-----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, RZ/OpBJiv1xvKtzPellSAiNxMzSRMEqKNF4GhvhBnoxPNpYa3kPcKAHNrtzaw+AK ODr7GsXdxQ1O7FfmHMnIPA== 0000037912-96-000023.txt : 19961017 0000037912-96-000023.hdr.sgml : 19961017 ACCESSION NUMBER: 0000037912-96-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960907 FILED AS OF DATE: 19961016 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: 96643956 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 7, 1996 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 (or for such shorter period that registrant was required to file such reports), 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 11, 1996. Class A Common Stock 235,945,613 Class B Common Stock 232,902,364 Page 1 of 25 The Exhibit index is located on page 14. FOOD LION, INC. INDEX TO FORM 10-Q September 7, 1996 PAGE NUMBER Part I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Income for the 12 and 36 weeks ended September 7, 1996 and September 9, 1995 3-4 Balance sheets as of September 7, 1996, December 30, 1995 and September 9, 1995 5 Statements of Cash Flows for the 36 weeks ended September 7, 1996 and September 9, 1995 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 12 Item 2. Changes in Securities 12 Item 3. Defaults Upon Senior Securities 12 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 7, 1996 and September 9, 1995 (Dollars in thousands except per share data) September 7, 1996 September 9, 1995 12 WEEKS (A) (B) (A) (B) % % Net sales $2,124,390 $1,913,982 100.00 100.00 Cost of goods sold 1,662,329 1,515,690 78.25 79.19 Gross profit 462,061 398,292 21.75 20.81 Selling and administrative expenses 322,498 282,575 15.18 14.77(1) Interest expense 19,197 14,980 0.90 0.78(1) Depreciation 38,370 33,519 1.81 1.75(1) 380,065 331,074 17.89 17.30 Income before income taxes 81,996 67,218 3.86 3.51 Provision for income taxes 31,978 26,215 1.51 1.37 Net income $ 50,018 $ 41,003 2.35 2.14 Earnings per share $ 0.11 $ 0.09 Dividends per share $ 0.03 $ 0.02 Weighted average number of shares outstanding Class A 235,731,888 241,997,345 Class B 233,182,364 238,893,281 Total 468,914,252 480,890,626 (1) Included a 0.21%, 0.14% and a 0.06% adjustment for Selling and Administrative 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 7, 1996 and September 9, 1995 (Dollars in thousands except per share data) September 7, 1996 September 9, 1995 36 WEEKS (C) (D) (C) (D) % % Net sales $6,233,257 $5,675,452 100.00 100.00 Cost of goods sold 4,915,927 4,503,631 78.87 79.35 Gross profit 1,317,330 1,171,821 21.13 20.65 Selling and administrative expenses 907,896 825,790 14.56 14.55 Interest expense 57,840 52,545 0.93 0.93 Depreciation 113,340 100,517 1.82 1.77 SFAS No. 121 charge 9,640 0.15 1,088,716 978,852 17.46 17.25 Income before income taxes 228,614 192,969 3.67 3.40 Provision for income taxes 89,159 75,569 1.43 1.33 Net income $ 139,455 $ 117,400 2.24 2.07 Earnings per share $ 0.30 $ 0.24 Dividends per share $ 0.08 $ 0.07 Weighted average number of shares outstanding Class A 236,208,081 243,404,900 Class B 234,578,183 239,290,086 Total 470,786,264 482,694,986
-4- FOOD LION, INC. BALANCE SHEETS (Dollars in thousands) (Unaudited) September 7, 1996 December 30, 1995 September 9, 1995 Assets Current assets: Cash and cash equivalents $ 149,448 $ 70,035 $ 172,929 Receivables 137,869 127,995 145,014 Inventories 886,842 881,021 799,944 Prepaid expenses and other 79,343 73,362 74,107 Total current assets 1,253,502 1,152,413 1,191,994 Property, at cost, less accumulated depreciation 1,568,221 1,492,852 1,393,074 Total assets $2,821,723 $2,645,265 $2,585,068 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable, trade $ 413,764 $ 363,571 $ 353,652 Accrued expenses 362,235 316,569 323,876 Capital lease obligations - current 16,962 15,032 10,505 Other liabilities - current 3,591 3,523 3,850 Income taxes payable __________ __________ ____18,924 Total current liabilities 796,552 698,695 710,807 Long-term debt 314,689 355,300 355,300 Capital lease obligations 411,717 372,645 319,900 Deferred income taxes 44,120 44,120 46,190 Deferred compensation 779 726 644 Other liabilities 93,385 71,269 67,772 Total liabilities 1,661,242 1,542,755 1,500,613 Shareholders' Equity: Class A non-voting common stock, $.50 par value 117,915 119,255 120,493 Class B voting common stock, $.50 par value 116,451 118,313 119,229 Retained earnings 926,115 864,942 844,733 Total shareholders' equity 1,160,481 1,102,510 1,084,455 Total liabilities and shareholders' equity $2,821,723 $2,645,265 $2,585,068
-5- FOOD LION, INC. STATEMENTS OF CASH FLOWS (Unaudited) For the 36 Weeks ended September 7, 1996 and September 9, 1995 (Dollars in thousands) 36 Weeks September 7, 1996 September 9, 1995 Cash flows from operating activities Net income $139,455 $117,400 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 113,340 100,517 Gain on disposals of property ( 165) ( 1,554) SFAS No. 121 charge 9,640 Changes in operating assets and liabilities: Receivables ( 9,874) ( 4,386) Inventories ( 5,821) 53,340 Prepaid expenses and other ( 5,981) ( 6,202) Accounts payable and accrued expenses 95,859 42,075 Income taxes payable ( 3,245) Deferred compensation 53 ( 24) Other liabilities 22,184 10,923 Total adjustments 219,235 191,444 Net cash provided by operating activities 358,690 308,844 Cash flows from investing activities Proceeds from disposal of property 18,682 11,642 Capital expenditures (163,211) (126,651) Net cash used in investing activities (144,529) (115,009) Cash flows from financing activities Net payments under short-term borrowings ( 20,000) Principal payments under capital lease obligations ( 12,653) ( 7,453) Principal payments on long-term debt ( 40,000) ( 25) Proceeds from issuance of common stock 1,525 26 Repurchase of common stock ( 44,344) ( 25,539) Dividends paid ( 39,276) ( 34,784) Net cash used in financing activities (134,748) ( 87,775) Net increase in cash and cash equivalents 79,413 106,060 Cash and cash equivalents at beginning of period 70,035 66,869 Cash and cash equivalents at end of period $149,448 $172,929 -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 30, 1995 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 7, 1996 September 9, 1995 Interest (net of amounts capitalized)* $54,091 $49,489 Income taxes 90,472 78,821 *Interest capitalized 944 1,564 Capital lease obligations for stores of $71,776 and $27,846 were incurred in the 36 week period of 1996 and 1995, respectively. Capital lease retirements of $18,121 and $4,173 were recorded in the 36 week period of 1996 and 1995, respectively. The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. During the third quarter additional Class A common stock of 77,341 shares were issued upon the conversion of $611 of long- term debt. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 and 36 weeks ended September 7, 1996 compared to 12 and 36 weeks ended September 9, 1995) Net sales increased 11.0% and 9.8% for the quarter and year to date, respectively. Same store sales increased 6.7% for the quarter and 6.0% year to date. Sales were positively impacted by successful marketing programs such as the Company's relationship with the National Association for Stock Car Auto Racing ("NASCAR") and continued category management efforts, along with the renovation and expansion of older stores, as well as the conversion of most stores to 24-hour service. As discussed in Food Lion's 1995 Annual Report, the Company's Southwest market is generating positive cash flow, but is still not profitable. Food Lion will continue to evaluate the performance of all corporate assets, including those in the Southwest, and if the Company's efforts to improve the Southwest market are not successful, the Company is prepared to make a decision regarding continued operations in that market area. The 1996 business plan includes opening at least 50 new stores (up to 17 of these replacing older stores) and renovating approximately 120 existing stores. As of the end of the third quarter, the Company had opened 19 new stores (offsetting five older units), closed three stores and renovated 65 existing stores. In addition to the planned openings, the Company acquired the assets of Food Fair of North Carolina, Inc. in the first quarter which contributed nine additional stores, resulting in a total of 1,093 stores operating at the end of the third quarter this year compared with 1,048 stores at the end of the third quarter last year. Gross profits increased 0.94% of sales for the quarter and 0.48% of sales year to date due to increases in the grocery, market, perishable and deli-bakery departments. Gross profits were positively impacted by increased customer traffic in the fresh departments (market and deli), areas that command a higher gross profit. Also contributing to the increase in the deli-bakery department was a 23.3% increase in the number of stores with deli-bakeries (816 stores this year at the end of the third quarter compared to 662 stores last year at the end of the third quarter). The Company's continued emphasis on the private label program (currently 15% of total sales versus 12% of total sales last year) has also contributed to the gross profit increase. Also positively impacting gross profits is the Company's conversion to 24- hour operations. The Company has noted that shoppers that trade with Food Lion during the extended hours are purchasing items that command a higher gross profit, such as snacks, chilled drinks, packs of cigarettes, etc. For the quarter, selling and administrative expenses increased 0.41% of sales primarily due to increases in store rent and estimated losses accrued for costs associated with recent hurricanes that impacted many -8- of the Company's market areas. Store rent included a provision accrued for future store closings of $12.7 million or 0.60% of sales. Offsetting these increases were decreases (as a percentage of sales) in certain variable costs such as salaries, supplies, benefits and repairs as the Company controlled these costs during periods of strong sales performance. Year to date, selling and administrative expenses increased 0.01% of sales.(1) Interest expense increased 0.12% of sales during the quarter primarily due to an increase in the number of stores with capital leases (423 this year compared to 364 last year) offset by a decrease in interest resulting from the repurchase of Note Purchase Agreements totaling $40.0 million during the second quarter this year. (1) Depreciation increased 0.06% of sales and 0.05% of sales for the quarter and year to date, respectively, primarily due to remodeling of stores and new store openings since third quarter last year.(1) During the first quarter of 1996, Food Lion implemented Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" (SFAS No. 121). The implementation of SFAS No. 121 created a non-operating, non-cash charge against first quarter earnings of $9.6 million to properly reflect the carrying value of the Company's assets. Excluding the SFAS No. 121 charge, earnings per share were $0.31 as of September 7, 1996. 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 1996, the Company has charged $71.0 million against the provision , 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 7, 1996, the Company had made no additional adjustments to the realizable value of the properties. The Company believes the provision is adequate at this time and will continue to monitor and evaluate the provision to make necessary adjustments. (1)Last year the third quarter included a 0.21%, 0.14%, 0.06% of sales adjustment for selling and administrative expenses, interest expense and depreciation, respectively, to adjust for the misclassification of certain leases as capital rather than operating in the first two quarters of 1995. Year to date is correct as reported. -9- Liquidity and Capital Resources Cash provided by operating activities totaled $358.7 million for the 36 weeks ended September 7, 1996 compared with $308.8 million for the same period last year. The increase in 1996 was primarily a factor of increased net income along with an increase in payables and costs related to future planned store closings, offset by changes in the comparative levels of inventory. Capital expenditures totaled $163.2 million for the 36 weeks ended September 7, 1996 compared with $126.7 million for the same period in 1995. The increase is primarily the result of equipment costs for renovations and new stores along with costs associated with the Food Fair acquisition during 1996. The Company opened twelve new stores and renovated 24 existing stores during the third quarter of 1996. For the year, Food Lion plans to open a total of at least 50 new stores and renovate 120 stores. The majority of the new stores will be opened under conventional leasing arrangements and, as a result, the impact on liquidity of owning stores will be insignificant in 1996. Significant cash capital expenditures currently estimated for the remainder of 1996 are as follows: Store expansion and new store construction $32 million Equip new and renovated stores $52 million Land costs $ 1 million Capital expenditures for 1996 will be financed through funds generated from operations, existing bank and credit lines, and 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 7, 1996 and September 9, 1995. 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 as of September 7, 1996 and September 9, 1995. Additional short-term committed 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. Borrowings during the quarter were as follows (see table below): -10- $30.5 million Short-term Committed Lines 1996 1995 Outstanding borrowings at end of third quarter 0 0 Average borrowings $ 3.0 million 0 Maximum amount outstanding $24.0 million 0 Daily weighted average interest rate 5.543% N/A Periodic short-term borrowings under informal credit arrangements, which are available to the Company at the discretion of the lender. Borrowings for the quarter were as follows (see table below): Informal Credit Lines 1996 1995 Outstanding borrowings at end of third quarter 0 0 Average borrowings $ 3.7 million 0 Maximum amount outstanding $20.0 million 0 Daily weighted average interest rate 5.543% N/A During the third quarter of 1996, the Company expended $5.7 million for the purchase of Class A and Class B shares, as part of the Company's stock repurchase plans. The Company purchased 45,000 shares of Class A stock during the quarter at an average price of $8.25 per share, and 650,000 shares of Class B stock at an average price of $8.21 per share. Additional purchases may be made in the open market under the current program which began May, 1996 as deemed in the best interest of shareholders. Since the inception of the original plan began in May, 1995, 8,687,615 Class A shares and 6,668,750 Class B shares have been repurchased at a total cost of $95.3 million. -11- Part II OTHER INFORMATION Item 1. Legal Proceedings The Company has had no significant developments related to legal matters since the Item 1 disclosure included in the Company's Form 10Q filed on July 30, 1996 for the quarter ended June 15, 1996. Item 2. Change in Securities This item is not applicable. Item 3. Defaults Upon Senior Securities This item is not applicable. 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 7, 1996. -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 16,1996 BY: Carol M. Herndon Carol M. Herndon Corporate Controller Principal Accounting Officer -13- EXHIBIT INDEX SEQ.Page EXHIBIT # DESCRIPTION No. 10 Employee Severance Agreement 15-22 11 Computation of Earnings per Share 23 27 Financial Data Schedule 24-25 -14- EX-11 2 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (Amounts in thousands except Years Ended per share amounts) September 7, 1996 September 9,1995 PRIMARY NET INCOME $139,455 $117,400 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 470,786 482,695 STOCK OPTIONS 387 0 471,173 482,695 PRIMARY EARNINGS PER SHARE (*) $ .2960 $ .2432 FULLY DILUTED NET INCOME $139,455 $117,400 ELIMINATION OF INTEREST EXPENSE, NET OF RELATED TAX EFFECT, APPLICABLE TO 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 2,420 2,422 ADJUSTED INCOME APPLICABLE TO COMMON STOCK $141,875 $119,822 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 470,786 482,695 STOCK OPTIONS 622 0 SHARES ISSUABLE UPON CONVERSION OF 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 (AS OF DATE OF ISSUE JUNE 14, 1993) 14,480 14,557 485,888 497,252 FULLY DILUTED EARNINGS PER SHARE (*) $ .2920 $ .2410 (*) NOTE: Dilution is less than 3%. Therefore, common stock equivalents have been excluded from the total weighted average common shares. EX-27 3
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets, the Consolidated Statements of Income and the Consolidated Statement of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-28-1996 DEC-31-1995 SEP-7-1996 149448 0 137869 0 886842 1253502 2474852 906631 2821723 796552 314689 0 0 234366 926115 2821723 6233257 6233257 4915927 4915927 0 0 57840 228614 89159 139455 0 0 0 139455 .30 0
EX-10 4 EMPLOYMENT SEVERANCE AGREEMENT AND MUTUAL RELEASE Food Lion, Inc. (the "Company") and Dan A. Boone (the "Executive") social security number ###-##-#### hereby agree as follows: 1. Purpose of Severance Agreement and Release. A. The parties recognize that during his 14 years of employment with the Company, theExecutive has performed valuable service to the Company in a confidential capacity. By virtue of his responsibilities during his employment, the Executive has acquired valuable proprietary information of a sensitive and confidential nature pertaining tothe Company's business operations, trade secrets, its strategies and plans,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 August 26, 1996 (the "termination date"). B. On August 26, 1996, 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 $4,144.39 for the period beginningAugust 26, 1996, and ending February 28, 1998, payable on regular biweekly pay periods during this term. However, at any time during the period August 26, 1997, through February 28, 1998, in which Executive is employed, or receives any compensation for services, then the weekly payment due to the Executive shall be reduced by the lesser of fifty percent of his current weekly salary or the weekly compensation he receives. Executive shall give notice to the Company, through the Vice President of Human Resources, of any such employment or compensation for services at least 21 days in advance or as promptly as is reasonably possible. These payments shall be subject to all legally required state and federal tax deductions and withholdings. 2. The Company will pay the net amount of $5,000 toward outplacement services. 3. The Executive will be paid accrued vacation pay for three weeks and three (3) days. B. The Executive 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 August 27, 1996, 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 in the amount of one hundred forty thousand dollars ($140,000.00) (the "Loan") owed by the Executive to the Company pursuant to the Company's Low Interest Loan Plan (the "Plan") . The Executive agrees to repay the full outstanding balance on or before January 31, 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 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 February 28, 1998, 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 relating to the nature and character of the Company's business 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 are otherwise antithetical to the Company's lawful interests. In recognition of these legitimate interests, the Executive agrees that: A. The Executive agrees that from August 26, 1996 until February 28, 1998, he will not compete with the Company, directly or indirectly, by acting either individually or as an advisor, representative, agent, employee, partner, shareholder, investor, consultant, or in any other similar capacity, on behalf of any other person, partnership, corporation or other business in the retail grocery industry, which shall include warehouse membership clubs selling groceries or other retail formats selling food products, (but which shall not include manufacturers of food products not engaged in the retail 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 a violation of this Paragraph. B. The Executive agrees not to act in the capacities set forth in Paragraph 8(A) for entities operating in North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Maryland, Delaware, Kentucky, West Virginia, Pennsylvania, Texas, Oklahoma, and Louisiana. C. From August 27, 1996 to February 28, 1998, 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 solicit or 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 tojurisdiction 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 day 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: Lester C. Nail Vice President of Legal Affairs 2110 Executive Drive Post Office Box 1330 Salisbury, NC 28145-1330 and Dan A. Boone 250 Ikerd Drive Concord, NC 28025 17. Death of Executive. In the event of the death of the Executive prior to February 28, 1998, 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. FOOD LION, INC. Dated: September 6, 1996 By:Eugene R. McKinley Eugene R. McKinley Vice President -- Human Resources EXECUTIVE Dated: September 5,1996 By: Dan A. Boone Dan A. Boone Exhibit A September 12, 1996 MEMO TO: VICE PRESIDENTS Food Lion announced today that Dan Boone, Chief Financial Officer, has left the company, effective August 26, 1996. Dan has been with Food Lion for 14 years, serving for the past six years as CFO. He was a member of the Board of Directors from 1991- 1994. Food Lion Chairman and CEO, Tom Smith, praised Dan for his contributions to the growth and success of the company and wished him success in his future endeavors. Until a successor is named, the Finance department, which has reported through Boone to Bill McCanless, Senior Vice President of Administration and Chief Administrative Officer, will report directly to McCanless. Food Lion is one of the nation's ten largest supermarket chains, serving nine million customers per week. The company and its 72,000 employees offer Extra Low Prices and More at 1,093 supermarkets in 14 states. Best regards, EXTRA LOW PRICES AND MORE TOM E. SMITH -----END PRIVACY-ENHANCED MESSAGE-----