Award. SECTION 7.2 CONDITIONS OF RESTRICTED STOCK AWARDS. The grant of a Restricted Stock Award shall be subject to the following: (a) RESTRICTION PERIOD. In addition to any vesting conditions determined by the Committee, including, but not by way of limitation, the achievement by the Company of specified performance criteria, vesting of each Restricted Stock Award shall require the holder to remain in the employment of the Company or a Subsidiary for a prescribed period (a "Restriction Period"). The Committee shall determine the Restriction Period or Periods which shall apply to the shares of Common Stock covered by each Restricted Stock Award or portion thereof; provided, however, all Restricted Stock Awards shall have a minimum Restriction Period of at least one year from the Date of Grant. At the end of the Restriction Period, assuming the fulfillment of any other specified vesting conditions, the restrictions imposed by the Committee shall lapse with respect to the shares of Common Stock covered by the Restricted Stock Award or portion thereof. The Committee may, in its sole discretion, modify or accelerate the vesting of a Restricted Stock Award under such circumstances as it deems appropriate. (b) RESTRICTIONS. The holder of a Restricted Stock Award may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the shares of Common Stock represented by the Restricted Stock Award during the applicable Restriction Period. The Committee shall impose such other restrictions and conditions on any shares of Common Stock covered by a Restricted Stock Award as it may deem advisable including, without limitation, restrictions under applicable Federal or state securities laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. (c) RIGHTS AS SHAREHOLDERS. During any Restriction Period, the Committee may, in its discretion, grant to the holder of a Restricted Stock Award all or any of the rights of a shareholder with respect to the shares, including, but not by way of limitation, the right to vote such shares and to receive dividends. If any dividends or other distributions are paid in shares of Common Stock, all such shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. ARTICLE VIII ISSUANCE OF DIRECTORS' RESTRICTED STOCK -9- SECTION 8.1 ISSUANCE AND NUMBER OF SHARES OF RESTRICTED STOCK. Each Eligible Director shall receive annually, in lieu of the cash annual retainer and the stock equivalent units payable for services to be rendered by him as a Director of the Company under the Directors' Plan, an award of shares of Company Common Stock with the attributes and restrictions as provided in the Plan (the "Directors' Restricted Stock"). There shall be credited to the Directors' Restricted Stock Account (i) on or about July 1, 1999 1,750 shares of Directors' Restricted Stock for the year 1999 and (ii) 3,500 shares of Directors' Restricted Stock on or about the 15th day of March of each calendar year for a period of 5 years thereafter. Persons who become Eligible Directors during the term of the Directors' Stock Feature by appointment of the Board or election by the shareholders shall receive an award of their pro rata share of Directors' Restricted Stock on or about the 15th day of March next succeeding such appointment or election, determined by multiplying 3,500 by a fraction the numerator of which is the number of days remaining in the year of appointment or election and the denominator of which is 365 except for the year 1999. For the year 1999, persons who become Eligible Directors prior to July 1, 1999 shall be an Eligible Director for all purposes under the Directors Stock Feature. Persons who become Eligible Directors on or after July 1, 1999 and prior to January 1, 2000 shall receive an award of their pro rata share of Directors' Restricted Stock determined by multiplying 1,750 by a fraction the numerator of which is the number of days remaining in the year 1999 from such appointment or election, and the denominator of which is 182. Each award of Directors' Restricted Stock shall contain such terms, restrictions, attributes and conditions as set forth in Section 8.2. SECTION 8.2 RESTRICTED STOCK HELD IN ESCROW; VESTING; FORFEITURE. The Committee shall cause a certificate to be delivered to the Escrow Agent (appointed pursuant to Section 8.3 below) registered in the name of the Eligible Director for the total number of shares of Directors' Restricted Stock represented by his award in accordance with the following terms, attributes and conditions: (a) CERTIFICATES. Any such certificate shall be legended to indicate that the shares of Directors' Restricted Stock represented by such certificate are subject to the terms and conditions of the Plan. (b) DIVIDENDS AND VOTING. All Directors' Restricted Stock held by the Escrow Agent shall constitute issued and outstanding shares of Common Stock of the Company for all corporate purposes, and the Eligible Director shall receive all cash dividends thereon and shall have the right to vote such shares provided that the right to receive such dividends and to vote such shares shall forthwith terminate with respect to unvested shares of Directors' Restricted Stock of any Eligible Director whose grant has been forfeited as provided in this Plan. (c) VESTING. With respect to each Eligible Director, shares of Directors' Restricted Stock held by the Escrow Agent shall fully vest and be nonforfeitable on the date which is five years from the date of the award if the Company's Net Earnings From Operations for the 13 full Periods preceding the date of such determination exceed the Company's Net Earnings From Operations for Fiscal Year 1998 by at least 10%, such date being herein sometimes referred to as the date the shares of Directors' Restricted Stock "Vest" or "Vesting" occurs or shares of Directors' Restricted Stock become "Vested." Provided, however, with the consent of the Committee following request by an Eligible Director, the Vesting of shares of Directors' Restricted Stock may be accelerated in whole or in part to the date of an Eligible Director's Termination of Service if the Company's Net Earnings From Operations for the 13 full Periods preceding his Termination of Service exceed the Company's Net Earnings From Operations for Fiscal Year 1998 by at least 10%. As such Directors' Restricted Stock shall Vest in accordance with this Plan, the Escrow Agent shall deliver to such Participant or his respective Beneficiary (in the case of the Eligible Director's death) certificates representing such Vested shares of Directors' Restricted Stock as provided in Section 9.2. As a condition precedent to delivering a certificate representing shares of Directors' Restricted Stock to the Escrow Agent, the Committee may require each Eligible Director to deliver to the Escrow Agent a duly executed irrevocable stock power or powers (in blank) covering the Directors' Restricted Stock represented by such certificate. (d) THE ACCOUNTANT. The Controller of the Company shall determine the Net Earnings From Operations whenever the occasion for such determination is required. Any Eligible Director, however, may request the Committee to engage the Accountant to verify the Controller's determination whose verification or independent -10- determination, as the case may be, shall be conclusive and binding on the Company, the Committee and the Eligible Directors. (e) OTHER RESTRICTIONS. In addition to Vesting, while Directors' Restricted Stock is held in Escrow and until such Directors' Restricted Stock has become fully Vested, it shall also be subject to the restrictions set forth in Section 8.4 of the Plan. (f) FORFEITURE. Shares of Directors' Restricted Stock which are not Vested in accordance with Section 8.2(c) shall be forfeited and will again become subject to the terms of the Directors' Stock Feature. Certificates representing unvested shares of Directors' Restricted Stock held by the Escrow Agent for the benefit of any Eligible Directors whose grant (to the extent then unvested) has been forfeited shall be returned (together with the related stock power) by the Escrow Agent to the Company. (g) SECURITIES LAWS. The Company shall have no liability to issue any Directors' Restricted Stock hereunder unless such Directors' Restricted Stock and issuance thereof comply with all applicable federal or state securities laws and all other applicable laws. SECTION 8.3 ESCROW AGENT. The Secretary is hereby designated as the Escrow Agent for the Escrow. The Committee shall have the power to remove the Secretary from the position of Escrow Agent and to appoint a substitute or successor Escrow Agent. The out-of-pocket expenses of the Escrow Agent shall be paid by the Company subject to approval of the Committee. The Escrow Agent shall not be entitled to any fees or commission for such services. The Escrow Agent shall not incur liability for any action taken pursuant to the Plan or any issuance of Directors' Restricted Stock made thereunder so long as the Escrow Agent acts in good faith in accordance with the instructions of the Committee. The Escrow Agent shall disburse all cash dividends he receives to the Eligible Directors and shall hold the Directors' Restricted Stock until the stock has Vested and he is directed by the Committee to deliver such certificates to the Eligible Director. SECTION 8.4 RESTRICTIONS ON ALIENATION OF BENEFITS. Directors' Restricted Stock Awards shall not be subject in any manner to garnishment, attachment, anticipation, alienation, sale, transfer, assignment, gift, pledge, encumbrance, disposition, hypothecation, levy, execution or the claims of creditors, either voluntarily or involuntarily, as long as such award has not vested. Any attempt to so garnish, attach, anticipate, alienate, sell, transfer, assign, gift, pledge, encumber, dispose, hypothecate, levy or execute on the same such Directors' Restricted Stock shall be null and void, and neither shall such benefits or beneficial interests be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person to whom such benefits or funds are payable. ARTICLE IX SETTLEMENT OF DIRECTORS' RESTRICTED STOCK ACCOUNTS SECTION 9.1 SETTLEMENT OF RESTRICTED STOCK ACCOUNTS. When an Eligible Director's Directors' Restricted Stock is Vested, the Company will settle an Eligible Directors' Restricted Stock Account in the manner described in Section 9.2 as soon as administratively feasible. SECTION 9.2 DISTRIBUTION OF DIRECTORS' RESTRICTED STOCK. Each Eligible Director shall specify at the time he becomes an Eligible Director (or in the case of the current Eligible Directors on or prior to July 1, 1999) the name and address of his Beneficiary as required by Section 9.3, which may be changed by the Eligible Directors upon notice to the Committee. Upon Vesting of any shares of Directors' Restricted Stock and upon direction from the Committee, the Escrow Agent shall cause any restrictive legend to be removed from the certificates of Vested Directors' Restricted Stock and new certificates issued in accordance with federal and state securities laws to the Eligible Director (or his Beneficiary). SECTION 9.3 BENEFICIARIES. Each Eligible Director may designate, on a form provided by the Committee, -11- one or more Beneficiaries to receive his shares of Directors' Restricted Stock described in Section 8.1 in the event of such Eligible Director's death. The Company may rely upon the beneficiary designation last filed with the Committee, provided that such form was executed by the Eligible Director or his legal representative and filed with the Committee prior to the Eligible Director's death. ARTICLE X STOCK ADJUSTMENTS In the event that the shares of Common 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 Common Stock shall be increased through the payment of a stock dividend, or a dividend on the shares of Common Stock or rights or warrants to purchase securities of the Company shall be made, then there shall be substituted for or added to each share available under and subject to the Plan, and each share theretofore appropriated or thereafter subject or which may become subject to any Award or any Directors' Restricted Stock Award under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of Common 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, however, with respect to Options, in no such event will such adjustment result in a modification of any 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 Common Stock, or any stock or other securities into which the Common 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 Award, or any Directors' Restricted Stock Award 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 Common Stock available under the Plan or to which any Award or any Directors' Restricted Stock Award 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 Common Stock available under the Plan or to which any Award or any Directors' Restricted Stock Award 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 Article X and not previously made would result in a Minimum Adjustment. Notwithstanding the foregoing, any adjustment required by this Article X which otherwise would not result in a Minimum Adjustment shall be made with respect to shares of Common Stock relating to any Award or any Directors' Restricted Stock Award immediately prior to exercise, payment or settlement of such Award. No fractional shares of Common 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. -12- ARTICLE XI GENERAL SECTION 11.1 AMENDMENT OR TERMINATION OF PLAN. The Board may alter, suspend or terminate the Plan at any time. In addition, the Board may, from time to time, amend the Plan in any manner, but may not without shareholder approval adopt any amendment which would increase the aggregate number of shares of Common Stock available under the Plan (except by operation of Article X) or materially modify the requirements as to eligibility of Eligible Associates or Eligible Directors for participation in the Plan. SECTION 11.2 TERMINATION OF EMPLOYMENT; TERMINATION OF SERVICE. If an Eligible Associate's employment with the Company or a Subsidiary terminates for a reason other than death, disability, retirement, or any approved reason, all unexercised, unearned, and/or unpaid Awards, including, but not by way of limitation, Awards earned, but not yet paid, all unpaid dividends and dividend equivalents, and all interest, if any, accrued on the foregoing shall be cancelled or forfeited, as the case may be, unless the Eligible Associate's Award Agreement provides otherwise. The Committee shall (i) determine what events constitute disability, retirement, or termination for an approved reason for purposes of the Plan, and (ii) determine the treatment of a Participant under the Plan in the event of his or her death, disability, retirement, or termination for an approved reason. The Committee shall also determine the method, if any, for accelerating the vesting or exercisability of any Options, or providing for the exercise of any unexercised Options in the event of an Eligible Associate's death, disability, retirement, or termination for an approved reason. In the event an Eligible Associate's employment is terminated due to retirement in accordance with the Company's retirement policies, unless the Eligible Associate's Award Agreement provides otherwise, the Eligible Associate shall have a period of three years following his date of retirement to exercise any Nonqualified Stock Options which are otherwise exercisable on his date of retirement. In the event of a Termination of Service by an Eligible Director, the provisions of Section 8.2 of the Plan shall control. The Committee shall determine in its sole discretion when an Eligible Director has voluntarily resigned or retired or is unable to serve as a Director by reason of disability. SECTION 11.3 LIMITED TRANSFERABILITY - OPTIONS. The Committee may, in its discretion, authorize all or a portion of the Nonqualified Stock Options to be granted under this Plan to be on terms which permit transfer by the Participant to (i) the ex-spouse of the Participant pursuant to the terms of a domestic relations order, (ii) the spouse, children or grandchildren of the Participant ("Immediate Family Members"), (iii) a trust or trusts for the exclusive benefit of such immediate Family Members, or (iv) a partnership in which such Immediate Family Members are the only partners. In addition (x) there may be no consideration for any such transfer, (y) the stock option agreement pursuant to which such Nonqualified Stock Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this paragraph, and (z) subsequent transfers of transferred Nonqualified Stock Options shall be prohibited except as set forth below in this Section 11.3. Following transfer, any such Nonqualified Stock Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Section 11.2 hereof the term "Participant" shall be deemed to refer to the transferee. The events of termination of employment of Section 11.2 hereof shall continue to be applied with respect to the original Participant, following which the Nonqualified Stock Options shall be exercisable by the transferee only to the extent, and for the periods specified in Section 11.2 hereof. No transfer pursuant to this Section 11.3 shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer together with such other documents regarding the transfer as the Committee shall request. In addition, subject to the foregoing provisions of this Section 11.3, Awards shall be transferable only by will or the laws of descent and distribution; however, no such transfer of an Award by the Participant shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee of the terms and conditions of such Award. -13- SECTION 11.4 WITHHOLDING TAXES. Unless otherwise paid by the Participant, the Company shall be entitled to deduct from any payment under the Plan, regardless of the form of such payment, the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the Participant to pay to it such tax prior to and as a condition of the making of such payment. In accordance with any applicable administrative guidelines it establishes, the Committee may allow a Participant or an Eligible Director to pay the amount of taxes required by law to be withheld from an Award or Directors' Restricted Stock Award by (i) directing the Company to withhold from any payment of the Award or Directors' Restricted Stock Award a number of shares of Common Stock having a Fair Market Value on the date of payment equal to the amount of the required withholding taxes or (ii) delivering to the Company previously owned shares of Common Stock having a Fair Market Value on the date of payment equal to the amount of the required withholding taxes. SECTION 11.5 DIVIDENDS AND DIVIDEND EQUIVALENTS - AWARDS. The Committee may choose, at the time of the grant of any Award or any time thereafter up to the time of payment of such Award, to include as part of such Award an entitlement to receive dividends or dividend equivalents subject to such terms, conditions, restrictions, and/or limitations, if any, as the Committee may establish. Dividends and dividend equivalents granted hereunder shall be paid in such form and manner (i.e., lump sum or installments), and at such time as the Committee shall determine. All dividends or dividend equivalents which are not paid currently may, at the Committee's discretion, accrue interest. SECTION 11.6 CHANGE OF CONTROL. Awards granted under the Plan to any Eligible Associate may, in the discretion of the Committee, provide that such Awards shall be immediately vested, fully earned and exercisable upon the occurrence of a Change of Control Event. Directors' Restricted Stock Awards shall immediately vest upon the occurrence of a Change of Control Event without the action or intervention of the Committee. SECTION 11.7 AMENDMENTS TO AWARDS. The Committee may at any time unilaterally amend the terms of any Award Agreement, whether or not presently exercisable or vested, to the extent it deems appropriate; provided, however, that any such amendment which is adverse to the Participant shall require the Participant's consent. SECTION 11.8 REGULATORY APPROVAL AND LISTINGS. The Company shall use its best efforts to file with the Securities and Exchange Commission as soon as practicable following approval by the shareholders of the Company of the Plan as provided in Section 1.2 of the Plan, and keep continuously effectively, a Registration Statement on Form S-8 with respect to shares of Common Stock subject to Awards and Directors' Restricted Stock Awards hereunder. Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates representing shares of Common Stock under this Plan prior to: (a) the obtaining of any approval from, or satisfaction of any waiting period or other condition imposed by, any governmental agency which the Committee shall, in its sole discretion, determine to be necessary or advisable; (b) the admission of such shares to listing on the stock exchange on which the Common Stock may be listed; and (c) the completion of any registration or other qualification of such shares under any state or Federal law or ruling of any governmental body which the Committee shall, in its sole discretion, determine to be necessary or advisable. SECTION 11.9 RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan shall not give any Eligible Associate any right to remain in the employ of the Company or any Subsidiary. The Company or, in the case of employment with a Subsidiary, the Subsidiary reserves the right to terminate any Eligible Associate at any time. Further, the adoption of this Plan shall not be deemed to give any Eligible Associate or any other individual any right to be selected as a Participant or to be granted an Award. -14- SECTION 11.10 NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in this Plan will confer upon an Eligible Director any right to continue to serve as a Director. SECTION 11.11 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 its Subsidiaries 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. SECTION 11.12 CONSTRUCTION. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan are for the convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. SECTION 11.13 GOVERNING LAW. The Plan shall be governed by and construed in accordance with the laws of the State of Oklahoma except as superseded by applicable Federal law. -15- EX-10.39 4 EXHIBIT 10.39 Exhibit 10.39 FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN - -------------------------------------------------------------------------------- NON-QUALIFIED STOCK OPTION AGREEMENT - -------------------------------------------------------------------------------- Name: ______________ Grant Date: _______, ____ Option Price: $_____________ Exercise Date: _______, ____ - __% Shares Granted: ______________ _______, ____ - __% Expiration Date: ______________ _______, ____ - __% _______, ____ - __% NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE FLEMING COMPANIES, INC. 1999 STOCK INCENTIVE PLAN THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement"), made as of this ___ day of _________, ____, at Oklahoma City, Oklahoma by and between __________________ (hereinafter referred to as the "Participant", and Fleming Companies, Inc. (hereinafter referred to as the "Company"): W I T N E S S E T H: WHEREAS, the Participant is a an "Eligible Associate" of the Company, as such term is defined in the Plan, and it is important to the Company that the Participant be encouraged to remain in the employ of the Company; and WHEREAS, in recognition of such facts, the Company desires to provide to the Participant an opportunity to purchase shares of the common stock of the Company, as hereinafter provided, pursuant to the "Fleming Companies, Inc. 1999 Stock Incentive Plan" (the "Plan"), which is incorporated herein. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the Participant and the Company hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Participant Nonqualified Stock Options (the "Stock Options") to purchase all or any part of an aggregate of _______ shares of Common Stock under and subject to the terms and conditions of this Option Agreement and the Plan, which is incorporated herein by reference and made a part hereof for all purposes. All capitalized terms used in this Option Agreement shall have the same meaning ascribed to them in the Plan unless specifically denoted otherwise. The purchase price per share for each share of Common Stock to be purchased hereunder shall be $______ (the "Option Price"). 2. TIMES OF EXERCISE OF STOCK OPTION. After, and only after, the conditions of Section 8 hereof have been satisfied, the Participant shall be eligible to exercise that portion of his Stock Options pursuant to the schedule set forth hereinafter. If the Participant's employment with the Company (or of any one or more of the Subsidiaries of the Company) remains full-time and continuous at all times prior to any of the "Exercise Dates" set forth in this Section 2, then the Participant shall be entitled, subject to the applicable provisions of the Plan and this Option Agreement having been satisfied, to exercise on or after the applicable Exercise Date, on a cumulative basis, the number of shares of Stock determined by multiplying the aggregate number of shares set forth in Section 1 of this Option Agreement by the designated percentage set forth below.
Percent of Stock Exercise Dates Option Exercisable - -------------- ------------------ On or After _______, ____ 25% On or After _______, ____ 50% On or After _______, ____ 75% On or After _______, ____ 100%
3. TERM OF STOCK OPTION. Except as provided for in Section 4 of this Option Agreement, none of the Stock Options shall be exercisable more than ten years from the Date of Grant (the "Option Period"). 4. SPECIAL RULES WITH RESPECT TO STOCK OPTIONS. With respect to the Stock Options, the following special rules shall apply: (a) EXERCISE OF EXERCISABLE STOCK OPTIONS ON TERMINATION OF EMPLOYMENT. Except as provided to the contrary in Section 4(d) of this Option Agreement, if a Participant's employment with the Company or a Subsidiary is terminated during the Option Period for any reason other than death, he may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of such termination at any time within three months from the date of termination; provided, however, that if the Participant should die during such three month period, the rights of his personal representative shall be as set forth in Section 4(b) of this Stock Option Agreement. (b) EXERCISE OF EXERCISABLE STOCK OPTIONS ON TERMINATION OF EMPLOYMENT DUE TO DEATH. If a Participant's employment with the Company or a Subsidiary is terminated during the Option Period due to his death, the personal representative of the deceased Participant may exercise all or any portion of the Stock Options which are otherwise exercisable on the date of death within 12 months from the date of death. (c) ACCELERATION OF OTHERWISE UNEXERCISABLE STOCK OPTIONS ON TERMINATION OF EMPLOYMENT. The Committee, in its sole discretion, may determine that upon termination of the employment of a Participant any and all Stock Options shall become automatically fully vested and immediately exercisable by the Participant or his personal representative as the case may be for whatever period following such termination as the Committee shall so decide. (d) ACCELERATION OF OPTIONS UPON CHANGE OF CONTROL. Upon the 2 occurrence of a Change of Control Event, any and all Stock Options will become automatically fully vested and immediately exercisable with such acceleration to occur without the requirement of any further act by either the Company or the Participant. (e) EXERCISE OF EXERCISABLE STOCK OPTIONS ON TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. If a Participant's employment with the Company or a Subsidiary is terminated due to retirement in accordance with the Company's retirement policies, the Participant shall have a period of three years following his date of retirement to exercise the Stock Options which are otherwise exercisable on his date of retirement. 5. NON-TRANSFERABILITY OF STOCK OPTIONS. Except as provided in Section 11.3 of the Plan regarding certain limited transferability of Stock Options with the Committee's approval, Stock Options shall be transferable only by will or the laws of descent and distribution; however, no such transfer of the Stock Options by the Participant shall be effective to bind the Company unless the Company shall have been furnished with written notice of such transfer and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee of the terms and conditions of such Option. 6. EMPLOYMENT. So long as the Participant shall continue to be a full-time and continuous employee of the Company or a Subsidiary, the Stock Options shall not be affected by any change of duties or position. Nothing in the Plan or in this Option Agreement shall confer upon the Participant any right to continue in the employ of the Company, or any of the Subsidiaries, or interfere in any way with the right of the Company or any of the Subsidiaries to terminate such Participant's employment at any time. 7. METHOD OF EXERCISING STOCK OPTION. (a) PROCEDURES FOR EXERCISE. The manner of exercising the Stock Options shall be by written notice to the Company at least two days before the date the Stock Option, or part thereof, is to be exercised, and in any event prior to the expiration of the Option Period. Such notice shall state the election to exercise the Stock Options and the number of shares of Common Stock with respect to that portion of the Stock Options being exercised, and shall be signed by the person or persons so exercising the Stock Options. The notice shall be accompanied by payment of the full purchase price of such shares, in which event the Company shall deliver a certificate or certificates representing such shares to the person or persons entitled thereto as soon as practicable after the notices shall be received. (b) FORM OF PAYMENT. Payment for shares of Common Stock purchased under this Option Agreement shall be made in full by the Participant in any manner specified in Section 6.2(b) of the Plan. No Common Stock shall be issued to the Participant until the Company receives full payment for the Common Stock purchased under the Stock Options which shall include any required state and federal withholding taxes. Withholding taxes may be paid by Participant in any manner specified in Section 11.4 the Plan. 3 (c) FURTHER INFORMATION. In the event the Stock Options are exercised, pursuant to the foregoing provisions of this Section 7, by any person or persons other than the Participant in the event of the death of the Participant, such notice shall also be accompanied by appropriate proof of the right of such person or persons to exercise the Stock Options. The notice so required shall be given by personal delivery to the Secretary of the Company or by registered or certified mail, addressed to the Company at 6301 Waterford Boulevard, Oklahoma City, Oklahoma 73118, and it shall be deemed to have been given when it is so personally delivered or when it is deposited in the United States mail in an envelope addressed to the Company, as aforesaid, properly stamped for delivery as a registered or certified letter. 8. SECURITIES LAW RESTRICTIONS; SHAREHOLDER APPROVAL OF THE PLAN. Stock Options shall be exercised and Common Stock issued only upon (i) compliance with the Securities Act of 1933, as amended (the "Act"), and any other applicable securities law, or pursuant to an exemption therefrom and (ii) approval by the shareholders of the Company of the Plan at the 1999 Annual Meeting of Shareholders. 9. NOTICES. All notices or other communications relating to the Plan and this Option Agreement as it relates to the Participant shall be in writing and shall be mailed (U.S. Mail) by the Company to the Participant at the then current address as maintained by the Company or such other address as the Participant may advise the Company in writing. IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly executed by its officers thereunto duly authorized, and the Participant has hereunto set his hand and seal, all on the day and year first above written. COMPANY: FLEMING COMPANIES, INC., an Oklahoma corporation By ------------------------------------------------ Scott M. Northcutt, Senior Vice President - Human Resources PARTICIPANT: -------------------------------------------------- ------------------ 4 EX-10.40 5 EXHIBIT 10.40 FLEMING COMPANIES, INC. CORPORATE OFFICER INCENTIVE PLAN (Adopted January 19, 1999) FLEMING COMPANIES, INC. CORPORATE OFFICER INCENTIVE PLAN
TABLE OF CONTENTS Page ---- ARTICLE I Name and Purpose of Plan. . . . . . . . . . . . . 1 1.1 Name of Plan . . . . . . . . . . . . . . . 1 1.2 Purpose. . . . . . . . . . . . . . . . . . 1 ARTICLE II Definitions and Construction. . . . . . . . . . . 1 2.1 Definitions. . . . . . . . . . . . . . . . 1 2.2 Construction . . . . . . . . . . . . . . . 4 ARTICLE III Participation . . . . . . . . . . . . . . . . . . 4 3.1 Selection for Participation. . . . . . . . 4 3.2 Relationship to Change of Control Agreements . . . . . . . . . . . . 4 ARTICLE IV Determination of Awards . . . . . . . . . . . . . 4 4.1 Determination. . . . . . . . . . . . . . . 4 4.2 Committee to Establish Targets . . . . . . 5 ARTICLE V Payment of Awards . . . . . . . . . . . . . . . . 5 5.1 Date of Payment of Awards. . . . . . . . . 5 5.2 Certain Terminations of Employment . . . . . . . . . . . . . . . . 5 5.3 Forfeiture, Reduction and Elimination of Awards. . . . . . . . . . . 5 5.4 Awards Exceeding IRS Limits. . . . . . . . 6 ARTICLE VI General Benefit Provisions. . . . . . . . . . . . 6 6.1 No Trust . . . . . . . . . . . . . . . . . 6 6.2 Withholding for Income and Employment Taxes . . . . . . . . . . . . . 6
-i- 6.3 No Interest on Awards. . . . . . . . . . . 6 6.4 Payments by the Company or Subsidiary . . . . . . . . . . . . . . . . 7 6.5 Payment in Event of Death. . . . . . . . . 7 6.6 Restriction on Alienation of Awards. . . . . . . . . . . . . . . . . 7 6.7 Expenses . . . . . . . . . . . . . . . . . 7 6.8 No Prior Right or Offer. . . . . . . . . . 7 6.9 No Continued Employment. . . . . . . . . . 7 6.10 No Vested Rights . . . . . . . . . . . . . 7 6.11 No Part of Other Benefits. . . . . . . . . 7 6.12 Other Plans. . . . . . . . . . . . . . . . 8 ARTICLE VII Provisions Relating to Participants . . . . . . . 8 7.1 Information Required of Participants . . . . . . . . . . . . . . . 8 7.2 Benefits Payable to Incompetents . . . . . 8 ARTICLE VIII Administration. . . . . . . . . . . . . . . . . . 8 8.1 The Committee Shall Administer the Plan . . . . . . . . . . . . . . . . . 8 8.2 Claims Procedure . . . . . . . . . . . . . 8 8.3 Review Procedure . . . . . . . . . . . . . 9 8.4 Records and Reports. . . . . . . . . . . . 9 8.5 Rules and Decisions. . . . . . . . . . . . 9 ARTICLE IX Amendment and Termination . . . . . . . . . . . . 9 9.1 Right to Amend Plan. . . . . . . . . . . . 9 9.2 Right to Terminate Plan. . . . . . . . . . 9 ARTICLE X Miscellaneous Provisions. . . . . . . . . . . . . 10 10.1 Articles and Section Titles and Headings . . . . . . . . . . . . . . . 10 10.2 Laws of Oklahoma to Govern . . . . . . . . 10 10.3 Effective Date of Plan; Shareholder Approval . . . . . . . . . . . 10
-ii- FLEMING COMPANIES, INC. CORPORATE OFFICER INCENTIVE PLAN FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the Fleming Companies, Inc. Corporate Officer Incentive 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. CORPORATE OFFICER INCENTIVE PLAN. 1.2 PURPOSE. The purpose of the Plan is to provide the Key Associates who are selected to be Participants under the Plan an incentive to motivate and financially reward such individuals by providing the opportunity to earn a bonus if certain Targets are met. The general objective of the Plan is to establish intense focus upon those performance criteria which are most critical to the Company's success in 1999 and thereafter. Certain primary goals of the Plan are to (i) attain substantial improvement in Sales, (ii) improve Earnings, (iii) provide a concrete and understandable linkage between performance, rewards and share value creation for the Company's stockholders, and (iv) encourage team work. The Plan is not an "employee benefit plan" under the Employee Retirement 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) ANNIVERSARY DATE: The words "Anniversary Date" shall mean the last Saturday of December which is end of each Year of the Company. (b) AWARD: The word "Award" shall mean, with respect to any Participant, the amount of bonus calculated in accordance with Section 4.1 hereof. (c) BENEFICIARY: The word "Beneficiary" shall mean that person designated by the Participant pursuant to Section 6.5 hereof. (d) BASE SALARY: The words "Base Salary" shall mean the Participant's base salary as determined by the Committee for each Year of the Plan adjusted for salary merit increases or any salary decreases occurring during such Year. (e) BOARD: The word "Board" shall mean the Board of Directors of the Company. (f) CODE: The word "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (g) COMMITTEE: The word "Committee" shall mean the Compensation and Organization Committee appointed by the Board which in accordance with Article VIII herein will administer the Plan. (h) COMPANY: The word "Company" shall mean Fleming Companies, Inc., or its successor. (i) DISABILITY: The word "Disability" shall have the meaning set forth in the Company's Long Term Disability Plan. (j) EARNINGS: The word "Earnings" shall mean, for the Year of determination of an Award, the consolidated gross revenues of the Company (excluding Extraordinary Revenue Items) computed in accordance with GAAP, consistently applied, from which shall be deducted an amount for such period equal to the aggregate of all consolidated expenses and other charges for such period (excluding Extraordinary Charge Items) and income taxes for such period computed in accordance with GAAP, consistently applied. (k) EARNINGS PER SHARE: The words "Earnings Per Share" shall mean, for the Year of determination of an Award, Earnings divided by the weighted average shares outstanding for a fully diluted earnings per share calculation as determined in accordance with GAAP consistently applied. (l) EFFECTIVE DATE: The words "Effective Date" shall mean December 27, 1998. (m) EMPLOYER: The word "Employer" shall mean the Company or any Subsidiary. (n) EXTRAORDINARY CHARGE ITEMS: The words "Extraordinary Charge Items" shall mean for the Year of determination of an Award: (i) expense items and other charges as determined extraordinary in accordance with GAAP, consistently applied, as shall appear on the consolidated earnings statements of the Company for such Year; and (ii) expense items and other charges the Committee considers non-operating and by nature unusual or infrequent. (o) EXTRAORDINARY REVENUE ITEMS: The words "Extraordinary Revenue Items" shall mean for the Year of determination of an Award: (i) revenue items determined as extraordinary in accordance with GAAP, consistently applied, as shall appear on the consolidated -2- earnings statements of the Company, and (ii) revenue items the Committee considers non-operating and by nature unusual or infrequent. (p) GAAP: "GAAP" shall mean Generally Accepted Accounting Principles. (q) KEY ASSOCIATE: The words "Key Associate" shall mean any full time employee of the Company or a Subsidiary who holds the position of Chairman, Chief Executive Officer, President, Executive Vice President, Senior Vice President or Vice President or any other associate who is an officer of the Company or a Subsidiary and who is selected for participation in the Plan. (r) PARTICIPANT: The word "Participant" shall mean a Key Associate who has been selected for participation in the Plan by the Committee. (s) PLAN: The word "Plan" shall mean the "Fleming Companies, Inc. Corporate Officer Incentive Plan" as set forth in this instrument, and as hereafter amended from time to time. (t) RETIREMENT: The word "Retirement" means the date that a Participant terminates employment in accordance with the Company's retirement policy after (i) attaining the age of at least 55 years and (ii) earning at least 10 years of employment service. Years of employment service will be determined by the Committee in their sole discretion on a reasonable and consistent basis for all Participants. (u) SALES: The word "Sales" shall mean for the Year of determination of an Award (i) MINUS (ii) where (i) is consolidated net sales of the Company as determined in accordance with GAAP consistently applied and (ii) is the sum of amounts included in (i) that represent bill-through sales, selected drop ship sales, selected direct store delivery sales, fees charged customers, transportation related fees and revenues, and miscellaneous revenues and income. (v) SUBSIDIARY: The word "Subsidiary" shall mean any corporation consolidated with Company under GAAP. (w) TARGETS: The word "Targets" shall mean those performance goals established each Year by the Committee which require predetermined levels of Earnings Per Share, Sales and Earnings be met before an Award will be earned and payable. Targets for Sales and Earnings will consist of a threshold Target, middle Target and maximum Target. (x) YEAR: The word "Year" shall mean the fiscal year of the Company. -3- 2.2 CONSTRUCTION. The masculine gender, wherever 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 Key Associate must be selected by the Committee to be a Participant based on criteria determined by the Committee, which may include the Key Associate's overall job level and his ability to impact financial results of the Company or any Subsidiary. The Committee may add or remove Key Associates from the group of Participants at any time during each Year in its sole discretion. 3.2 RELATIONSHIP TO CHANGE OF CONTROL AGREEMENTS. If a Participant is a party to an employment agreement with the Company which is effective upon a "change of control" as such term is defined in the agreement (the "Change of Control Agreement"), any provision of this Plan which would result in a loss or reduction of an Award shall be subject to and superseded by the applicable provisions of the Change of Control Agreement. ARTICLE IV DETERMINATION OF AWARDS 4.1 DETERMINATION. (a) AWARD. For each Year, the Committee will determine the amount of each Participant's Award by selecting a designated percentage of the Participant's Base Salary which will be the amount which may be earned as an Award for such Year if the middle level Targets for the Year are met. The designated percentage of Base Salary may not be the same for each Participant. Awards will be determined by performance of the Company based on Earnings Per Share, Sales and Earnings. The Committee shall select the applicable Targets for each Year. Participants will have their Awards for each such Year based upon the same Targets. (b) CALCULATION OF AWARD. For any Participant to be entitled to an Award, the Target level of Earnings Per Share for the applicable Year first must be attained or exceeded. Once the Target for Earnings Per Share for such Year has been achieved, then the -4- Award will be weighted based on Sales and Earnings, as such weighting is determined each Year by the Committee. 4.2 COMMITTEE TO ESTABLISH TARGETS. The Committee in its sole and absolute discretion shall establish the Targets for each Year as well as any threshold level, middle level and maximum level within each Target. If the actual results for Sales or Earnings for a Year are between specified Target levels, the Committee shall interpolate the value of any Award on an arithmetic proportionate basis between such Targets. The determination of the Targets for one Year may or may not be applicable for any following Year. Further, it is the intent of the Company and the Committee that this Plan, the Awards and the Targets satisfy the requirements of Section 162(m) of the Code. Accordingly, the Committee will makes its determination as to the Targets and all other applicable provisions of the Plan as are necessary in order to attempt to have the Plan, the Awards and the Targets meet the requirements of Section 162(m) of the Code. ARTICLE V PAYMENT OF AWARDS 5.1 DATE OF PAYMENT OF AWARDS. Payment of Awards shall be made, in cash, as soon as practicable following the Anniversary Date of the Year which relates to the Award. 5.2 CERTAIN TERMINATIONS OF EMPLOYMENT. Subject to Section 5.3 of the Plan, if, prior to the end of the year for which he would have otherwise qualified for an Award, a Participant's employment with the Employer is terminated due to death, Disability, Retirement or elimination of his position with the Employer ("Approved Termination Events"), any Award which would otherwise have been paid for such Year assuming the Participant continued in the employ of the Employer for such Year, will be prorated based on the number of completed months of employment during the Year of the occurrence of the Approved Termination Event; and, payment will be made in accordance with the terms of this Plan. 5.3 FORFEITURE, REDUCTION AND ELIMINATION OF AWARDS. Unless the Committee otherwise determines, if, prior to the end of the Year for which he would have otherwise qualified for an Award, a Participant's employment with the Company is terminated for any reason other than the occurrence of an Approved Termination Event, the Participant, his Beneficiary and any other person will forfeit any interest which the Participant had in the Award. The Committee has the right, in its sole and absolute discretion, to reduce or eliminate any Award to any Participant in the event the Committee determines that amounts to be paid under the Award are excessive or are not warranted. While the Committee has the right to eliminate or reduce any Award, the Committee does not have the right to increase any Award or change the Targets which have been set for a particular Year except to the extent any Award is increased because of the exclusion of any Extraordinary Charge Items as determined by the Committee. -5- 5.4 AWARDS EXCEEDING IRS LIMITS. The Committee has the right to determine if any Award (or portion thereof) exceeds the limit as established under Section 162(m) of the Code so if paid it would not be deductible to the Company for federal income tax purposes (the "Excess Amount"). If the Committee makes this determination, the Committee may determine that such Excess Amount shall be paid to the affected Participant (i) as provided under this Plan, (ii) in a Year during which payment of such Excess Amount to the Participant would not result in the payment of an Excess Amount, or (iii) as rapidly as possible following the termination of employment of such Participant but made in a manner which does not result in an Excess Amount being paid. The Committee may or may not, in its sole discretion, credit interest with respect to any Excess Amounts if payment is deferred. ARTICLE VI GENERAL BENEFIT PROVISIONS 6.1 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 or any other persons otherwise entitled to his Award. The status of the Participant and any other person entitled to his Award with respect to any liabilities assumed by the Company or any Subsidiary hereunder shall be solely those of unsecured creditors of the Company or such Subsidiary. Any asset acquired or held by the Company 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 any other person entitled to his Award or to be security for the performance of the obligations of the Company or any Subsidiary, but shall be, and remain, a general, unpledged, unrestricted asset of the Company or such Subsidiary at all times subject to the claims of general creditors of the Company. 6.2 WITHHOLDING FOR INCOME AND EMPLOYMENT TAXES. Since all amounts to be paid under the Plan to a Participant are to be considered as compensation paid for services rendered by the Participant, the Company 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 made under this Plan, and all Awards shall be subject to and reduced by the amount of such taxes. 6.3 NO INTEREST ON AWARDS. Unless determined by the Committee under Section 5.4 hereof, all Awards to be paid hereunder will be paid without interest or investment earnings of any kind whatsoever. 6.4 PAYMENTS BY THE COMPANY OR SUBSIDIARY. The payments required to fund the cost of the Awards provided by the Plan shall be made solely by the Company or any Subsidiary whose Key Associates are participating in the Plan. -6- 6.5 PAYMENT IN EVENT OF DEATH. In the event of the death of a Participant, the Participant's Award, if earned as provided in Section 5.2 above, shall be paid to the Beneficiary designated by the Participant on a form provided by the Committee, who is (i) an individual or a trust established for the benefit of an individual, and (ii) living on the date of the Participant's death, and if there is no Beneficiary then living, the benefit will be paid to the estate of the Participant and payment shall be made in a single lump sum. While a Participant is employed by the Employer, the Participant may change his Beneficiary by delivering to the Committee a properly executed form designating a new Beneficiary. 6.6 RESTRICTION ON ALIENATION OF AWARDS. No right or benefit under this Plan or under any Award 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. 6.7 EXPENSES. All expenses and costs in connection with adoption and administration of the Plan shall be borne by the Company. 6.8 NO PRIOR RIGHT OR OFFER. No Key Associate shall have any contractual or other right to participate in the Plan until he is selected for participation by the Committee. No Award to any Participant in any Year shall be deemed to create a right to receive any Award or to participate in the Plan in any subsequent Year. 6.9 NO CONTINUED EMPLOYMENT. Neither the establishment of the Plan nor the grant of an Award under the Plan shall be deemed to constitute an express or implied contract of employment of any Participant for any period of time or in any way abridge the rights of the Company to determine the terms and conditions of employment or to terminate the employment of any Key Associate at any time. 6.10 NO VESTED RIGHTS. Except as expressly provided herein, no Key Associate or any other person shall have any claim or right (legal, equitable, or otherwise) to any Award, allocation or distribution of any right, title or vested interest in any amounts, and no officer or employee of the Company or any Subsidiary or any other person shall have any authority to make representations or agreements to the contrary. 6.11 NO PART OF OTHER BENEFITS. The benefits provided in this Plan shall not be deemed a part of any other benefit provided by the Company or any Subsidiary to its Key Associates. The Company assumes and shall have no obligation to Participants except as expressly provided in the Plan. This Plan is a complete statement of the terms and conditions of the Plan. 6.12 OTHER PLANS. Nothing contained herein shall limit the Company's power to grant other bonuses to Key Associates regardless of their participation in the Plan. -7- ARTICLE VII PROVISIONS RELATING TO PARTICIPANTS 7.1 INFORMATION REQUIRED OF PARTICIPANTS. Payment of Awards shall be made as provided in this Plan and no formal claim shall be required therefor. 7.2 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. ARTICLE VIII ADMINISTRATION 8.1 THE COMMITTEE SHALL ADMINISTER THE PLAN. A member of the Committee may not be eligible to become a Participant in the Plan. The Committee shall have the power where consistent with the general purpose and intent of the Plan to (i) establish Targets, (ii) modify the requirements of the Plan to conform with the law or to meet special circumstances not anticipated or covered in the Plan, (iii) suspend or discontinue the Plan, (iv) establish policies and (v) adopt rules and regulations and prescribe forms for carrying out the purposes and provisions of the Plan. The Committee shall have the authority to interpret and construe the Plan, and determine all questions arising under the Plan in its sole discretion. Any interpretation, decision or determination made by the Committee shall be final, binding and conclusive. A majority of the Committee shall constitute a quorum, and an act of the majority of the members present at any meeting at which a quorum is present shall be the act of the Committee. 8.2 CLAIMS PROCEDURE. The Committee shall in its sole discretion make all determinations as to the right of any person to benefits under the Plan. 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 -8- (d) an examination of this Plan's review procedure with respect to denial of benefits. 8.3 REVIEW PROCEDURE. Any Participant or Beneficiary whose claim has been denied in accordance with Section 8.2 above 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 references to those Plan provisions upon which the decision is based. 8.4 RECORDS AND REPORTS. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with governmental laws and regulations. 8.5 RULES AND DECISIONS. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant, the Employer, the accountants of the Company or the legal counsel of the Company. ARTICLE IX AMENDMENT AND TERMINATION 9.1 RIGHT TO AMEND PLAN. The Plan may be amended by the Committee from time to time in any respect whatsoever. Any amendments may be made retroactively which in the judgment of the Committee are necessary or advisable. 9.2 RIGHT TO TERMINATE PLAN. The Committee expressly reserves the right to terminate this Plan in whole or in part at any time. The Company shall determine a proposed date of termination, and the Committee shall notify the Participants. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 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. 10.2 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. -9- 10.3 EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL. This Plan shall be effective as of the Effective Date subject to approval by the holders of a majority of the Company's common stock having voting power in person or represented by proxy at the 1999 annual meeting of shareholders. -10- EX-10.41 6 EXHIBIT 10.41 EMPLOYMENT AGREEMENT AGREEMENT, dated as of November 30, 1998, by and between FLEMING COMPANIES, INC., an Oklahoma corporation (the "Company") and MARK S. HANSEN ("Executive"). IN CONSIDERATION of the premises and the mutual covenants set forth below, the parties hereby agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ Executive as the Chairman and Chief Executive Officer of the Company, and Executive hereby accepts such employment, on the terms and conditions hereinafter set forth. 2. TERM. The period of employment of Executive by the Company hereunder (the "Employment Period") shall commence on November 30, 1998 (the "Commencement Date") and shall continue through November 29, 2003. The Employment Period may be sooner terminated in accordance with Section 6 of this Agreement. 3. POSITION AND DUTIES. During the Employment Period, Executive shall report directly to the board of directors of the Company (the "Board"). Executive shall have those powers and duties normally associated with the positions of Chairman and Chief Executive Officer. Executive shall devote substantially all of his working time, attention and energies (other than absences due to illness or vacation) to the performance of his duties for the Company. Notwithstanding the above, Executive shall be permitted, to the extent such activities do not interfere with the performance by Executive of his duties and responsibilities hereunder or violate Sections 10(a), (b) or (c) of this Agreement, to (i) manage Executive's personal, financial and legal affairs, (ii) serve on civic or charitable boards or committees and (iii) serve on the board of directors or other similar governing body of Apple Bee's International, Swander Pace Capital, Independent Grocers Alliance and Food Distributors International and, subject to the Board's approval (which approval shall not be unreasonably withheld), serve on the board of directors or other similar governing body of any other corporation or other business entity or trade organization. 4. PLACE OF PERFORMANCE. The principal place of employment of Executive shall be at the Company's principal executive offices in Oklahoma City, Oklahoma. 5. COMPENSATION AND RELATED MATTERS. (a) BASE SALARY. During the Employment Period the Company shall pay Executive a base salary at the rate of not less than $750,000 per year ("Base Salary"). Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices. Executive's Base Salary shall be subject to increase, but not decrease, pursuant to annual review by the Compensation and Organization Committee of the Board (the "Compensation Committee"). Such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement. (b) COMPANY STOCK OPTION. The Company has granted to Executive, on the Commencement Date, (i) a stock option to purchase 425,750 shares of the common stock of the Company, par value $2.50 per share (the "Company Stock"), at an exercise price of $9.7188 per share, pursuant to the Company's 1990 Stock Option Plan, (ii) a stock option to purchase 100,000 shares of Company Stock at an exercise price of $10.0625 per share, pursuant to the Company's 1996 Stock Incentive Plan, and (iii) a stock option to purchase 274,250 shares of Company Stock at an exercise price of $9.7188 per share, pursuant to the Company's Stock Incentive Plan (the "New Plan"), subject to the receipt of approval of the New Plan by the shareholders of the Company (collectively, the "Company Options"). The Company shall, at the next annual meeting of the shareholders of the Company following the Commencement Date, submit the New Plan, together with the Company's recommendation that its shareholders approve the New Plan, to its shareholders for their approval and shall use its reasonable efforts to obtain such shareholder approval. Each of the Company Options has a scheduled 10-year term and, subject to the terms of the applicable stock option agreements between the Company and Executive, shall vest and become exercisable (i) with respect to 25% of the shares of Company Stock subject to such Company Options on each of the first four anniversaries of the Commencement Date and (ii) upon the occurrence of a Change of Control (as such term is defined in that certain Change of Control Employment Agreement, dated as of the date of this Agreement, between the Company and Executive) with respect to 100% of the Company Stock subject to Company Options. (c) ANNUAL BONUS. Commencing in fiscal 1999, Executive shall have a target annual bonus of 75% of Base Salary and a maximum annual bonus of 150% of Base Salary, based upon meeting performance goals established by the Compensation Committee. The performance goals and corresponding bonus amounts during the Employment Period shall be established by the Compensation Committee after detailed consultation with Executive. (d) EXPENSES. The Company shall promptly reimburse Executive for all reasonable business expenses upon the presentation of reasonably itemized statements of such expenses in accordance with the Company's policies and procedures now in force or as such policies and procedures may be modified with respect to all senior executive officers of the Company. In addition, the Company shall reimburse Executive for all legal fees and expenses reasonably incurred by Executive in connection with the negotiation and review of this Agreement and the agreements contemplated hereby, in an amount not to exceed $6,000. (e) VACATION. Executive shall be entitled to the number of weeks of vacation per year provided to the Company's senior executive officers. (f) RESTRICTED STOCK GRANT. The Company has granted to Executive, on the Commencement Date, thirty-two thousand (32,000) shares of restricted Company Stock (the "Restricted Stock") pursuant to the Company's 1990 Stock Incentive Plan. In connection with the grant of the Restricted Stock, Executive shall make an election prior to December 30, 1998 to include in gross income the value of the Restricted Stock on the date of grant pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"). Upon notification from -2- Executive that he has made such election, the Company shall pay to Executive an additional payment in an amount necessary to cause the net amount of such payment that is retained by Executive after the calculation and deduction of any and all federal, state and local income taxes and employment taxes on such payment to be equal to Executive's income taxes attributable to the Restricted Stock and Executive's election under Section 83(b) of the Code in connection with the Restricted Stock. (g) WELFARE, PENSION AND INCENTIVE BENEFIT PLANS. During the Employment Period, Executive (and his spouse and dependents to the extent provided therein) shall be entitled to participate in and be covered under all the welfare benefit plans or programs maintained by the Company from time to time for the benefit of its senior executives including, without limitation, all medical, life, hospitalization, dental, disability, accidental death and dismemberment and travel accident insurance plans and programs. In addition, during the Employment Period, Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by the Company for the benefit of its senior executives or any annual incentive or long-term performance plans. (h) OFFICES. Executive shall serve, without additional compensation, as a director or trustee of the Company or any of its wholly-owned subsidiaries, (and as a member of any committees of the board of directors of any such entities), and in one or more executive positions of any of such subsidiaries, provided that Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is then provided to any other director of such entity. (i) RELOCATION. The Company shall purchase the Executive's current house in, at the Executive's election, Bentonville or Chicago at a purchase price equal to the greater of its appraised value (as set forth in an appraisal performed by an appraiser selected by Executive and approved by the Company) or Executive's invested cost in such house. In addition, the Executive shall be provided with the Company's standard relocation program for senior executive officers in order to relocate to Oklahoma City, including travel costs, temporary housing, moving costs of automobiles and household belongings, storage costs for up to one year, and any other expenses necessary to efficiently effect Executive's relocation. (j) INDEMNIFICATION AND INSURANCE. Executive shall be indemnified and held harmless by the Company during the term of this Agreement and following any termination of this Agreement for any reason whatsoever in the same manner as would any other key management associate of the Company with respect to acts or omissions occurring prior to the termination of employment of the Executive under this Agreement. In addition, during the Employment Period and for a period of five years following the termination of employment of the Executive under this Agreement for any reason whatsoever, the Executive shall be covered by a Company-held directors and officers liability insurance policy covering acts or omissions occurring prior to the termination of employment of the Executive under this Agreement. -3- 6. TERMINATION. Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (a) DEATH. Executive's employment hereunder shall terminate upon his death. (b) DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been substantially unable to perform his duties hereunder for an entire period of six (6) consecutive months, and within thirty (30) days after written Notice of Termination is given after such six (6) month period, Executive shall not have returned to the substantial performance of his duties on a full-time basis, the Company shall have the right to terminate Executive's employment hereunder for "Disability", and such termination in and of itself shall not be, nor shall it be deemed to be, a breach of this Agreement. (c) CAUSE. The Company shall have the right to terminate Executive's employment for Cause, and such termination shall not be, nor shall it be deemed to be, a breach of this Agreement. For purposes of this Agreement, the Company shall have "Cause" to terminate Executive's employment upon: (i) Executive's conviction of a felony by a federal or state court of competent jurisdiction; or (ii) an act or acts of dishonesty taken by Executive and intended to result in substantial personal enrichment of Executive at the expense of the Company; or (iii) Executive's "willful" failure to follow a direct, reasonable and lawful order from the Board, within the reasonable scope of Executive's duties, which failure is not cured within thirty (30) days. For purposes of this Section 6(c), no act, or failure to act, by Executive shall be considered "willful" unless done, or omitted to be done, by Executive not in good faith and without a reasonable belief that the act or omission was in the best interests of the Company. Cause shall not exist under paragraphs (i), (ii) or (iii) above unless and until the Company has delivered to Executive a copy of a resolution duly adopted by not less than three-fourths (3/4ths) of the Board (excluding Executive) at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of the conduct set forth in paragraphs (i),(ii) or (iii) and specifying the particulars thereof in detail. (d) GOOD REASON. Executive may terminate his employment for "Good Reason" by providing Notice of Termination (as defined in Section 7(a)) to the Company within one hundred and twenty (120) days after Executive has actual knowledge of the occurrence, without the -4- written consent of Executive, of one of the events set forth below. Executive's Date of Termination for Good Reason shall be fifteen (15) days after Notice of Termination, unless the basis for Good Reason has been cured by the Company prior to such date: (i) the assignment to Executive of duties materially and adversely inconsistent with Executive's status as Chairman and Chief Executive Officer of the Company or a material and adverse alteration in the nature of Executive's duties and/or responsibilities, reporting obligations, titles or authority; (ii) a reduction by the Company in Executive's Base Salary; (iii) the relocation of the Company's principal executive offices or Executive's own office location to a location more than twenty-five (25) miles from Oklahoma City or the relocation of Executive's office location to a place other than the Company's principal executive offices (unless such relocation is pursuant to Executive's recommendation or an action by the Board concurred in by Executive, as evidenced by his vote); (iv) the Company's failure to provide any material employee benefits due to be provided to Executive (other than any such failure which affects all senior executive officers); or (v) the failure of any successor to the Company to assume this Agreement pursuant to Section 12(a). Executive's right to terminate his employment hereunder for Good Reason shall not be affected by his incapacity due to physical or mental illness. Executive's continued employment during the one hundred and twenty (120) day period referred to above in this paragraph (d) shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (e) WITHOUT CAUSE. The Company shall have the right to terminate Executive's employment hereunder without Cause by providing Executive with a Notice of Termination, and such termination shall not in and of itself be, nor shall it be deemed to be, a breach of this Agreement. 7. TERMINATION PROCEDURE. (a) NOTICE OF TERMINATION. Any termination of Executive's employment by the Company or by Executive during the Employment Period (other than termination pursuant to Section 6(a)) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13. For purposes of this Agreement, a "Notice of Termination" shall -5- mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (b) DATE OF TERMINATION. "Date of Termination" shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated pursuant to Section 6(b), thirty (30) days after Notice of Termination (provided that Executive shall not have returned to the substantial performance of his duties on a full-time basis during such thirty (30) day period), (iii) if Executive's employment is terminated pursuant to Section 6(d), the date provided in such Section, and (iv) if Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date (within thirty (30) days after the giving of such notice) set forth in such Notice of Termination. 8. COMPENSATION UPON TERMINATION OR DURING DISABILITY. In the event Executive is disabled or his employment terminates during the Employment Period, the Company shall provide Executive with the payments and benefits set forth below. Executive acknowledges and agrees that the payments set forth in this Section 8, and the other agreements and plans referenced in this Agreement, constitute the sole and liquidated damages for termination of his employment during the Employment Period. (a) TERMINATION BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. If Executive's employment is terminated by the Company without Cause or by Executive for Good Reason: (i) the Company shall pay to Executive (A) his Base Salary and accrued vacation pay through the Date of Termination, as soon as practicable following the Date of Termination, and (B) continued Base Salary (as provided for in Section 5(a)) for a period of twenty-four (24) months following the Date of Termination; (ii) the Company shall maintain in full force and effect, for the continued benefit of Executive, his spouse and his dependents for a period of twenty-four (24) months following the Date of Termination the medical, hospitalization, dental, and life insurance programs in which Executive, his spouse and his dependents were participating immediately prior to the Date of Termination at the level in effect and upon substantially the same terms and conditions (including without limitation contributions required by Executive for such benefits) as existed immediately prior to the Date of Termination; provided, that if Executive, his spouse or his dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide Executive, his spouse and his dependents with the economic equivalent of such benefits which they otherwise would have been entitled to receive under such plans and programs ("Continued -6- Benefits"); provided, that if Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period; (iii) the Company shall reimburse Executive pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment; and (iv) Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. (b) CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON. If Executive's employment is terminated by the Company for Cause or by Executive (other than for Good Reason): (i) the Company shall pay Executive his Base Salary and his accrued vacation pay (to the extent required by law or the Company's vacation policy) through the Date of Termination, as soon as practicable following the Date of Termination; (ii) the Company shall reimburse Executive pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment, unless such termination resulted from a misappropriation of Company funds; and (iii) Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. (c) DISABILITY. During any period that Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), Executive shall continue to receive his full Base Salary set forth in Section 5(a) until his employment is terminated pursuant to Section 6(b). In the event Executive's employment is terminated for Disability pursuant to Section 6(b): (i) the Company shall pay to Executive (A) his Base Salary and accrued vacation pay through the Date of Termination, as soon as practicable following the Date of Termination, and (B) provide Executive -7- with disability benefits pursuant to the terms of the Company's disability programs; (ii) the Company shall reimburse Executive pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment; and (iii) Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive following such termination to which he is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. (d) DEATH. If Executive's employment is terminated by his death: (i) the Company shall pay in a lump sum to Executive's beneficiary, legal representatives or estate, as the case may be, Executive's Base Salary through the Date of Termination; (ii) the Company shall reimburse Executive's beneficiary, legal representatives, or estate, as the case may be, pursuant to Section 5(d) for reasonable expenses incurred, but not paid, prior to such termination of employment; and (iii) Executive's beneficiary, legal representatives or estate, as the case may be, shall be entitled to any other rights, compensation and benefits as may be due to any such persons or estate following such termination to which such persons or estate is otherwise entitled in accordance with the terms and provisions of any agreements, plans or programs of the Company. 9. MITIGATION. Executive shall not be required to mitigate amounts payable under this Agreement by seeking other employment or otherwise, and there shall be no offset against amounts due Executive under this Agreement on account of subsequent employment except as specifically provided herein. 10. CONFIDENTIAL INFORMATION, OWNERSHIP OF DOCUMENTS; NON-COMPETITION. (a) CONFIDENTIAL INFORMATION. Executive shall hold in a fiduciary capacity for the benefit of the Company all trade secrets and confidential information, knowledge or data relating to the Company and its businesses and investments and its Affiliates, which shall have been obtained by Executive during Executive's employment by the Company and which is not generally available public knowledge (other than by acts by Executive in violation of this Agreement). Except as may be required or appropriate in connection with his carrying out his duties under this Agree- -8- ment, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or any legal process, or as is necessary in connection with any adversarial proceeding against the Company (in which case Executive shall use his reasonable best efforts in cooperating with the Company in obtaining a protective order against disclosure by a court of competent jurisdiction), communicate or divulge any such trade secrets, information, knowledge or data to anyone other than the Company and those designated by the Company or on behalf of the Company in the furtherance of its business or to perform duties hereunder. (b) REMOVAL OF DOCUMENTS; RIGHTS TO PRODUCTS; OTHER PROPERTY. All records, files, drawings, documents, models, equipment, and the like relating to the Company's business and its Affiliates, which Executive has control over shall not be removed from the Company's premises without its written consent, unless such removal is in the furtherance of the Company's business or is in connection with Executive's carrying out his duties under this Agreement and, if so removed, shall be returned to the Company promptly after termination of Executive's employment hereunder, or otherwise promptly after removal if such removal occurs following termination of employment. Executive shall assign to the Company all rights to trade secrets and other products relating to the Company's business developed by him alone or in conjunction with others at any time while employed by the Company. Executive shall also return to the Company all Company-provided vehicles in his possession or control. (c) PROTECTION OF BUSINESS. During the Employment Period and until the second anniversary of Executive's Date of Termination (other than if such termination is by the Company without Cause or by Executive for Good Reason), the Executive will not (i) directly or indirectly, alone, in association with or as a shareholder, principal, agent, partner, officer, director, employee or consultant of any other organization, engage in the business of the retail sale or wholesale distribution of food and related products (including, without limitation, health and beauty care and general merchandise products and all other products sold to the supermarket industry (the "Food Distribution Business")) within the Standard Metropolitan Statistical Areas ("SMSAs") in which the Company or any of its subsidiaries (the "Designated Entities") are conducting their business operations or actively soliciting business as of the Date of Termination; provided, however, this Section 10(c) shall not preclude Executive's employment or other relationship with any national retail chain engaged in the Food Distribution Business, regardless of location, such as Kroger, Albertson's, or Safeway; (ii) divert any customer of the Designated Entities to any entity which is engaged in the Food Distribution Business in the same SMSA in which the Designated Entities are conducting their business operations or actively soliciting business as of the Date of Termination; or (iii) solicit any officer, employee (other than secretarial staff) or consultant of any of the Designated Entities. Notwithstanding the preceding sentence, Executive shall not be prohibited from owning less than one percent (1%) of any publicly traded corporation (or from owning any greater percentage if such ownership is through a mutual fund or other diversified investment vehicle in which he has a passive and minority interest), whether or not such corporation is in the Food Distribution Business. If, at any time, the provisions of this Section 10(c) shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 10(c) shall be considered divisible and shall become and be immediately -9- amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and Executive agrees that this Section 10(c) as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein. The parties agree that the duration and geographic area for which the covenant not to compete set forth in this Section 10(c) is to be effective are reasonable. (d) INJUNCTIVE RELIEF. In the event of a breach or threatened breach of this Section 10, Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, Executive acknowledging that damages would be inadequate and insufficient. (e) CONTINUING OPERATION. Except as specifically provided in this Section 10, the termination of Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 10. 11. ARBITRATION; LEGAL FEES AND EXPENSES. The parties agree that Executive's employment and this Agreement relate to interstate commerce, and that any disputes, claims or controversies between Executive and the Company which may arise out of or relate to the Executive's employment relationship or this Agreement shall be settled by arbitration. This agreement to arbitrate shall survive the termination of this Agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Oklahoma City, Oklahoma unless the parties mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The parties agree that punitive, liquidated or indirect damages shall not be awarded by the arbitrator(s). Nothing in this agreement to arbitrate, however, shall preclude the Company from obtaining injunctive relief from a court of competent jurisdiction prohibiting any on-going breaches by Executive of this Agreement including, without limitation, violations of Section 10. If any contest or dispute shall arise between the Company and Executive regarding any provision of this Agreement, the Company shall reimburse Executive for all legal fees and expenses reasonably incurred by Executive in connection with such contest or dispute, but only if Executive is successful in respect of one or more of Executive's material claims or defenses brought, raised or pursued in connection with such contest or dispute. Such reimbursement shall be made as soon as practicable following the resolution of such contest or dispute to the extent the Company receives reasonable written evidence of such fees and expenses. 12. SUCCESSORS BINDING AGREEMENT. (a) COMPANY'S SUCCESSORS. No rights or obligations of the Company under this Agreement may be assigned or transferred except that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to -10- perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 12 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S SUCCESSORS. No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon Executive's death, this Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to Executive's interests under this Agreement. Executive shall be entitled to select and change a beneficiary or beneficiaries to receive any benefit or compensation payable hereunder following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or other legal representative(s). If Executive should die following his Date of Termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to such person or persons so appointed in writing by Executive, or otherwise to his legal representatives or estate. 13. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to Executive: Mark S. Hansen Suite F8-602 8912 East Pinnacle Peak Road Scottsdale, Arizona 85255 With a copy to: Latham & Watkins 633 W. Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: James D. C. Barrall, Esq. -11- If to the Company: Fleming Companies, Inc. 6301 Waterford Boulevard Oklahoma City, Oklahoma 73126-0647 Attention: General Counsel or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. MISCELLANEOUS. No provisions of this Agreement may be amended, modified, or waived unless such amendment or modification is agreed to in writing signed by Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. The respective rights and obligations of the parties hereunder shall survive Executive's termination of employment and the termination of this Agreement to the extent necessary for the intended preservation of such rights and obligations. Executive is hereby required, prior to April 1, 1999, to take a physical examination (including a drug screen) and deliver to the Company a letter from the physician performing such physical examination to the effect that Executive passed the drug screen and that such examination revealed no physical condition that would prevent Executive from performing his duties to the Company under this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oklahoma without regard to its conflicts of law principles. 15. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 17. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter. Any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. -12- 18. WITHHOLDING. All payments hereunder shall be subject to any required withholding of Federal, state and local taxes pursuant to any applicable law or regulation. 19. SECTION HEADINGS. The section headings in this Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. FLEMING COMPANIES, INC. By /s/ David R. Almond ------------------------------------------- David R. Almond, Senior Vice President, General Counsel and Secretary /s/ Mark S. Hansen - -------------------------------------------------------------------------------- Mark S. Hansen -13- EX-10.42 7 EXHIBIT 10.42 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 30th day of November, 1998, by and between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and Mark S. Hansen (herein referred to as the "Participant"); W I T N E S S E T H: WHEREAS, the Participant has entered into an Employment Agreement with the Company of even date pursuant to which he will serve the Company as Chairman and Chief Executive Officer (the "Employment Agreement"); and WHEREAS, the Company has previously adopted the Fleming Companies, Inc. 1990 Stock Incentive Plan and certain amendments thereto (the "Plan"); and WHEREAS, pursuant to Section 5(f) of the Employment Agreement, the Company has awarded the Participant 32,000 shares of Common Stock under the Plan subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, the Participant and the Company agree as follows (all capitalized terms used herein, unless otherwise defined, have the meaning ascribed to such terms as set forth in the Plan): 1. THE PLAN. The Plan, a copy of which is attached hereto as Exhibit A, is hereby incorporated by reference herein and made a part hereof for all purposes, and when taken with this Agreement shall govern the rights of the Participant and the Company with respect to the Award (as defined below). 2. GRANT OF AWARD. The Company hereby grants to the Participant an award (the "Award") of Thirty-two Thousand (32,000) 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) ESCROW OF SHARES. A certificate representing the shares of Stock subject to the Award (the "Restricted Stock") shall be issued in the name of the Participant and shall be escrowed with the Secretary of the Company (the "Escrow Agent") subject to removal of the restrictions placed thereon or forfeiture pursuant to the terms of this Agreement. (b) VESTING. One-half of the shares of Restricted Stock will vest based on the Participant's continuous employment with the Company through November 30, 1999 and the remaining one-half of the shares of Restricted Stock will vest based on the Participant's continuous employment with the Company through November 30, 2000. In the event the Participant's employment with the Company is terminated by reason of (i) death, (ii) disability, (iii) without "Cause" (as such term is define din the Employment Agreement), or (iv) by the Participant for "Good Reason" (as such term is defined in the Employment Agreement), then all remaining shares of Restricted Stock (including any "Accrued Dividends," as such term is hereafter defined) which have not yet been vested shall immediately vest. Once vested pursuant to the terms of this Agreement, the Restricted Stock shall be deemed Vested Stock. (c) VOTING RIGHTS AND DIVIDENDS. The Participant shall have all of the voting rights attributable to the shares of Restricted Stock issued to him. Regular quarterly cash dividends declared and paid by the Company with respect to the shares of Restricted Stock shall be paid to the Participant. Any extraordinary dividends declared and paid by the Company with respect to the shares of Restricted Stock ("Accrued Dividends") shall not be paid to the Participant until such Restricted Stock becomes Vested Stock. Such Accrued Dividends shall be held by the Company as a general obligation and paid to the Participant at the time the underlying Restricted Stock becomes Vested Stock. (d) VESTED STOCK - REMOVAL OF RESTRICTIONS. Upon Restricted Stock becoming Vested Stock, all restrictions shall be removed from the certificates representing such Stock and the Secretary of the Company shall deliver to the Participant certificates representing such Vested Stock free and clear of all restrictions together with a check in the amount of all Accrued Dividends attributed to such Vested Stock without interest thereon. (e) FORFEITURE. In the event the Participant's employment with the Company is terminated for any reason other than (i) death, (ii) disability, (iii) without Cause, or (iv) by the Participant for Good Reason prior to all shares of Restricted Stock becoming Vested Stock, then, all remaining shares of Restricted Stock which have not yet been vested (including any Accrued Dividends) shall be absolutely forfeited and the Participant shall have no further interest therein of any kind whatsoever. 4. CHANGE OF CONTROL. (a) In the event of a Change of Control, all Restricted Stock shall become Vested Stock and the Company shall deliver to the Participant certificates representing the Vested Stock free and clear of all restrictions together with any Accrued Dividends attributable to such Vested Stock without interest thereon. -2- (b) The Company shall also pay to the Participant any Gross-Up Payment determined in accordance with Section 9.2 of the Plan. 5. LEGENDS. The shares of Stock which are the subject of the Award shall be subject to the following legend: "THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND ARE TRANSFERRABLE ONLY IN ACCORDANCE WITH THAT CERTAIN RESTRICTED STOCK AWARD AGREEMENT FOR THE FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN DATED THE 30TH DAY OF NOVEMBER, 1998. ANY ATTEMPTED TRANSFER OF THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE IN VIOLATION OF SUCH AGREEMENT SHALL BE NULL AND VOID AND WITHOUT EFFECT. A COPY OF THE AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF FLEMING COMPANIES, INC." 6. STOCK POWERS AND THE BENEFICIARY. The Participant hereby agrees to execute and deliver to the Secretary of the Company a stock power (endorsed in blank) in the form of Exhibit B hereto covering his Award and authorizes the Secretary to deliver to the Company any and all shares of Restricted Stock that are forfeited under the provisions of this Agreement. The Participant further authorizes the Company to hold as a general obligation of the Company any Accrued Dividends and to pay such dividends to the Participant at the time the underlying Restricted Stock becomes Vested Stock. Pursuant to Section 6.2 of the Plan, the Participant designates his Eligible Spouse as the Beneficiary under this Agreement. 7. NONTRANSFERABILITY OF AWARD. The Participant shall not have the right to sell, assign, transfer, convey, dispose, pledge, hypothecate, burden, encumber or charge any shares of Restricted Stock or Accrued Dividends held by the Escrow Agent 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 address set forth in Section 13 of the Employment Agreement. 9. BINDING EFFECT AND GOVERNING LAW. This Agreement shall be (i) binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns except as may be limited by the Plan and (ii) governed and construed under the laws of the State of Oklahoma. 10. WITHHOLDING. The Company and the Participant shall comply with all federal and state laws and regulations respecting -3- the withholding, deposit and payment of any income, employment or other taxes relating to the Award (including Accrued Dividends). 11. AWARD SUBJECT TO CLAIMS OR CREDITORS. The Participant shall not have any interest in any particular assets of the Company, its parent, if applicable, or any Subsidiary by reason of the right to earn an Award (including Accrued Dividends) under the Plan and this Agreement, and the Participant or any other person shall have only the rights of a general unsecured creditor of the Company, its parent, if applicable, or a Subsidiary with respect to any rights under the Plan or this Agreement. 12. CAPTIONS. The captions of specific provisions of this Agreement are for convenience and reference only, and in no way define, describe, extend or limit the scope of this Agreement or the intent of any provision hereof. 13. COUNTERPARTS. This Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes, but all of which taken together shall form but one agreement. 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/s/ David R. Almond -------------------------------------------------------------- David R. Almond, Senior Vice President, General Counsel and Secretary "PARTICIPANT" /s/ Mark S. Hansen ---------------------------------- Mark S. Hansen, Participant -4- EXHIBIT A --------- [Copy of 1990 Stock Incentive Plan. Intentionally Omitted.] EXHIBIT B --------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, Mark S. Hansen, an individual, hereby irrevocably assigns and conveys to _______________________________, THIRTY-TWO THOUSAND AND NO/100 (32,000) shares of the Common Capital Stock of Fleming Companies, Inc., an Oklahoma corporation, $2.50 par value. DATED: ---------------------- ----------------------------------- Mark S. Hansen EX-10.43 8 EXHIBIT 10.43 FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT dated as of March 2, 1999 (the "Amendment"), is made by and between Fleming Companies, Inc., an Oklahoma corporation (the "Company"), and _________ an individual (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive entered into that certain Employment Agreement dated as of March 2, 1995 which was amended pursuant to the First Amendment thereto dated as of May 1, 1997, and the Second Amendment thereto dated as of August 18, 1998 (the "Employment Agreement"); and WHEREAS, the Company and the Executive mutually desire to amend the Employment Agreement, and it is to the mutual benefit of the Company and the Executive to amend the Employment Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the Company and the Executive hereby amend the Employment Agreement as follows: 1. THE AMENDMENTS. (a) NAME OF AGREEMENT. The name of the Agreement and all references to the name of the Agreement within the Agreement shall be amended by deleting the name "Employment Agreement" and replacing it with the name "Change of Control Employment Agreement." (b) SECTION 4(b)(ii). Section 4(b)(ii) shall be amended by deleting it in its entirety and replacing it with the following: (ii) ANNUAL BONUS. In addition to Base Salary, the Executive shall be paid, for each fiscal year during the Employment Period, an annual bonus in cash at least equal to the greater of (x) the middle target level bonus payable, regardless of whether any specified targets are met, under the Company's incentive compensation plan applicable to the Executive for the Executive's position, on the Effective Date (provided, however, if no middle target level has been set as of the Effective Date, the middle target level set for the fiscal year immediately preceding the Effective date shall be utilized, and (y) the maximum aggregate bonus paid (under the Company's incentive compensation plan applicable to the Executive or otherwise) during any of the five fiscal years immediately preceding the fiscal year in which the Effective Date occurs. The greater of the amounts described in clauses (x) and (y) of this Section 4(b)(ii) shall hereafter be called the "Annual Bonus." (c) SECTION 6(d)(i)B. Section 6(d)(i)B. shall be amended by deleting it in its entirety and replacing it with the following: B. the product of (i) the Annual Bonus or, if higher, an amount equal to the middle target level bonus payable, regardless of whether specified targets are met, under the Company's incentive compensation plan applicable to the Executive for his position on the Date of Termination (as applicable, the "Highest Bonus") and (ii) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365; and (d) SECTION 6(d)(i)C. Section 6(d)(i)C shall be amended by deleting it in its entirety and replacing it with the following: C. the product obtained by multiplying 2.99 times the sum of (i) the Highest Base Salary and (ii) the Highest Bonus; and 2. THE AGREEMENT. The term "Agreement" as used in the Change of Control Employment Agreement and in this Amendment shall hereafter mean the Change of Control Employment Agreement as amended by this Amendment. The Employment Agreement, as amended hereby, shall continue in full force and effect in accordance with the terms thereof. 3. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Oklahoma. 4. COUNTERPARTS. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more of the counterparts have been signed by each of the parties and delivered to the other parties. -2- IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed on the date first written above. FLEMING COMPANIES, INC., an Oklahoma corporation By -------------------------------------- Mark S. Hansen, Chairman and Chief Executive Officer "COMPANY" ---------------------------------------- , an individual --------------------- "EXECUTIVE" -3- EX-10.44 9 EXHIBIT 10.44 AMENDMENT NO. 1 TO THE FLEMING COMPANIES, INC. 1990 STOCK OPTION PLAN WHEREAS, Fleming Companies, Inc. (the "Company") presently has in existence the Fleming Companies, Inc. 1990 Stock Option Plan (the "Plan"); and WHEREAS, the Board of Directors believes that the Plan should be amended to provide the Compensation and Organization Committee flexibility with respect to the extension of time periods for the exercise of nonqualified stock options after termination of employment of participants; and WHEREAS, the Board of Directors of the Company has authorized and approved this Amendment No. 1 to the Plan at its meeting held on November 30, 1998; NOW, THEREFORE, the Plan is hereby amended as follows: 1. SECTION 2.1(a). Section 2.1(a) of the Plan is hereby amended to delete it in its entirety and replace it with the following: "Stock Options shall be granted by the Committee on the terms and conditions determined by the Committee. The Committee shall have the discretion to fix the period (the "Option Period") during which any Stock Option may be exercised. Stock Options shall not be transferable except by will or by the laws of descent and distribution. Stock Options shall be exercisable only by the Participant while actually employed by the Company or a subsidiary, except that the Committee may, in its sole discretion, permit a Participant whose employment with the Company or a subsidiary has terminated, or his personal representative in the case of the death of a Participant, to exercise any Stock Option which is otherwise exercisable at any time specified by the Committee following such date of termination." 2. SECTION 2.1(c). Section 2.1(c) of the Plan is hereby amended to delete it in its entirety and replace it with the following: "The Committee, in its sole discretion, may permit a Participant whose employment with the Company or a subsidiary is terminated, or his personal representative in the case of his death, to exercise all or any part of the shares subject to Stock Options on the date of the Participant's death or termination, notwithstanding the fact that all installments, if any, with respect to such Stock Options had not accrued on such date, provided that the Committee, in its sole discretion, shall determine the time period following the date of termination for such exercise. Except as provided in this Amendment No. 1, in all other respects the Plan is hereby ratified and confirmed. The effective date of this Amendment No. 1 shall be November 30, 1998 and it shall be effective only for nonqualified stock options granted pursuant to the Plan on or after that date. -2- EX-10.45 10 EXHIBIT 10.45 FLEMING COMPANIES, INC. 1990 STOCK INCENTIVE PLAN (*) FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the Fleming Companies, Inc. 1990 Stock Incentive 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. 1990 STOCK INCENTIVE PLAN. 1.2 PURPOSE. The purpose of the Plan is to provide the Key Associates who are selected to be Participants under the Plan an incentive to motivate and financially reward such individuals who contribute to the long term growth and profitability of the Company with such reward to be based on the financial performance of the Company, including its Subsidiaries, during Performances Cycles and on such other criteria including service with the Company over time as the Committee in its sole discretion shall determine. Key Associates will have the opportunity to earn their Award with payment to be made either in cash or in shares of Common Stock which have been subject to certain restrictions as provided in this Plan. 1.3 TYPE OF PLAN. This Plan shall be considered as a "nonqualified deferred compensation plan" which is to be sponsored by the Company solely for the purpose of providing a supplemental income for certain Key Associates who contribute materially to the continued growth, development and future business success of the Company. It is the intention of the Company that this Plan and any Agreements entered into pursuant to the Plan be administered as an unfunded welfare benefit plan established and maintained for a select group of Key Associates. 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. - ----------------------- (*) As amended November 1, 1997 and August 18, 1998. (a) AGREEMENT: The word "Agreement" shall mean that certain agreement which will be entered into by and between the Company and the Participant which represents the Participant's Award for a particular Performance Cycle as provided in Section 3.3 hereof. (b) ANNIVERSARY DATE: The words "Anniversary Date" shall mean the last Saturday of December which is end of the fiscal year of the Company. (c) AWARD: The word "Award" shall mean, with respect to any Participant, the number of Phantom Stock Units or shares of Restricted Stock granted to the Participant at the beginning of each Performance Cycle. (d) BENEFICIARY: The words "Beneficiary" shall mean that person designated by the Participant pursuant to Section 6.2 hereof who may be entitled to receive such Participant's Award in the event of the death of the Participant. (e) BOARD: The word "Board" shall mean the Board of Directors of the Company. (f) CHANGE OF CONTROL: The words "Change of Control" shall mean the change in the control of the Company as described in Section 9.1 hereof. (g) CODE: The word "Code" shall mean the Internal Revenue Code of 1986, as amended. (h) COMMITTEE: The word "Committee" shall mean the committee appointed by the Board which in accordance with Article X herein will administer the Plan and which shall be constituted such that the Plan complies with Rule 16b-3, or any successor rule, as may be amended from time to time under the Securities Exchange Act of 1934. (i) COMMON STOCK: The words "Common Stock" shall mean the shares of common stock, par value $2.50 per share of the Company. (j) COMPANY: The word "Company" shall mean Fleming Companies, Inc., or its successor. (k) CURRENT MARKET VALUE: The words "Current Market Value" shall mean the closing price of the Common Stock of the Company as reported on the New York Stock Exchange as of the trading day immediately preceding the date the Award is made. (l) DISABILITY: The word "Disability" shall mean a physical or mental condition arising during employment with the Employer whereby a Participant has become totally and permanently disabled as defined under the Fleming Companies, Inc. Long-Term Disability Plan. (m) EFFECTIVE DATE: The words "Effective Date" shall mean the 1st day of January, 1990 which is the date that this Plan shall be effective for all purposes. (n) ELIGIBLE SPOUSE: The words "Eligible Spouse" shall mean the spouse to whom the Participant is married on his date of death. (o) EMPLOYER: The word "Employer" shall mean either the Company or any Subsidiary. (p) ESCROW: The word "Escrow" shall mean that separate arrangement under which Restricted Stock will be held pending distribution to the Participant on the Vesting Date or as otherwise provided in the Plan. (q) ESCROW AGENT: The words "Escrow Agent" shall mean the person or entity who shall administer the Escrow. (r) KEY ASSOCIATE: The words "Key Associate" shall mean any full time employee of the Company or a Subsidiary who holds the position of Chairman, Chief Executive Officer, President, Executive Vice President, Senior Vice President or Vice President or any other associate of the Company or a Subsidiary who is selected for participation in the Plan. (s) PARTICIPANT: The word "Participant" shall mean a Key Associate who has been selected by the Committee. (t) PERFORMANCE CYCLE: The words "Performance Cycle" shall mean a fixed period of time determined by the Committee over which Awards may be earned by the Participant. (u) PERFORMANCE GOALS: The words "Performance Goals" shall mean those factors, goals and criteria selected by the Committee which must be met by the Participant during the Performance Cycle in order for a Partici- pant to earn his Award under the Performance Vesting Schedule. (v) PERFORMANCE VESTING SCHEDULE: The words "Performance Vesting Schedule" shall mean that schedule selected by the Committee which shall contain the Performance Goals which must be met during the applicable Performance Cycle in order for a Participant to become vested in his Award under the Performance Vesting Schedule. (w) PHANTOM STOCK UNITS: The words "Phantom Stock Units" shall mean those monetary units which represent shares of Common Stock which a Participant may earn as provided in Article V hereof. (x) PLAN: The word "Plan" shall mean the "Fleming Companies, Inc. 1990 Stock Incentive Plan," as set forth in this instrument, and as hereafter amended from time to time. (y) RESTRICTED STOCK: The words "Restricted Stock" shall mean those shares of Common Stock which a Participant may earn as provided in Article V hereof. (z) RETIREMENT: The word "Retirement" shall mean a Participant's termination of employment with the Company or a Subsidiary after attaining the age of 65 years or later or, at the discretion of the Committee, after attaining the age of 55 years or later. (aa) SERVICE VESTING SCHEDULE. The words "Service Vesting Schedule" shall mean the period of employment service with the Employer established by the Committee which must be met in order for a Participant to become vested in his Award under the Service Vesting Schedule. (bb) SUBSIDIARY: The word "Subsidiary" shall mean any corporation with 80% or more of its voting common stock being owned, directly or indirectly, by the Company. (cc) VESTING DATE: The words "Vesting Date" shall mean the date on which a Participant becomes vested in his Award after satisfying the requirements, if any, of any Performance Vesting Schedule and/or Service Vesting Schedule; provided, however, that no Participant may become vested in his Award within six months from date the Award is granted. (dd) YEAR: The word "Year" shall mean the fiscal Year of the Company. 2.2 CONSTRUCTION: The masculine gender, wherever 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. In order to be eligible for participation in the Plan, a Key Associate of the Company must be selected by the Committee. Selection for participation in the Plan shall be in the sole and absolute discretion of the Committee. 3.2 PARTICIPATION IN CONSIDERATION FOR FUTURE SERVICES. Selection of a Key Associate by the Committee for participation in the Plan and the granting of any Award will be deemed to be for all purposes in consideration of future services to be rendered by the Key Associate to the Company or its Subsidiaries. 3.3 AWARD AGREEMENTS. Any Key Associate selected by the Committee as a Participant, shall, as a condition of participation, execute and return to the Committee an Agreement evidencing the Key Associate's participation in the Plan, the amount of his Award and his agreement to the terms and conditions of the Plan and the Agreement. A separate Agreement will be entered into by the Company and the Participant for each Performance Cycle. ARTICLE IV RESTRICTED STOCK SUBJECT TO THE PLAN 4.1 NUMBER OF SHARES OF RESTRICTED STOCK. Shares of Common Stock subject to Award under this Plan in the form of Restricted Stock rather than Phantom Stock Units shall not exceed in the aggregate Four Hundred Thousand (400,000) shares of the Common Stock of the Company. Either authorized and unissued shares or treasury shares may be subject to Award and delivered pursuant to the Plan. If any Restricted Stock issued to a Participant is forfeited as provided in this Plan, the Committee may reissue such Restricted Stock to Participants. 4.2 NUMBER OF PHANTOM STOCK UNITS. The number of Phantom Stock Units which may be awarded under the Plan is subject to the sole discretion of the Committee. Awards of Phantom Stock Units shall not reduce the number of Shares of Restricted Stock which may be issued hereunder; and, correspondingly, the shares of Restricted Stock shall not reduce the number of Phantom Stock Units which may be awarded hereunder since there is no limitation on the maximum number of shares of Phantom Stock Units. For all purposes under the Plan, the value of the shares of Restricted Stock and the Phantom Stock Units will be based upon the Current Market Value of the Common Stock at the time the Award is made. ARTICLE V THE AWARDS 5.1 AMOUNT OF AWARDS, NUMBER OF UNITS. The Award granted to each Participant for each Performance Cycle, expressed as a number of Phantom Stock Units (or shares of Restricted Stock), is determined solely in the discretion of the Committee. Awards of Restricted Stock will be paid in Common Stock of the Company; and Awards of Phantom Stock Units will be paid in cash. Each Award of Restricted Stock shall be calculated in the same manner as Awards of Phantom Stock Units and shall contain such terms, restrictions and conditions as the Committee may determine, which terms, restrictions and conditions may or may not be the same in each case. 5.2 SPECIAL RULES FOR PHANTOM STOCK UNITS. Phantom Stock Units are granted in the form of Units equivalent to shares of Common Stock. No certificates shall be issued with respect to such units, but the Company shall maintain a bookkeeping account in the name of the Participant to which such units shall relate and such units shall otherwise be treated in a comparable manner as if the Participant had been awarded shares of Common Stock (except that no voting rights or other stock ownership rights shall apply to such units). Each such unit shall represent the right to receive a cash payment of equivalent value at one time, in the manner and subject to the restrictions set forth in this Plan. If, during the Performance Cycle, cash dividends or other cash distributions are paid with respect to shares of Common Stock, the Company may pay to the Participant in cash an amount equal to the cash dividends or cash distributions that he would have received if the Phantom Stock Units had been granted in the form of shares of Common Stock rather than units equivalent thereto. If, during the Performance Cycle, shares of Common Stock or other securities or property are distributed with respect to the Common Stock, additional units equivalent to such shares, securities or property shall be added to the Participant's bookkeeping account as additional units and shall be subject to forfeiture and all other limitations and restrictions imposed upon the related units. Upon the expiration of the Performance Cycle or the occurrence of any other event which may give rise to forfeiture under the Plan, the Company may defer payment of dividend equivalents on Phantom Stock Units until a determination is made as to the number of such units, if any, to be forfeited, and no further dividend equivalents shall be paid with respect to forfeited units after the date of the forfeiture (regardless of whether the record date of the dividend is before or after the date of the forfeiture). In the event of the death of a Participant, the Beneficiary shall have the same right to receive cash payments equivalent to cash dividends and other cash distributions with respect to the Phantom Stock Units which are not forfeited as the Participant would have had if he had survived until payment of the Phantom Stock Units is made to the Beneficiary pursuant to Subsection 6.2 hereof. 5.3 RESTRICTED STOCK HELD IN ESCROW. The Committee shall cause a certificate to be delivered to the Escrow Agent (appointed pursuant to Section 5.4 below) registered in the name of the Participant representing the total number of shares of Restricted Stock represented by his Award and a copy of the Agreement relating to such Award in accordance with the following: (a) Any such certificate shall be legended to indicate that the shares of Restricted Stock represented thereby are subject to the terms and conditions of the Award and the Plan. (b) All Restricted Stock held by the Escrow Agent in the Escrow shall constitute issued and outstanding shares of Common Stock of the Company for all corporate purposes, and the Participant may, at the discretion of the Committee, receive all dividends thereon and shall have the right to vote such shares provided that the right to receive such dividends and to vote such shares shall forthwith terminate with respect to unvested shares of Restricted Stock of any Participant whose Award has been forfeited as provided in this Plan. (c) While such Restricted Stock is held in Escrow and until such Restricted Stock has become fully vested on the Vesting Date, it shall be subject to the restrictions set forth in Section 7.1 of the Plan. (d) As such Restricted Stock shall vest from time to time in the Participant in accordance with his Award, the Escrow Agent shall deliver to such Participant or his respective Beneficiary (in the case of the Participant's death) certificates representing such vested shares of Restricted Stock. As a condition precedent to delivering a certificate representing shares of Restricted Stock covered by an Award to the Escrow Agent, the Committee may require the Participant to deliver to the Escrow Agent a duly executed irrevocable stock power or powers (in blank) covering the Restricted Stock represented by such certificate. (e) Certificates representing unvested shares of Restricted Stock held by the Escrow Agent for the benefit of any Participant whose Award (to the extent then unvested) has been forfeited shall be returned (together with the related stock power) by the Escrow Agent to the Company. (f) The Company shall have no liability to issue any Restricted Stock hereunder unless such Restricted Stock and issuance thereof comply with any applicable federal or state securities laws or any other applicable laws. (g) Participants may be granted more than one Award. The granting of an Award shall not affect any outstanding Award previously made to a Participant under the Plan. 5.4 ESCROW AGENT. An Escrow Agent for the Escrow shall be appointed by the Committee for such period and upon such terms and conditions as the Committee deems appropriate. The Committee shall have the power to remove any person from the position of Escrow Agent and to appoint a substitute or successor Escrow Agent. The fees and expenses of the Escrow Agent shall be paid by the Company. The Escrow Agent shall not incur liability for any action taken pursuant to the Plan or any Award made thereunder so long as the Escrow Agent acts in good faith in accordance with the instructions of the Committee. ARTICLE VI PAYMENT OF AWARD 6.1 PAYMENT OF AWARD. (a) GENERAL. With respect to each applicable Performance Cycle, after satisfaction of any Performance Vesting Schedule and/or Service Vesting Schedule prescribed by the Committee, payment of Awards shall be made as soon as practicable following the Vesting Date which relates to the Award. (b) SPECIAL TIME FOR PAYMENT. Notwithstanding the provisions of Section 6.1(a), in the event of a Change of Control or termination of a Participant's employment due to death, Retirement or Disability, then, the Committee may, in its sole discretion, accelerate vesting and payment of any Award or take such other actions as the Committee deems appropriate. 6.2 BENEFICIARY DESIGNATION. In the event of the death of a Participant during a Performance Cycle, then, the Participant's Award, if any, shall be paid to the then surviving Beneficiary designated by the Participant on a form provided by the Committee, and, if there is no Beneficiary then surviving, such benefits will automatically be paid to the surviving Eligible Spouse of such Participant, otherwise to the estate of such Participant. ARTICLE VII GENERAL BENEFIT PROVISIONS 7.1 RESTRICTIONS ON ALIENATION OF BENEFITS. No right or benefit under this Plan or the Agreement shall be subject in any manner to garnishment, attachment, anticipation, alienation, sale, transfer, assignment, gift, pledge, encumbrance, disposition, hypothecation, levy, execution or the claims of creditors, either voluntarily or involuntarily, and any attempt to so garnish, attach, anticipate, alienate, sell, transfer, assign, gift, pledge, encumber, dispose, hypothecate, levy or execute on the same shall be null and void, and neither shall such benefits or beneficial interests be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person to whom such benefits or funds are payable. 7.2 NO TRUST. Other than as specifically provided in this Plan, 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 Award. 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 who employs such Participant. Any asset acquired or held by the Company in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust, escrow or other secured or segregated fund for the benefit of the Participant or his Beneficiaries or to be security for the performance of the obligations of the Company or any Subsidiary, but shall be, and remain a general, unpledged, unrestricted asset of the Company at all times subject to the claims of general creditors of the Company. 7.3 WITHHOLDING FOR INCOME AND EMPLOYMENT TAXES. Since all amounts to be paid under the Plan and the related Agreement to a Participant are to be considered as supplemental compensation paid for services rendered by the Participant, the Company 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 made under this Plan, and accordingly, all amounts of Awards shall be subject to and reduced by the amount of such taxes. In the event a Participant receives payment of Award in the form of Restricted Stock, then, in such event, with the consent of the Committee, a Participant may elect to pay any employment or withholding taxes by directing the Company to withhold a number of shares of Restricted Stock equal to the withholding deposit which is otherwise required with respect to such income or other employment taxes. Notwithstanding the withholding of such Restricted Stock, such shares shall still be considered to be subject to withholding taxes. The additional amount of tax which is due may be likewise paid either in cash or by the withholding of additional shares. 7.4 NO INTEREST ON AWARDS. All Awards to be paid hereunder will be paid without interest or investment earnings of any kind whatsoever except as otherwise specifically provided in the Plan. 7.5 PAYMENTS BY THE COMPANY OR SUBSIDIARY. The payments required to fund the cost of the Awards provided by the Plan shall be made solely by the Company or any Subsidiary whose Key Associates are participating in the Plan. 7.6 ADJUSTMENT ON RECAPITALIZATION. In case of a recapitalization, stock split, merger, stock dividend, reorganization, combination, liquidation, or other change in the Common Stock of the Company, the Committee shall make such adjustment, if any, as it deems appropriate in the number or kind of shares of Common Stock which remain available under the Plan for further Awards as well as adjustment to the number of Phantom Stock Units which represent shares of Common Stock. Unvested shares of Restricted Stock held by the Escrow Agent for the benefit of a Participant shall participate in any of such events to the same extent as any other issued and outstanding shares of Common Stock of the Company, but appropriate adjustments, if required, shall be made by the Committee, so that after giving effect to the occurrence of any of such events, the Escrow Agent shall continue to hold such unvested shares and/or any other securities delivered in respect thereof for the benefit of such Participant to the extent practicable upon the same terms and conditions of this Plan and of his Award. ARTICLE VIII PROVISIONS RELATING TO PARTICIPANTS 8.1 INFORMATION REQUIRED OF PARTICIPANTS. Payment of Awards shall be made as provided in this Plan and no formal claim shall be required therefor; provided, in the interests 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 Participants and Beneficiaries promptly furnishing true, full and complete information as the Committee may reasonably request. 8.2 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 the said person, or (ii) to a parent, spouse, relative by blood or marriage, or the legal representative of the said 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. 8.3 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, nor shall the Plan interfere with the rights of the Employer to discharge any Participant with or without cause. ARTICLE IX ACCELERATION OF AWARDS ON CHANGE OF CONTROL 9.1 CHANGE OF CONTROL. In the event that there has been a Change of Control (as defined hereafter), the Committee, in its sole discretion, may accelerate the vesting and payment of any Award or may determine that a payment in lieu of any Award shall be made. For the purpose of this Plan, a "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 "Outstanding Company Voting Securities"); provided, however, in the event the "Incumbent Board" (as such term is hereinafter defined) pursuant to authority granted in any rights agreement to which the Company is a party (the "Rights Agreement") lowers the acquisition threshold percentages set forth in such Rights Agreement, the Triggering Percentage shall be automatically reduced to equal the threshold percentages set pursuant to authority granted to the board in the Rights Agreement; and provided, further, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (x), (y), and (z) of subsection (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 or acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction will own the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (z) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of (x) a complete liquidation or dissolution of the Company or, (y) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors will be beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition, and (C) at least a majority of the members of the board of directors of such corporation will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company. 9.2 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Plan to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Participant with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then, the Committee may, in its sole discretion, authorize an additional payment (a "Gross-Up Payment") to the Participant in an amount such that after payment by the Participant of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. In the event the Committee determines that Gross-Up Payments shall be made to the Participants, the procedures set forth in Section 9.2(b) through 9.2(d) shall apply. (b) Subject to the provisions of Subsection 9.2(c) below, all determinations required to be made under this Section 9.2, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche, Oklahoma City, Oklahoma or such other certified public accounting firm as may be designated by the Participant (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Participant within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Participant shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9.2, shall be paid by the Company to the Participant within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Participant with a written opinion that failure to report the Excise Tax on the Participant's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Subsection 9.2(c) and the Participant thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant. (c) The Participant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Participant is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Participant shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Participant in writing prior to the expiration of such period that it desires to contest such claim, the Participant shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Participant harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Subsection 9.2(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Participant agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Participant to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Participant, on an interest-free basis and shall indemnify and hold the Participant harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Participant with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Participant of an amount advanced by the Company pursuant to Subsection 9.2(c), the Participant becomes entitled to receive any refund with respect to such claim, the Participant shall (subject to the Company's complying with the requirements of Subsection 9.2(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Participant of an amount advanced by the Company pursuant to Subsection 9.2(c), a determination is made that the Participant shall not be entitled to any refund with respect to such claim and the Company does not notify the Participant in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. ARTICLE X ADMINISTRATION AND COMMITTEE 10.1 ALLOCATION OF RESPONSIBILITY FOR PLAN ADMINISTRATION. The members of the Committee shall serve at the pleasure of the Board and shall be the same as the Compensation and Organization Committee appointed by the Board. Any member may serve concurrently as a member of any other administrative committee of any other plan of the Company or any of its affiliates entitling participants therein to acquire stock, stock options or deferred compensation rights (including stock appreciation rights). No member of the Board may serve on the Committee if such member has been eligible, during the year preceding his appointment, to participate under the Plan or any other plan of the Company or any of its affiliates entitling participants therein to acquire stock, stock options or deferred compensation rights (including stock appreciation rights). A member of the Committee may not be eligible to become a Participant in the Plan. The Committee shall have the power where consistent with the general purpose and intent of the Plan to (i) modify the requirements of the Plan to conform with the law or to meet in special circumstances not anticipated or covered in the Plan, (ii) suspend or discontinue the Plan, (iii) establish policies and (iv) adopt rules and regulations and prescribe forms for carrying out the purposes and provisions of the Plan including the form of any Agreements. Unless otherwise provided in the Plan, the Committee shall have the authority to interpret and construe the Plan, and determine all questions arising under the Plan and any Agreement made pursuant to the Plan. Any interpretation, decision or determination made by the Committee shall be final, binding and conclusive. A majority of the Committee shall constitute a quorum, and an act of the majority of the members present at any meeting at which a quorum is present shall be the act of the Committee. 10.2 APPOINTMENT OF COMMITTEE. The Plan shall be administered by the Committee. All usual and reasonable expenses of the Committee incurred in administering the Plan may be paid in whole or in part by the Company. 10.3 CLAIMS PROCEDURE. The Committee shall make all determinations as to the right of any Participant or his Beneficiary to an Award. If any request for a payment is wholly or partially denied, the Committee shall notify the person requesting the payments, 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 (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. 10.4 REVIEW PROCEDURE. Any Participant or Beneficiary whose claim has been denied in accordance with Section 10.3 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, and 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. 10.5 RECORDS AND REPORTS. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with governmental laws and regulations. 10.6 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, decide all questions of eligibility and determine the amount, manner and time of payment of any Awards hereunder; (b) to establish the Performance Goals and any other factors relating to the Performance Vesting Schedule and the Service Vesting Schedule as such relate to the Awards; (c) to prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan; (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; and (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. 10.7 RULES AND DECISIONS. The Committee may adopt such rules as it deems necessary, desirable, or appropriate. When making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant or Beneficiary, the Employer, the accountants of the Company or the legal counsel of the Company. ARTICLE XI AMENDMENT AND TERMINATION 11.1 RIGHT TO AMEND OR ALTER PLAN. The Plan may be amended by the Company from time to time in any respect whatever by resolution of the Board adopting such amendment and, if required by applicable law or the rules of any exchange on which the Common Stock is listed, by the affirmative vote of the holders of a majority of the shares of Common Stock. Any amendments may be made, which in the judgment of the Committee are necessary or advisable, provided that such amendments do not deprive a Participant, without his consent, of a right to receive his Award hereunder which has been previously vested by such Participant at the applicable point in time. 11.2 RIGHT TO TERMINATE PLAN. This Plan shall continue until terminated as provided in this Section 11.2. The Company expressly reserves the right to terminate this Plan in whole or in part at any time. Unless sooner terminated, this Plan shall terminate on December 31, 1999 (the "Termination Date"). Provided, if the Company elects to terminate the Plan prior to the Termination Date, the Company shall determine a proposed date of termination, and the Committee shall notify the Participants. Provided further, the termination of the Plan shall not cause a termination of any previously vested Award. ARTICLE XII MISCELLANEOUS PROVISIONS 12.1 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. 12.2 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. 12.3 EFFECTIVE DATE OF PLAN. This Plan shall be effective as of the Effective Date; provided, however, that it shall be cancelled and of no force and effect if it has not 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 within six months from the Effective Date. EX-10.46 11 EXHIBIT 10.46 FLEMING COMPANIES, INC. AMENDED AND RESTATED DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN ADOPTED: FEBRUARY 25, 1997 AMENDED AND RESTATED FLEMING COMPANIES, INC. DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN TABLE OF CONTENTS
Page ---- ARTICLE I Name and Purpose of Plan. . . . . . . . . . . . . . . . . . . . 1 1.1 Name of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Type of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II Definitions and Construction. . . . . . . . . . . . . . . . . . 1 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE III Participation and Administration. . . . . . . . . . . . . . . . 3 3.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Participation In Consideration for Services . . . . . . . . . . 3 3.3 Administration. . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE IV Direct Compensation . . . . . . . . . . . . . . . . . . . . . . 3 4.1 Direct Compensation . . . . . . . . . . . . . . . . . . . . . . 3 4.2 Payment of Direct Compensation. . . . . . . . . . . . . . . . . 4 4.3 Committee and Other Fees. . . . . . . . . . . . . . . . . . . . 4 4.4 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 4 ARTICLE V Award of Stock Equivalent Units . . . . . . . . . . . . . . . . 4 5.1 Number of Stock Equivalent Units. . . . . . . . . . . . . . . . 4 5.2 Special Rules for Stock Equivalent Units. . . . . . . . . . . . 5 5.3 Payment of Stock Equivalent Units . . . . . . . . . . . . . . . 5 5.4 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . 5 ARTICLE VI General Benefit Provisions. . . . . . . . . . . . . . . . . . . 6 6.1 Restrictions on Alienation of Benefits. . . . . . . . . . . . . 6 6.2 No Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.3 Withholding For Income and Employment Taxes . . . . . . . . . . 6 6.4 No Interest on Awards . . . . . . . . . . . . . . . . . . . . . 7 6.5 Payments by the Company . . . . . . . . . . . . . . . . . . . . 7 6.6 Adjustment on Recapitalization. . . . . . . . . . . . . . . . . 7 ARTICLE VII Stockholder Approval; Amendment and Termination . . . . . . . . 7 7.1 Right to Amend or Alter Plan. . . . . . . . . . . . . . . . . . 7 7.2 Reliance on Reports . . . . . . . . . . . . . . . . . . . . . . 7 7.3 Right to Terminate Plan . . . . . . . . . . . . . . . . . . . . 7
-i- ARTICLE VIII Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . 8 8.1 Articles and Section Titles and Headings. . . . . . . . . . . . 8 8.2 Laws of Oklahoma to Govern. . . . . . . . . . . . . . . . . . . 8 8.3 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . 8
EXHIBITS Exhibit A - Beneficiary Designation Form -ii- AMENDED AND RESTATED FLEMING COMPANIES, INC. DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN FLEMING COMPANIES, INC., an Oklahoma corporation, hereby adopts the Fleming Companies, Inc. Directors' Compensation and Stock Equivalent Unit 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. DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN. 1.2 PURPOSE. The purpose of the Plan is to provide compensation to Eligible Directors for services rendered and to also provide Eligible Directors an incentive to motivate and financially reward such Directors who contribute to the long term growth and profitability of the Company through awards of Stock Equivalent Units. 1.3 TYPE OF PLAN. This Plan shall be considered as a "compensation plan" which is to be sponsored by the Company for the purpose of providing a supplemental income for Eligible Directors who contribute to the continued growth, development and future business success of the Company. 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) AWARD OR AWARDS: The words "Award" or "Awards" shall mean Cash Awards and/or Stock Equivalent Units granted to an Eligible Director pursuant to and in accordance with the terms and provisions of this Plan. (b) AWARD PERIOD: The words "Award Period" shall mean a fixed period of time commencing with the date a Stock Equivalent Unit is granted and ending on the Termination Date. (c) BENEFICIARY: The words "Beneficiary" shall mean that person designated by the Eligible Director pursuant to Section 4.4 and Section 5.4 hereof who may be entitled to receive such Eligible Director's Direct Compensation and/or Stock Award in the event of the death of the Eligible Director. (d) BOARD: The word "Board" shall mean the Board of Directors of the Company. (e) CASH AWARD: The words "Cash Award" shall mean the annual Direct Compensation paid to Eligible Directors. (f) COMMITTEE: The word "Committee" shall mean the "Compensation and Organization Committee" of the Company. (g) COMMON STOCK: The words "Common Stock" shall mean the shares of common stock of the Company, par value $2.50 per share. (h) COMPANY: The word "Company" shall mean Fleming Companies, Inc., an Oklahoma corporation, or its successor. (i) DIRECT COMPENSATION: The words "Direct Compensation" shall mean the basic annual fee or annual board retainer, if any, as set forth in Section 4.1 paid or to be paid in cash during a calendar year to an Eligible Director as compensation for serving as a member of the Board and excluding any reimbursement payments for travel to or fee for attendance at or for chairing meetings. (j) DIRECTOR: The word "Director" shall mean a member of the Board. (k) EFFECTIVE DATE: The words "Effective Date" shall mean January 1, 1997 which is the date that this Plan shall be effective for all purposes. (l) ELIGIBLE SPOUSE: The words "Eligible Spouse" shall mean the spouse to whom the Eligible Director is married on his date of death. (m) ELIGIBLE DIRECTOR: The words "Eligible Director" shall mean a Director who is not an employee of the Company or any subsidiary. (n) MARKET VALUE: The words "Market Value" shall mean (A) during such time as the Common Stock is listed upon the New York Stock Exchange or other exchanges or the NASDAQ/National Market System, the average of the closing prices of the Common Stock on such stock exchange or exchanges or the NASDAQ/National Market System on the trading day immediately preceding the day for which the Market Value is to be determined, or if no sale of the Common Stock shall have been made on any such stock exchange or the NASDAQ/National Market System on such day, the next preceding day on which there was a sale of the Common Stock shall be used to -2- calculate such average or (B) during any such time as the Common 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 Common 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. (o) PLAN: The word "Plan" shall mean the "Fleming Companies, Inc. Amended and Restated Directors' Compensation and Stock Equivalent Unit Plan," as set forth in this instrument, and as hereafter amended from time to time. (p) STOCK EQUIVALENT UNITS: The words "Stock Equivalent Units" shall mean those monetary units, which may be granted to an Eligible Director pursuant to Article V, which represent a like number of shares of Common Stock. (q) TERMINATION DATE: The words "Termination Date" shall mean the date on which an Eligible Director ceases to be a member of the Board for any reason, including, but not limited to, death, disability or retirement. 2.2 CONSTRUCTION: The masculine gender, wherever 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 AND ADMINISTRATION 3.1 PARTICIPATION. All Eligible Directors are automatically eligible to participate in the Plan. 3.2 PARTICIPATION IN CONSIDERATION FOR SERVICES. Participation in the Plan will be deemed to be for all purposes in consideration of services rendered and to be rendered by the Eligible Director to the Company. 3.3 ADMINISTRATION. The Plan shall be administered by the Committee and the Board shall grant and approve all Awards. -3- ARTICLE IV DIRECT COMPENSATION 4.1 DIRECT COMPENSATION. The amount of annual Direct Compensation which may be awarded to Eligible Directors under the Plan is subject to the sole discretion of the Board; provided, however, in no event shall the amount of Direct Compensation exceed the sum of $16,000 during any one calendar year. Nothing contained in this Plan, however, shall restrict the Committee from recommending and the Board from making awards of all Stock Equivalent Units to Eligible Directors. 4.2 PAYMENT OF DIRECT COMPENSATION. The annual amount of Direct Compensation determined by the Board shall be divided into quarterly payments and paid quarterly on or before each March 31, June 30, September 30 and December 31 during the term of this Plan. 4.3 COMMITTEE AND OTHER FEES. Commencing on the Effective Date, and until altered, amended or modified by the Board, the annual committee attendance fees for Eligible Directors shall not exceed the following:
Fees Amount ---- ------ Board Attendance Fee (per meeting) $1,000 Committee Attendance Fee (per meeting) 1,000 Committee Chair Attendance Fee - (per meeting) 250
Fees for attendance at Board and Committee meetings and for acting as chair shall be paid at the meeting for which the fee is earned. 4.4 BENEFICIARY DESIGNATION. In the event of the death of an Eligible Director during any year of the Plan, the proportionate part of the Eligible Directors' Cash Award which has been earned as of the date of such Eligible Directors' death shall be paid to the then surviving Beneficiary designated by the Eligible Director on the Beneficiary Designation Form in the form attached hereto as Exhibit A, and, if there is no Beneficiary so designated and then surviving, such Cash Award shall automatically be paid to the surviving Eligible Spouse of such Eligible Director, or otherwise to the estate of such Eligible Director. ARTICLE V AWARD OF STOCK EQUIVALENT UNITS 5.1 NUMBER OF STOCK EQUIVALENT UNITS. Until changed or amended by the Board, the number of Stock Equivalent Units which may be awarded under the Plan shall be a minimum of 1,000 Stock -4- Equivalent Units for each calendar year of the Plan; provided, however, that during each year of the Plan, in addition to the 1,000 Stock Equivalent Units, the Committee may award additional Stock Equivalent Units in lieu of the Cash Award or any portion thereof by dividing the selected amount of the Cash Award by the Market Value of the Common Stock. Stock Equivalent Units shall be paid on or before October 31 of each year of the term of the Plan. The Award granted to each Eligible Director, expressed as a number of Stock Equivalent Units, shall be determined solely in the discretion of the Board. Awards of Stock Equivalent Units shall be paid in cash and shall be payable only on the Termination Date. Each grant of Stock Equivalent Units shall contain such terms, restrictions and conditions as the Committee may recommend and the Board may determine, which terms, restrictions and conditions may or may not be the same in each case; provided, however, in no event shall Stock Equivalent Units be payable at any time other than on the Termination Date. 5.2 SPECIAL RULES FOR STOCK EQUIVALENT UNITS. Stock Equivalent Units are granted in the form of units equivalent to shares of Common Stock. No stock certificates shall be issued with respect to such units, however, a certificate representing the number of Stock Equivalent Units shall be issued to each Eligible Director who receives a grant of Stock Equivalent Units and the Company shall maintain a bookkeeping account in the name of the Eligible Director to which such units shall relate and such units shall otherwise be treated in a comparable manner as if the Eligible Director had been awarded shares of Common Stock (except that no voting rights or other stock ownership rights shall apply to such units). Each such unit shall represent the right to receive on the Termination Date a cash payment equal to the Market Value on the Termination Date of the same number of shares of Common Stock in the manner and subject to the restrictions set forth in this Plan. If, during the Award Period, cash dividends or other cash distributions are paid with respect to shares of Common Stock, such amounts shall be credited to the Eligible Director's bookkeeping account and the Eligible Director shall be entitled to receive on the Termination Date cash in the same manner as the Stock Equivalent Units. If, during the Award Period, shares of Common Stock or other securities or property are distributed with respect to the Common Stock, additional units equivalent to such shares, securities or property shall be added to the Eligible Director's bookkeeping account as additional units and shall be subject to all other limitations and restrictions imposed upon the related units. In the event of the death of a Eligible Director, the Beneficiary shall have the same right to receive cash payments and other cash distributions with respect to the Stock Equivalent Units as the Eligible Director would have had if he had survived. -5- 5.3 PAYMENT OF STOCK EQUIVALENT UNITS. Payment of Stock Equivalent Units shall be made in a single cash payment as soon as practicable following the Termination Date of the Eligible Director. All Stock Equivalent Units issued prior to the Effective Date of this Plan shall be subject to and shall be governed by the terms and provisions hereof. 5.4 BENEFICIARY DESIGNATION. In the event of the death of an Eligible Director during an Award Period, then, the Eligible Director's Stock Equivalent Units shall be paid to the then surviving Beneficiary designated by the Eligible Director on the Beneficiary Designation Form in the form attached hereto as Exhibit A, and, if there is no Beneficiary then surviving, such benefits will automatically be paid to the surviving Eligible Spouse of such Eligible Director, otherwise to the estate of such Eligible Director. ARTICLE VI GENERAL BENEFIT PROVISIONS 6.1 RESTRICTIONS ON ALIENATION OF BENEFITS. No right or benefit pursuant to a Stock Equivalent Unit under this Plan shall be subject in any manner to garnishment, attachment, anticipation, alienation, sale, transfer, assignment, gift, pledge, encumbrance, disposition, hypothecation, levy, execution or the claims of creditors, either voluntarily or involuntarily, and any attempt to so garnish, attach, anticipate, alienate, sell, transfer, assign, gift, pledge, encumber, dispose, hypothecate, levy or execute on the same shall be null and void, and neither shall such benefits or beneficial interests be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person to whom such benefits or funds are payable. 6.2 NO TRUST. Other than as specifically provided in this Plan, 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 Eligible Director, his Beneficiary, or any other persons otherwise entitled to his Stock Equivalent Units. The status of the Eligible Director and his Beneficiary with respect to any liabilities assumed by the Company hereunder shall be solely those of unsecured creditors of the Company. Any asset acquired or held by the Company in connection with liabilities assumed by it hereunder, shall not be deemed to be held under any trust, escrow or other secured or segregated fund for the benefit of the Eligible Director or his Beneficiaries or to be security for the performance of the obligations of the Company or any subsidiary, but shall be, and remain a general, unpledged, unrestricted asset of the Company at all times subject to the claims of general creditors of the Company. -6- 6.3 WITHHOLDING FOR INCOME AND EMPLOYMENT TAXES. Since all amounts to be paid under the Plan to an Eligible Director are to be considered as supplemental compensation paid for services rendered by the Eligible Director, the Company 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 made under this Plan, if any, and accordingly, all amounts of Awards and any other payments made hereunder shall be subject to and reduced by the amount of such taxes, if any. 6.4 NO INTEREST ON AWARDS. All Awards and any other payments made hereunder will be paid without interest or investment earnings of any kind whatsoever except as otherwise specifically provided in the Plan. 6.5 PAYMENTS BY THE COMPANY. The payments required to meet the cost of the Awards provided by the Plan shall be made solely by the Company. 6.6 ADJUSTMENT ON RECAPITALIZATION. In case of a recapitalization, stock split, merger, stock dividend, reorganization, combination, liquidation, or other change in the Common Stock of the Company, the Board shall make such adjustment to the number of Stock Equivalent Units and in the number of shares of Common Stock available for award under the Plan which represent shares of Common Stock to reflect such change in organization. ARTICLE VII STOCKHOLDER APPROVAL; AMENDMENT AND TERMINATION 7.1 RIGHT TO AMEND OR ALTER PLAN. The Plan may be amended by the Company from time to time in any respect whatever by resolution of the Board adopting such amendment. Amendments may be made, which in the judgment of the Board are necessary or advisable, provided that such amendments do not deprive an Eligible Director, without his consent, of a right to receive Awards hereunder which have been previously granted to the Eligible Director at the applicable point in time. Provided further, the amendment of the Plan shall not cause a termination of any previously granted Award. 7.2 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 -7- 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. 7.3 RIGHT TO TERMINATE PLAN. This Plan shall continue until terminated as provided in this Section 8.5. The Board expressly reserves the right to terminate this Plan in whole or in part at any time. Unless sooner terminated, this Plan shall terminate on December 31, 2007. Provided, if the Board elects to terminate the Plan, the Board shall determine a proposed date of termination, and shall notify the Eligible Directors. Provided, further, the termination of the Plan shall not cause a termination of any previously granted Award. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 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. 8.2 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. 8.3 BINDING EFFECT. This Plan shall be binding upon the Company and the Eligible Directors and their respective heirs, successors and assigns. -8- EXHIBIT A - -------------------------------------------------------------------------------- BENEFICIARY DESIGNATION FORM AMENDED AND RESTATED FLEMING COMPANIES, INC. DIRECTORS' COMPENSATION AND STOCK EQUIVALENT UNIT PLAN - -------------------------------------------------------------------------------- Name: ------------------------------- The Amended and Restated Fleming Companies, Inc. Directors' Compensation and Stock Equivalent Unit Plan (the "Plan") provides that if you die while you are a participant in the Plan: Each of your Cash Awards and Stock Equivalent Units will be paid to the Primary or Secondary Beneficiary(ies) that you designate below, and, if there is no Beneficiary (either Primary or Secondary) surviving at your death, such benefits will automatically be paid to your then surviving spouse, otherwise to your estate. You should designate Secondary Beneficiary(ies) in case your Primary Beneficiary(ies) are not living at the time of your death. I choose the following person or persons as Beneficiary(ies) to receive, in the event of my death, all of my accounts in the percentages designated below. I understand that this designation automatically cancels any previous designations which I have made and that I may change this designation at any time by signing another form. - -------------------------------------------------------------------------------- PRIMARY BENEFICIARY(IES) - -------------------------------------------------------------------------------- % SHARE NAME RELATIONSHIP % ------------------------------- ------------------ ---- ADDRESS ------------------------------------------------------------- STREET CITY STATE ZIP % SHARE NAME RELATIONSHIP % ------------------------------- ------------------ ---- ADDRESS ------------------------------------------------------------- STREET CITY STATE ZIP If more than one Primary Beneficiary is designated, the share of any Primary Beneficiary who predeceases you will proportionately increase the share of the surviving Primary Beneficiary(ies). - -------------------------------------------------------------------------------- SECONDARY BENEFICIARY(IES) - -------------------------------------------------------------------------------- % SHARE NAME RELATIONSHIP % ------------------------------- ------------------ ---- ADDRESS ------------------------------------------------------------- STREET CITY STATE ZIP % SHARE NAME RELATIONSHIP % ------------------------------- ------------------ ---- ADDRESS ------------------------------------------------------------- STREET CITY STATE ZIP If more than one Secondary Beneficiary is designated, the share of any Secondary Beneficiary who predeceases you will proportionately increase the share of the surviving Secondary Beneficiary(ies). SIGNATURE DATE ------------------------------------------- ----------- WITNESS DATE --------------------------------------------- ----------- -2- EX-10.47 12 EXHIBIT 10.47 January 29, 1999 HAND DELIVERY Thomas L. Zaricki Dear Tom: This letter outlines the severance package Fleming is offering you and, along with the attached General Release, will also reflect our agreement if you decide to accept this package. This individualized severance package supersedes the one described in my January 19, 1999 letter, and is the result of our subsequent discussions. The terms of your severance package are as follows: 1. SALARY REPLACEMENT. The Company will pay you salary replacement in the gross amount of one year's base salary at your current annual pay rate of $283,500 payable in equal installments without regard to whether you have obtained new employment. The first installment will be paid on the Company's first regular payday after you return executed copies of this letter agreement and the General Release referenced hereafter or seven (7) days following that return date, whichever is later. The remaining installments will be paid throughout the one year period on the Company's regular paydays. 2. BONUS BANK. The portion of your bonus which has previously been retained by the Company in a bookkeeping account under the Economic Value Added Incentive Bonus Plan for Fleming Companies, Inc. and its Subsidiaries (the "EVA Plan") for potential future payment (the "Bonus Bank") equals $128,733. The Company will distribute the entire gross amount of your Bonus Bank to you in a lump sum. This payment will be made seven (7) days after you return executed copies of the letter agreement and General Release. 3. ACCRUED VACATION. The Company will pay you for 1999 vacation accrued as of January 1, 1999 and not used. -2- 4. "COBRA PREMIUM" REPLACEMENT. You have the right pursuant to COBRA to continued coverage under the Fleming Companies, Inc. Health Choice Plan (the "Medical Plan"). The Company will pay you a "COBRA premium" replacement in the amount of twelve (12) times the monthly COBRA premium for your current level of coverage under the Medical Plan, plus a "gross up" to offset income taxes, FICA and any other payroll taxes. You will receive this payment in a lump sum with the first installment of your salary replacement. 5. PAST SERVICE BENEFIT PLAN. The Company will waive any qualifying requirements relating to vesting or distribution of the Fleming Companies, Inc. Executive Past Service Benefit Plan (the "Past Service Plan") applicable to the award of $274,260 made to you on November 1, 1997. This benefit, plus interest as provided by the Past Service Plan, will be paid to you in accordance with the election you have previously made under the terms of the Past Service Plan. 6. RESTRICTED STOCK AWARDS. The Company will waive all qualifying requirements and accelerate distribution to you of 7,500 shares of restricted stock (plus any paid dividends attributable to those shares) which were awarded to you on November 1, 1997, under the Fleming Companies, Inc. 1996 Stock Incentive Plan (the "1996 SIP"). Of those shares, 2,500 vested by time on January 1, 1998, 2,500 vested by performance on March 31, 1998, and 2,500 vested by time on January 1, 1999. Likewise, the Company will waive the qualifying requirements and accelerate both vesting and distribution of 2,500 additional shares of restricted stock (plus any paid dividends attributable to those shares) awarded to you on November 1, 1997 under the 1996 SIP which, but for your separation from employment with the Company, would have vested on January 1, 2000. Distribution of these restricted shares will be made seven (7) days after you return the signed letter agreement and General Release. All other restricted shares or awards which you might have become eligible to receive over time under the 1996 SIP or any other Fleming plans will be forfeited. 7. AUTOMOBILE. The Company will transfer title to you of the automobile which you have been driving in connection with Company business seven (7) days after you return executed copies of the letter agreement and General Release. 8. REIMBURSEMENT OF RELOCATION COSTS. The Company will reimburse you for costs you may incur prior to December 31, 1999, in connection with a relocation from your current residence in order to accept new employment to a residence outside a 75 mile radius of Oklahoma City, Oklahoma, provided that your next employer does not regularly pay for relocation of new executive-level employees and provided that such relocation costs are reasonable and would be reimbursed in connection with the relocation of an executive-level associate pursuant to the Company's established policies and practices. This reimbursement will be paid within thirty (30) days after you submit vouchers representing the payment of the relocation costs to the Company. -3- 9. OUTPLACEMENT. The Company will provide you with a "Level One" executive outplacement package with James Farris & Associates. If you prefer to use a different outplacement firm, the Company will pay that firm a reasonable fee (up to 15% of your annual base salary) for whatever substitute outplacement package you may select. 10. TAXES. Unless otherwise noted, any payments and benefits which are subject to federal and state income tax withholding, FICA and other payroll taxes will be reduced by those amounts by the Company. 11. GENERAL RELEASE. You will execute the General Release which is attached and return it, along with the executed copy of this letter agreement, within twenty-one (21) days. You will also agree not to attempt to revoke or rescind the General Release at any time in the future nor commence any action against Fleming in regard to your prior employment relationship. By signing this letter, you are representing to the Company that you fully understand the General Release and will have had an opportunity to seek legal advice regarding the General Release and the agreement proposed by this letter, if you desire to do so, before signing it. You are also representing to the Company that between January 19, 1999, and the date you sign the General Release, you have not commenced any charge, action or complaint with any court or with the Equal Employment Opportunity Commission, the United States or Oklahoma Departments of Labor nor with any other judicial or administrative agency in regard to your employment relationship or any matters arising out of that relationship. Finally, you are representing to the Company that you fully understand that any such filing or commencement shall constitute a rejection by you of the Company's severance package offered in this letter. 12. CONTINUED LITIGATION ASSISTANCE. You will continue to cooperate with and assist the Company and its representatives and attorneys as requested with respect to any litigation, arbitrations or other dispute resolutions by being available for interviews, depositions and/or testimony in regard to any matters in which you are or have been involved or with respect to which you have relevant information. The Company will reimburse you for reasonable expenses you may incur for travel in connection with this obligation. 13. FUTURE EMPLOYMENT AND CONFIDENTIALITY OF INFORMATION. Except with the prior written consent of the Company, during the period you are receiving salary replacement installments from the Company under paragraph 1, you will not be employed by or otherwise act on behalf of any entity which directly competes with ABCO Markets, Inc., Baker's Supermarkets, Rainbow Foods or Sentry/Supersaver; provided that this non-competition obligation is not intended to preclude an employment or other relationship between you and any national retail grocery chain, regardless of location. Except with the prior written consent of the Company, you will not at any time in the future be employed or otherwise act as an "expert witness" or "consultant" or in any similar capacity in any litigation, arbitration, regulatory or agency hearing or other adversarial or investigatory proceeding involving Fleming. Also, except with the prior written consent of the Company, you will not at any -4- time hereafter make any independent use of or disclose to any other person or organization any of the Company's confidential, proprietary information or trade secrets. This shall apply to any information concerning Fleming which is of a special and unique value and includes, without limitation, both written and unwritten information relating to operations; business planning and strategies; litigation strategies; finance; accounting; sales; personnel, salaries and management; customer names, addresses and contracts; customer requirements; costs of providing products and service; operating and maintenance costs; and pricing matters. This shall also apply to any trade secrets of the Company the protection of which is of critical importance to Fleming and includes, without limitation, techniques, methods, processes, data and the like. This commitment of confidentiality shall also apply to the terms of this severance package, except for discussions with your spouse, your personal attorney and/or accountants, or as needed to enforce our agreement. Any disclosure by such individuals shall be deemed a disclosure by you and shall have the same consequences as a breach of our agreement directly by you. 14. PRESERVING COMPANY NAME. You will not at any time in the future defame, disparage or make statements which could embarrass or cause harm to the Company's name and reputation or the names and reputation of any of its officers, directors or representatives to the Company's current, former or prospective vendors, customers, professional colleagues, industry organizations, associates or contractors, to any governmental or regulatory agency or to the press or media. 15. FORFEITURE. The continued payment by the Company and retention by you of any payments to be made or benefits provided under this letter agreement shall be contingent not only on your execution of the General Release described in paragraph 11, but also on your on-going compliance with your other obligations under our agreement, including your commitments in paragraphs 12, 13 and 14. Breach of your obligations at any time in the future shall entitle the Company to cease all payments to be made or benefits provided under this letter agreement and shall entitle the Company to immediate reimbursement from you of any payments you have previously received. 16. ARBITRATION. You and the Company agree that your employment and this severance package relate to interstate commerce, and that any disputes, claims or controversies between you and Fleming which may arise out of or relate to our prior employment relationship or this letter agreement shall be settled by arbitration. Our agreement to arbitrate shall survive the termination or rescission of this letter agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Oklahoma City, Oklahoma unless we mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The arbitrator(s) may award costs and attorneys' fees in connection with the arbitration to the prevailing party; however, in the arbitrator's(s') discretion, each party may be ordered to bear its/his own -5- costs and attorneys' fees. We agree that punitive, liquidated or indirect damages shall not be awarded by the arbitrator(s). Nothing in this agreement to arbitrate, however, shall preclude the Company from obtaining injunctive relief from a court of competent jurisdiction prohibiting any on-going breaches by you of your continuing obligations under paragraphs 11, 12, 13 or 14 of this letter agreement pending arbitration. The agreement of you and the Company, in the event you execute this letter, will be in consideration of the mutual promises described above. Also, this letter and the General Release will constitute the entire agreement between you and Fleming with respect to your separation from employment and your severance package. Please contact me if you have any questions about the severance package. I will need to know your decision no later than the close of business 21 days from the date you receive this letter. Very truly yours, William J. Dowd President and Chief Operating Officer ACCEPTED AND AGREED TO BY: /s/ Thomas L. Zaricki - ---------------------------- Thomas L. Zaricki February 3, 1999 - ---------------------------- Date NOTICE. VARIOUS STATE AND FEDERAL LAWS, INCLUDING TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE AMERICANS WITH DISABILITIES ACT, THE EMPLOYEE RETIREMENT INCOME SECURITY ACT AND THE VETERANS REEMPLOYMENT RIGHTS ACT (ALL AS AMENDED FROM TIME TO TIME), PROHIBIT EMPLOYMENT DISCRIMINATION BASED ON SEX, RACE, COLOR, NATIONAL ORIGIN, RELIGION, AGE, DISABILITY, ELIGIBILITY FOR COVERED EMPLOYEE BENEFITS OR VETERAN STATUS. THESE LAWS ARE ENFORCED THROUGH THE EQUAL OPPORTUNITY EMPLOYMENT COMMISSION (EEOC), UNITED STATES DEPARTMENT OF LABOR AND VARIOUS STATE OR MUNICIPAL FAIR EMPLOYMENT BOARDS, HUMAN RIGHTS COMMISSIONS OR SIMILAR AGENCIES. THIS GENERAL RELEASE IS BEING PROVIDED TO YOU IN CONNECTION WITH THE SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE OUTLINED IN A PROPOSED LETTER AGREEMENT DATED JANUARY 29, 1999. THE FEDERAL OLDER WORKER BENEFIT PROTECTION ACT REQUIRES THAT YOU HAVE AT LEAST TWENTY-ONE (21) DAYS, IF YOU WANT IT, TO CONSIDER WHETHER YOU WISH TO SIGN A RELEASE SUCH AS THIS ONE IN CONNECTION WITH A SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. YOU HAVE UNTIL THE CLOSE OF BUSINESS TWENTY-ONE (21) DAYS FROM THE DATE YOU RECEIVE THE JANUARY 29, 1999 LETTER TO MAKE YOUR DECISION. YOU MAY ACCEPT THE SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE AT ANY TIME DURING THAT PERIOD. BEFORE EXECUTING THIS GENERAL RELEASE YOU SHOULD REVIEW IT AND THE PROPOSED LETTER AGREEMENT CAREFULLY AND CONSULT WITH YOUR ATTORNEY. YOU MAY REVOKE THIS GENERAL RELEASE WITHIN SEVEN (7) DAYS AFTER YOU SIGN IT AND IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THAT REVOCATION PERIOD HAS EXPIRED. IF YOU DO NOT ACCEPT THE SEVERANCE PACKAGE AND SIGN AND RETURN THIS GENERAL RELEASE WITHIN TWENTY-ONE (21) DAYS, OR IF YOU EXERCISE YOUR RIGHT TO REVOKE THE GENERAL RELEASE AFTER SIGNING IT, YOU WILL NOT BE ELIGIBLE FOR THE SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. ANY REVOCATION MUST BE IN WRITING AND MUST BE RECEIVED BY FLEMING COMPANIES, INC., ATTENTION: DEE JEROME, 6301 WATERFORD BLVD., OKLAHOMA CITY, OK 73126, WITHIN THE SEVEN-DAY PERIOD FOLLOWING YOUR EXECUTION OF THIS GENERAL RELEASE. - -------------------------------------------------------------------------------- GENERAL RELEASE In consideration of the special, individualized severance package offered to me by Fleming Companies, Inc. and the separation benefits I will receive as reflected in a letter dated January 29, 1999 (the "Letter Agreement"), I release and discharge Fleming Companies, Inc. and its successors, affiliates, parent, subsidiaries, partners, employees, officers, directors and agents (hereinafter referred to collectively as the "Company") from all claims, liabilities, demands and causes of action, known or unknown, fixed or contingent, which I may have or claim to have against the Company, including any claims arising out of or relating to my past employment with the Company and the severance of that relationship, as well as my decision to accept the separation benefits described in the Letter Agreement, and do hereby covenant not to file a lawsuit to assert such claims. This includes but is not limited to claims arising under federal, state, or local laws prohibiting employment discrimination (including the Age Discrimination in Employment Act), relating to any prior written, oral or implied contracts pertaining to employment, severance or retirement or growing out of any legal or equitable restrictions on the Company's rights not to continue an employment relationship with its employees, but not to include any claims under the Employee Retirement Income Security Act with regard to vested rights in any of the Company's qualified retirement plans. I have carefully reviewed and fully understand all the provisions of the Letter Agreement, the foregoing Notice and this General Release, which set forth the entire agreement between me and the Company. I understand that my receipt of the separation benefits under the Letter Agreement is dependent on my execution of this General Release, upon my return to the Company of any Company property within my possession or control and upon my continued cooperation in providing information necessary for transition and maintenance of the Company's ongoing business. I also understand that my receipt and retention of the separation benefits are also contingent on my continued nondisclosure of the Company's confidential information, including the terms of my severance package, and that prohibited disclosure of information or any future defamation, disparaging remarks or statements by me to any third parties, other associates or the media which could embarrass or cause harm to the Company's name and reputation or to the name and reputation of its officers, directors or representatives shall entitle the Company to reimbursement or retention of any separation benefits I have received or may receive. I acknowledge that the Company has given me a 21-day period to consider this General Release and whether to accept the special, individualized severance package, and that the Company has advised me to seek independent legal advice as to these matters if I chose to do so. I further acknowledge that I have not relied upon any representation or statement, oral or written, by the Company not set forth in those materials and documents. -2- DATED this 3rd day of February, 1999. /s/ Thomas L. Zaricki - -------------------- ----------------------------------- (Print Name) Thomas L. Zaricki - -------------------- ----------------------------------- (Print Name) Witness -3- EX-10.48 13 EXHIBIT 10.48 February 22, 1999 HAND DELIVERY Harry L. Winn, Jr. Dear Harry: This letter outlines the revised severance package Fleming is offering you and supersedes the package in the letter dated February 17, 1999. This February 22, 1999 letter, along with the attached General Release, will reflect our agreement if you decide to accept this package. The terms of your severance package are as follows: 1. SALARY REPLACEMENT. The Company will pay you salary replacement in the gross amount of one year's base salary at your current annual pay rate of $334,400 payable in equal installments without regard to whether you have obtained new employment. The first installment will be paid on the Company's first regular payday after you return executed copies of this letter agreement and the General Release referenced hereafter or seven (7) days following that return date, whichever is later. The remaining installments will be paid throughout the one year period on the Company's regular paydays. 2. BONUS BANK. The portion of your bonus which has previously been retained by the Company in a bookkeeping account under the Economic Value Added Incentive Bonus Plan for Fleming Companies, Inc. and its Subsidiaries (the "EVA Plan") for potential future payment (the "Bonus Bank") equals $98,841. The Company will distribute the entire gross amount of your Bonus Bank to you in a lump sum. This payment will be made seven (7) days after you return executed copies of the letter agreement and General Release. 3. ACCRUED VACATION. The Company will pay you for 1999 vacation accrued as of January 1, 1999 and not used. -2- 4. "COBRA PREMIUM" REPLACEMENT. You have the right pursuant to COBRA to continued coverage under the Fleming Companies, Inc. Health Choice Plan (the "Medical Plan"). The Company will pay you a "COBRA premium" replacement in the amount of twelve (12) times the monthly COBRA premium for your current level of coverage under the Medical Plan, plus a "gross up" to offset income taxes, FICA and any other payroll taxes. You will receive this payment in a lump sum with the first installment of your salary replacement. 5. PAST SERVICE BENEFIT PLAN. The Company will waive any qualifying requirements relating to vesting or distribution of the Fleming Companies, Inc. Executive Past Service Benefit Plan (the "Past Service Plan") applicable to the award made to you on November 1, 1997. This benefit, plus interest as provided by the Past Service Plan, equalled approximately $265,592 as of December 31, 1998. It will be paid to you in accordance with the election you have previously made under the terms of the Past Service Plan. 6. RESTRICTED STOCK AWARDS. The Company will waive all qualifying requirements and accelerate distribution to you of 22,500 shares of restricted stock (plus any paid dividends attributable to those shares) which were awarded to you on November 1, 1997, under the Fleming Companies, Inc. 1996 Stock Incentive Plan (the "1996 SIP"). Of those shares, 7,500 vested by time on January 1, 1998, 7,500 vested by performance on March 31, 1998, and 7,500 vested by time on January 1, 1999. Likewise, the Company will waive the qualifying requirements and accelerate both vesting and distribution of 7,500 additional shares of restricted stock (plus any paid dividends attributable to those shares) awarded to you on November 1, 1997 under the 1996 SIP which, but for your separation from employment with the Company, would have vested on January 1, 2000. Distribution of these restricted shares will be made seven (7) days after you return the signed letter agreement and General Release. All other restricted shares or awards which you might have become eligible to receive over time under the 1996 SIP or any other Fleming plans will be forfeited. 7. AUTOMOBILE, LAPTOP COMPUTER AND OFFICE ARTWORK. The Company will transfer title to you of the automobile which you have been driving in connection with Company business seven (7) days after you return executed copies of the letter agreement and General Release. The Company will also allow you to keep the laptop computer you have been using, although we will, of course, expect you to expunge any of the Company's business information you have downloaded onto it. The Company also recognizes that the artwork and maps which have been in your office are your personal property and that you are free to remove those items. -3- 8. REIMBURSEMENT OF RELOCATION COSTS. The Company will reimburse you for costs you may incur in the twelve (12) months following your separation in connection with relocating your family members and personal possessions from your current residence to a residence outside a 75 mile radius of Oklahoma City, Oklahoma in order to accept new employment, provided that your next employer does not regularly pay for these types of relocation expenses for new executive-level employees and provided that such relocation costs are reasonable and would be reimbursed to Fleming associates under the Company's reimbursement practices regarding personal travel expenses to the new destination and household goods shipment expenses. This reimbursement will be paid within thirty (30) days after you submit vouchers representing the payment of these relocation costs to the Company. 9. OUTPLACEMENT. The Company will provide you with a "Level One" executive outplacement package with James Farris & Associates. If you prefer to use a different outplacement firm, the Company will pay that firm a reasonable fee (up to 15% of your annual base salary) for whatever substitute outplacement package you may select. 10. TAXES. Unless otherwise noted, any payments and benefits which are subject to federal and state income tax withholding, FICA and other payroll taxes will be reduced by those amounts by the Company. 11. GENERAL RELEASE. You will execute the General Release which is attached and return it, along with the executed copy of this letter agreement, within twenty-one (21) days of the date you receive this letter. You will also agree not to attempt to revoke or rescind the General Release at any time in the future or commence any action against Fleming in regard to your prior employment relationship. By signing this letter, you are representing to the Company that you fully understand the General Release and will have had an opportunity to seek legal advice regarding the General Release and the agreement proposed by this letter, if you desire to do so, before signing it. You are also representing to the Company that between the date of this letter and the date you sign the General Release, you have not commenced any charge, action or complaint with any court or with the Equal Employment Opportunity Commission, the United States or Oklahoma Departments of Labor or with any other judicial or administrative agency in regard to your employment relationship or any matters arising out of that relationship. Finally, you are representing to the Company that you fully understand that any such filing or commencement shall constitute a rejection by you of the Company's severance package offered in this letter. -4- 12. CONTINUED LITIGATION ASSISTANCE. You will continue to cooperate with and assist the Company and its representatives and attorneys as requested with respect to any litigation, arbitrations or other dispute resolutions by being available for interviews, depositions and/or testimony in regard to any matters in which you are or have been involved or with respect to which you have relevant information. The Company will reimburse you for reasonable expenses you may incur for travel in connection with this obligation. 13. FUTURE EMPLOYMENT AND CONFIDENTIALITY OF INFORMATION. Except with the prior written consent of the Company, during the period you are receiving salary replacement installments from the Company under paragraph 1, you will not be employed by or otherwise act on behalf of an entity which competes with the Company in the food distribution or marketing business. Except with the prior written consent of the Company, you will not at any time in the future be employed or otherwise act as an expert witness or consultant or in any similar capacity in any litigation, arbitration, regulatory or agency hearing or other adversarial or investigatory proceeding involving Fleming. Also, except with the prior written consent of the Company, you will not at any time hereafter make any independent use of or disclose to any other person or organization any of the Company's confidential, proprietary information or trade secrets. This shall apply to any information concerning Fleming which is of a special and unique value and includes, without limitation, both written and unwritten information relating to operations; business planning and strategies; litigation strategies; finance; accounting; sales; personnel, salaries and management; customer names, addresses and contracts; customer requirements; costs of providing products and service; operating and maintenance costs; and pricing matters. This shall also apply to any trade secrets of the Company the protection of which is of critical importance to Fleming and includes, without limitation, techniques, methods, processes, data and the like. This commitment of confidentiality shall also apply to the terms of this severance package, except for discussions with your spouse, your personal attorney and/or accountants, or as needed to enforce our agreement. Any disclosure by such individuals shall be deemed a disclosure by you and shall have the same consequences as a breach of our agreement directly by you. 14. PRESERVING COMPANY NAME. You will not at any time in the future defame, disparage or make statements which could embarrass or cause harm to the Company's name and reputation or the names and reputation of any of its officers, directors or representatives to the Company's current, former or prospective vendors, customers, professional colleagues, industry organizations, associates or contractors, to any governmental or regulatory agency or to the press or media. 15. FORFEITURE. The continued payment by the Company and retention by you of any payments to be made or benefits provided under this letter agreement shall be contingent not only on your execution of the General Release described in paragraph 11, but also on your on-going compliance with your other obligations under our agreement, including your commitments in paragraphs 12, 13 and 14. Breach of your obligations at any time in the -5- future shall entitle the Company to cease all payments to be made or benefits provided under this letter agreement and shall entitle the Company to immediate reimbursement from you of any payments you have previously received. 16. ARBITRATION. You and the Company agree that your employment and this severance package relate to interstate commerce, and that any disputes, claims or controversies between you and Fleming which may arise out of or relate to our prior employment relationship or this letter agreement shall be settled by arbitration. Our agreement to arbitrate shall survive the termination or rescission of this letter agreement. Any arbitration shall be in accordance with the Rules of the American Arbitration Association and shall be undertaken pursuant to the Federal Arbitration Act. Arbitration will be held in Oklahoma City, Oklahoma unless we mutually agree on another location. The decision of the arbitrator(s) will be enforceable in any court of competent jurisdiction. The arbitrator(s) may award costs and attorneys' fees in connection with the arbitration to the prevailing party; however, in the arbitrator's(s') discretion, each party may be ordered to bear its/his own costs and attorneys' fees. We agree that punitive, liquidated or indirect damages shall not be awarded by the arbitrator(s). Nothing in this agreement to arbitrate, however, shall preclude the Company from obtaining injunctive relief from a court of competent jurisdiction prohibiting any on-going breaches by you of your continuing obligations under paragraphs 11, 12, 13 or 14 of this letter agreement pending arbitration. 17. INDEMNIFICATION AND INSURANCE. The Company shall hereafter indemnify you and hold you harmless in the same manner as it would any other key management associate of the Company with respect to acts or omissions occurring prior to your separation from employment. In addition, for a period of five years following your separation from employment, the Company shall cover you under any Directors and Officers liability insurance policy which is in effect covering acts or omissions occurring prior to the termination of your employment to the same extent it provides such coverage for directors and officers of the Company at that time. The agreement of you and the Company, in the event you execute this letter, will be in consideration of the mutual promises described above. Also, this letter and the General Release will constitute the entire agreement between you and Fleming with respect to your separation from employment and your severance package. -6- Please contact me if you have any questions about the severance package. I will need to know your decision no later than the close of business twenty-one (21) days from the date you receive this letter. Very truly yours, Mark S. Hansen Chairman and Chief Executive Officer DELIVERED BY: - -------------------------- Signature - -------------------------- Date ACCEPTED AND AGREED TO BY: /s/ Harry L. Winn, Jr. - -------------------------- Harry L. Winn, Jr. February 25, 1999 - -------------------------- Date NOTICE. VARIOUS STATE AND FEDERAL LAWS, INCLUDING TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE AMERICANS WITH DISABILITIES ACT, THE EMPLOYEE RETIREMENT INCOME SECURITY ACT AND THE VETERANS REEMPLOYMENT RIGHTS ACT (ALL AS AMENDED FROM TIME TO TIME), PROHIBIT EMPLOYMENT DISCRIMINATION BASED ON SEX, RACE, COLOR, NATIONAL ORIGIN, RELIGION, AGE, DISABILITY, ELIGIBILITY FOR COVERED EMPLOYEE BENEFITS OR VETERAN STATUS. THESE LAWS ARE ENFORCED THROUGH THE EQUAL OPPORTUNITY EMPLOYMENT COMMISSION (EEOC), UNITED STATES DEPARTMENT OF LABOR AND VARIOUS STATE OR MUNICIPAL FAIR EMPLOYMENT BOARDS, HUMAN RIGHTS COMMISSIONS OR SIMILAR AGENCIES. THIS GENERAL RELEASE IS BEING PROVIDED TO YOU IN CONNECTION WITH THE SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE OUTLINED IN A PROPOSED LETTER AGREEMENT DATED FEBRUARY 22, 1999. THE FEDERAL OLDER WORKER BENEFIT PROTECTION ACT REQUIRES THAT YOU HAVE AT LEAST TWENTY-ONE (21) DAYS, IF YOU WANT IT, TO CONSIDER WHETHER YOU WISH TO SIGN A RELEASE SUCH AS THIS ONE IN CONNECTION WITH A SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. YOU HAVE UNTIL THE CLOSE OF BUSINESS TWENTY-ONE (21) DAYS FROM THE DATE YOU RECEIVE THE FEBRUARY 22, 1999 LETTER AND THIS GENERAL RELEASE TO MAKE YOUR DECISION. YOU MAY ACCEPT THE SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE AT ANY TIME DURING THAT PERIOD. BEFORE EXECUTING THIS GENERAL RELEASE YOU SHOULD REVIEW IT AND THE PROPOSED LETTER AGREEMENT CAREFULLY AND CONSULT WITH YOUR ATTORNEY. YOU MAY REVOKE THIS GENERAL RELEASE WITHIN SEVEN (7) DAYS AFTER YOU SIGN IT AND IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THAT REVOCATION PERIOD HAS EXPIRED. IF YOU DO NOT ACCEPT THE SEVERANCE PACKAGE AND SIGN AND RETURN THIS GENERAL RELEASE WITHIN TWENTY-ONE (21) DAYS, OR IF YOU EXERCISE YOUR RIGHT TO REVOKE THE GENERAL RELEASE AFTER SIGNING IT, YOU WILL NOT BE ELIGIBLE FOR THE SPECIAL, INDIVIDUALIZED SEVERANCE PACKAGE. ANY REVOCATION MUST BE IN WRITING AND MUST BE RECEIVED BY FLEMING COMPANIES, INC., ATTENTION: DEE JEROME, 6301 WATERFORD BLVD., OKLAHOMA CITY, OK 73126, WITHIN THE SEVEN-DAY PERIOD FOLLOWING YOUR EXECUTION OF THIS GENERAL RELEASE. GENERAL RELEASE In consideration of the special, individualized severance package offered to me by Fleming Companies, Inc. and the separation benefits I will receive as reflected in a letter dated February 22, 1999 (the "Letter Agreement"), I release and discharge Fleming Companies, Inc. and its successors, affiliates, parent, subsidiaries, partners, employees, officers, directors and agents (hereinafter referred to collectively as the "Company") from all claims, liabilities, demands and causes of action, known or unknown, fixed or contingent, which I may have or claim to have against the Company, including any claims arising out of or relating to my past employment with the Company and the severance of that relationship, as well as my decision to accept the separation benefits described in the Letter Agreement, and do hereby covenant not to file a lawsuit to assert such claims. This includes but is not limited to claims arising under federal, state, or local laws prohibiting employment discrimination (including the Age Discrimination in Employment Act), relating to any prior written, oral or implied contracts pertaining to employment, severance or retirement or growing out of any legal or equitable restrictions on the Company's rights not to continue an employment relationship with its employees, but not to include any claims under the Employee Retirement Income Security Act with regard to vested rights in any of the Company's qualified retirement plans. I have carefully reviewed and fully understand all the provisions of the Letter Agreement, the foregoing Notice and this General Release, which set forth the entire agreement between me and the Company. I understand that my receipt of the separation benefits under the Letter Agreement is dependent on my execution of this General Release, upon my return to the Company of any Company property within my possession or control and upon my continued cooperation in providing information necessary for transition and maintenance of the Company's ongoing business. I also understand that my receipt and retention of the separation benefits are also contingent on my continued nondisclosure of the Company's confidential information, including the terms of my severance package, and that prohibited disclosure of information or any future defamation, disparaging remarks or statements by me to any third parties, other associates or the media which could embarrass or cause harm to the Company's name and reputation or to the name and reputation of its officers, directors or representatives shall entitle the Company to reimbursement or retention of any separation benefits I have received or may receive. I acknowledge that the Company has given me a 21-day period to consider this General Release and whether to accept the special, individualized severance package, and that the Company has advised me to seek independent legal advice as to -2- these matters if I chose to do so. I further acknowledge that I have not relied upon any representation or statement, oral or written, by the Company not set forth in those materials and documents. DATED this 25th day of February, 1999. /s/ Harry L. Winn, Jr. - ------------------- --------------------------------------- (Print Name) Harry L. Winn, Jr. - ------------------- --------------------------------- (Print Name) Witness -3- EX-12 14 EXHIBIT 12 Exhibit 12 FLEMING COMPANIES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FISCAL YEAR ENDED THE LAST SATURDAY IN DECEMBER 1998 1997 1996 1995 1994 (IN THOUSANDS OF DOLLARS) Earnings: Pre-tax income (loss) $(598,202) $ 82,685 $ 54,573 $ 85,892 $ 112,337 Fixed charges, net 198,336 200,266 204,527 212,173 148,125 Total earnings (loss) $(399,866) $ 282,951 $ 259,100 $ 298,065 $ 260,462 Fixed charges: Interest expense $ 161,581 $ 162,506 $ 163,466 $ 175,390 $ 120,071 Portion of rental charges deemed to be interest 36,328 37,393 40,699 36,456 27,746 Capitalized interest and debt issuance cost amortization 604 1,186 104 708 364 Total fixed charges $ 198,513 $ 201,085 $ 204,269 $ 212,554 $ 148,181 Deficiency $ 598,379 Ratio of earnings (loss) to fixed charges (2.01) 1.41 1.27 1.40 1.76
"Earnings" consist of income from continuing operations before income taxes and fixed charges excluding capitalized interest. Capitalized interest amortized during the respective periods is added back to earnings. "Fixed charges, net" consist of interest expense, an estimated amount of rental expense which is deemed to be representative of the interest factor and amortization of capitalized interest and debt issuance cost. The pro forma ratio of earnings to fixed charges is omitted as it is not applicable. Under the company's long-term debt agreements, "earnings" and "fixed charges" are defined differently and amounts and ratios differ accordingly. EX-21 15 EXHIBIT 21 Exhibit 21 FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Fleming Companies, Inc. had the following subsidiaries at year-end 1998: ABCO Holding, Inc. (incorporated in Delaware),*,# ABCO Markets Inc. (incorporated in Arizona),* ABCO Realty Corp. (incorporated in Arizona) American Logistics Group, Inc. (incorporated in Delaware) Arizona Price Impact, L.L.C. (incorporated in Oklahoma),# Big W of Florida, Inc. (incorporated in Delaware),*,# Chouteau Development Company, L.L.C. (incorporated in Oklahoma),# Fleming Foreign Sales Corporation (incorporated in Barbados) Fleming International Ltd. (incorporated in Oklahoma) Fleming Supermarkets of Florida, Inc. (incorporated in Florida) Fleming Transportation Service, Inc. (incorporated in Oklahoma) Fleming Wholesale, Inc. (incorporated in Nevada) Gateway Insurance Agency, Inc. (incorporated in Wisconsin) LAS, Inc. (incorporated in Oklahoma),* Northwest Foods, L.L.C. (incorporated in Oklahoma),* Piggly Wiggly Company (incorporated in Oklahoma) Progressive Realty, Inc. (incorporated in Oklahoma) Retail Investments, Inc. (incorporated in Nevada) Retail Supermarkets, Inc. (incorporated in Texas) RFS Marketing Services, Inc. (incorporated in Oklahoma) Richmar Foods, Inc. (incorporated in California) SAV-U-FOODS, Inc. (incorporated in Oklahoma),*,# Scrivner Transportation, Inc. (incorporated in Oklahoma),* Timber Ridge Foods, L.L.C. (incorporated in Oklahoma),*,# University Foods, Inc. (incorporated in Utah) * Inactive corporation # Not 100% owned by Fleming Companies, Inc. or subsidiary. EX-23 16 EXHIBIT 23 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 18, 1999 appearing in this Annual Report on Form 10-K of Fleming Companies, Inc. for the year ended December 26, 1998. DELOITTE & TOUCHE LLP Oklahoma City, Oklahoma March 12, 1999 EX-24 17 EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY We, the undersigned officers and directors of Fleming Companies, Inc. (hereinafter the "Company"), hereby severally constitute Mark S. Hansen 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 26, 1998, 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 2nd day of March, 1999. Signature Title MARK S. HANSEN Chairman and Chief Executive Mark S. Hansen Officer (principal executive and financial officer) KEVIN TWOMEY Vice President - Controller Kevin Twomey (principal accounting officer) JACK W. BAKER Director Jack W. Baker HERBERT M. BAUM Director Herbert M. Baum ARCHIE R. DYKES Director Archie R. Dykes CAROL B. HALLETT Director Carol B. Hallett EDWARD C. JOULLIAN III Director Edward C. Joullian III GUY A. OSBORN Director Guy A. Osborn Alice M. Peterson Director DAVID A. RISMILLER Director David A. Rismiller EX-27 18 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR DECEMBER 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-26-1998 DEC-28-1997 DEC-26-1998 5,967 0 478,663 27,758 984,287 1,587,916 1,554,884 734,819 3,490,832 1,281,084 1,143,900 96,356 0 0 473,575 3,490,832 15,069,335 15,069,335 13,594,241 15,481,472 0 24,484 161,581 (598,202) (87,607) (510,595) 0 0 0 (510,595) (13.48) (13.48)
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