-----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, Pp4ex6ttPZT9wPJRdn5M0dvFL42NnlDVafcNA94TYa1QFiiAReMNA3VOfhVCDANr CwzB9Vx2CfeBX8YgKBZpQg== 0000037912-95-000015.txt : 19951020 0000037912-95-000015.hdr.sgml : 19951020 ACCESSION NUMBER: 0000037912-95-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950907 FILED AS OF DATE: 19951019 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOD LION INC CENTRAL INDEX KEY: 0000037912 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 560660192 STATE OF INCORPORATION: NC FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06080 FILM NUMBER: 95581628 BUSINESS ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 BUSINESS PHONE: 7046338250 MAIL ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 FORMER COMPANY: FORMER CONFORMED NAME: FOOD TOWN STORES INC DATE OF NAME CHANGE: 19830510 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 9, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........to........... Commission File number 0-6080 FOOD LION, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0660192 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 1330, 2110 Executive Drive Salisbury, NC 28145-1330 (Address of principal executive office) (Zip Code) (704) 633-8250 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Outstanding shares of common stock of the Registrant as of October 13, 1995. Class A Common Stock 240,577,659 Class B Common Stock 238,442,114 Page 1 of 29 The Exhibit index is located on page 14. FOOD LION, INC. INDEX TO FORM 10-Q SEPTEMBER 9, 1995 PAGE NUMBER Part I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Income for the 12 and 36 weeks ended September 9, 1995 and September 10, 1994 3-4 Balance sheets as of September 9, 1995, December 31, 1994 and September 10, 1994 5 Statements of Cash Flows for the 36 weeks ended September 9, 1995 and September 10, 1994 6 Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Part II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 Exhibit Index 14 -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements FOOD LION, INC. STATEMENTS OF INCOME (Unaudited) For the 12 Weeks ended September 9, 1995 and September 10, 1994 (Dollars in thousands except per share data) September 9, 1995 September 10, 1994 12 WEEKS (A) (B) (A) (B) % % Net sales $1,913,982 $1,849,806 100.00 100.00 Cost of goods sold 1,515,690 1,474,395 79.19 79.71 Gross profit 398,292 375,411 20.81 20.29 Selling and administrative expenses 282,575 262,031 14.77(1) 14.16 Interest expense 14,980 21,496 0.78(1) 1.16 Depreciation 33,519 31,465 1.75(1) 1.70 331,074 314,992 17.30 17.02 Income before income taxes 67,218 60,419 3.51 3.27 Provision for income taxes 26,215 23,866 1.37 1.29 Net income $ 41,003 $ 36,553 2.14 1.98 Earnings per share $ 0.09 $ 0.08 Dividends per share $ 0.02 $ 0.02 Weighted average number of shares outstanding Class A 241,997,345 244,135,824 Class B 238,893,281 239,571,114 Total 480,890,626 483,706,938 (1) Includes a 0.21%, 0.14% and a 0.06% adjustment for Selling and Adm. Expenses, Interest Expense and Depreciation, respectively, to correct an accounting misclassification made in earlier periods of 1995. The 36 week data is correct as reported.
-3- PART I. FINANCIAL INFORMATION Item 1. Financial Statements FOOD LION, INC. STATEMENTS OF INCOME (Unaudited) For the 36 Weeks ended September 9, 1995 and September 10, 1994 (Dollars in thousands except per share data) September 9, 1995 September 10, 1994 36 WEEKS (C) (D) (C) (D) % % Net sales $5,675,452 $5,475,732 100.00 100.00 Cost of goods sold 4,503,631 4,367,311 79.35 79.76 Gross profit 1,171,821 1,108,421 20.65 20.24 Selling and administrative expenses 825,790 779,213 14.55 14.23 Interest expense 52,545 63,164 0.93 1.16 Depreciation 100,517 96,609 1.77 1.76 978,852 938,986 17.25 17.15 Income before income taxes 192,969 169,435 3.40 3.09 Provision for income taxes 75,569 66,926 1.33 1.22 Net income $ 117,400 $ 102,509 2.07 1.87 Earnings per share $ 0.24 $ 0.21 Dividends per share $ 0.07 $ 0.07 Weighted average number of shares outstanding Class A 243,404,900 244,135,799 Class B 239,290,086 239,571,114 Total 482,694,986 483,706,913
-4- FOOD LION, INC. BALANCE SHEETS (Dollars in thousands) (Unaudited) September 9, 1995 December 31, 1994 September 10, 1994 Assets Current assets: Cash and cash equivalents $ 168,419 $ 66,869 $ 337,233 Receivables 145,014 140,628 100,948 Inventories 804,557 855,712 805,029 Prepaid expenses and other 78,616 67,905 54,522 Total current assets 1,196,606 1,131,114 1,297,732 Property, at cost, less accumulated depreciation 1,402,650 1,356,673 1,324,342 Total assets $2,599,256 $2,487,787 $2,622,074 Liabilities and Shareholders' Equity Current Liabilities: Notes payable -- $ 20,000 -- Accounts payable, trade $ 353,652 344,595 $ 343,465 Accrued expenses 346,565 298,024 291,300 Long-term debt - current -- 25 75 Capital lease obligations - current 10,505 9,122 7,621 Other liabilities - current 3,850 3,293 3,411 Income taxes payable 18,924 22,169 31,284 Total current liabilities 733,496 697,228 677,156 Long-term debt 355,300 355,300 569,300 Capital lease obligations 319,900 304,963 295,882 Deferred income taxes 46,190 46,190 36,587 Deferred compensation 644 668 714 Other liabilities 59,271 56,085 54,448 Total liabilities 1,514,801 1,460,434 1,634,087 Shareholders' Equity: Class A non-voting common stock, $.50 par value 122,073 122,071 122,068 Class B voting common stock, $.50 par value 119,786 119,786 119,786 Additional capital 360 337 309 Retained earnings 867,775 785,159 745,824 1,109,994 1,027,353 987,987 Less treasury stock at cost; 4,273,115 shares 25,539 Total shareholders' equity 1,084,455 1,027,353 987,987 Total liabilities and shareholders' equity $2,599,256 $2,487,787 $2,622,074
-5- FOOD LION, INC. STATEMENTS OF CASH FLOWS (Unaudited) For the 36 Weeks ended September 9, 1995 and September 10, 1994 (Dollars in thousands) 36 Weeks September 9, 1995 September 10, 1994 Cash flows from operating activities Net income $117,400 $102,509 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 100,517 96,609 Gain on disposals of property ( 456) ( 81) Changes in operating assets and liabilities: Receivables ( 4,386) 9,004 Inventories 51,155 124,109 Prepaid expenses and other ( 10,711) ( 206) Accounts payable and accrued expenses 57,598 45,347 Income taxes payable ( 3,245) 21,177 Deferred compensation ( 24) 143 Other liabilities 3,743 ( 4,830) Total adjustments 194,191 291,272 Net cash provided by operating activities 311,591 393,781 Cash flows from investing activities Proceeds from disposal of property 4,386 2,330 Capital expenditures ( 126,651) ( 57,217) Net cash used in investing activities ( 122,265) ( 54,887) Cash flows from financing activities Net payments under short-term borrowings ( 20,000) ( 10,007) Principal payments under capital lease obligations( 7,453) ( 5,486) Principal payments on long-term debt ( 25) ( 158) Proceeds from issuance of common stock 25 22 Purchase of treasury stock ( 25,539) Dividends paid ( 34,784) ( 32,098) Net cash used in financing activities ( 87,776) ( 47,727) Net increase in cash and cash equivalents 101,550 291,167 Cash and cash equivalents at beginning of period 66,869 46,066 Cash and cash equivalents at end of period $168,419 $337,233 -6- Notes to Financial Statements (Dollars in thousands) 1) Basis of Presentation: The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and, consequently, do not include all the disclosures normally required by generally accepted accounting principles or those normally made in the Annual Report on Form 10-K of Food Lion, Inc. (the "Company"). Accordingly, the reader of this Form 10-Q should refer to the Company's Form 10-K for the year ended December 31, 1994 for further information. The financial information has been prepared in accordance with the Company's customary accounting practices and has not been audited. In the opinion of management, the financial information includes all adjustments consisting of normal recurring accruals necessary for a fair presentation of interim results. 2) Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: September 9, 1995 September 10,1994 Interest (net of amounts $49,489 $53,049 capitalized)* Income taxes 78,821 45,685 *Interest capitalized 1,564 580 Capital lease obligations for stores of $27,846 and $17,760 were incurred in the 36 week period of 1995 and 1994, respectively. Capital lease retirements of $4,173 and $17,420 were recorded in the 36 week period of 1995 and 1994, respectively. The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 and 36 weeks ended September 9, 1995 compared to 12 and 36 weeks ended September 10, 1994) Net sales increased 3.5% and 3.6% for the quarter and year to date, respectively. Same store sales increased 1.7% for the quarter and 2.8% year to date. As of the end of the third quarter, the Company had opened 12 new stores and renovated 72 existing stores, adding approximately 1,400,000 square feet. The 1995 business plan includes opening 50 new stores (15 of these openings will replace older Food Lion locations) and renovating 120 existing stores, which includes adding deli/bakeries and additional selling space to most of these stores. Gross profits increased 0.52% of sales for the quarter and 0.41% of sales year to date due to increases in the perishable, deli and grocery departments which continue to experience improved gross profits. The sales mix has been altered to accommodate better selection of products requested by customers. In addition, the number of stores with deli-bakery departments has increased 23.2% (654 stores this year compared to 531 stores last year), contributing to the increased deli-bakery department gross profit. The growth of Food Lion's private label program (representing 12% of total sales) is positively impacting gross profits in the grocery department. For the quarter and year to date, selling and administrative expenses increased 0.40% of sales and 0.32% of sales, respectively, due to increases in rent, supplies and benefits.(1) As mentioned above, the Company continues to add deli-bakery departments to its operations (654 stores with deli-bakeries TY vs. 531 a year ago). Although the deli-bakery department commands a high gross margin, the operation of this department is costly as it includes additional expenses related to rent, supplies, salaries and maintenance. Store supply costs were affected by the increasing cost of paper and plastic bags, and benefits increased due to rising medical costs. Store rent increased year to date due to a provision accrued for 1995 store closings (older units to be replaced by new Food Lion locations, see above). The Company will continue to incur expenses at a level higher than historical levels in an effort to support new initiatives the Company believes are helping to increase sales. -8- Interest expense decreased 0.24% of sales for the quarter and 0.23% of sales year to date due to the prepayment of the senior note agreement totaling $214 million in the fourth quarter of 1994 and increased capitalized interest resulting from the expansion of the Greencastle, Pennsylvania distribution center.(1) Depreciation increased 0.11% of sales for the quarter and 0.01% of sales year to date due to the additional leasehold improvements resulting from increased renovations to existing stores.(1) At year end 1993, the Company established a pre-tax charge of $170.5 million (approximately $104 million after tax) to cover management's best estimate of the costs associated with closing 88 underperforming stores in 1994. During the first six months of 1994, the Company closed 84 of these stores (a decision was made in early 1994 to keep four stores open). As of the end of the third quarter 1995, the Company has charged $26.3 million against the provision (including $6.6 million during the third quarter), primarily as a result of the payment of remaining rent obligations on leased stores, and the disposition of store inventory and property. As of September 9, 1995, the Company had made no additional adjustments to the realizable value of the properties. As efforts to dispose of store properties continue, the Company will monitor and evaluate the provision to make necessary adjustments. As previously disclosed, the Company is realizing the anticipated benefit of these store closings in the current year. These store closings have positively impacted pre-tax earnings by approximately $20 million through the third quarter. (1) Excludes a 0.21%, 0.14%, and 0.06% of sales adjustment for selling and administrative expenses, interest expense, and depreciation, respectively, made in the third quarter of 1995 to adjust for the misclassification of certain leases as capital rather than operating in the first two quarters of 1995. Including the third quarter adjustment, selling and administrative expenses increased 0.61%, interest expense decreased 0.38%, and depreciation increased 0.05%, as a percentage of sales, compared to the third quarter of 1994. -9- Liquidity and Capital Resources Cash provided by operating activities totaled $311.6 million for the 36 weeks ended September 9, 1995 compared with $393.8 million for the same period last year. This decrease is due primarily to a change in the comparative levels of inventory TY compared to LY. Capital expenditures totaled $126.7 million for the 36 weeks ended September 9, 1995 compared with $57.2 million for the same period in 1994. The increase is primarily due to additional construction costs and equipment associated with the expansion of the Greencastle, Pennsylvania distribution center, increased costs for store renovations/expansions and construction of company-owned stores. During the third quarter of 1995, the Company opened four new stores and renovated 31 existing stores. The Company plans to open 38 new stores in the remaining months of 1995 (13 of these openings will replace older Food Lion locations). The majority of these stores will be opened under conventional leasing arrangements and, as a result, the impact on liquidity of owning stores will be insignificant. The Company also plans to renovate 48 existing stores in the remaining months of 1995. Significant cash capital expenditures currently estimated for the remainder of 1995 are as follows: Construction-renovations and new store openings $15 million Equipment-renovations and new store openings $10 million For the foreseeable future, the Company's cash capital expenditures will be financed through funds generated from operations and with existing bank and credit lines, along with other debt, if necessary. The Company will consider the possibility of sale-leaseback transactions on certain free-standing, company-owned stores in the future if advantageous opportunities are presented by potential lessors. The Company maintains the following bank and credit lines: $250 million commercial paper program under which no borrowings were outstanding during the third quarter or as of September 9, 1995 and September 10, 1994. -10- A revolving credit facility with a syndicate of commercial banks providing $350 million in committed lines of credit. This facility will expire in November, 1999. There were no borrowings against these lines during the third quarter or as of September 9, 1995. Additional short-term lines of credit totaling $30.5 million. These lines of credit are available when needed. The Company is not required to maintain compensating balances and borrowings may occur periodically. The Company had no borrowings under these lines during the third quarter or as of September 9, 1995. Periodic short-term borrowings under informal credit arrangements, which are available to the Company at the discretion of the lender. As of September 9, 1995 and September 10, 1994, there were no outstanding borrowings under these informal credit arrangements. As of September 9, 1995, the Company had expended $25.5 million for the purchase of Class A and Class B shares, under its program to repurchase up to $100 million of the Company's outstanding shares. The Company purchased 3,159,115 shares of Class A stock at an average price of $5.91 per share, and 1,114,000 shares of Class B stock at an average price of $5.97 per share. Additional purchases may be made in the open market through April, 1996, as deemed in the best interest of shareholders. Part II OTHER INFORMATION Item 1. Legal Proceedings The Company has had no significant developments related to legal matters since the Item 1. disclosure previously included in the Company's Form 10-Q filed on July 27, 1995. Item 2. Change in Securities This item is not applicable. Item 3. Defaults Upon Senior Securities This item is not applicable. -11- Item 4. Submission of Matters to a Vote of Security Holders This item is not applicable. Item 5. Other Information This item is not applicable. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 10-Employee Severance Agreement 11-Computation of Earnings per Share 27-Financial Data Schedule (b). The Company did not file a report on Form 8-K for the period ended September 9, 1995. -12- SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. FOOD LION, INC. Registrant DATE: October 19, 1995 BY: Dan A. Boone Dan A. Boone Vice President-Finance Chief Financial Officer and Secretary Principal Financial Officer (Duly Authorized Officer) -13- EXHIBIT INDEX SEQ. PAGE EXHIBIT # DESCRIPTION NO. 10 Employee Severance Agreement 26 11 Computation of Earnings per Share 27 27 Financial Data Schedule 28-29 -14- EX-11 2 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (Amounts in thousands except per share amounts) September 9, 1995 September 10, 1994 PRIMARY NET INCOME $117,400 $102,509 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 482,695 483,707 STOCK OPTIONS 0 55 482,695 483,762 PRIMARY EARNINGS PER SHARE* $ .2432 $ .2119 FULLY DILUTED NET INCOME $117,400 $102,509 ELIMINATION OF INTEREST EXPENSE, NET OF RELATED TAX EFFECT, APPLICABLE TO 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 2,422 2,422 ADJUSTED INCOME APPLICABLE TO COMMON STOCK $119,822 $104,931 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 482,695 483,707 STOCK OPTIONS 0 55 SHARES ISSUABLE UPON CONVERSION OF 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 (AS OF DATE OF ISSUE JUNE 14, 1993) 14,557 14,557 497,252 498,319 FULLY DILUTED EARNINGS PER SHARE* $ .2410 $ .2106 (*)Note: Dilution is less than 3%. Therefore, common stock equivalents have been excluded from the total weighted average common shares. -27- EX-27 3
5 This schedule contains summary financial information extracted from the Balance Sheet, the Statement of Income and the Statement of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-30-1995 JAN-01-1995 SEP-09-1995 168,419 0 145,014 0 804,557 1,196,606 2,210,879 808,229 2,599,256 733,496 355,300 241,859 0 0 842,596 2,599,256 5,675,452 5,675,452 4,503,631 4,503,631 0 0 52,545 192,969 75,569 117,400 0 0 0 117,400 .24 0
EX-10 4 EXHIBIT 10 EMPLOYMENT SEVERANCE AGREEMENT AND MUTUAL RELEASE Food Lion, Inc. (the "Company") and John P. Watkins (the "Executive") hereby agree as follows: 1. Purpose of Severance Agreement and Release. A. The parties recognize that during his more than 18 years of employment with the Company, the Executive has performed valuable service to the Company in a confidential capacity. By virtue of his responsibilities during his employment, the Executive has acquired proprietary information of a sensitive and confidential nature pertaining to the Company's business operations, trade secrets, its strategies and plans, particularly in the area of store operations, which, if disclosed to individuals or entities not employed by the Company, would materially harm the Company and/or provide an unfair advantage to its competitors. B. The purpose of this Employment Severance Agreement and Mutual Release of Liability (the "Severance Agreement and Release") is to set forth the terms of the Executive's severance from employment with the Company, to resolve fully any and all obligations arising out of his employment and severance from employment, and to protect the Company's legitimate interest in maintaining the confidentiality of information pertaining to its business plans and operations known to, or possessed by, the Executive. 2. Termination of Employment. A. The Executive will resign from employment with the Company effective July 1, 1995 (the "termination date"). B. The Executive will resign from the Board of Directors of the Company effective July 1, 1995. C. On July 1, 1995, the Executive shall terminate his participation in the Profit Sharing Retirement Plan of Food Lion, Inc. The Executive shall be entitled to receive all vested benefits owing under the Company's employee benefit plans in which the Executive is participating as of the date of his resignation to the extent set forth and specifically provided for by such plans and/or to the extent otherwise required by law. 3. Consideration. A. In consideration of the Executive's release of all claims that may exist against the Company in connection with his employment as more specifically set forth below in Paragraph 4, and in consideration of the Executive's compliance with the obligations set forth below in Paragraphs 7 and 8, and provided the Executive complies with all other terms and conditions of this Severance Agreement and Release, the Company agrees that: 1. the Company will pay the Executive his current weekly salary of $5,348.08 for the period beginning July 2, 1995 and ending April 15, 1997, payable on regular biweekly pay periods during this term. These payments shall be subject to all legally required state and federal tax deductions and withholdings. 2. The Company will pay $5,000 toward outplacement services provided by the firm of Executives choice. 3. The Company will pay the Executive accrued vacation of two (2) weeks on or before July 13, 1995. B. The Employee acknowledges that the rights and payments provided in Paragraph 3(A): 1. represent valuable consideration over and above what he is otherwise entitled to in connection with the termination of his employment and that his release of claims in Paragraph 4 and his agreement to comply with the obligations of paragraphs 7 and 8 of this Severance Agreement and Release are in return for this consideration; 2. shall be in lieu of any and all claims for severance pay, additional wages, bonus, salary, accrued vacation and sick leave pay or other compensation, or benefits, or claim of damages he may have as of his termination date other than vested benefits described in paragraph 2(C) and such rights as Executive may have to obtain continued insurance coverage under COBRA; and 3. arise solely out of the terms of this Severance Agreement and Release and are not part of any Company severance pay plan. C. The Company acknowledges that its promises and releases contained in this Severance Agreement and Release are for good and valuable consideration. 4. Waiver and Release. As a material inducement for Executive and Company to enter this Severance Agreement and Release, each of them hereby irrevocably and unconditionally releases and forever discharges the other as detailed below. A. The Executive releases and forever discharges all claims he may have against the Company, its subsidiaries affiliates, parents, predecessors, and all officers, directors, representatives agents or employees in any manner arising out of or attributable to his employment with the Company. This release includes all claims that may have existed on his termination date relating to the Executive's employment with and termination from the Company, whether brought by Executive or by a third party on his behalf, including, but not limited to: 1. discrimination on the basis of age, including claims under the Age Discrimination in Employment Act as amended, the Americans with Disabilities Act, or other applicable federal statutes and other applicable state and local statutes; 2. any claim under any statute, law or regulation, based on any fact, matter, event or cause, whether known or unknown, arising out of or relating to the employment relationship between the Executive and the Company or the Executive's termination therefrom. B. The Executive agrees not to institute any legal or administrative proceeding against the Company or those persons described in Paragraph 4(A) as to any matter based upon, arising out of or related to his employment, compensation during his employment, or termination of his employment with the Company. C. The Company, on behalf of its officers, directors, employees, agents, counsel, successors, assigns and related entities hereby releases and forever discharges Executive, his heirs, assigns and representatives from any and all claims, liabilities, damages, costs, and other obligations in any manner arising out of or attributable to his employment with the Company, and will indemnify and hold harmless the Executive, his heirs, assigns and representatives from such claims, except those claims attributable to the gross negligence or willful misconduct of the Executive. D. This Severance Agreement and Release does not waive or release rights or claims for occurrences after the effective date of this Severance Agreement and Release. This Severance Agreement and Release does not preclude the Executive or Company from filing a lawsuit against the other for purposes of enforcing rights conferred to each other under this Severance Agreement and Release. 5. Company Property. On or before July 1, 1995, the Executive agrees to return all property belonging to the Company he may possess, or that he has possessed but has provided to a third party, including, but not limited to, all original and copies of Company documents, files, memoranda, notes, computer-readable information(maintained in disc or any other form) and video or tape recordings of any kind other than personal materials relating solely to the Executive. Executive promises that he has not and will not retain, distribute, or cause to be distributed, any original or duplicates of any such Company material specified in this Paragraph. 6. Loans. The Company and the Executive acknowledges that, as of the date of this Agreement, there is an outstanding balance of one hundred sixty thousand, eight hundred seventy-five dollars ($160,875.00) (the "Loan") owed by the Executive to the Company pursuant to the Company's Low Interest Loan Plan (the "Plan") . Provided the Executive is in compliance with the terms of this Agreement, the Company agrees to forgive the outstanding balance of the loan and all interest accrued thereon as follows: one- third (1/3) on December 1, 1995, one-third (1/3) on December 1, 1996, and one-third (1/3) on December 1, 1997. 7. Confidentiality. A. The Executive and Company agree that the existence and terms of the Severance Agreement and Release are and shall remain confidential, and further agree not to disclose the existence or terms of the Severance Agreement and Release to any third party, except that: 1. the Executive may disclose to his family that he resigned from the Company and the amount of consideration he received in connection with his separation and disclose the terms and conditions of this Severance Agreement and Release to his attorneys, tax consultants, state and federal authorities or as may be required by law; 2. the Company may disclose the terms and conditions of this Severance Agreement and Release as is necessary to carry out the terms of this Agreement to its managers, officers and board of directors, insurers, consultants, accountants, attorneys, state and federal tax authorities, or as may be required by law, including but not limited to disclosure as may be required in the Company's proxy statement and as required by SEC public reporting requirements; 3. the Company and the Employee may disclose to other parties only that the Executive resigned voluntarily and that the parties parted amicably; and 4. the Company and the Executive agree that Exhibit A shall be the sole public statement by either party concerning Executive's termination of employment. B. As described more fully in Paragraph 1(A) of this Severance Agreement and Release, the Executive acknowledges that as a result of his employment by the Company, he has acquired confidential or proprietary information of special value to the Company. The Executive covenants and agrees: 1. that he shall not, directly or indirectly, orally or in writing, at any time in the future disclose any information of the Company as defined in Paragraph 7(B) (2), whether such information is a trade secret, confidential or proprietary, to any person, partnership, corporation or other business entity, except with the written permission of the Company. 2. that for purposes of Paragraph 7(B) (1), the term "any information of the Company" means all information which relates to matters such as, but not necessarily limited to, trade secrets, research and development activities, books and records, expansion strategies, operational plans or strategies, real estate strategies, or other processes or strategies, distribution channels, pricing information and private processes, real estate site selection, projected store openings or closings, employee communications, training or development strategies, advice given by any legal counsel or other consultants retained by the Company whether or not protected by the attorney-client or work product privileges. 3. Paragraph 7(B) (1) or (2) shall not be violated by the disclosure of information which is disclosed pursuant to a court order or as otherwise required by law, on conditions that notice of the requirement for such disclosure is given to the Company before the Executive's making any disclosure and the Executive cooperates in resisting such disclosure upon reasonable request by the Company at the Company's expense. C. The Executive acknowledges that, by virtue of the responsibilities assigned to him throughout his employment, in the event he should make any public statements relating to the Company after his termination, such statements could be attributed to the Company or be viewed as authoritative and based on information to which the Executive had access while employed by the Company. Accordingly, the Executive agrees that for the period from the effective date of this Agreement until December 1, 1997, he will make no public comment in any way relating to the Company. 8. AGREEMENT NOT TO COMPETE. The Executive acknowledges that the Company has legitimate business interests in assuring that the skills and knowledge obtained by the Executive during his employment with the Company are not converted to the use of entities in competition with the Company or who are engaged in activities aimed at damaging the Company's public image or otherwise antithetical to the Company's lawful interests. In recognition of these legitimate interests, the Executive agrees that: A. The Executive agrees that from July 1, 1995 until December 1, 1997, he will not compete with the Company, directly or indirectly, by acting either individually or as an advisor, representative, agent, employee, partner, shareholder, investor, director, consultant, or in any other similar capacity, on behalf of any other person, partnership, corporation or other business in the retail grocery or wholesale grocery industry, which shall include warehouse membership clubs predominately selling groceries or other alternate retail formats, selling food products, (but which shall not include manufacturers of food products not engaged in the retail or wholesale grocery business, and shall not include stores of 10,000 square feet or less) in the geographical area defined in Paragraph 8(B). The Executive's ownership of not more than one percent (1%) of the stock of any publicly-held grocery chain shall not be deemed to be a violation of this Paragraph. B. The Executive agrees not to act in the capacities set forth in Paragraph 8(A) for entities operating: i) in the states of Delaware, Georgia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and Florida (excluding the area south of the line created by the Everglades Parkway between Naples and Fort Lauderdale); ii) within a 60 mile radius of the cities Dallas, Texas and Fort Worth, Texas; within a 30 mile radius of Oklahoma City, Oklahoma; Shreveport, Louisiana; and Houston, Texas; or within a 15 mile radius of Abilene, Texas and Wichita Falls, TX; iii) in the state of Pennsylvania, excluding the area within a 60 mile radius of Philadelphia, and excluding the area north and west of the line created by the following highways and as delineated on the map attached as Exhibit B (Highway 219 from the New York state border south to its intersection with Interstate Highway 80, following Highway 80 west to Highway 28 south to its intersection with Interstate Highway 79; following Highway 79 south to the West Virginia border); iv) in the state of West Virginia, excluding the area north and west of the line created by the following highways and as delineated on the map attached as Exhibit C (Interstate Highway 77 from the Ohio border south to the intersection with Highway 119, following Highway 119 to the Kentucky border.) C. From July 1, 1995 until December 1, 1997 the Executive further agrees not to recruit, solicit or otherwise contact employees of Food Lion on behalf of any other entity, either directly or as an agent, in order to induce any Food Lion employee to accept employment with another entity. D. In the event the Company ceases to operate in any of the states included above, then the restriction with respect to said state shall cease upon the date the Company ceases operations in said state. 9. ENFORCEMENT. The Executive agrees that he has received good and valuable consideration for his agreement both to adhere to the confidentiality provisions of Paragraph 7 and to the non-compete provisions of Paragraph 8 and that in the event the Company obtains evidence that Executive has violated Paragraphs 7 or 8 in any respect, the Company shall have the option to: A. cease payment of any additional amounts provided for in Paragraph 3(A) of this Severance Agreement and Release; or B. obtain temporary and permanent injunctive relief in a Superior Court of the State of North Carolina to remedy such violation. The Executive consents to jurisdiction of that court to provide such injunctive relief. The Executive agrees that failure to comply with his obligations under Paragraphs 7(B), 7(C), or 8(A), 8(B) or 8(C) of this Severance Agreement and Release shall constitute irreparable harm to the Company, without regard to any demonstrable economic harm to the Company from Executive's breach, and that the appropriate remedy for partial or total breach of those provisions shall be an interim and permanent order directing specific performance with each and every term of this Severance Agreement and Release, with damages resulting from the breach, and all costs and attorneys fees incurred in obtaining enforcement of this Severance Agreement and Release to be awarded to the Company. The Executive further agrees that in such proceeding, he shall make no assertion of mitigation in defense to the Company's prayer for injunctive relief. 10. Acknowledgment of Voluntary Nature of Severance Agreement and Release. By signing this Severance Agreement and Release, the Employee and the Company acknowledge: A. That each has entered into this Severance Agreement and Release voluntarily and fully understands all of its terms; B. That the Executive has been advised and has had the opportunity to consult with an attorney prior to signing this Severance Agreement and Release; C. That the Executive has been given the opportunity to consider this Severance Agreement and Release for a period of at least twenty-one (21) days, and, after consulting with his attorney, has voluntarily and freely executed this Agreement prior to the expiration of the twenty-one day period, and has voluntarily and freely waived the right to consider the Agreement and Release for the full twenty-one day period; and, D. That the Executive and Company are not relying on any statement or promise other than as contained in this Severance Agreement and Release. 11. Assistance. Upon reasonable notice, the Executive agrees to willingly give his assistance, including his attendance, where appropriate, to the Company's defense or prosecution of any existing or future claims or litigation. The Company will reimburse the Executive for all reasonable travel expenses incurred by the Executive in complying with this section. In the event the Executive is no longer entitled to the payments set forth in Section 3 of this Agreement, then the Executive shall be compensated at the rate of $100 per hour for such assistance. 12. Revocation Period. The Executive understands that he has a seven (7) day period after signing this Severance Agreement and Release in which to revoke or rescind his agreement and release of claims, by informing the Company's President in writing of his decision to revoke. To be effective, the rescission must be delivered to the Company's Chief Executive Officer either by hand or by mail within the seven day period. If sent by mail, the rescission must be postmarked within the seven day period, properly address to the Company's Chief Executive Officer, and sent by certified mail, return receipt requested. 13. Binding Agreement. A. This Severance Agreement and Release will become effective and enforceable upon the expiration of the seven day revocation period referred to in Paragraph 12 (the "effective date"). The Executive and the Company understand that following the seven day revocation period, this Severance Agreement and Release will be final and binding. B. This Severance Agreement and Release constitutes the entire agreement of the parties with respect to the subject matter set forth herein and there are no promises, understandings or representations, oral or written, other than those set forth herein. C. The Executive and the Company promise that, after the Severance Agreement and Release becomes final and binding, they will not pursue any claim which has been waived under the Severance Agreement and Release and will not challenge the enforceability of the Severance Agreement and Release by filing or instigating any lawsuit or administrative complaint or investigation arising out of the Employee's employment or termination. 14. Law of North Carolina. This Severance Agreement and Release, having been prepared, executed and delivered in the State of North Carolina, and shall be governed by the laws of the State of North Carolina. 15. Severability. Each provision of this Severance Agreement and Release is intended to be severable. If any provision, sentence, phrase or word of this Severance Agreement and Release or the application thereof to any person or circumstance shall be held invalid or unenforceable, the remainder of this Severance Agreement and Release, or the application of such provision, sentence, phrase or word to persons or circumstances, other than those as to which it is held invalid, shall not be affected thereby. 16. Notices. Any notices required or permitted to be given by the parties shall be given in writing by certified mail, return receipt requested, or by prepaid telegram, delivered to: R. William McCanless Vice President of Legal Affairs 2110 Executive Drive Post Office Box 1330 Salisbury, NC 28145-1330 and John P. Watkins 340 Regency Road Salisbury, NC 28147 17. Death of Executive. In the event of the death of the Executive prior to December 1, 1997, any payments due under this Severance Agreement and Release will be made to the beneficiary designated by the Executive in writing, and, if no beneficiary is designated, to his Estate. In addition, any remaining principal and accrued interest on the loan referred in Section 6 shall be deemed forgiven as of the date of Executive's death. FOOD LION, INC. Dated: By: Eugene R. McKinley Vice President -- Human Resources EMPLOYEE Dated: By: John P. Watkins EXHIBIT A TO WHOM IT MAY CONCERN: John P. Watkins, Senior Vice President of Operations and COO, resigned from Food Lion effective July, 1, 1995. John joined Food Lion June 1, 1977 as a Store Manager Trainee. During his tenure with the company, John has had responsibility in the Human Resources Department, Organization Development Department, Merchandising Department, and Store Operations including Distribution and Store Planning and Development. I very much appreciate John's contributions to the growth and success of the company, including increases in quarterly sales and earnings during the past five quarters. I am sure his abilities will be of great value to any venture he is connected with in the future. I wish him well in his career. Best regards, EXTRA LOW PRICES AND MORE TOM E. SMITH President/CEO EXHIBIT A June 23, 1995 Contact: Chris Ahearn (704) 633-8250 ext. 2892 For Immediate Release FOOD LION APPOINTS NEW CHIEF OPERATING OFFICER Salisbury, NC-- Food Lion, Inc., has announced that John Watkins, Chief Operating Officer, will be leaving the company July 1 to pursue other interests. Watkins has been with the company for 18 years, serving for the past two years as COO. "Although I find it difficult to leave Food Lion and the great people here, I am excited about the chance to pursue another business opportunity," explained Watkins. His plans will be announced at a future date. Food Lion Chairman and CEO, Tom Smith, praised Watkins for his contributions to the growth and success of the company, including increases in quarterly sales and earnings during the past five quarters. Joe Hall has been appointed Senior Vice President of Operations and Chief Operating Officer, effective July 1. In his new position, Mr. Hall will be responsible for the operations of the company's 1045 supermarkets and nine distribution centers. A Salisbury native and graduate of Wake Forest University, Mr. Hall has 20 years of experience in all aspects of the supermarket industry. He joined Food Lion in 1975 as a Grocery Buyer and has held increasingly responsible positions in buying, purchasing, advertising, marketing and merchandising. He was appointed Vice President of Buying in 1987, and served most recently as Vice President of Operations for the company's Central Division. "Joe has demonstrated outstanding leadership during his career with Food Lion," said Tom Smith, Food Lion Chairman and Chief Executive Officer. "In Joe, we have an executive who understands our company and the supermarket industry. His appointment will afford us continuity in the things we do well as he works to develop the new ideas we need to hold on to our leadership position in the industry for the future." Food Lion is one of the nation's largest supermarket chains, offering consumers Extra Low Prices and More in 1045 stores in 14 states. EXHIBIT B MAP EXHIBIT C MAP -----END PRIVACY-ENHANCED MESSAGE-----