-----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, WQCY7MJhJHfyZc/9GNbx1ZcE1xe6q9fU6eE/Y2UsC7+s8onxEO16lV/jF70CHcjr Z+UBnR6qFIRhChNMqj36rA== 0000037912-97-000011.txt : 19970506 0000037912-97-000011.hdr.sgml : 19970506 ACCESSION NUMBER: 0000037912-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970322 FILED AS OF DATE: 19970505 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: 97595138 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 March 22,1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........to........... Commission File number 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 April 25, 1997. Class A Common Stock 236,056,252 Class B Common Stock 232,727,364 Page 1 of 67 The Exhibit index is located on page 14. FOOD LION, INC. INDEX TO FORM 10-Q March 22, 1997 PAGE NUMBER Part I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income for the 12 weeks ended March 22, 1997 and March 23, 1996 3 Consolidated Balance sheets as of March 22, 1997, December 28, 1996 and March 23, 1996 4 Consolidated Statements of Cash Flows for the 12 weeks ended March 22, 1997 and March 23, 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-11 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 12 Holders 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. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the 12 Weeks ended March 22, 1997 and March 23, 1996 (Dollars in thousands except per share data) March 22, 1997 March 23, 1996 12 WEEKS (A) (B) (A) (B) % % Net sales $2,276,746 $2,024,453 100.00 100.00 Cost of goods sold 1,779,885 1,612,830 78.18 79.67 Gross profit 496,861 411,623 21.82 20.33 Selling and administrative expenses 346,841 278,988 15.23 13.78 Depreciation and amortization 48,697 37,019 2.14 1.83 Asset impairment reserve - 9,640 0.00 0.47 Operating income 101,323 85,976 4.45 4.25 Interest expense 26,685 19,004 1.17 0.94 Income before income taxes 74,638 66,972 3.28 3.31 Provision for income taxes 29,109 26,119 1.28 1.29 Net income $ 45,529 $ 40,853 2.00 2.02 Earnings per share $ 0.10 $ 0.09 Dividends per share $ 0.03 $ 0.03 Weighted average number of shares outstanding Class A 236,195,448 237,202,480 Class B 233,902,364 235,935,114 Total 469,097,812 473,137,594
-3- FOOD LION, INC. CONSOLIDATED BALANCE SHEETS Dollars in thousands) (Unaudited) March 22, 1997 December 28, 1996 March 23, 1996 Assets Current assets: Cash and cash equivalents $ 101,205 $ 102,371 $ 135,119 Receivables 142,509 151,163 130,483 Inventories 974,861 1,065,743 875,719 Prepaid expenses and other 30,463 33,660 20,495 Deferred tax asset 75,807 75,807 50,018 Total current assets 1,324,845 1,428,744 1,211,834 Property, at cost, less accumulated depreciation 1,783,552 1,772,503 1,502,978 Deferred tax asset 8,619 8,619 - Intangible assets 276,754 278,726 10,033 Total assets $3,393,770 $3,488,592 $2,724,845 Liabilities and Shareholders' Equity Current Liabilities: Notes payable $ 300,000 $ 250,010 $ - Accounts payable, trade 426,848 470,994 363,520 Accrued expenses 418,401 397,431 358,977 Capital lease obligations - current 21,452 21,970 16,220 Long term debt - current 988 973 40,000 Other liabilities - current 6,813 7,279 3,682 Income taxes payable 16,257 5,578 ____14,200 Total current liabilities 1,190,759 1,154,235 796,599 Long-term debt 334,085 495,111 315,300 Capital lease obligations 470,545 469,035 385,035 Deferred income taxes - - 44,120 Other liabilities 152,892 154,273 74,511 Total liabilities 2,148,281 2,272,654 1,615,565 Shareholders' Equity: Class A non-voting common stock, $.50 par value 118,130 118,083 117,966 Class B voting common stock, $.50 par value 116,451 116,451 117,738 Additional capital 1,376 1,708 - Retained earnings 1,009,532 979,696 873,576 Total shareholders' equity 1,245,489 1,215,938 1,109,280 Total liabilities and shareholders' equity $3,393,770 $3,488,592 $2,724,845
-4- FOOD LION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the 12 Weeks ended March 22, 1997 and March 23, 1996 (Dollars in thousands) 12 Weeks March 22, 1997 March 23, 1996 Cash flows from operating activities Net income $45,529 $40,853 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 48,697 37,019 Gain on disposals of property 1,515 401 Asset impairment reserve - 9,640 Changes in operating assets and liabilities: Receivables 8,654 (2,488) Inventories 90,882 5,302 Prepaid expenses and other 3,197 2,849 Accounts payable and accrued expenses (23,176) 42,357 Income taxes payable 10,679 14,200 Other liabilities (1,847) 2,675 Total adjustments 138,601 111,955 Net cash provided by operating activities 184,130 152,808 Cash flows from investing activities Capital expenditures (53,464) (50,992) Proceeds from disposal of property 758 1,251 Net cash used in investing activities (52,706) (49,741) Cash flows from financing activities Net proceeds under short-term borrowings 49,990 - Principal payments on long-term debt (161,011) - Principal payments under capital lease obligations (5,591) (3,900) Dividends paid (15,693) (13,141) Repurchase of common stock (874) (20,944) Proceeds from issuance of common stock 589 2 Net cash used in financing activities (132,590) (37,983) Net (decrease)increase in cash and cash equivalents (1,166) 65,084 Cash and cash equivalents at beginning of period 102,371 70,035 Cash and cash equivalents at end of period $101,205 $135,119 -5- Notes to Consolidated 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 28, 1996 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 adjustments necessary for a fair presentation of interim results. 2) Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: March 22, 1997 March 23, 1996 Interest (net of amounts capitalized)* $21,326 $16,189 Income taxes 18,144 11,522 *Interest capitalized 336 373 Capital lease obligations for stores of $18,092 and $20,488 were incurred in the 12 week period of 1997 and 1996, respectively. Capital lease retirements of $11,509 and $3,010 were recorded in the 12 week period of 1997 and 1996, respectively. The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. 3) The Financial Accounting Standards Board has issued Statement No.128 "Earnings Per Share," FAS No.128 effective for financial statements issued for periods ending after December 15, 1997. FAS No. 128 will be implemented in the Company's 10K for the year ended January 3, 1998. The Company does not expect that FAS No. 128 will have a material impact on the earnings per share computation. -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 weeks ended March 22, 1997 compared to 12 weeks ended March 23, 1996) The Company's sales for the first quarter of 1997 were $2.3 billion, an increase of 12.5% over the corresponding period of the prior year, with earnings of $45.5 million or $.10 per share, an increase of 11% over the comparable period last year. The quarterly sales increase of 12.5% for the 12 weeks ended March 22, 1997 is primarily the result of additional sales from the Company's Kash n' Karry Food Stores, Inc.("Kash n'Karry") subsidiary, which Food Lion acquired in December 1996. Same store sales were flat for the first quarter. First quarter same store sales comparisons were impacted by the following: Same store sales growth has been negatively impacted by the fact that some of the initiatives that increased sales during the first quarter of 1996 have now been implemented for one full year's cycle. As a result, the Company faces more rigorous same store sales comparisons than it did when these initiatives were introduced. These initiatives included the conversion to 24-hour store operations, expansion of the MVP program(Food Lion's customer loyalty card program) and acceptance of debit and credit card transactions in all stores. Last year's first quarter sales were positively impacted by harsh winter weather conditions throughout the Southeast that contributed to sales strength. This year, weather conditions have been very mild across all of Food Lion's market areas. The grocery industry is experiencing minimal food price inflation. During the first quarter of 1997, Food Lion's inflation rate was 0.5%. Competitive initiatives in Food Lion's major markets have increased in the first quarter of 1997 with the introduction of customer loyalty cards and heavy advertising and promotional activity. The Company's Southwest market is generating positive cash flow but is not achieving the Company's standards for financial performance. The Company continues to monitor sales and profits in the Southwest market and to evaluate the performance of all corporated assets, including those in the Southwest. The Company's 1997 business plan includes the opening of 55 to 60 new stores offset by the closing or relocation of approximately 33 stores and the renovation of approximately 100 stores. During the first quarter, the Company opened nine new stores, closed 19 stores(of which three were relocations),and completed renovations of 13 existing stores. -7- Gross profit was 21.82% of sales for the first quarter this year compared to 20.33% of sales for the same period last year. The increase in gross profit is due to continued category management initiatives across all merchandise categories and an increase in private label sales. For the first quarter of 1997, selling and administrative expenses were $346.8 million or 15.23% of sales as compared to 13.78% of sales in the corresponding period of the prior year. Kash n'Karry stores incur a higher level of selling and administrative expenses than do Food Lion stores due to their larger square footage store format and emphasis on specialty food departments. Kash n' Karry operations increased the Company's selling and administrative expenses during the first quarter by 0.8% of sales compared to the first quarter of 1996. Selling and administrative expenses for the Food Lion stores were 14.4% of sales which is an improvement over that experienced in the last three consecutive quarters and comparable to that experienced in first quarter of 1995. First quarter 1996 selling and administrative expenses were low at 13.8% of sales due to high sales growth in the quarter. Because of the consolidation of Kash n' Karry stores, the Company anticipates that the selling, general and administrative ("SGA")ratio will continue to exceed historical levels for some time. As the Company implements cost saving strategies within the Kash n' Karry operation and integrates its administrative functions with those of Food Lion, the Company should experience a downward trend in the SGA ratio over time. Depreciation and amortization of $48.7 million was 2.14% of sales compared to 1.83% of sales in the first quarter of 1996. The 0.31% increase is primarily due to leasehold improvements and equipment purchases for new stores and renovations since the first quarter last year. Additional increase resulted from the amortization of the goodwill from the Kash n' Karry acquisition. During the first quarter of 1996 Food Lion adopted Financial Accounting Standards Board Statement no. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS no. 121). The implementation of FAS no. 121 created a non-cash charge against first quarter 1996 pre-tax net income of $9.6 million to reflect properly the carrying value of the Company's assets, using a discounted cash flow valuation method. Interest expense of $26.7 million or 1.17% of sales, increased 0.23% of sales due to short-term borrowings used to fund the Kash n' Karry transaction and an increase in interest expense on store capital leases resulting from new store openings and renovations. Net income for the quarter was $45.5 million or 2.00% of sales as compared to 2.02% of sales in the first quarter of the prior year. Earnings were $.10 per share as compared to $.09 per share last year. -8- Liquidity and Capital Resources Cash provided by operating activities totaled $184.1 million for the 12 weeks ended March 22, 1997 compared with $152.8 million for the same period last year. The increase was primarily due to lower inventory levels, which were partially offset by a decrease in trade payables. Capital expenditures totaled $53.5 million for the 12 weeks ended March 22, 1997 compared with $51.0 million for the same period in 1996. The Company opened nine new stores, including the relocation of three existing stores, and completed the renovation of 13 existing stores during the first quarter of 1997. Food Lion plans to open a total of 55 to 60 new stores and to renovate approximately 100 stores in 1997. The Company anticipates that the majority of the new stores will be opened under conventional leasing arrangements. Significant cash capital expenditures currently estimated for the remainder of 1997 are as follows: Store expansion and new store construction $ 71 million Equip new and renovated stores $100 million Land costs $ 9 million Distribution equipment $ 33 million Information technology $ 15 million Other capital expenditures $ 15 million In addition, the Company anticipates spending $150 million in capital expenditures over the next two to three years for renovations in Kash n' Karry stores. Capital expenditures for 1997 will be financed through funds generated from operations, existing bank and credit lines, and other debt, if necessary. In the first quarter of 1997, cash flow from operations was used to reduce total outstanding debt by $111 million from December 28, 1996. On April 21, 1997, the Company issued $150 million in debt securities at 7.55% due in 2007 and $150 million in debt securities at 8.05% due in 2027. Interest on the notes is payable semiannually in arrears on April 15 and October 15 of each year, commencing October 15, 1997. Proceeds from the issuance were used to refinance amounts outstanding under the Company's revolving credit facility, as noted below. The Company maintains the following bank and credit lines: $250 million commercial paper program under which no borrowings were outstanding during the entire first quarter of 1997 or 1996. -9- A revolving credit facility with a syndicate of commercial banks providing $700 million in committed lines of credit, of which $350 million will expire in December, 1997 with the remaining $350 million to expire in December, 2001. Outstanding borrowings were $300 million as of March 22, 1997, as compared with no borrowings during the first quarter 1996. During the first quarter 1997, the Company had average borrowings of $244.9 million at a daily weighted average interest rate of 5.73% with a maximum amount outstanding of $410 million. In April 1997, the proceeds from the Company's issuance of debt securities noted above was used to reduce amounts outstanding under this credit facility. Additional short-term committed lines of credit totaling $35 million which are available when needed. The Company is not required to maintain compensating balances related to these lines of credit, and borrowings may occur periodically. There were no borrowings as of March 22, 1997 or March 23, 1996. During the first quarter of 1997, the Company had average borrowings of $0.9 million at a daily weighted average interest rate of 5.55% with a maximum amount outstanding of $20 million. Periodic short-term borrowings may be placed under informal credit arrangements, which are available to the Company at the discretion of the lender. Borrowings for the first quarter were as follow (see table below): Informal Credit Arrangements: (dollars in millions) 1997 1996 Outstanding borrowings at end of first quarter $ 0 $0 Average borrowings $ 0.2 $0 Maximum amount outstanding $20.0 $0 Daily weighted average interest rate 5.46% NA During the first quarter of 1997, the Company expended $0.9 million for the purchase of Class A shares, as part of the Company's stock repurchase plan. The Company purchased 110,000 shares of Class A stock during the quarter at an average price of $7.94 per share. Additional purchases of Class A and/or Class B Common Stock may be made in the open market under the current program which began in May of 1996, as deemed in the best interest of shareholders. In May of 1997, the Board of Directors voted to extend the stock repurchase program for one year and approved the repurchase of up to $100 million worth of the Company's common stock between May of 1997 and May of 1998. The Company established a pre-tax charge against 1993 earnings of $170.5 million (approximately $104 million after tax) to cover management's estimate of the costs associated with the closing of 88 unprofitable store locations. As of the end of first quarter 1997, the Company has charged $84.8 million against the reserve, primarily as a -10- result of the payment of remaining rent obligations on leased stores and the disposition of property. The Company believes the remaining reserve is adequate to cover the costs associated with the disposition of the remaining properties. Other From time to time, information provided by the Company, including written or oral statements made by its representatives, may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as expansion and growth of the Company's business, future capital expenditures and the Company's business strategy, are forward-looking statements. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. This forward- looking information is based on various factors and was derived using numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company. Important assumptions and other factors that could cause actual results to differ materially from those set forth in the forward-looking information include: changes in the general economy or in the Company's primary markets, changes in consumer spending, competitive factors, changes in the rate of inflation, changes in state or federal legislation or regulation, adverse determinations with respect to litigation or other claims, inability to develop new stores or complete remodels as rapidly as planned, stability of product costs, and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission. -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 10K filed March 27,1997 for the year ended December 28, 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 10a. Food Lion, Inc. and The Bank of New York, Trustee, First Supplemental Indenture dated as of April 21, 1997 10b. Underwriting Agreement dated as of April 16, 1997 between Food Lion, Inc. and Salomon Brothers, Inc., for itself and as representative for NationsBankc Capital Markets Inc 11 Computation of Earnings per Share 27 Financial Data Schedule (b). The Company filed a report on Form 8-K pursuant to Item 5 on April 7,1997 in regards to "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 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: May 5, 1997 BY: Laura Kendall Laura Kendall Vice President of Finance Chief Financial Officer Principal Financial Officer -13- EXHIBIT INDEX SEQ. PAGE EXHIBIT # DESCRIPTION NO. 10a. Food Lion, Inc. and The Bank of New York, Trustee, First Supplemental Indenture dated as of April 21, 1997 15-44 10b. Underwriting Agreement dated as of April 16, 1997 between Food Lion, Inc. and Salomon Brothers, Inc. for itself and as representative for NationsBankc Capital Markets Inc 16-64 11 Computation of Earnings per Share 65 27 Financial Data Schedule 66-67 -14- EX-11 2 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (Amounts in thousands except Periods Ended per share amounts) March 22,1997 March 23,1996 PRIMARY NET INCOME $ 45,529 $40,853 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 469,098 473,138 STOCK OPTIONS 591 - 469,689 473,138 PRIMARY EARNINGS PER SHARE (*) $ .10 $ .09 FULLY DILUTED NET INCOME $45,529 $40,853 ELIMINATION OF INTEREST EXPENSE, NET OF RELATED TAX EFFECT, APPLICABLE TO 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 801 807 ADJUSTED INCOME APPLICABLE TO COMMON STOCK $46,330 $41,660 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 469,098 473,138 STOCK OPTIONS 591 - SHARES ISSUABLE UPON CONVERSION OF 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 14,440 14,557 484,129 487,695 FULLY DILUTED EARNINGS PER SHARE (*) $ .10 $ .09 (*) 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 3-MOS JAN-03-1998 DEC-29-1996 MAR-22-1997 101205 0 142509 0 974861 1324845 2738693 955141 3393770 1190759 334085 0 0 235957 1009532 3393770 2276746 2276746 1779885 1779885 0 0 26685 74638 29109 45529 0 0 0 45529 .10 0
EX-10.A 4 FOOD LION, INC and THE BANK OF NEW YORK, Trustee _____________ FIRST SUPPLEMENTAL INDENTURE _____________ Dated as of April 21, 1997 _____________ Providing for the issuance of Debt Securities in series. FIRST SUPPLEMENTAL INDENTURE dated as of April 21, 1997 (the "First Supplemental Indenture"), between FOOD LION, INC., a North Carolina corporation (the "Company"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). RECITALS: WHEREAS, the Company and the Trustee entered into an Indenture, dated as of August 15, 1991 (the "Indenture") to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness to be issued in one or more series (the "Debt Securities") (capitalized terms used herein without definition shall have the respective meanings ascribed to them in the Indenture); WHEREAS, Section 10.01 of the Indenture provides that the Company and the Trustee may supplement the Indenture without the written consent of the Holders in certain situations; WHEREAS, Sections 2.01 and 2.02 of the Indenture provides that the Company may enter into an indenture supplement without the consent of any Holders to establish the terms of one or more series of the Debt Securities; WHEREAS, all acts and things prescribed by the Indenture, by law and by the Certificate of Incorporation and the Bylaws of the Company and of the Trustee necessary to make this First Supplemental Indenture a valid instrument legally binding on the Company and the Trustee, in accordance with its terms, have been duly done and performed; and WHEREAS, all conditions precedent to amend or supplement the Indenture have been met.; and WHEREAS, all Debt Securities issued and outstanding as of April 21, 1997 shall continue to be governed by the provisions of the Indenture; NOW, THEREFORE, each party agrees, for the benefit of the other party and for the equal and ratable benefit of the Holders of any series of Debt Securities, issued on or after April 21, 1997, including, without limitation, the Debt Securities described in Article 2 hereof, to the amendments set forth below (the "Amendments") which will become operative pursuant to the terms hereof. ARTICLE 1 Amendments Section 1.01. Amendments and Modifications to Article One. a. Insert the following as a new definition to Section 1.01. The term "Attributable Debt" means in connection with a Sale and Lease-Back Transaction the aggregate of present values (discounted at a rate per annum equal to the average interest borne by all outstanding Debt Securities determined on a weighted average basis and compounded semi-annually) of the obligations of the Company or any Subsidiary for net rental payments during the remaining term of the applicable lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended). b. Insert the following as a new definition in Section 1.01. The term "Capital Lease" means any lease of property which, in accordance with generally accepted accounting principles, should be capitalized on the lessee's balance sheet or for which the amount of the asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet; and "Capitalized Lease Obligation" means the amount of the liability which should be so capitalized or disclosed. c. Insert the following as a new definition in Section 1.01. The term "Funded Indebtedness" means any Indebtedness maturing by its terms more than one year from the date of the determination thereof, including any Indebtedness renewable or extendible at the option of the obligor to a date later than one year from the date of the determination thereof. d. Insert the following as a new definition in Section 1.01. The term "Indebtedness" of any Person means all obligations (other than the Debt Securities of such series) of or guaranteed or assumed by, such Person or any of such Person's Restricted Subsidiaries for borrowed money or evidenced by bonds, debentures, notes or other similar instruments. e. Insert the following as a new definition in Section 1.01. The term "Restricted Subsidiaries" means all Subsidiaries other than Non-Restricted Subsidiaries. "Non-Restricted Subsidiary" means any Subsidiary that the Company's Board of Directors has in good faith declared pursuant to a written resolution not to be of material importance, either singly or together with all other Non-Restricted Subsidiaries, to the business of the Company and its consolidated Subsidiaries taken as a whole. Initially the Company will have no Non- Restricted Subsidiaries. f. Delete the definition of "Sale and Lease-back Transaction" in Section 1.01. g. Insert the following as a new definition in Section 1.01. The term "Significant Subsidiary" means, with respect to the Company, any Subsidiary that is a significant subsidiary within the meaning of Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission. Section 1.02. Amendments and Modifications to Article Four a. Section 4.10(D) of the Indenture is restated in its entirety to read as follows: D. Anything in this Section 4.10 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 4.10 is subject to the provisions of Sections 12.03, 12.04 and 12.05. d. Section 4.11(C) of the Indenture is replaced in its entirety by new Section 4.11(C) that reads as follows: C. If at any time the Company or any Subsidiary shall issue, assume or guarantee any Indebtedness secured by any mortgage and if subsection A of this Section 4.11 requires that the NotDebt Securities be secured equally and ratably with such Indebtedness, the Company will promptly execute, at its expense, any instruments necessary to so equally and ratably secure the Debt Securities and deliver the same to the Trustee. 1. an Officers' Certificate stating that the covenant of the Company contained in subsection A of this Section 4.11 has been complied with; and 2. an Opinion of Counsel to the effect that such covenant has been complied with, and that any instruments executed by the Company in the performance of such covenant comply with the requirements of such covenant. In the event that the Company shall hereafter secure the Debt Securities equally and ratably with any other obligation or Indebtedness pursuant to the provisions of this Section 4.11, the Trustee is hereby authorized to enter into an indenture or agreement supplemental thereto and to take such action, if any, as it may deem advisable to enable it to enforce effectively the rights of the holders of the Debt Securities so secured, equally and ratably with such other obligation or Indebtedness. Notwithstanding the above, any such indenture or agreement supplemental thereto shall provide, by its terms, that the mortgage shall be automatically and unconditionally released and discharged upon the release or discharge of the mortgage which resulted in the creation of such mortgage, except a discharge or release by, or as a result of, payment under such iIndebtedness. c. Section 4.12 of the Indenture, entitled "Restrictions on Sale and Lease-back Transactions" is replaced in its entirety by new Section 4.12 that reads as follows: Section 4.12 Restrictions on Sale and Lease-Back. So long as any Debt Securities are Outstanding, the Company agrees that it will not, and will not permit any Restricted Subsidiary to, enter into any arrangement with any Person providing for the leasing by the Company or a Restricted Subsidiary of any Operating Property (other than any such arrangement involving a lease for a term, including renewal rights, for not more than three years and leases between the Company and a Subsidiary or between Subsidiaries), whereby such Operating Property has been or is to be sold or transferred by the Company or a Restricted Subsidiary to such Person (herein referred to as a "Sale and Lease-Back Transaction"), unless: A. the Company or such Restricted Subsidiary would, at the time of entering into a Sale and Lease-Back Transaction, be entitled to incur Indebtedness secured by a lien on the Operating Property to be leased in an amount at least equal to the Attributable Debt in respect of such Sale and Lease-Back Transaction without equally and ratably securing the Debt Securities pursuant to Section 4.121, or B. the proceeds of the sale of the Operating Property to be leased are at least equal to the fair market value of such Operating Property (as determined by the chief financial officer or chief accounting officer of the Company) and an amount in cash equal to the net proceeds is applied, within 180 days of the effective date of such transaction, to the purchase or acquisition (or, in the case of Operating Property, the construction), acquisition, or construction of Operating Property or to the retirement (other than at maturity or pursuant to a mandatory sinking fund or redemption provision and other than Indebtedness owned by the Company or any Restricted Subsidiary) of Debt Securities or of Funded Indebtedness of the Company tranking on a parity with or senior to the Debt Securities, or in the case of a Sale and Lease-Back Transaction by a Restricted Subsidiary, or Funded Indebtedness of such Restricted Subsidiary; provided that in connection with any such retirement, any related loan commitment or the like shall be reduced in an amount equal to the principal amount so retired. The foregoing restriction shall not apply to, in the case of any Operating Property acquired or constructed subsequent to the date 18 months prior to the date of this Indenture, any Sale and Lease-Back Transaction with respect to such Operating Property (including presently owned real property upon which such Operating Property is to be constructed) if a binding commitment is entered into with respect to such Sale and Lease-Back Transaction within 1836 months after the later of the acquisition of the Operating Property or the completion of improvements or construction thereon or commencement of full operations at such Operating Property (which, in the case of a retail store, is the opening of the store for business to the public). Section 1.03. Amendments and Modifications to Article Six. a. Section 6.01 of the Indenture, entitled "Definitions of Event of Default; Acceleration; Waiver; and Restoration," is restated in its entirety to read as follows: Section 6.01 Definition of Event of Default; Acceleration; Waiver; and Restoration "Event of Default" with respect to Debt Securities of any series wherever used herein, means each one of the following events which shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative governmental body): A. default in the payment of any installment of interest upon any of the Debt Securities of such series as and when the same shall become due and payable, and continuance of such default for a period of 30 days; or B. default in the payment of all or any part of the principal of (or premium, if any, on) any of the Debt Securities of such series as and when the same shall become due and payable either at maturity, upon a redemption or required repurchase, if any, by declaration or otherwise (including any sinking fund payment); or C. failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Debt Securities of such series (other than a covenant or agreement in respect of the Debt Securities of such series a default in the performance or breach of which is elsewhere in this Section specifically dealt with) or contained in this Indenture (other than a covenant or agreement which is not applicable to the Debt Securities of such series) for a period of 60 days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Default" hereunder and demanding that the Company remedy the same, shall have been given by registered or certified mail, return receipt requested, to the Company by the Trustee, or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Debt Securities of such series; or D. a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or a decree or order adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, approving as properly filed a petition seeking reorganization, assignment, adjustment or composition of, or in respect of, the Company or any Significant Subsidiary under any applicable federal; or state law or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any Significant Subsidiary or for any substantial part of its property or ordering the winding up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or E. the Company or any Significant Subsidiary shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or any other case or proceeding to be adjudicated a bankruptcy or insolvent, or consent to the entry of an order tofor relief in an involuntary case or proceeding under any such law or to the commencement of any bankruptcy or insolvency proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable state or federal law, or consent to the filing of such petition or, to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the Company or any Significant Subsidiary for any substantial part of its property, or make any general assignment for the benefit of creditors, or the admission by the Company or any Significant Subsidiary in writing of its inability to pay its debts generally as they become due, or the taking of corporate action in furtherance of any such action; or F. failure by the Company or any Significant Subsidiary to make any payment at maturity, including any applicable grace period, in respect of Indebtedness of the Company or any Significant Subsidiary (other than the Debt Securities of such series or non- recourse obligations) in an amount in excess of $25,000,000 or the equivalent thereof in any other currency or composite currency and such failure shall have continued without having been cured, waived, rescinded or annulled for a period of 30 days after written notice thereof shall have been given by registered or certified mail, return receipt requested, to the Company by the Trustee, or to the Company and the Trustee by the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities of such series; or G. a default with respect to any Indebtedness of the Company or any Significant Subsidiary, which default results in the acceleration of Indebtedness of the Company or any Significant Subsidiary (other than the Debt Securities of such series or non- recourse obligations) in an amount in excess of $25,000,000 or the equivalent thereof in any other currency or composite currency without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled for a period of 30 days after written notice thereof shall have been given by registered or certified mail, return receipt requested, to the Company by the Trustee, or to the Company and the Trustee by the Holders of not less than 125% in aggregate principal amount of the Outstanding Debt Securities of such series; or H. any other Event of Default provided in the supplemental indenture or Board Resolutions under which such series of Debt Securities is issued or in the form of Debt Security for such series. If any Event of Default occurs and is continuing with respect to the Debt Securities of any series, then, and in each and every such case (other than an Event of Default specified in clause (d) or (eD) or (E) of this Section relating to the Company), except for any series of Debt Securities the principal of which shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal; amount of the Debt Securities of such series then Outstanding hereunder (each such series voting as a separate class) by notice in writing to the Company (and to the Trustee if given by Securityholders), may declare the entire principal (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all Debt Securities of such series, premium (if any) and the interest accrued thereon (if any), to be due and payable immediately, and upon any such declaration, the same shall become immediately due and payable. If an Event of Default specified in clause (d) or (eD) or (E) of this Section relating to the Company occurs, such principal amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The foregoing provisions, however, are subject to the condition that if, at any time after the principal (or, if the Debt Securities of such series are Original Issue Discount Securities, such portion of the principal as may be specified in the terms thereof) of the Debt Securities of any series shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debt Securities of each such series and the principal of all Debt Securities of such series which shall have become due otherwise than by acceleration (with interests upon such principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) specified in the Debt Securities of such series to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and if any and all Events of Default under the Indenture, other than the non- payment of the principal of Debt Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein - then and in every such case, the Holders of a majority in aggregate principal amount of all the Debt Securities of such series then Outstanding (each series voting as a separate class), by written notice to the Company and to the Trustee, may waiver all defaults with respect to each such series and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. For all purposes under this Indenture, if a portion of the principal of any Original Issue Discount Securities shall have been accelerated and declared due and payable pursuant to the provisions hereof, then, from and after such declaration, unless such declaration has been rescinded and annulled, the principal amount of such Original Issue Discount Securities shall be deemed, for all purposes hereunder, to be such portion of the principal thereof as shall be due and payable as a result of such acceleration and payment of such portion of the principal thereof as shall be due and payable as a result of such acceleration, together with accrued interest, if any, thereon and all other amounts owing thereunder, shall constitute payment in full of such Original Issue Discount Securities. In case the Trustee or any Securityholder shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee or such Securityholder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Securityholders shall be restored severally and respectively to their former positions and rights hereunder, and all rights, remedies and poswers of the Company, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. b. Section 6.07 of the Indenture entitled "Trustee's Notice of Defaults," is restated in its entirety to read as follows: Section 6.07 Trustee's Notice of Defaults The Trustee shall, within 90 days after the occurrence of a default with respect to the Debt Securities of any series, give to all Holders of debt Securities of that series, in the manner and to the extent provided in subsection C of Section 5.04, notice of all defaults with respect to that series known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term "default" or "defaults" for the purposes of this Section 6.07 being hereby defined to be any event or events, as the case may be, specified in subsections A, B, C, D, E, F, G and H of Section 6.01, not including periods of grace, if any, and irrespective of the giving of written notice; provided, however, that, except in the case of default in the payment of the principal of (or premium, if any, on ) or interest on any of the Debt Securities of such series or in the payment or satisfaction of any sinking fund obligation with respect to such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or responsible officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Debt Securities of such series. Section 1.04. Amendments and Modifications to Article Twelve a. Section 12.01 of the Indenture, entitled "Satisfaction and Discharge of Indenture," is restated in its entirety to read as follows: Section 12.01 Satisfaction and Discharge of Indenture. When (i) the Company shall deliver to the Trustee for cancellation all Debt Securities of a series theretofore authenticated (other than any Debt Securities of such series which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07) and not theretofore canceled; or (ii) all Debt Securities of such series not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption all of the Debt Securities of such series (other than any Debt Securities of such series which shall have been mutilated, destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premiums if any, and interest, if any, due or to become due to such date of maturity or redemption date, as the case may be, but excluding, however, the amount of any money for the payment of the principal of and premium, if any, or interest, if any, on the Debt Securities of such series (a) theretofore deposited with the Trustee with respect to Debt Securities of such series and repaid by the Trustee to the Company in accordance with the provisions of Section 12.04 or (b) paid with respect to Debt Securities of such series to any State or to the District of Columbia pursuant to its unclaimed property or similar laws, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company then this Indenture shall cease to be of further effect with respect to the Debt Securities of such series except as to (1) the rights of Holders of Debt Securities of such series to receive solely from funds deposited by the Company with the Trustee, in trust as described above in this Section 12.01, payment of the principal of, premium, if any, and the interest, if any on such Debt Securities when such payments are due; (2) the Company's rights and obligations with respect to such Debt Securities under Sections 2.05, 2.07, 3.01, 3.02, 3.04, 4.02, 12.03, 12.04 and 12.05; and (3) the rights, powers, duties and immunities of the Trustee hereunder, and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with and at the cost and expense of the Company, shall execute such instruments as may be requested by the Company acknowledging satisfaction of and discharging this Indenture with respect to such series of Debt Securities. Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Debt Securities the obligations of the Company to the Trustee under Section 7.06 shall survive. Section 1.05. Mutatis Mutandis Effect. The Indenture is hereby amended mutatis mutandis to reflect the addition or amendment of the definitional terms incorporated into the Indenture pursuant to Section 1.01 hereof. ARTICLE 2 New Series Section 2.01. 7.55% Notes due 2007. a. In accordance with Sections 2.01 and 2.02 of the Indenture, there is created hereby a series of Debt Securities under the Indenture with the following terms: A. The title of the series of Debt Securities will be 7.55% Notes due 2007 (the "Notes due 2007"). Such series will be limited to an aggregate principal amount of $150,000,000 (except for Debt Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other such series pursuant to Sections 2.05, 2.06, 2.07, 3.04 or 10.04 of the Indenture) and will mature on April 15, 2007. B. The Notes due 2007 will bear interest at the rate of 7.55% per annum from April 21, 1997, payable semiannually in arrears on April 15 and October 15 of each year, commencing October 15, 1997, to the persons in whose names the Notes due 2007 are registered at the close of business on the preceding April 1 or October 1, each a record date, as the case may be. Interest will be computed based on a 360-day year consisting of twelve 30-day months. Any interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered holder on such record date and may be paid to the person in whose name this Note is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to the holders of the Notes in accordance with Section 14.05. C. The Notes due 2007 will not be subject to any sinking fund. D. The Notes due 2007 will be redeemable as a whole or in part, at the option of the Company at any time, at a Redemption Price equal to the greater of (i) 100% of the principal amount of each such Note to be redeemed and (ii) the sum of the present values of the Remaining Scheduled Payments (as hereinafter defined) thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus five basis points, plus, in either case, accrued interest on the principal amount being redeemed to the date of the redemption. E. The Notes due 2007 initially will be represented by one or more Global Securities deposited with the Depository Trust Company in substantially the form attached as Exhibit 1. If certificated Notes due 2007 are issued, definitive certificates substantially in the form attached as Exhibit 2 shall be used. F. Payment of the principal of and interest on the Notes due 2007 will be made at the office or agency of the Trustee maintained for that purpose in New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of, or by wire transfer to an account designated by, the person entitled thereto as such address shall appear on the security register; provided, further, that only holders of $1,000,000 or more in aggregate principal amount of the Notes who have provided appropriate written wire transfer instructions for the relevant record date may receive wire transfer payments. G. The Notes due 2007 shall be governed by the provisions of the Indenture, as supplemented hereby. Section 2.02. 8.05% Notes due 2027 a. In accordance with Sections 2.01 and 2.02 of the Indenture, there is also created a series of Debt Securities under the Indenture with the following terms: A. The title of the series of Debt Securities will be 8.05% Notes due 2027 (the "Notes due 2027"). Such series will be limited to an aggregate principal amount of $150,000,000 (except for Debt Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other such series pursuant to Sections 2.05, 2.06, 2.07, 3.04 or 10.04 of the Indenture) and will mature on April 15, 2027. B. The Notes due 2027 will bear interest at the rate of 8.05% per annum from April 21, 1997, payable semiannually in arrears on April 15 and October 15 of each year, commencing October 15, 1997, to the persons in whose names the Notes due 2027 are registered at the close of business on the preceding April 1 or October 1, each a record date, as the case may be. Interest will be computed based on a 360-day year consisting of twelve 30-day months. Any interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered holder on such record date and may be paid to the person in whose name this Note is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to the holders of the Notes in accordance with Section 14.05. C. The Notes due 2027 will not be subject to any sinking fund. D. The Notes due 2027 will be redeemable as a whole or in part, at the option of the Company at any time, at a Redemption Price equal to the greater of (i) 100% of the principal amount of each such Note to be redeemed, and (ii) the sum of the present values of the Remaining Scheduled Payments (as hereinafter defined) thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 20 basis points, plus, in either case, accrued interest on the principal amount being redeemed to the date of the redemption. E. The Notes due 2027 initially will be represented by one or more Global Securities deposited with the Depository Trust Company in substantially the form attached as Exhibit 1. If certificated Notes due 2027 are issued, definitive certificates substantially in the form attached as Exhibit 2 shall be used. F. Payment of the principal of and interest on the Notes due 2027 will be made at the office or agency of the Trustee maintained for that purpose in New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of, or by wire transfer to an account designated by, the person entitled thereto as such address shall appear on the security register; provided, further, that only holders of $1,000,000 or more in aggregate principal amount of the Notes who have provided appropriate written wire transfer instructions for the relevant record date may receive wire transfer payments. G. The Notes due 2027 shall be governed by the provisions of the Indenture, as supplemented hereby. Section 2.03. Definitions. For purposes of this Section 2, the following terms have the meanings ascribed to them as follows: a. "Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. b. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of such Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. c. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, (B) if the Trustee is able to obtain only one Reference Treasury Dealer Quotation from the Reference Treasury Dealers, such Quotation, or (C) if the Trustee is not able to obtain any Reference Treasury Dealer Quotations from the Reference Treasury Dealers, the average of Reference Treasury Dealer Quotations obtained from two other Primary Treasury Dealers designated by the Company as Reference Treasury Dealers for the purpose of determining such Comparable Treasury Price. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date. d. "Reference Treasury Dealer" means each of Salomon Brothers Inc and NationsBanc Capital Markets, Inc. and their respective successors; provided, however, that if either of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor any other Primary Treasury Dealer. e. "Remaining Scheduled Payments" means, with respect to any such Note, the remaining scheduled payments of the principal thereof to be redeemed and interest thereon that would be due after the related redemption date but for such redemption; provided, however, that, if such redemption date is not an interest payment date with respect to such Note, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such redemption date. ARTICLE 3 Miscellaneous Section 3.01. Effect of This First Supplemental Indenture. This First Supplemental Indenture is supplemental to the Indenture and does and shall be deemed to form a part of, and shall be construed in connection with and as part of, the Indenture for any and all purposes, including, but not limited to, discharge of the Indenture as provided in Article EightTwelve of the Indenture. Except as specifically modified herein, the Indenture and the Debt Securities are in all respects ratified and confirmed and shall remain in full force and effect in accordance with their terms. Notwithstanding anything to the contrary above, Debt Securities outstanding as of April 21, 1997 continue to be governed by the provisions of the Indenture dated as of August 15, 1991. Section 3.02. Trustee. Except as otherwise expressly provided herein, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this First Supplemental Indenture. This First Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions set forth in the Indenture with the same force and effect as if those terms and conditions were repeated at length herein and made applicable to the Trustee with respect hereto. The Trustee assumes no responsibility for the recitals contained herein, which shall be taken as statements of the Company, and makes no representation as to the validity or sufficiency of this First Supplemental Indenture. Section 3.03. Governing Law. The laws of the State of New York shall govern this First Supplemental Indenture without regard to principles of conflicts of law. The Trustee and the Company agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this First Supplemental Indenture. Section 3.04. Counterparts. The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of such executed copies together shall represent the same agreement. Section 3.05. Severability. In case one or more of the provisions in this First Supplemental Indenture shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, illegality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. Section 3.06. Effective Date of this First Supplemental Indenture. This First Supplemental Indenture and the Amendments to Sections 1.01, 4.10, 4.11, 4.12, 6.01, 6.037 and 12.01 shall be effective pursuant to Section 10.01 of the Indenture immediately upon execution by the Company and delivery to and execution by the Trustee of this First Supplemental Indenture. IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, all as of the day and year first written above. FOOD LION, INC. Attest: Laura Kendall Name: Laura Kendall Title:Vice President of Finance By:Lester Nail Assistant Secretary Dated: [SEAL] [CORPORATE SEAL] THE BANK OF NEW YORK, as Trustee Attest: By: Vivian Deorges Name: Vivian Deorges Title: Assistant Vice President By:_______________________________ Dated: [CORPORATE SEAL] EXHIBIT 1 FORM OF GLOBAL NOTE FOOD LION, INC. _____% NOTES DUE ______ NO. *1* $150,000,000 CUSIP NO. __________ UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO FOOD LION, INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. This Note is a Global Note within the meaning of the Indenture hereinafter referred to. Transfer of the Note shall be limited to transfers in whole, and not in part, to nominees of the DTC or to a successor thereof or such successor's nominee and transfers of interests in this Note shall be limited to transfers made in accordance with restrictions set forth in the Indenture, dated as of August 15, 1991, as supplemented as of April 21, 1997 and thereafter, between Food Lion, Inc. and the Trustee named therein, pursuant to which this Note was issued. FOOD LION, Inc., a North Carolina corporation (the "Company"), for value received, hereby promises to pay to CEDE & CO., or its registered assigns, the principal sum of One Hundred Fifty Million Dollars ($150,000,000) on April 15, _____. The Notes will bear interest at the rate of _____% per annum from April 21, 1997, payable semiannually in arrears on April 15 and October 15 of each year, commencing October 15, 1997, to the persons in whose name the Notes are registered at the close of business on the preceding April 1 or October 1, each a record date, as the case may be. Any interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered holder on such record date and may be paid to the person in whose name this Note is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to the holders of the Notes in accordance with the Indenture. Interest will be computed based on a 360-day year consisting of twelve 30-day months. Payment of the principal of and interest on this Note will be made at the office or agency of the Trustee maintained for that purpose in New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of, or by wire transfer to an account designated by, the person entitled thereto as such address shall appear on the security register; provided, further, that only holders of $1,000,000 or more in aggregate principal amount of the Notes who have provided appropriate written wire transfer instructions for the relevant record date may receive wire transfer payments. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by manual signature by the Trustee referred to on the reverse hereof, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory of any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal by the manual or facsimile signatures of its officers thereunto duly authorized. Dated: FOOD LION, INC. Attest: By ___________________________ _____________________________ ______________________________ Assistant Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debt Securities of the series designated herein provided for in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee. By............................................ Authorized Officer FOOD LION, INC. ATTACHMENT ______% NOTES DUE _______ This Note is one of a duly authorized issue of unsecured debt securities of the Company (herein called the "Debt Securities") of the series hereinafter specified, all issued and to be issued under an Indenture, dated as of August 15, 1991 and supplemented as of April 21, 1997 and thereafter (herein called the "Indenture") between the Company and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture, reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Debt Securities, and of the terms upon which the Debt Securities are, and are to be, authenticated and delivered. The Debt Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), and may otherwise vary as in the Indenture provided. This Note is one of a series designated as the _____% Notes due _____ of the Company, limited in aggregate principal amount to $150,000,000 (herein called the "Notes"). As provided in the Indenture and subject to the limitations set forth therein, a new Note or Notes of this series of authorized denominations, for a like aggregate principal amount, will be issued in exchange herefor. The Company, the Trustee and any agent thereof may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note is overdue, and neither the Company or the Trustee nor such agent shall be affected by notice to the contrary. No reference herein to the Indenture and no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and interest on this Note at the time and places and at the rate and in the coin and currency herein prescribed. The Notes will not be subject to any sinking fund. The Notes will be redeemable as a whole or in part, at the option of the Company at any time, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) the sum of the present values of the Remaining Scheduled Payments thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30- day months) at the Treasury Rate plus ____ basis points plus, in either case, accrued interest on the principal amount being redeemed to the date of redemption. Notice of any redemption will be mailed at least 30 days, but not more than 60 days, before the redemption date to each holder of any Notes to be redeemed, all as provided in the Indenture. Unless the Company defaults in payment of the Redemption Price on and after the redemption date, interest will cease to accrue after the redemption date for such Notes or portions thereof called for redemption. "Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of such Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, (B) if the Trustee is able to obtain only one Reference Treasury Dealer Quotation from the Reference Treasury Dealers, such Quotation, or (C) if the Trustee is not able to obtain any Reference Treasury Dealer Quotations from the Reference Treasury Dealers, the average of Reference Treasury Dealer Quotations obtained from two other Primary Treasury Dealers designated by the Company as Reference Treasury Dealers for the purpose of determining such Comparable Treasury Price. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date. "Reference Treasury Dealer" means each of Salomon Brothers Inc and NationsBanc Capital Markets, Inc. and their respective successors; provided, however, that if either of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor any other Primary Treasury Dealer. "Remaining Scheduled Payments" means, with respect to any such Note, the remaining scheduled payments of the principal thereof to be redeemed and interest thereon that would be due after the related redemption date but for such redemption; provided, however, that, if such redemption date is not an interest payment date with respect to such Note, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such redemption date. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Debt Securities under the Indenture at any time by the Company with the consent of the Holders of more than 50% in aggregate principal amount of the Debt Securities of all series at the time Outstanding which are affected by the amendment or modification (voting as a class) and also permits the Company and the Trustee, in certain circumstances, to amend the Indenture without notice to, or the consent of, the Holders of any of the Debt Securities. Any such consent by the Holder of this Note shall be conclusive and binding upon such holder and upon all future Holders of this Note and of any Notes issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Indenture and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. All terms used in the Notes which are defined in the Indenture, shall have the meanings assigned to them therein. ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer This Note) FOR VALUE RECEIVED ___________________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER OF TRANSFEREE _________________________________________________________________ (Please print name and address, including zip code, of transferee) this Note, together with all right, title and interest herein and does hereby irrevocably constitute and appoint_________________ Attorney to transfer this on the Note Register, with full power of substitution. Dated: _______________________ _________________________ Signature Signature Guaranteed: Commercial Bank or Trust Company of Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Note in every particular, without alterations or any change whatsoever. EXHIBIT 2 FORM OF DEFINITIVE NOTE FOOD LION, INC. ______% NOTES DUE ______ NO.*1* $150,000,000 CUSIP NO. __________ This Note is issued pursuant to the Indenture, dated as of August 15, 1991, as supplemented as of April 21, 1997 and thereafter, between Food Lion, Inc. and the Trustee named therein. FOOD LION, Inc., a North Carolina corporation (the "Company"), for value received, hereby promises to pay to __________________, or its registered assigns, the principal sum __________________________ Dollars ($_______________) on April 15, ______. The Notes will bear interest at the rate of ______% per annum from April 21, 1997, payable semiannually in arrears on April 15 and October 15 of each year, commencing October 15, 1997, to the persons in whose name the Notes are registered at the close of business on the preceding April 1 or October 1, each a record date, as the case may be. Any interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered holder on such record date and may be paid to the person on whose name this Note is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to the holders of the Notes in accordance with the Indenture. Interest will be computed based on a 360-day year consisting of twelve 30-day months. Payment of the principal of and interest on this Note will be made at the office or agency of the Trustee maintained for that purpose in New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of, or by wire transfer to an account designated by, the person entitled thereto as such address shall appear on the security register; provided, further, that only holders of $1,000,000 or more in aggregate principal amount of the Notes who have provided appropriate written wire transfer instructions for the relevant record date may receive wire transfer payments. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by manual signature by the Trustee referred to on the reverse hereof, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory of any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the manual or facsimile signatures of its officers thereunto duly authorized. Dated: FOOD LION, INC. Attest: By ___________________________ _____________________________ ______________________________ Assistant Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debt Securities of the series designated herein provided for in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee. By............................................ Authorized Officer FOOD LION,INC. ATTACHMENT _____% NOTES DUE ________ This Note is one of a duly authorized issue of unsecured debt securities of the Company (herein called the "Debt Securities") of the series hereinafter specified, all issued and to be issued under an Indenture, dated as of August 15, 1991 and supplemented as of April 21, 1997 and thereafter (herein called the "Indenture") between the Company and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture, reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Debt Securities, and of the terms upon which the Debt Securities are, and are to be, authenticated and delivered. The Debt Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), and may otherwise vary as in the Indenture provided. This Note is one of a series designated as the ______% Notes due ______ of the Company, limited in aggregate principal amount to $150,000,000 (herein called the "Notes"). As provided in the Indenture and subject to the limitations set forth therein, a new Note or Notes of this series of authorized denominations, for a like aggregate principal amount, will be issued in exchange herefor. The Company, the Trustee and any agent thereof may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note is overdue, and neither the Company or the Trustee nor such agent shall be affected by notice to the contrary. No reference herein to the Indenture and no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and interest on this Note at the time and places and at the rate and in the coin and currency herein prescribed. The Notes will not be subject to any sinking fund. The Notes will be redeemable as a whole or in part, at the option of the Company at any time, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed and (ii) the sum of the present values of the Remaining Scheduled Payments thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30- day months) at the Treasury Rate plus ____ basis points plus, in either case, accrued interest on the principal amount being redeemed to the date of redemption. Notice of any redemption will be mailed at least 30 days, but not more than 60 days, before the redemption date to each holder of any Notes to be redeemed, all as provided in the Indenture. Unless the Company defaults in payment of the Redemption Price on and after the redemption date, interest will cease to accrue after the redemption date for such Notes or portions thereof called for redemption. "Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of such Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, (B) if the Trustee is able to obtain only one Reference Treasury Dealer Quotation from the Reference Treasury Dealers, such Quotation, or (C) if the Trustee is not able to obtain any Reference Treasury Dealer Quotations from the Reference Treasury Dealers, the average of Reference Treasury Dealer Quotations obtained from two other Primary Treasury Dealers designated by the Company as Reference Treasury Dealers for the purpose of determining such Comparable Treasury Price. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date. "Reference Treasury Dealer" means each of Salomon Brothers Inc and NationsBanc Capital Markets, Inc. and their respective successors; provided, however, that if either of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor any other Primary Treasury Dealer. "Remaining Scheduled Payments" means, with respect to any such Note, the remaining scheduled payments of the principal thereof to be redeemed and interest thereon that would be due after the related redemption date but for such redemption; provided, however, that, if such redemption date is not an interest payment date with respect to such Note, the amount of the next succeeding scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such redemption date. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Debt Securities under the Indenture at any time by the Company with the consent of the Holders of more than 50% in aggregate principal amount of the Debt Securities of all series at the time Outstanding which are affected by the amendment or modification (voting as a class) and also permits the Company and the Trustee, in certain circumstances, to amend the Indenture without notice to, or the consent of, the Holders of any of the Debt Securities. Any such consent by the Holder of this Note shall be conclusive and binding upon such holder and upon all future Holders of this Note and of any Notes issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Indenture and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. All terms used in the Notes which are defined in the Indenture, shall have the meanings assigned to them therein. ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer This Note) FOR VALUE RECEIVED ___________________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER OF TRANSFEREE _________________________________________________________________ (Please print name and address, including zip code, of transferee) this Note, together with all right, title and interest herein and does hereby irrevocably constitute and appoint_________________ Attorney to transfer this on the Note Register, with full power of substitution. Dated: _______________________ _________________________ Signature Signature Guaranteed: Commercial Bank or Trust Company of Member Firm of the New York Stock Exchange, Inc. NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Note in every particular, without alterations or any change whatsoever. EX-10.B 5 Food Lion, Inc. Underwriting Agreement New York, New York April 16, 1997 To the Representative named in Schedule I hereto of the Underwriters named in Schedule II hereto Ladies and Gentlemen: Food Lion, Inc., a North Carolina corporation (the "Company"), proposes to sell to the underwriters named in Schedule II hereto (the "Underwriters"), for whom you (the "Representative") are acting as representative, the principal amount of its securities identified in Schedule I hereto (the "Securities"), to be issued under an indenture dated as of August 15, 1991 and as supplemented from time to time (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"). 1. Representations and Warranties. The Company represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 1. Certain terms used in this Section 1 are defined in paragraph (c) hereof. (a) The Company has met the requirements for the use of Form S-3 under the Securities Act of 1933 (the "Act") and has filed with the Securities and Exchange Commission (the "Commission") a registration statement (the file number of which is set forth in Schedule I hereto) on such Form, including a basic prospectus, for registration under the Act of the offering and sale of the Securities. The Company may have filed one or more amendments thereto, and may have used a Preliminary Final Prospectus, each of which has previously been furnished to you. Such registration statement, as so amended, has become effective. The offering of the Securities is a Delayed Offering and, although the Basic Prospectus may not include all the information with respect to the Securities and the offering thereof required by the Act and the rules thereunder to be included in the Final Prospectus, the Basic Prospectus includes all such information required by the Act and the rules thereunder to be included therein as of the Execution Time. The Company will next file with the Commission pursuant to Rules 415 and 424(b)(2) or (5) a final supplement to the form of prospectus included in such registration statement relating to the Securities and the offering thereof. As filed, such final prospectus supplement shall include all required information, with respect to the Securities and the offering thereof and, except to the extent the Representative shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the Basic Prospectus and any Preliminary Final Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein. (b) At the Execution Time, the Registration Statement did or will, and when the Final Prospectus is first filed in accordance with Rule 424(b) and on the Closing Date, the Final Prospectus (and any supplement thereto) will, comply in all material respects with the applicable requirements of the Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the Trust Indenture Act of 1939 (the "Trust Indenture Act") and the respective rules thereunder; at the Execution Time, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; at the Execution Time and on the Closing Date the Indenture did or will comply in all material respects with the requirements of the Trust Indenture Act and the rules thereunder; and on the date of any filing pursuant to Rule 424(b) and on the Closing Date, the Final Prospectus (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to (i) that part of the Registration Statement which shall constitute the Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of the Trustee or (ii) the information contained in or omitted from the Registration Statement or the Final Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representative specifically for inclusion in the Registration Statement or the Final Prospectus (or any supplement thereto). (c) The terms which follow, when used in this Agreement, shall have the meanings indicated. The term "the Effective Date" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became or become effective. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "Basic Prospectus" shall mean the basic prospectus referred to in the first sentence of paragraph (a) above contained in the Registration Statement at the Effective Date or, if such basic prospectus has been amended after the Effective Date, the basic prospectus as most recently amended and filed pursuant to Rule 424(b). "Preliminary Final Prospectus" shall mean any preliminary prospectus supplement to the Basic Prospectus which describes the Securities and the offering thereof and is used prior to the filing of the Final Prospectus. "Final Prospectus" shall mean the prospectus supplement relating to the Securities that is first filed pursuant to Rule 424(b) after the Execution Time, together with the Basic Prospectus. "Registration Statement" shall mean the registration statement referred to in the first sentence of paragraph (a) above, including incorporated documents, exhibits and financial statements, as amended at the Execution Time and, in the event any post-effective amendment thereto becomes effective prior to the Closing Date (as hereinafter defined), shall also mean such registration statement as so amended. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A. "Rule 415", "Rule 424", "Rule 430A" and "Regulation S-K" refer to such rules or regulation under the Act. "Rule 430A Information" means information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. Any reference herein to the Registration Statement, the Basic Prospectus any Preliminary Final Prospectus or the Final Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on or before the Effective Date of the Registration Statement or the issue date of the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the case may be; and any reference herein to the terms "amend", "amendment" or "supplement", with respect to the Registration Statement, the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus, shall be deemed to refer to and include the filing of any document under the Exchange Act after the Effective Date of the Registration Statement or the issue date of the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the case may be, deemed to be incorporated therein by reference. A "Delayed Offering" shall mean an offering of securities pursuant to Rule 415 which does not commence promptly after the effective date of a registration statement, with the result that only information required pursuant to Rule 415 need be included in such registration statement at the effective date thereof with respect to the securities so offered. 2. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at the purchase price set forth in Schedule I hereto, the principal amount of the Securities set forth opposite such Underwriter's name in Schedule II. 3. Delivery and Payment. Delivery of and payment for the Securities shall be made on the date and at the time specified in Schedule I hereto (or such later date not later than three business days after such specified date as the Representative shall designate), which date and time may be postponed by agreement between the Representative and the Company or as provided in Section 8 hereof (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). Delivery of the Securities shall be made through the facilities of the Depository Trust Company to the respective accounts of the Underwriters against payment by each of the Underwriters through the Representative of the purchase price thereof to or upon the order of the Company by wire transfer of same day funds to an account specified in writing by the Company not less than two business days prior to the Closing Date. Delivery of the Securities shall be made at such location as the Representative shall reasonably designate at least one business day in advance of the Closing Date and payment for the Securities shall be made at the office specified in Schedule I hereto. Certificates for the Securities shall be registered in such names and in such denominations as the Representative may request not less than three full business days in advance of the Closing Date. The Company agrees to have the Securities available for inspection, checking and packaging by the Representative in New York, New York, not later than 1:00 PM on the business day prior to the Closing Date. 4. Agreements. The Company agrees with each of the Underwriters that: (a) Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement (including the Final Prospectus or any Preliminary Final Prospectus) to the Basic Prospectus unless the Company has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. Subject to the foregoing sentence, the Company will cause the Final Prospectus, properly completed, and any supplement thereto to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representative of such timely filing. The Company will promptly advise the Representative (i) when the Final Prospectus, and any supplement thereto, shall have been filed with the Commission pursuant to Rule 424(b), (ii) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (iii) of any request by the Commission for any amendment of the Registration Statement or supplement to the Final Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Final Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Final Prospectus to comply with the Act or the Exchange Act or the respective rules thereunder, the Company promptly will prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 4, an amendment or supplement which will correct such statement or omission or effect such compliance. (c) As soon as practicable, the Company will make generally available to its security holders and to the Representative an earnings statement or statements of the Company and its subsidiaries which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (d) The Company will furnish to the Representative and counsel for the Underwriters, without charge, copies of the Registration Statement (including exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of any Preliminary Final Prospectus and the Final Prospectus and any supplement thereto as the Representative may reasonably request. The Company will pay the expenses of printing or other production of all documents relating to the offering. (e) Until the business date set forth on Schedule I hereto, the Company will not, without the consent of the Representative, offer, sell or contract to sell, or announce the offering of, any debt securities issued or guaranteed by the Company (other than the Securities). 5. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Securities shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the Execution Time and the Closing Date, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) The Final Prospectus, and any such supplement, shall have been filed in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) The Company shall have furnished to the Representative the opinion of Glenn Dixon, Assistant General Counsel of the Company, dated the Closing Date, to the effect that: (i) each of the Company and Kash n' Karry Food Stores, Inc. (the "Subsidiary") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own its properties and conduct its business as described in the Final Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business; (ii) all the outstanding shares of capital stock of the Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Final Prospectus, all outstanding shares of capital stock of the Subsidiary are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interests, claims, liens or encumbrances; (iii) the Company's authorized equity capitalization is as set forth in the Final Prospectus; and the Securities conform to the description thereof contained in the Final Prospectus; (iv) the Indenture has been duly authorized, executed and delivered and constitutes a legal, valid and binding instrument enforceable against the Company in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect); and the Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Underwriters pursuant to this Agreement, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture; (v) to the best knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries, of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Final Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Final Prospectus, or to be filed as an exhibit, which is not described or filed as required; and the statements included or incorporated in the Final Prospectus describing any legal proceedings or material contracts or agreements relating to the Company fairly summarize such matters; (vi) such counsel has no reason to believe that at the Execution Time the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that on the date of any filing pursuant to Rule 424(b) and on the Closing Date the Final Prospectus included or includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vii) this Agreement has been duly authorized, executed and delivered by the Company; (viii) no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein, except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals (specified in such opinion) as have been obtained; and (ix) neither the issue and sale of the Securities, nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach of, or constitute a default under the charter or by-laws of the Company or the terms of any indenture or other agreement or instrument known to such counsel and to which the Company or any of its subsidiaries is a party or bound, or any order or decree known to such counsel to be applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or any of its subsidiaries. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of North Carolina or the United States, to the extent deemed proper and specified in such opinion, upon the opinion of other counsel of good standing believed to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials. References to the Final Prospectus in this paragraph (b) include any supplements thereto at the Closing Date. (c) The Company shall have furnished to the Representative the opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to the Company, dated the Closing Date, to the effect that: (i) each of the Company and the Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own its properties and conduct its business as described in the Final Prospectus. (ii) the Indenture has been duly authorized, executed and delivered, has been duly qualified under the Trust Indenture Act, and constitutes a legal, valid and binding instrument enforceable against the Company in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally from time to time in effect); and the Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Underwriters pursuant to this Agreement, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture; (iii) to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries, of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Final Prospectus; and the statements included or incorporated in the Final Prospectus describing any legal proceedings known to such counsel or material contracts or agreements relating to the Company and known to such counsel fairly summarize such matters; (iv) the Registration Statement has become effective under the Act; any required filing of the Basic Prospectus, any Preliminary Final Prospectus and the Final Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened, and the Registration Statement and the Final Prospectus (other than the financial statements and other financial and statistical information contained therein as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act, the Exchange Act and the Trust Indenture Act and the respective rules thereunder; and such counsel has no reason to believe that at the Execution Time the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that on the date of any filing pursuant to Rule 424(b) and on the Closing Date the Final Prospectus included or includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) this Agreement has been duly authorized, executed and delivered by the Company; (vi) neither the issue and sale of the Securities, nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach of, or constitute a default under the charter or by-laws of the Company or the terms of any indenture or other agreement or instrument known to such counsel and to which the Company or any of its subsidiaries is a party or bound or any order or decree known to such counsel to be applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over the Company or any of its subsidiaries; and (vii) no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein, except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals (specified in such opinion) as have been obtained. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of New York or the United States, to the extent deemed proper and specified in such opinion, upon the opinion of other counsel of good standing believed to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials. References to the Final Prospectus in this paragraph (c) include any supplements thereto at the Closing Date. (d) The Representative shall have received from Cleary, Gottlieb, Steen & Hamilton, counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Securities, the Indenture, the Registration Statement, the Final Prospectus (together with any supplement thereto) and other related matters as the Representative may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (e) The Company shall have furnished to the Representative a certificate of the Company, signed by the Chief Financial Officer, Vice President and the Director of Accounting, Treasurer, dated the Closing Date, to the effect that the signer of such certificate has carefully examined the Registration Statement, the Final Prospectus, any supplement to the Final Prospectus and this Agreement and that: (i) the representations and warranties of the Company in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened; and (iii) since the date of the most recent financial statements included in the Final Prospectus (exclusive of any supplement thereto), there has been no material adverse change in the condition (financial or other), earnings, business or properties of the Company and its subsidiaries, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Final Prospectus (exclusive of any supplement thereto). (f) At the Execution Time, Coopers & Lybrand L.L.P. shall have furnished to the Representative a letter or letters (which may refer to letters previously delivered to the Representative), dated as of the date of the Execution Time, in form and substance satisfactory to the Representative, confirming that they are independent accountants within the meaning of the Act and the Exchange Act and the respective applicable published rules and regulations thereunder and stating in effect that: (i) in their opinion the audited financial statements and financial statement schedules included or incorporated in the Registration Statement and the Final Prospectus and reported on by them comply in form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations; (ii) on the basis of a reading, and limited review in accordance with standards established by the American Institute of Certified Public Accountants, of the latest unaudited financial statements made available by the Company and its subsidiaries; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders, directors and the audit, profit sharing, stock option, senior management compensation and management succession plan committees of the Company and the Subsidiary; and inquiries of certain officials of the Company who have responsibility for financial and accounting matters of the Company and its subsidiaries as to transactions and events subsequent to the date of the most recent audited financial statements in or incorporated in the Final Prospectus, nothing came to their attention which caused them to believe that: (1) any unaudited financial statements included or incorporated in the Registration Statement and the Final Prospectus do not comply in form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect to financial statements included or incorporated in quarterly reports on Form 10-Q under the Exchange Act; and said unaudited financial statements are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included or incorporated in the Registration Statement and the Final Prospectus; (2) with respect to the period subsequent to the date of the most recent financial statements (other than any capsule information), audited or unaudited, in or incorporated in the Registration Statement and the Final Prospectus, there were any changes, at a specified date not more than five business days prior to the date of the letter, in the long-term debt, working capital or shareholders equity of the Company and its subsidiaries as compared with the amounts shown on the most recent consolidated balance sheet included or incorporated in the Registration Statement and the Final Prospectus, or for the period from the date of the most recent financial statements included or incorporated in the Registration Statement and the Final Prospectus to such specified date there were any decreases, as compared with the corresponding period in the preceding year, in net sales, income before income taxes, or net income, except in all instances for changes or decreases set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Representative; or (3) the amounts included in any unaudited "capsule" information included or incorporated in the Registration Statement and the Final Prospectus do not agree with the amounts set forth in the unaudited financial statements for the same periods or were not determined on a basis substantially consistent with that of the corresponding amounts in the audited financial statements included or incorporated in the Registration Statement and the Final Prospectus and in conformity with generally accepted accounting principles; and (iii) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and the Final Prospectus and in Exhibit 12 to the Registration Statement, including the information included or incorporated in Items 1, 5, 6, 7, 8, 9, and 11 of the Company's 1996 Annual Report on Form 10-K, incorporated in the Registration Statement and the Final Prospectus, and the information included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included or incorporated in the Registration Statement and the Final Prospectus, agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation. References to the Final Prospectus in this paragraph (f) include any supplement thereto at the date of the letter. In addition at the Closing Date, Coopers & Lybrand L.L.P. shall have furnished to the Representative a letter or letters, dated as of the Closing Date, in form and substance satisfactory to the Representative, to the effect set forth above. (g) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Final Prospectus (exclusive of any supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 5 or (ii) any change, or any development involving a prospective change, in or affecting the business or properties of the Company and its subsidiaries, the effect of which, in any case referred to in clause (i) or (ii) above, is, in the judgment of the Representative, so material and adverse as to make it impractical or inadvisable to proceed with the offering or the delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Final Prospectus (exclusive of any supplement thereto). (h) Subsequent to the Execution Time, there shall not have been any decrease in the ratings of any of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act) or any notice given of any intended or potential decrease in any such rating or of a possible change in any such rating that does not indicate the direction of the possible change. (i) Prior to the Closing Date, the Company shall have furnished to the Representative such further information, certificates and documents as the Representative may reasonably request. If any of the conditions specified in this Section 5 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Representative and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Representative. Notice of such cancellation shall be given to the Company in writing or by telephone or telecopy confirmed in writing. 6. Reimbursement of Underwriters' Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 5 hereof is not satisfied, because of any termination pursuant to Section 9 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters severally upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities. 7. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or in any amendment thereof, or in the Basic Prospectus, any Preliminary Final Prospectus or the Final Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) this indemnity with respect to any Preliminary Final Prospectus or Basic Prospectus shall not inure to the benefit of any Underwriter (or any director, officer, employee or agent of such Underwriter or any person controlling such Underwriter) from whom the person asserting any such loss, claim, damage or liability purchased the Securities which are the subject thereof if there was not sent or given to such person a copy of the Final Prospectus (or the Final Prospectus as then amended or supplemented) (exclusive of material incorporated therein by reference) at or prior to the confirmation of the sale of such Securities to such person in any case where such delivery is required by the Act, and the untrue statement or omission of a material fact contained in the Preliminary Final Prospectus or Basic Prospectus was corrected in such Final Prospectus (or Final Prospectus as so amended or supplemented) and the Company previously furnished copies thereof to such Underwriter and (ii) the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representative specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and each person who controls the Company within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter through the Representative specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Company acknowledges that the statements set forth in the last paragraph of the cover page and under the heading "Underwriting", respectively, in the Preliminary Final Prospectus and the Final Prospectus constitute the only information furnished in writing by or on behalf of any of the Underwriters for inclusion in the documents referred to in the foregoing indemnity, and you, as the Representative, confirm that such statements are correct. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 7 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriters agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company and by the Underwriters from the offering of the Securities; provided, however, that in no case shall any Underwriter (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Underwriters shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and of the Underwriters in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses), and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Final Prospectus. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or the Underwriters. The Company and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 8. Default by an Underwriter. If any Underwriter shall fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter hereunder and such failure to purchase shall constitute a default in the performance of its obligations under this Agreement, the other Underwriter shall be obligated to take up and pay for the Securities which the defaulting Underwriter agreed but failed to purchase; provided, however, that in the event that the aggregate amount of Securities which the defaulting Underwriter agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule II hereto, the other Underwriter shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriter does not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter or the Company. In the event of a default by any Underwriter as set forth in this Section 8, the Closing Date shall be postponed for such period, not exceeding seven days, as the Representative shall determine in order that the required changes in the Registration Statement and the Final Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Company and any nondefaulting Underwriter for damages occasioned by its default hereunder. 9. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representative, by notice given to the Company prior to delivery of and payment for the Securities, if prior to such time (i) trading in the Company's Class A Common Stock or Class B Common Stock shall have been suspended by the Commission or the National Association of Securities Dealers Automated Quotation National Market System or trading in securities generally on the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation National Market System shall have been suspended or limited or minimum prices shall have been established on such Exchange or Market System, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the judgment of the Representative, impracticable or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Final Prospectus (exclusive of any supplement thereto). 10. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of the officers, directors or controlling persons referred to in Section 7 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 6 and 7 hereof shall survive the termination or cancellation of this Agreement. 11. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representative, will be mailed, delivered or telecopied and confirmed to them, at the address specified in Schedule I hereto; or, if sent to the Company, will be mailed, delivered or telecopied and confirmed to it at 2110 Executive Drive, P.O. Box 1330, Salisbury, North Carolina, telecopy (704) 639-1353 attention of the legal department. 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7 hereof, and no other person will have any right or obligation hereunder. 13. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York. 14. Counterparts. This agreement may be signed in one or more counterparts, each of which shall be an original, and together shall constitute one and the same instrument. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company and each of the Underwriters. Very truly yours, Food Lion, Inc. By: Laura Kendall Name:Laura Kendall Title: Vice President of Finance The foregoing Agreement is hereby confirmed and accepted as of the date specified in Schedule I hereto. Salomon Brothers Inc By: Salomon Brothers Inc By: Kimberly M. Bernstein Name:Kimberly M. Bernstein Title:Vice President of Salomon Brothers Inc For itself and the other Underwriter named in Schedule II to the foregoing Agreement. SCHEDULE I Underwriting Agreement dated as of April 16, 1997 Registration Statement No. (33-49620) Representative: Salomon Brothers Inc Seven World Trade Center New York, NY Telecopy: (212) 783-6972 Attn: Legal Department Title, Purchase Price and Description of Securities: Title: 7.55% Notes due 2007 8.05% Notes due 2027 Principal amount: $150,000,000 7.55% Notes due 2007 $150,000,000 8.05% Notes due 2027 Purchase price for 7.55% Notes due 2007: 99.677% of the principal amount being purchased, plus accrued interest, if any, from April 21, 1997 to the Closing Date, less an underwriting discount of .650% of the principal amount being purchased Purchase price for 8.05% Notes due 2027: 99.632% of the principal amount being purchased, plus accrued interest, if any, from April 21, 1997 to the Closing Date, less an underwriting discount of .875% of the principal amount being purchased. Sinking fund provisions: None Redemption provisions: The 7.55% Notes due 2007 will be redeemable as a whole or in part, at the option of the Company at any time, at a redemption price equal to the greater of (i) 100% of the principal amount of each such Note to be redeemed and (ii) the sum of the present values of the Remaining Scheduled Payments (as defined in the Final Prospectus) thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Final Prospectus) plus 5 basis points, plus, in either case, accrued interest on the principal amount being redeemed to the date of redemption. The 8.05% Notes due 2027 will be redeemable as a whole or in part, at the option of the Company at any time, at a redemption price equal to the greater of (i) 100% of the principal amount of each such Note to be redeemed and (ii) the sum of the present values of the Remaining Scheduled Payments (as defined in the Final Prospectus) thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Final Prospectus) plus 20 basis points, plus, in either case, accrued interest on the principal amount being redeemed to the date of redemption. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of any such Notes to be redeemed. Unless the Company defaults in payment of the redemption price, on and after the redemption date interest will cease to accrue on such Notes or portions thereof called for redemption. Closing Date, Time and Location: April 21, 1997, 10:00 AM, New York City time, at the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York 10006 Type of Offering: Delayed Offering Date referred to in Section 4(e) after which the Company may offer or sell debt securities issued or guaranteed by the Company without the consent of the Representative: the first business day occurring on or after the tenth day after the Closing Date. SCHEDULE II Principal Amount of 7.55% Notes due 2007 Underwriters to be Purchased Salomon Brothers Inc $75,000,000 NationsBanc Capital Markets, $75,000,000 Inc. Total $150,000,000 Principal Amount of 8.05% Notes due 2027 Underwriters to be Purchased Salomon Brothers Inc $75,000,000 NationsBanc Capital Markets, $75,000,000 Inc. Total $150,000,000 -----END PRIVACY-ENHANCED MESSAGE-----