-----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, F5BJJPN5E+OA/QUGVGXNuQnV7TZV+fiBPi8tbEDtNUHS0tNW7r9sdZq50jDiZwLd euVSEQBKvGi8NSfpaUyQpQ== 0000037912-98-000013.txt : 19980409 0000037912-98-000013.hdr.sgml : 19980409 ACCESSION NUMBER: 0000037912-98-000013 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980408 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-K405 SEC ACT: SEC FILE NUMBER: 000-06080 FILM NUMBER: 98589968 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-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 1998. Commission File No. 0-6080 F O O D L I O N, INC. (Exact name of registrant as specified in its charter) Incorporated in North Carolina 56-0660192 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P.O. Box 1330, 2110 Executive Drive Salisbury, North Carolina 28145-1330 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code-- (704) 633-8250 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, par value $.50 per share Class B Common Stock, par value $.50 per share (Title of Class) 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 the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[x] The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant based on the price of such stock at the close of business on March 27, 1998 was $1,189,646,901 and $1,527,553,425, respectively. For purposes of this report and as used herein,the term "non-affiliate" includes all shareholders of the Registrant other than Directors, executive officers, and other senior management of the Registrant and persons holding more than five per cent of the outstanding voting stock of the Registrant. Outstanding shares of common stock of the Registrant as of March 27, 1998. Class A Common Stock - 236,467,986 Class B Common Stock - 232,727,364 Exhibit index is located on sequential page 17 hereof. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in this Form 10-K: 1. Annual Report to Shareholders for the year ended January 3, 1998 are incorporated by reference in Part II hereof. 2. Proxy Statement for the 1998 Annual Meeting of Shareholders of the Company to be held on May 7, 1998, are incorporated by reference in Part III hereof. PART I Item 1. Business. Food Lion, Inc. (the "Company") engages in one line of business, the operation of retail food supermarkets principally in the southeastern United States. The Company was incorporated in North Carolina in 1957 and maintains its corporate headquarters in Salisbury, North Carolina. The Company's stores, which are operated under the name of "Food Lion," and "Kash n' Karry", sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food, deli/bakery and non-food items such as health and beauty aids and other household and personal products. The Company offers nationally and regionally advertised brand name merchandise as well as products manufactured and packaged for the Company under the private labels of "Food Lion" and "Kash n' Karry." The Company offers over 20,000 Stock Keeping Units (SKU's) in its Food Lion locations and over 30,000 in its Kash n' Karry locations. The Company's current prototype is a 38,000 square foot model. The products sold by the Company are purchased through a centralized buying department at the Company's headquarters. The centralization of the buying function allows the management of the Company to establish long-term relationships with many vendors providing various alternatives for sources of product supply. The business in which the Company is engaged is highly competitive and characterized by low profit margins. The Company competes with national, regional and local supermarket chains, supercenters, discount food stores, single unit stores, convenience stores and warehouse clubs. The Company will continue to develop and evaluate new retailing strategies that will respond to its customers' needs. Seasonal changes have no material effect on the operation of the Company's supermarkets. As of January 3, 1998, 1,157 supermarkets were in operation as follows: Delaware 10 North 394 Carolina Florida 188 Pennsylvania 7 Georgia 56 South 106 Carolina Kentucky 13 Tennessee 78 Maryland 38 Virginia 251 West Virginia 16 -2- As of March 27, 1998, the Company had opened 14 supermarkets since January 3, 1998, closed 4 supermarkets, relocated 3 supermarkets and had signed leases for 23 supermarkets which are expected to open in either 1998 or 1999. Warehousing and distribution facilities, including its transportation fleet, are owned and operated by the Company and are located in Green Cove Springs and Plant City, Florida; Salisbury and Dunn, North Carolina; Greencastle,Pennsylvania; Elloree, South Carolina; Clinton, Tennessee; and Disputanta, Virginia. As of January 3, 1998, the Company employed 31,128 full-time and 52,743 part-time employees. The following table shows the number of stores opened, closed and relocated and the number of stores open at the end of each year for the past three years. # Stores # Stores #Stores # Stores Opened Opened Closed Relocated Year-end 1997 164 (1) (94) (25) 1,157 1996 64 ( 3) (22) 1,112 1995 47 ( 1) (12) 1,073 (1) Includes 100 stores acquired from Kash n' Karry Item 2. Properties. Supermarkets operated by the Company in the southeastern United States average 31,200 square feet in size. The Company's current prototype retail format is a 38,000 square foot model with a deli/bakery department. All of the Company's supermarkets are self-service stores which have off-street parking facilities. With the exception of 66 owned operating supermarkets, the Company occupies its various supermarket premises under lease agreements providing for initial terms of up to 30 years, with options generally ranging from five to twenty years. At the end of 1997 the Company had $99.4 million (book value) in property held for sale. The following table identifies the location and square footage of distribution centers and office space operated by the Company as of January 3, 1998. Location of Property Square Footage Distribution Center #1 Salisbury, NC 1,630,233 Distribution Center #2 Disputanta, VA 1,123,718 Distribution Center #3 Elloree, SC 1,098,612 Distribution Center #4 Dunn, NC 1,224,652 Distribution Center #5 Green Cove Springs, FL 832,109 Distribution Center #6 Clinton, TN 833,042 Distribution Center #7 Greencastle, PA 1,236,124 Distribution Center #8 Plant City, FL 759,546 Corporate Headquarters Salisbury, NC 271,592 9,009,628 -3- Item 3. Legal Proceedings. Longman et al. v. Food Lion, Inc. and Tom E. Smith, 4:92 CV 696 (M.D.N.C.) (complaint filed November 12, 1992, and amended January 23, 1993) ("Longman"); and Feinman et al. v. Food Lion, Inc. and Tom E. Smith, 4:92 CV 705 (M.D.N.C.) (complaint filed November 13, 1992) ("Feinman"). The Longman and Feinman actions assert claims against the Company and Tom E. Smith under Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 for securities fraud and claims of common law fraud and negligent misrepresentation. The actions have been consolidated for discovery and trial purposes and the court has granted class certification motions, certifying a single class composed of those persons who purchased common stock of the Company from May 7, 1990 through November 5, 1992 and were damaged thereby. Merits discovery has concluded in the actions. The Company and Mr. Smith filed motions for summary judgment on all claims and plaintiffs filed a motion for summary judgment on certain affirmative defenses asserted by the Company and Mr. Smith. The court held a hearing on the summary judgement motions in February 1998, and took the motions under advisement. The actions seek compensatory damages, plaintiffs' attorneys' fees and costs, punitive damages, prejudgment interest and certain other relief. Based on currently available information, the Company believes that any resulting liability will not have a material adverse effect on the financial condition or results of operations of the Company. In re Food Lion, Inc. Fair Labor Standards Act "Effective Scheduling" Litigation, MDL Docket No. 929, pursuant to which a number of actions against the Company were transferred by the Multi-District Litigation Panel to the United States District Court for the Eastern District of North Carolina for pretrial proceedings (the "Multi-District Action"). In general, the actions involved claims seeking payment under the Fair Labor Standards Act for alleged uncompensated overtime hours, liquidated damages, additional contributions to the Company's profit-sharing plan, costs and attorneys' fees. The pretrial proceedings are complete and pursuant thereto, a number of claims were dismissed. Other cases settled (North Carolina, 1994 and 1995; Virginia, 1993 and 1994;Tennessee, 1994;and Florida, 1997) in an aggregate amount (inclusive of attorneys' fees where awarded) not material to the Company's financial condition or results of operations. Approximately 67 claims dismissed from the North Carolina cases were consolidated and certified for appeal to the United States Court of Appeals for the Fourth Circuit. The Fourth Circuit held in abeyance its decision on these appeals pending entry of a final Order as to all other claims previously dismissed in the Multi-District Action so that dismissed claims from other states may be joined and consolidated in the current appeal to the Fourth Circuit. Approximately eight claims dismissed from the South Carolina and Florida cases were added to this appeal.Oral argument was held in the Fourth Circuit in January 1998. The remaining cases involve the claims of approximately 111 plaintiffs in South Carolina. These 111 cases were tentatively settled in the first quarter of 1998 in an aggregate amount that is not material to the Company's financial condition or results of operations, and in the same period a petition for attorneys' fees was filed with respect to the Florida claims. Based on currently available information, the Company believes that any resulting liability from this litigation will not have a material adverse effect on the financial condition or results of operations of the Company. -4- Item 4. Submission of Matters to a Vote of Security Holders. This item is not applicable. Executive Officers of the Registrant The names and ages of the current executive officers of the Company and their positions as of March 1, 1998, are set forth below. The footnotes following the table below include the business experience during the past five years for each executive officer who has been employed by the Company for fewer than five years. Unless otherwise indicated by footnote, each of the executive officers served in various managerial capacities with the Company over the past five years. None of the executive officers named below is related to any other executive officer or director by blood, marriage or adoption. Officers serve at the discretion of the Board of Directors. Name and all Positions with Age Year First Year First the Company Held at March Elected Elected to 1, 1998 Officer Present Office Tom E. Smith 56 1974 1981 President and Chief Executive Officer Joseph C. Hall, Jr. 48 1988 1995 Senior Vice President and Chief Operating Officer R. William McCanless 40 1993 1996 Senior Vice President, Chief Administrative Officer and Secretary Pamela K. Kohn 33 1995 1997 Senior Vice President of Merchandising Jay J. Abraham 1 41 1994 1994 Vice President of Marketing A. Edward Benner, Jr. 56 1980 1996 Vice President and Chief Information Officer -5- Robert J. Brunory 43 1994 1994 Vice President Procurement/Category Management Mike Byars 39 1997 1997 Vice President of Operations, Food Lion, Kash n'Karry Division Larry A. Cooper 2 49 1996 1996 Vice President of Distribution W. Bruce Dawson 45 1995 1995 Vice President of Operations/ Northern Division Keith M. Gehl 39 1997 1997 Vice President of Real Estate and Store Development Carol Herndon 35 1991 1994 Corporate Controller and Director of Accounting Richard James 38 1997 1997 Director of Finance and Treasurer Darrell Johnson 45 1997 1997 Vice President of Human Resources Laura Kendall 3 46 1997 1997 Vice President of Finance and Chief Financial Officer Dave Morgan 47 1997 1997 Vice President of Operations/ Southern Division Lester C. Nail 4 38 1995 1995 Vice President Legal Affairs and Assistant Secretary Tom Robinson 37 1997 1997 Vice President of Operations/ Central Division Natalie Taylor 38 1997 1997 Vice President of Diversity -6- 1 Prior to joining Food Lion, Mr. Abraham was Vice President of Marketing, Weight Watchers Company, a wholly owned subsidiary of the H.J. Heinz Company. 2 Mr. Cooper was Vice President of Distribution at Ralphs Grocery Company prior to his employment at Food Lion. 3 Ms. Kendall served as the Chief Financial Officer for F & M Distributors prior to joining Food Lion. From 1995 until March of 1997, she was the presiding officer overseeing the liquidation process for F&M Distributors. 4 Prior to joining Food Lion in 1995, Mr. Nail served as Corporate Counsel to Wal-Mart Stores, Inc. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The information pertaining to the Class A and Class B Common Stock price range, dividends and record holders discussed beneath the headings "Market Price of Common Stock" and "Dividends Declared Per Share of Common Stock" in the Annual Report to Shareholders for the year ended January 3, 1998, is hereby incorporated by reference. Item 6. Selected Financial Data. The information set forth beneath the heading "Ten Year Summary of Operations" in the Annual Report to Shareholders for the year ended January 3, 1998, is hereby incorporated by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information set forth beneath the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report to Shareholders for the year ended January 3, 1998, is hereby incorporated by reference. Item 8. Financial Statements and Supplementary Data. The financial statements, including the accompanying notes and results by quarter, set forth beneath the headings "Consolidated Statements of Income", "Consolidated Balance Sheets", "Consolidated Statements of Cash Flows", "Consolidated Statements of Shareholders' Equity", "Notes to Consolidated Financial Statements" and "Results by Quarter" in the Annual Report to Shareholders for the year ended January 3, 1998, are hereby incorporated by reference. -7- Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. This item is not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information pertaining to nominees for election as directors set forth beneath the heading "Election of Directors" in the Proxy Statement for the 1997 Annual Meeting of Shareholders to be held May 7, 1998 is incorporated by reference. Information concerning the Company's executive officers is contained under the heading "Executive Officers of the Registrant" in Part I of this report. Item 11. Executive Compensation. The information pertaining to executive compensation set forth beneath the heading "Report of the Senior Management Compensation Committee, Stock Option Committee and Board of Directors" in the Proxy Statement for the 1998 Annual Meeting of Shareholders to be held on May 7, 1998, is hereby incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information pertaining to security ownership of certain beneficial owners and management set forth beneath the heading "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement for the 1998 Annual Meeting of Shareholders to be held on May 7, 1998, is hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions. The information relating to certain relationships and related transactions set forth beneath the headings "Employment Plans and Agreements - Low Interest Loan Plan" and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement for the 1998 Annual Meeting of Shareholders to be held May 7, 1998, is hereby incorporated by reference. -8- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as part of this report: 1. Financial Statements: The following financial statements are incorporated by reference in Item 8 hereof from the Annual Report to Shareholders for the year ended January 3, 1998: ANNUAL REPORT PAGE NO. Consolidated Statements of Income for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 20 Consolidated Balance Sheets, as of January 3, 1998 and December 28, 1996 21 Consolidated Statements of Cash Flows for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 22 Consolidated Statements of Shareholders' Equity for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 23 Notes to Consolidated Financial Statements 24-29 Results by Quarter (unaudited) 31 10-K PAGE NO. 2. Financial Statement Schedules: Report of Independent Accountants 16 All other schedules are omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. -9- With the exception of the financial statements listed in the above index, the information referred to in Items 5, 6, 7 and the supplementary quarterly financial information referred to in Item 8, all of which is included in the 1997 Annual Report to Shareholders of Food Lion, Inc. and incorporated by reference into this Form 10-K Annual Report, the 1997 Annual Report to Shareholders is not to be deemed "filed" as part of this report. 3. Exhibits: Exhibit No. 3(a) Articles of Incorporation, together with all amendments thereto (through May 5, 1988) (incorporated by reference to Exhibit 3(a) of the Company's Annual Report on Form 10-K dated March 24, 1992) 3(b) Bylaws of the Company effective May 4,1995 (incorporated by reference to Exhibit 3(b) of the Company's Annual Report on Form 10-K dated March 27, 1997) 4(a) Indenture dated as of August 15, 1991 between the Company and the Bank of New York, Trustee, providing for the issuance of an unlimited amount of Debt Securities in one or more series (incorpo- rated by reference to Exhibit 4(a) of the Company's Annual Report on Form 10-K dated March 24, 1992) 4(b) Form of Food Lion, Inc. Medium Term Note (Global Fixed Rate) (incorporated by reference to Exhibit 4(b) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(a) Low Interest Loan Plan (incorporated by reference to Exhibit 19(a) of the Company's Report on Form 8-K dated October 27, 1986) 10(b) Form of Deferred Compensation Agreement (incorporated by reference to Exhibit 19(b) of the Company's Report on Form 8-K dated October 27, 1986) 10(c) Form of Salary Continuation Agreement (incorporated by reference to Exhibit 19(c) of the Company's report on Form 8-K dated October 27, 1986) 10(d) 1994 Shareholders' Agreement dated as of the 15th day of September 1994 among Etablissements Delhaize Freres et Cie "Le Lion" S.A., Delhaize The Lion America, Inc., and the Company (incorporated by reference to Exhibit 10 of the Company's Report on Form 8-K dated October 7, 1994) -10- 10(e) Proxy Agreement dated January 4, 1991 between Etablissements Delhaize Freres et Cie "Le Lion" S.A. and Delhaize The Lion, America, Inc. (incorporated by reference to Exhibit 10(e) of the Company's Annual Report on Form 10-K dated March 25, 1991) 10(f) Employment Agreement dated August 1, 1991 between the Company and Tom E. Smith (incorporated by reference to Exhibit 10(h) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(g) Stock Purchase Agreement dated June 30, 1981 between the Company and Ralph W. Ketner (incorporated by reference to Exhibit 10(j) of the Company's Annual Report on Form 10-K dated April 1, 1987) 10(h) Amended and Restated Food Lion, Inc. 1983 Employee Stock Option Plan (incorporated by reference to Exhibit 10(k) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(i) 1991 Employee Stock Option Plan of Food Lion, Inc. (incorporated by reference to Exhibit 10(l) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(j) Split Dollar Life Insurance Agreement between the Company and Tom E. Smith (incorporated by reference to Exhibit 10(o) of the Company's Annual Report on Form 10-K dated April 1, 1987) 10(k) Split Dollar Life Insurance Agreement between the Company and Tom E. Smith issued May 25, 1988 (incorporated by reference to Exhibit 10(w) of the Company's Annual report on Form 10-K dated March 20, 1989) 10(l) Letter Agreement dated May 10, 1990 between the Company and Ralph W. Ketner (incorporated by reference to Exhibit 10(q) of the Company's Annual Report on Form 10-K dated March 25, 1991) 10(m) U.S. Distribution Agreement dated August 20, 1991 between the Company and Goldman, Sachs & Co. and Merrill Lynch & Co. relating to the sale of up to $300,000,000 in principal amount of the Company's Medium-Term Notes (incorporated by reference to Exhibit 10(p) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(n) License Agreement between the Company and Etablissements Delhaize Freres Et Cie "Le Lion" S.A. dated January 1, 1983(incorporated by reference to Exhibit 10(t) of the Company's Annual Report on Form 10-K dated March 31, 1994) -11- 10(o) 1996 Employee Stock Incentive Plan of Food Lion, Inc.(incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated July 30, 1996) 10(p) Key Executive Annual Incentive Bonus Plan (incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q dated July 30, 1996) 10(q) Profit Sharing Restoration Plan effective as of May 4, 1995(incorporated by reference to Exhibit 10(c) of the Company's 10-Q A dated August 13, 1996) 10(r) Supplemental Executive Retirement Plan effective as of May 4, 1995 (incorporated by reference to Exhibit 10(d) of the Company's 10-Q A dated August 13, 1996) 10(s) Employee Severance Agreement dated September 5, 1996 between the Company and Dan A. Boone (incorporated by reference to Exhibit 10 of the Company's Quarterly Report on Form 10-Q dated October 16, 1996) 10(t) Employment Agreement dated as of February 27,1997 between Joseph C. Hall,Jr. and the Company (incorporated by reference to Exhibit 10(w) of the Company's Annual Report on Form 10-K dated March 27, 1997) 10(u) Employment Agreement dated as of February 27,1997 between R. William McCanless and the Company (incorporated by reference to Exhibit 10(x) of the Company's Annual Report on Form 10-K dated March 27, 1997) 10(v) Agreement and Plan of Merger dated as of October 31, 1996 among the Company, KK Acquisition Corp. and Kash n' Karry Food Stores, Inc. (incorporated by reference to Exhibit 2 of the Company's Report on Form 8-K dated October 31, 1996) 10(w) Stockholders' Agreement, dated as of October 31, 1996, among the Company, KK Acquisition Corp., Kash n' Karry Food Stores, Inc. and the stockholders of Kash n' Karry Food Stores, Inc.signatory thereto (incorporated by reference to Exhibit 10 of the Company's Report on Form 8-K dated October 31,1996) 10(x) $700,000,000 Revolving Credit Facility dated as of December 16, 1996 among the Company and various banks, and Chase Manhattan Bank, as Administrative Agent, and Wachovia Bank of North Carolina, N.A., as Documentation Agent (incorporated by reference to Exhibit 10(aa) of the Company's Annual Report on Form 10-K dated March 27, 1997) -12- 10(y) License agreement, dated as of June 19, 1997, among the Company, Kash n' Karry Food Stores, Inc., and Etablissements Delhaize Freres Et Cie "Le Lion" S.A. (incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated July 25, 1997) 10(z) Food Lion Inc. and The Bank of New York, Trustee, First Supplement Indenture dated as of April 21, 1997 (incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated May 2, 1997) 10(aa) Underwriting Agreement dated as of April 16, 1997 between Food Lion, Inc. and Salomon Brothers, Inc. for itself and as representative for NationsBanc Capital Markets Inc.(incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q dated May 2, 1997) 10(ab) Credit Agreement dated as of December 15, 1997, among the Company the lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, and Wachovia Bank , N.A., as Documentation Agent. 10(ac) Deferral Agreement and Election, dated as of December 18, 1997, by and between Tom E. Smith and the Company. 10(ad) Employment Agreement, dated as of October 1, 1997, between Pamela K. Kohn and the Company. 10(ae) Employment Agreement, dated as of October 1, 1997, between A. Edward Benner and the Company. 10(af) Agreement, dated as of January 4, 1998, between Etablissements Delhaize Freres et Cie "Le Lion" S.A. and the Company. 11 Computation of Earnings Per Share 13 Annual Report to Shareholders for the year ended January 3, 1998 21 Subsidiaries of Registrant 23 Consent of Independent Accountants 27 Financial Data Schedules 99 Undertaking of the Company to file exhibits pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K (b) Reports on Form 8-K: The Company did not file a report on Form 8-K for the period ended January 3, 1998. -13- Pursuant to the requirements of Section 13 or 15(d) 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. Date:04/08/98 By Tom E. Smith Tom E. Smith President, Chief Executive Officer, Principal Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Date: 04/08/98 By Tom E. Smith Tom E. Smith President, Chief Executive Officer, Principal Executive Officer and Director Date:4/08/98 By Pierre-Olivier Beckers Pierre-Olivier Beckers Director Date: By Dr. Jacqueline K. Collamore Director Date: 4/08/98 By Jean-Claude Coppieters t Wallant Jean-Claude Coppieters t Wallant Director Date: By William G. Ferguson Director Date: By Dr. Bernard Franklin Director Date: 04/08/98 By Joseph C. Hall Joseph C. Hall Senior Vice President of Operations Director Date:04/08/98 By Margaret H. Kluttz Margaret H. Kluttz Director Date: By Philippe Stroobant Director Date:4/08/98 By Gui de Vaucleroy Gui de Vaucleroy Director -14- Date: By R.William McCanless Chief Administrative Officer and Secretary Date:04/08/98 By Laura Kendall Laura Kendall Vice President of Finance Chief Financial Officer Principal Financial Officer -15- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of Food Lion, Inc.: We have audited the consolidated financial statements of Food Lion, Inc. and subsidiaries as of January 3, 1998 and December 28, 1996, and for each of the three fiscal years in the period ended January 3, 1998, which financial statements are included on pages 20 through 30 of the 1997 Annual Report to Shareholders of Food Lion,Inc., incorporated by reference herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Food Lion, Inc. and subsidiaries, as of January 3, 1998 and December 28, 1996, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 3, 1998, in conformity with generally accepted accounting principles. As discussed in Note 17, the 1996 financial statements have been revised to reflect adjustments related to store closing reserves. Charlotte, North Carolina February 10, 1998 COOPERS & LYBRAND, L.L.P. -16- EXHIBIT INDEX to ANNUAL REPORT ON FORM 10-K of Food Lion, Inc. For Year Ended January 3, 1998 Sequential Exhibit No. Description Page No. 3(a) Articles of Incorporation, together with all amendments thereto (through May 5, 1988) (incorporated by reference to Exhibit 3(a) of the Company's Annual Report on Form 10-K dated March 24, 1992) 3(b) Bylaws of the Company effective May 4, 1995 (incorporated by reference to Exhibit 3(b) of the Company's Annual Report on Form 10-K dated March 27, 1997) 4(a) Indenture dated as of August 15, 1991 between the Company and the Bank of New York, Trustee, providing for the issuance of an unlimited amount of Debt Securities in one or more series (incorporated by reference to Exhibit 4(a) of the Company's Annual Report on Form 10-K dated March 24, 1992) 4(b) Form of Food Lion, Inc. Medium Term Note (Global Fixed Rate) (incorporated by reference to Exhibit 4(b) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(a) Low Interest Loan Plan (incorporated by reference to Exhibit 19(a) of the Company's Report on Form 8-K dated October 27, 1986) 10(b) Form of Deferred Compensation Agreement (incorporated by reference to Exhibit 19(b) of the Company's Report on Form 8-K dated October 27, 1986) 10(c) Form of Salary Continuation Agreement (incorporated by reference to Exhibit 19(c) of the Company's Report on Form 8-K dated October 27, 1986) 10(d) 1994 Shareholders' Agreement dated as of the 15th day of September 1994 among Etablissements Delhaize Freres et Cie "Le Lion" S.A., Delhaize The Lion America, Inc., and the Company (incorporated by reference to Exhibit 10 of the Company's Report on Form 8-K dated October 7, 1994) 10(e) Proxy Agreement dated January 4, 1991 between Etablissements Delhaize Freres et Cie "Le Lion" S.A. and Delhaize The Lion America, Inc. (incorporated by reference to Exhibit 10(e) of the Company's Annual Report on form 10-K dated March 25, 1991) -1- 10(f) Employment Agreement dated August 1, 1991 between the Company and Tom E. Smith (incorporated by reference to Exhibit 10(h) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(g) Stock Purchase Agreement dated June 30, 1981 between the Company and Ralph W. Ketner (incorporated by reference to Exhibit 10(j) of the Company's Annual Report on Form 10-K dated April 1, 1987) 10(h) Amended and Restated Food Lion, Inc. 1983 Employment Stock Option Plan (incorporated by reference to Exhibit 10(k) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(i) 1991 Employee Stock Option Plan of Food Lion, Inc. (incorporated by reference to Exhibit 10(l) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(j) Split Dollar Life Insurance Agreement between the Company and Tom E. Smith (incorporated by reference to Exhibit 10(o) of the Company's Annual Report on Form 10-K dated April 1, 1987) 10(k) Split Dollar Life Insurance Agreement between the Company and Tom E. Smith issued May 25, 1988 (incorporated by reference to Exhibit 10(w) of the Company's Annual report on Form 10-K dated March 20, 1989) 10(l) Letter Agreement dated May 10, 1990 between the Company and Ralph W. Ketner (incorporated by reference to Exhibit 10(q) of the Company's Annual Report on Form 10-K dated March 25, 1991) 10(m) U.S. Distribution Agreement dated August 20, 1991 between the Company and Goldman, Sachs & Co and Merrill Lynch & Co. relating to the sale of up to $300,000,000 in principal amount to the Company's Medium-Term Notes (incorporated by reference to Exhibit 10(p) of the Company's Annual Report on Form 10-K dated March 24, 1992) 10(n) License Agreement between the Company and Etablissements Delhaize Freres Et Cie "Le Lion" S.A. dated January 1, 1983 (incorporated by reference to Exhibit 10(t) of the Company's Annual Report on Form 10-K dated March 31, 1994) 10(o) 1996 Employee Stock Incentive Plan of Food Lion, Inc. (incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated July 30, 1996) 10(p) Key Executive Annual Incentive Bonus Plan (incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q dated July 30, 1996) -2- 10(q) Profit Sharing Restoration Plan effective as of May 4, 1995 (incorporated by reference to Exhibit 10(c) of the Company's 10-Q A dated August 13, 1996) 10(r) Supplemental Executive Retirement Plan effective as of May 4, 1995 (incorporated by reference to Exhibit 10(d) of the Company's 10-Q A dated August 13, 1996) 10(s) Employee Severance Agreement dated September 5, 1996 between the Company and Dan A. Boone (incorporated by reference to Exhibit 10 of the Company's Quarterly Report on Form 10-Q dated October 16, 1996) 10(t) Employment Agreement dated as of February 27,1997 between Joseph C. Hall,Jr. and the Company (incorporated by reference to Exhibit 10(w) of the Company's Annual Report on Form 10-K dated March 27, 1997) 10(u) Employment Agreement dated as of February 27,1997 between R. William McCanless and the Company (incorporated by reference to Exhibit 10(x) of the Company's Annual Report on Form 10-K dated March 27, 1997) 10(v) Agreement and Plan of Merger dated as of October 31, 1996 among the Company, KK Acquisition Corp. and Kash n' Karry Food Stores, Inc. (incorporated by reference to Exhibit 2 of the Company's Report on Form 8-K dated October 31, 1996) 10(w) Stockholders' Agreement, dated as of October 31, 1996, among the Company, KK Acquisition Corp., Kash n' Karry Food Stores, Inc. and the stockholders of Kash n' Karry Food Stores, Inc. signatory thereto (incorporated by reference to Exhibit 10 of the Company's Report on Form 8-K dated October 31,1996) 10(x) $700,000,000 Revolving Credit Facility dated as of December 16, 1996 among the Company and various banks, and Chase Manhattan Bank, as Administrative Agent, and Wachovia Bank of North Carolina, N.A., as Documentation Agent (incorporated by reference to Exhibit 10(aa) of the Company's Annual Report on Form 10-K dated March 27, 1997) 10(y) License agreement, dated as of June 19, 1997, among the Company, Kash n' Karry Food Stores, Inc., and Etablissements Delhaize Freres Et Cie "Le Lion" S.A. (incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated July 25, 1997) 10(z) Food Lion Inc. and The Bank of New York, Trustee, First Supplement Indenture dated as of April 21, 1997 (incorporated by reference to Exhibit 10(a) of the Company's Quarterly Report on Form 10-Q dated May 2, 1997) -3- 10(aa) Underwriting Agreement dated as of April 16, 1997 between Food Lion, Inc. and Salomon Brothers, Inc. for itself and as representative for NationsBanc Capital Markets Inc.(incorporated by reference to Exhibit 10(b) of the Company's Quarterly Report on Form 10-Q dated May 2, 1997) 10(ab) Credit Agreement dated as of December 15, 1997, among the Company the lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, and Wachovia Bank, N.A., as Documentation Agent. 10(ac) Deferral Agreement and Election, dated as of December 18, 1997, by and between Tom E. Smith and the Company. 10(ad) Employment Agreement, dated as of October 1,1997, between Pamela K. Kohn and the Company. 10(ae) Employment Agreement, dated as of October 1,1997, between A. Edward Benner and the Company. 10(af) Agreement, dated as of January 4, 1998, between Etablissements Delhaize Freres et Cie "Le Lion" S.A. and the Company. 11 Computation of Earnings Per Share 13 Annual Report to Shareholders for the year ended January 3,1998 21 Subsidiaries of Registrant 23 Consent of Independent Accountants 27 Financial Data Schedules 99 Undertaking of the Company to file exhibits pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K (b) Reports on Form 8-K: The Company did not file a report on Form 8-K for the period ended January 3, 1998. -4- EX-10.AB 2 EXECUTION COPY CREDIT AGREEMENT dated as of December 15, 1997 among FOOD LION, INC., The Lenders Party Hereto, THE CHASE MANHATTAN BANK, as Administrative Agent, and WACHOVIA BANK, N.A., as Documentation Agent $350,000,000 364-DAY REVOLVING CREDIT FACILITY AND COMPETITIVE ADVANCE FACILITY __________________________________ CHASE SECURITIES, INC., as Arranger Index Page ABR 1, 2, 11, 19, 20, 23-28 Adjusted LIBO Rate 1, 9, 16, 17, 26-29 Administrative Agent 1, 3, 9, 12, 16-27, 30, 32, 33, 36-40, 45-56 Administrative Questionnaire 1, 50, 53 Affiliate 1, 19, 32, 39, 43, 48, 49, 51, 52, 56 Alternate Base Rate 1, 17, 26, 27 Amortization 1 Applicable Percentage 1, 52 Applicable Rate 2, 26 Assessment Rate 3 Assignment and Acceptance 3, 5, 12, 52, 53 Availability Period 3, 19, 20, 27 Base CD Rate 3, 16 Board 3, 16, 17, 36, 41 Borrower 1-3, 5-13, 15-30, 32-56 Borrowing 1, 3, 5, 9, 11, 12, 17-27, 36, 38 Borrowing Request 3, 20, 22, 28 Business Day 3, 10, 12, 17, 20-25, 31 Capital Lease Obligations 4, 7, 11 Capital Stock 4, 7, 16 Capitalized Lease 4, 14, 15 Change in Control 4, 47 Change in Law 5, 28, 29 Class 5, 18, 19, 25 Code 5, 9, 15 Commitment 1-3, 5, 13, 16, 19, 20, 24-27, 37, 38, 41, 47, 51-54 Competitive Bid 5, 10, 13, 19-21, 29 Competitive Bid Rate 5, 21, 22 Competitive Bid Request 5, 12, 20-22 Competitive Loan 5, 9, 10, 13, 19-22, 25, 29 Consolidated 5 Consolidated Debt 5, 7, 44 Consolidated Fixed Charges 6, 44 Consolidated Interest Expense 6 Consolidated Net Income 6, 7, 44 Consolidated Net Worth 7 Consolidated Subsidiary 1, 4, 6, 7, 14, 15 Consolidated Total Assets 7, 45 Consolidated Total Capitalization 7, 44 Contractual Obligation 7, 36, 40 Control 1, 5, 7 Controlled 1, 7, 17 Controlling 7 Debt 5-8, 25, 44 Default 8, 35, 38, 39, 42, 48, 50, 54 Delhaize 4, 5, 8 Depreciation 8 Detla 4, 5, 8 Disclosed Matters 8, 35 Documentation Agent 1, 8, 49, 1 Dollars 3, 8, 16, 31 Effective Date 3, 8, 36, 37 Environmental Law 8, 11, 35 Environmental Liability 8, 35, 51 ERISA 8, 9, 14, 15, 18, 35 ERISA Affiliate 9, 15 ERISA Event 9, 35, 39, 47 Eurodollar 9-12, 16, 18, 23, 24 Event of Default 8, 9, 24, 29, 53, 55 Excluded Taxes 9, 11 Federal Funds Effective Rate 1, 9, 23, 32, 57 Financial Officer 10, 37-40 Fiscal Quarter 7, 10, 44 Fiscal Year 10 Fixed Rate 5, 10, 17, 27 Fixed Rate Loan 10, 12, 19, 27-29 Foreign Lender 9, 10, 30, 54 GAAP 1, 4, 7, 8, 10, 16-18, 34, 38-40 Governmental Authority 5, 8, 10, 15, 17, 30, 32-35, 39, 40 Guarantee 10, 11, 42, 43 Guarantor 11, 17, 37, 43, 47 Hazardous Materials 8, 11, 51 Hedging Agreement 11, 13, 42, 43 Indebtedness 10, 11, 13, 41-44, 46 Indemnified Taxes 11, 29, 30 Index Debt 2, 11 Interest Election Request 11, 23, 24, 28 Interest Payment Date 11, 12, 27 Interest Period 1, 3, 12, 13, 19-21, 23-27, 29 Investment 6, 35, 42 Lenders 1-3, 12, 13, 19, 21-28, 31-34, 36-38, 41, 42, 45, 48-53, 56, 1 LIBO Rate 1, 9, 12, 13, 17, 26, 27 Lien 8, 11, 13, 14, 34, 41-44 Loans 1, 5, 9, 13, 16-19, 21-28, 32, 33, 36, 37, 42, 47, 51-54, 57 LTF 2, 13 Majority Lenders 13, 18, 24, 27, 37, 47-51 Margin 5, 13, 26 Material Adverse Effect 13, 33-36, 39, 40, 47 Material Indebtedness 13, 46 Maturity Date 3, 14, 15, 19, 24, 25 Minority Interests 6, 14 Moody's 2, 4, 14 Multiemployer Plan 9, 14, 15, 18 Operating Lease 14, 15 Other Taxes 14, 29, 30 PBGC 9, 14 Permitted Encumbrances 14, 41 Permitted Investments 4, 42 Person 1, 4, 5, 7, 8, 10-12, 15-18, 31, 34, 41-44, 48, 51-53, 56, 57 Plan 9, 15, 35 Prime Rate 1, 15, 27 Redeemable Preferred Stock 7, 15, 16 Register 15, 53 Related Parties 15, 49, 52 Rentals 6, 15 Requirement of Law 15, 36 Revolving Credit Exposure 2, 5, 13, 15, 19, 20, 24, 26 Revolving Loan 2, 3, 5, 15, 16, 18, 19, 25, 31, 32 S&P 2, 4, 16 Solvent 16, 36 Statutory Reserve Rate 1, 3, 16 Stockholder's Equity 7, 16 Subsidiary 7, 8, 13, 15, 17, 32, 35, 39-48 Subsidiary Guarantee 17, 37, 44 Taxes 17, 29, 35 Three-Month Secondary CD Rate 3, 17 Transactions 17, 33, 34, 37, 43, 51, 52, 56 Type 3, 17-20, 23, 25, 26, 28 Withdrawal Liability 9, 18 Table of Contents ARTICLE I Page Definitions 1 SECTION 1.1 Defined Terms 1 SECTION 1.2 Classification of Loans and Borrowings 18 SECTION 1.3 Terms Generally 18 SECTION 1.4 Accounting Terms; GAAP 18 ARTICLE II The Credits 19 SECTION 2.1 Commitments 19 SECTION 2.2 Loans and Borrowings 19 SECTION 2.3 Requests for Revolving Borrowings 19 SECTION 2.4 Competitive Bid Procedure 20 SECTION 2.5 Funding of Borrowings 22 SECTION 2.6 Interest Elections 23 SECTION 2.7 Termination and Reduction of Commitments 24 SECTION 2.8 Repayment of Loans; Evidence of Debt 25 SECTION 2.9 Prepayment of Loans 25 SECTION 2.10 Fees 26 SECTION 2.11 Interest 26 SECTION 2.12 Alternate Rate of Interest 27 SECTION 2.13 Increased Costs 28 SECTION 2.14 Break Funding Payments 29 SECTION 2.15 Taxes 29 SECTION 2.16 Payments Generally; Pro Rata Treatment; Sharing of Set-offs 31 SECTION 2.17 Mitigation Obligations; Replacement of Lenders 32 ARTICLE III Representations and Warranties 33 SECTION 3.1 Organization; Powers 33 SECTION 3.2 Authorization; Enforceability 33 SECTION 3.3 Governmental Approvals; No Conflicts 33 SECTION 3.4 Financial Condition; No Material Adverse Change 34 SECTION 3.5 Properties 34 SECTION 3.6 Litigation and Environmental Matters 34 SECTION 3.7 Compliance with Laws and Agreements 35 SECTION 3.8 Investment and Holding Company Status 35 SECTION 3.9 Taxes 35 SECTION 3.10 ERISA 35 SECTION 3.11 Disclosure 36 SECTION 3.12 Margin Stock 36 SECTION 3.13 No Burdensome Restrictions 36 SECTION 3.14 Subsidiaries 36 SECTION 3.15 Solvency 36 ARTICLE IV Conditions 36 SECTION 4.1 Effective Date 36 SECTION 4.2 Each Credit Event 38 ARTICLE V Affirmative Covenants 38 SECTION 5.1 Financial Statements and Other Information 38 SECTION 5.2 Notices of Material Events 39 SECTION 5.3 Existence; Conduct of Business 40 SECTION 5.4 Payment of Obligations 40 SECTION 5.5 Maintenance of Properties; Insurance 40 SECTION 5.6 Books and Records; Inspection Rights 40 SECTION 5.7 Compliance with Laws and Material Contractual Obligations 40 SECTION 5.8 Use of Proceeds 41 ARTICLE VI Negative Covenants 41 SECTION 6.1 Liens 41 SECTION 6.2 Fundamental Changes 42 SECTION 6.3 Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements 42 SECTION 6.4 Transactions with Affiliates 43 SECTION 6.5 Restrictive Agreements 43 SECTION 6.6 Fixed Charges Coverage 44 SECTION 6.7 Ratio of Consolidated Debt to Consolidated Total Capitalization 44 SECTION 6.8 Limitation on Sales of Assets 44 ARTICLE VII Events of Default 45 ARTICLE VIII The Administrative Agent 48 ARTICLE IX Miscellaneous 50 SECTION 9.1 Notices 50 SECTION 9.2 Waivers; Amendments 50 SECTION 9.3 Expenses; Indemnity; Damage Waiver 51 SECTION 9.4 Successors and Assigns 52 SECTION 9.5 Survival 54 SECTION 9.6 Counterparts; Integration; Effectiveness 54 SECTION 9.7 Severability 55 SECTION 9.8 Right of Setoff 55 SECTION 9.9 Governing Law; Jurisdiction; Consent to Service of Process 55 SECTION 9.10 WAIVER OF JURY TRIAL 56 SECTION 9.11 Headings 56 SECTION 9.12 Confidentiality 56 SECTION 9.13 Interest Rate Limitation 57 SCHEDULES: Schedule 2.1 Commitments Schedule 3.6 Disclosed Matters Schedule 3.14 Subsidiaries Schedule 6.1 Existing Liens EXHIBITS: Exhibit A Form of Assignment and Acceptance Exhibit B Form of Opinion of Borrower's Counsel Exhibit C Form of Subsidiary Guarantee CREDIT AGREEMENT dated as of December 15, 1997, among FOOD LION, INC., the LENDERS party hereto, THE CHASE MANHATTAN BANK, as Administrative Agent, and WACHOVIA BANK, N.A., as Documentation Agent. The parties hereto agree as follows: ARTICLE I Definitions 1.1 Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Alternate Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Amortization" means for any period the sum of all amortization expenses of the Borrower and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to any ABR Loan or Eurodollar Revolving Loan, or with respect to the facility fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "ABR Spread", "Eurodollar Spread" or "Facility Fee Rate", as the case may be, based upon the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt: S&P/Moody's ABR Eurodollar Facility Fee Index Debt Ratings: Spread Spread Rate Category 1 A-/A3 or higher .00% .155% .07% Category 2 BBB+/Baa1 .00% .17% .08% Category 3 BBB/Baa2 .00% .22% .08% Category 4 BBB-/Baa3 .00% .42% .08% Category 5 BB+/Ba1 or lower .00% .67% .08% provided that the foregoing rates applicable to Revolving Loans set forth in the columns above under the captions "ABR Spread" and "Eurodollar Spread" shall be increased by 5 basis points per annum for any period during which the aggregate outstanding amount of (w) the Revolving Credit Exposure and Competitive Loans and (x) the LTF Revolving Credit Exposure and LTF Competitive Loans (as defined in the LTF Credit Agreement) is greater than 50% of the aggregate of (y) the original maximum amount of the Commitments and (z) the original maximum amount of the LTF Commitments (as defined in the LTF Credit Agreement). For purposes of the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a rating in Category 5; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different Categories, the Applicable Rate shall be based on the higher of the two ratings unless one of the two ratings is two or more Categories lower than the other, in which case the Applicable Rate shall be determined by reference to the Category next below that of the higher of the two ratings; and (iii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.4), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. As used in this definition, "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in Dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Food Lion, Inc., a North Carolina corporation. "Borrowing" means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Competitive Loan or group of Competitive Loans of the same Type made on the same date and as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.3. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" means any capital stock of the Borrower or any Consolidated Subsidiary (to the extent issued to a Person other than the Borrower), whether common or preferred. "Capitalized Lease" means any lease which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. "Cash Equivalents" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, a rating of at least P-1 by Moody's or A-1 by S&P; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $250,000,000; (d) investments consisting of cash deposits in operating accounts maintained by the Borrower or any Subsidiary; and (e) repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) other than Delhaize and Detla, of shares representing more than 15% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (b) the failure of Delhaize and Detla to own, directly or indirectly, beneficially or of record, shares representing more than a majority of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated; or (d) the acquisition of direct or indirect Control of the Borrower by any Person or group other than Delhaize or Detla. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Competitive Loans. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.7 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.4. The initial amount of each Lender's Commitment is set forth on Schedule 2.1, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. "Competitive Bid" means an offer by a Lender to make a Competitive Loan in accordance with Section 2.4. "Competitive Bid Rate" means, with respect to any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making such Competitive Bid. "Competitive Bid Request" means a request by the Borrower for Competitive Bids in accordance with Section 2.4. "Competitive Loan" means a Loan made under the Commitments pursuant to Section 2.4. "Consolidated" means, when used in connection with any defined term, and not otherwise defined, such term as it applies to the Borrower and its Subsidiaries on a consolidated basis, after eliminating all intercompany items. "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Fixed Charges" for any period means, without duplication, on a consolidated basis the sum of (i) all Rentals payable during such period by the Borrower and its Consolidated Subsidiaries, and (ii) Consolidated Interest Expense for such period. "Consolidated Interest Expense" for any period means interest, whether expensed or capitalized, in respect of Debt of the Borrower or any of its Consolidated Subsidiaries outstanding during such period. "Consolidated Net Income" for any period means the gross revenues of the Borrower and its Consolidated Subsidiaries for such period less all expenses and other proper charges (including taxes on income), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: (a) any unusual or extraordinary gains or losses on the sale or other disposition of investments (excluding Cash Equivalents) or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy; (c) net earnings and losses of any Consolidated Subsidiary accrued prior to the date it became a Consolidated Subsidiary; (d) net earnings and losses of any corporation (other than a Consolidated Subsidiary), substantially all the assets of which have been acquired in any manner by the Borrower or any Consolidated Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation (other than a Consolidated Subsidiary) with which the Borrower or a Consolidated Subsidiary shall have consolidated or which shall have merged into or with the Borrower or a Consolidated Subsidiary prior to the date of such consolidation or merger; (f) net earnings and losses of any business entity (other than a Consolidated Subsidiary) in which the Borrower or any Consolidated Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Borrower or such Consolidated Subsidiary in the form of cash distributions; (g) any portion of the net earnings and losses of any Consolidated Subsidiary which for any reason is unavailable for payment of dividends to the Borrower or any other Consolidated Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (j) any gain arising from the acquisition of any Capital Stock; (k) any reversal of any contingency reserve except to the extent that provision for such contingency reserve shall have been made from income arising during such period; provided, however, that any reversal of a contingency reserve from a prior period shall only be excluded from Consolidated Net Income to the extent that the aggregate amount of such reversals exceeds $10,000,000 during the immediately preceding 4 Fiscal Quarters; and (l) any other unusual or extraordinary gain or loss. "Consolidated Net Worth" means, as of the date of any determination thereof, Stockholder's Equity. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of the Borrower in its consolidated financial statements as of such date. "Consolidated Total Assets" means at any time the total assets of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries. "Consolidated Total Capitalization" means as of the date of any determination thereof, the sum of (a) Consolidated Net Worth and (b) Consolidated Debt. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Debt" of any Person means at any date,without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and accrued expenses arising in the ordinary course of business, (iv) all Capital Lease Obligations, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, and (ix) all Debt of others Guaranteed by such Person. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Delhaize" means Etablissements Delhaize Freres et Cie "Le Lion" S.A., a Belgian corporation. "Depreciation" means for any period the sum of all depreciation expenses of the Borrower and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP. "Detla" means Delhaize The Lion America, Inc., a Delaware corporation. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.6. "Documentation Agent" means Wachovia Bank, N.A., in its capacity as documentation agent hereunder. "Dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.1 are satisfied (or waived in accordance with Section 9.2). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the case of a Competitive Loan, the LIBO Rate). "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.17(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such Foreign Lender's failure or inability to comply with Section 2.15(e), except to the extent that such Foreign Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.15(a). "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "Fiscal Quarter" means any fiscal quarter of the Borrower. "Fiscal Year" means any fiscal year of the Borrower. "Fixed Rate" means, with respect to any Competitive Loan (other than a Eurodollar Competitive Loan), the fixed rate of interest per annum specified by the Lender making such Competitive Loan in its related Competitive Bid. "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed Rate. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Guarantor" means Kash N' Karry Food Stores, Inc., a Delaware corporation, and each Subsidiary that executes a Subsidiary Guarantee pursuant to Section 6.3(vi) or 6.8(f). "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid (excluding current accounts payable incurred in the ordinary course of business), (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Index Debt" means senior, unsecured, long-term indebtedness for borrowed money of the Borrower that is not guaranteed by any other Person (other than Subsidiaries) or subject to any other credit enhancement. "Interest Election Request" means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.6. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days' duration (unless otherwise specified in the applicable Competitive Bid Request), each day prior to the last day of such Interest Period that occurs at intervals of 90 days' duration after the first day of such Interest Period, and any other dates that are specified in the applicable Competitive Bid Request as Interest Payment Dates with respect to such Borrowing. "Interest Period" means (a) with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect and (b) with respect to any Fixed Rate Borrowing, the period (which shall not be less than seven days or more than 360 days) commencing on the date of such Borrowing and ending on the date specified in the applicable Competitive Bid Request; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Lenders" means the Persons listed on Schedule 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for Dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which Dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "LTF Credit Agreement" means the Credit Agreement, dated as of December 16, 1996, among the Borrower, the lenders party thereto, the administrative agent thereunder and the documentation agent thereunder, as amended by the First Amendment, dated as of December 15, 1997, among the Borrower, the lenders party thereto, the administrative agent thereunder and the documentation agent thereunder. "Majority Lenders" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time; provided that, for purposes of declaring the Loans to be due and payable pursuant to Article VII, and for all purposes after the Loans become due and payable pursuant to Article VII or the Commitments expire or terminate, the outstanding Competitive Loans of the Lenders shall be included in their respective Revolving Credit Exposures in determining the Majority Lenders. "Margin" means, with respect to any Competitive Loan bearing interest at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be added to or subtracted from the LIBO Rate to determine the rate of interest applicable to such Loan, as specified by the Lender making such Loan in its related Competitive Bid. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement. "Material Indebtedness" means Indebtedness, including, but not limited to, Indebtedness under the LTF Credit Agreement, (other than the Loans or the guarantees thereof), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $20,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means December 14, 1998. "Minority Interests" means any shares of stock of any class of a Consolidated Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Borrower and/or one or more of its Consolidated Subsidiaries. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Operating Lease" means any lease other than a Capitalized Lease. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes, assessments and other governmental charges that are not yet due or are being contested in compliance with Section 5.4; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlords' and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.4; (c) Liens granted to a landlord pursuant to a lease to secure the obligations of the lessee under such lease which apply only to property or assets of the lessee located at the leased premises; (d) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (e) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Redeemable Preferred Stock" of any Person means any preferred stock issued by such Person which is at any time prior to the LTF Maturity Date (as defined in the LTF Credit Agreement) either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof. "Register" has the meaning set forth in Section 9.4. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Rentals" means and includes as of the date of any determination thereof all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by the Borrower or a Consolidated Subsidiary, as lessee or sublessee under an Operating Lease or Capitalized Lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Borrower or a Consolidated Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Requirement of Law" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans at such time. "Revolving Loan" means a Loan made under the Commitments pursuant to Section 2.3. "S&P" means Standard & Poor's. "Solvent", when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person and its subsidiaries, taken as a whole, will, as of such date, exceed the amount that will be required to pay all "liabilities of such Person and its subsidiaries, taken as a whole, contingent or otherwise", as of such date (as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors) as such debts become absolute and matured, (b) such Person and its subsidiaries, taken as a whole, will not have, as of such date, an unreasonably small amount of capital with which to conduct their businesses, taking into account the particular capital requirements of such Person and its projected capital requirements and availability and (c) such Person and its subsidiaries, taken as a whole, will be able to pay their debts as they mature, taking into account the timing of and amounts of cash to be received by such Person and its subsidiaries, taken as a whole, and the timing of and amounts of cash to be payable on or in respect of indebtedness of such Person and its subsidiaries, taken as a whole. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal or equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in Dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Stockholder's Equity" means, at any time, the shareholders' equity of the Borrower and its Consolidated Subsidiaries, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable Preferred Stock of the Borrower or any of its Consolidated Subsidiaries. Shareholders' equity shall include, but not be limited to (i) the par or stated value of all outstanding Capital Stock, (ii) capital surplus, (iii) retained earnings, and (iv) various deductions such as (A) purchases of treasury stock, (B) valuation allowances, (C) receivables due from an employee stock ownership plan, (D) employee stock ownership plan debt guarantees, and (E) translation adjustments for foreign currency transactions. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held by such Person or one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Guarantee" means the Guarantee, in substantially the form of Exhibit C, made by each Guarantor in favor of the Administrative Agent, as the same may be amended, supplemented or otherwise modified from time to time. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. 1.2 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). 1.3 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 1.4 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Majority Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credits 2.1 Commitments. Subject to the terms and conditions set forth herein, each Lender with a Commitment agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (ii) the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. 2.2 Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.4. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments and Competitive Bids of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.12, (i) each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith, and (ii) each Competitive Borrowing shall be comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000 (or, if less, the unused portion of the related Commitments). Each Competitive Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 10 Eurodollar Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. 2.3 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.2: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.5. If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. 2.4 Competitive Bid Procedure. (a) Subject to the terms and conditions set forth herein, from time to time during the Availability Period the Borrower may request Competitive Bids and may (but shall not have any obligation to) accept Competitive Bids and borrow Competitive Loans with specified maturities ranging from seven to 360 days; provided that the sum of the total Revolving Credit Exposures plus the aggregate principal amount of outstanding Competitive Loans at any time shall not exceed the total Commitments. To request Competitive Bids, the Borrower shall notify the Administrative Agent of such request by telephone, in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that the Borrower may submit up to (but not more than) five Competitive Bid Requests on the same day, but a Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request, unless any and all such previous Competitive Bid Requests shall have been withdrawn or all Competitive Bids received in response thereto rejected. Each such telephonic Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Competitive Bid Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Competitive Bid Request shall specify the following information in compliance with Section 2.2: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be a Eurodollar Borrowing or a Fixed Rate Borrowing; (iv) the Interest Period to be applicable to such Borrowing, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.5. Promptly following receipt of a Competitive Bid Request in accordance with this Section, the Administrative Agent shall notify the Lenders of the details thereof by telecopy, inviting the Lenders to submit Competitive Bids. (b) Each Lender may (but shall not have any obligation to) make one or more Competitive Bids to the Borrower in response to a Competitive Bid Request. Each Competitive Bid by a Lender must be in a form approved by the Administrative Agent and must be received by the Administrative Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before the proposed date of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the proposed date of such Competitive Borrowing. Competitive Bids that do not conform substantially to the form approved by the Administrative Agent may be rejected by the Administrative Agent, and the Administrative Agent shall notify the applicable Lender as promptly as practicable. Each Competitive Bid shall specify (i) the principal amount (which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested by the Borrower) of the Competitive Loan or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at which the Lender is prepared to make such Loan or Loans (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) and (iii) the Interest Period applicable to each such Loan and the last day thereof. (c) The Administrative Agent shall promptly notify the Borrower by telecopy of the Competitive Bid Rate and the principal amount specified in each Competitive Bid and the identity of the Lender that shall have made such Competitive Bid. (d) Subject only to the provisions of this paragraph, the Borrower may accept or reject any Competitive Bid. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in a form approved by the Administrative Agent, whether and to what extent it has decided to accept or reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York City time, three Business Days before the date of the proposed Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the proposed date of the Competitive Borrowing; provided that (i) the failure of the Borrower to give such notice shall be deemed to be a rejection of each Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate amount of the requested Competitive Borrowing specified in the related Competitive Bid Request, (iv) to the extent necessary to comply with clause (iii) above, the Borrower may accept Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in the case of multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such Competitive Bid, and (v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner determined by the Borrower. A notice given by the Borrower pursuant to this paragraph shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Lender by telecopy whether or not its Competitive Bid has been accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each successful bidder will thereupon become bound, subject to the terms and conditions hereof, to make the Competitive Loan in respect of which its Competitive Bid has been accepted. (f) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such Competitive Bid directly to the Borrower at least one quarter of an hour earlier than the time by which the other Lenders are required to submit their Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this Section. 2.5 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request or Competitive Bid Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. 2.6 Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Competitive Borrowings which may not be converted or continued. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.3 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.2: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Majority Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. 2.7 Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of any Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce any Commitments if, after giving effect to any concurrent prepayment of the relevant Loans in accordance with Section 2.9, the sum of the relevant Revolving Credit Exposures plus the aggregate principal amount of outstanding relevant Competitive Loans would exceed the total relevant Commitments. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. 2.8 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender with a Commitment the then unpaid principal amount of such Lender's Revolving Loans on the Maturity Date and (ii) to the Administrative Agent for the account of the relevant Lender the then unpaid principal amount of each Competitive Loan on the last day of the Interest Period applicable to such Loan. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.4) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 2.9 Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section; provided that the Borrower shall not have the right to prepay any Competitive Loan without the prior consent of the Lender thereof. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.7, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.7. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.2. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11. 2.10 Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the date hereof to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the relevant Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the relevant Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees to the Lenders. Fees paid shall not be refundable under any circumstances. 2.11 Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to (i) in the case of a Eurodollar Revolving Loan, the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate, or (ii) in the case of a Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus, as applicable) the Margin applicable to such Loan. (c) Each Fixed Rate Loan shall bear interest at a rate per annum equal to the Fixed Rate applicable to such Loan. (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided above. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon termination of the Commitments. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. 2.12 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by the Majority Lenders (or, in the case of a Eurodollar Competitive Loan, the Lender that is required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing and (iii) any request by the Borrower for a Eurodollar Competitive Borrowing shall be ineffective; provided that (A) if the circumstances giving rise to such notice do not affect all the Lenders, then requests by the Borrower for Eurodollar Competitive Borrowings may be made to Lenders that are not affected thereby and (B) if the circumstances giving rise to such notice affect only one Type of Borrowing, then the other Types of Borrowing shall be permitted. 2.13 Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans made by such Lender or any participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than ninety days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the ninety-day period referred to above shall be extended to include the period of retroactive effect thereof. (e) Notwithstanding the foregoing provisions of this Section, a Lender shall not be entitled to compensation pursuant to this Section in respect of any Competitive Loan if the Change in Law that would otherwise entitle it to such compensation shall have been publicly announced prior to submission of the Competitive Bid pursuant to which such Loan was made. 2.14 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow any Eurodollar Loan, convert any ABR Loan into a Eurodollar Loan, continue any Eurodollar Loan or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.9(b) and is revoked in accordance herewith), (d) the failure to borrow any Competitive Loan after accepting the Competitive Bid to make such Loan, or (e) the assignment of any Eurodollar Loan or Fixed Rate Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.17, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, the loss to any Lender attributable to any such event shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate for such Interest Period, over (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for Dollar deposits from other banks in the eurodollar market at the commencement of such period. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof. 2.15 Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. The Borrower shall not be obligated to make any payments to a Foreign Lender pursuant to Section 2.15(a) to the extent that such Indemnified Taxes or Other Taxes became payable as a consequence of such Foreign Lender having failed to comply with this Section 2.15(e). (f) If any Lender shall become aware that it is entitled to receive a refund or credit (such credit to include any increase in any foreign tax credit) as a result of Indemnified Taxes (including any penalties or interest with respect thereto) as to which it has been indemnified by the Borrower pursuant to this Section 2.15, it shall promptly notify the Borrower of the availability of such refund or credit and shall, within 30 days after receipt of a request by the Borrower, apply for such refund or credit at the Borrower's expense, and in the case of any application for such refund or credit by the Borrower, shall, if legally able to do so, deliver to the Borrower such certificates, forms or other documentation as may be reasonably necessary to assist the Borrower in such application. If any Lender receives a refund or credit (such credit to include any increase in any foreign tax credit) in respect to any Indemnified Taxes as to which it has been indemnified by the Borrower pursuant to this Section 2.15, it shall promptly notify the Borrower of such refund or credit and shall, within 30 days after receipt of such refund or the benefit of such credit (such benefit to include any reduction of the taxes for which any Lender would otherwise be liable due to any increase in any foreign tax credit available to such Lender, repay the amount of such refund or benefit of such credit (with respect to the credit, as determined by the Lender in its sole judgment) to the Borrower (to the extent of amounts that have been paid by the Borrower under this Section 2.15 with respect to Indemnified Taxes giving rise to such refund or credit), plus any interest received with respect thereto, net of all reasonable out-of-pocket expenses of such Lender and without interest (other than interest actually received from the relevant taxing authority or other Governmental Authority with respect to such refund or credit); provided, however, that the Borrower, upon the request of such Lender, agrees to return the amount of such refund or benefit of such credit (plus interest) to such Lender in the event such Lender is required to repay the amount of such refund or benefit of such credit to the relevant taxing authority or other Governmental Authority. 2.16 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or under Section 2.13, 2.14 or 2.15, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except that payments pursuant to Sections 2.13, 2.14, 2.15 and 9.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.5(b) or 2.16(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. 2.17 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, or to file any certificate or document reasonably requested by the Borrower, if, in the judgment of such Lender, such designation or assignment or filing (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.4), all its interests, rights and obligations under this Agreement (other than any outstanding Competitive Loans held by it) to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans (other than Competitive Loans), accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. A Lender shall not be required to pay any fee to the Administrative Agent in connection with such assignment and delegation (any such fee to be paid by the Borrower or the assignee). III Representations and Warranties The Borrower represents and warrants to the Lenders that: 3.1 Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. 3.2 Authorization; Enforceability. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. 3.3 Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets other than defaults or violations for which consents or waivers have been obtained or which defaults or violations, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (d) will not give rise to a right under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets to require any payment to be made by the Borrower or any of its Subsidiaries other than any payments contemplated to be made in connection with the Transactions, and (e) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 3.4 Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the Fiscal Year ended December 31, 1996, reported on by Coopers & Lybrand L.L.P., independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the Fiscal Year ended September 6, 1997, certified by its Financial Officer. Such financial statements present fairly, in all material respects, the financial condition and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) Since December 31, 1996, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole. 3.5 Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes and except as may be permitted pursuant to Section 6.1. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 3.6 Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries or that involve this Agreement or the Transactions as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters). (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. 3.7 Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. 3.8 Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. 3.9 Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books reserves as and to the extent required by GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. 3.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $2,500,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $5,000,000 the fair market value of the assets of all such underfunded Plans. 3.11 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to its knowledge to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. Any forward looking statements contained therein are inherently subject to risk and uncertainties, many of which can not be predicted with accuracy, and some of which might not be anticipated. Future events and actual results, financial and otherwise, could differ materially from those set forth therein or contemplated by the forward looking statements contained therein. 3.12 Margin Stock. Not more than 25% of the consolidated assets of the Borrower consists of "margin stock" within the meaning of such term under Regulation G or Regulation U of the Board of Governors of the Federal Reserve System. 3.13 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation of the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 3.14 Subsidiaries. Schedule 3.14 sets forth all of the Subsidiaries of the Borrower at the date hereof. 3.15 Solvency. As of the date hereof and on the occasion of any Borrowing, the Borrower is Solvent. IV Conditions 4.1 Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.2): (a) The Administrative Agent shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received from each Guarantor either (i) a counterpart of the Subsidiary Guarantee signed on behalf of such Guarantor or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of the Subsidiary Guarantee) that each Guarantor has signed a counterpart of the Subsidiary Guarantee. (c) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Akin, Gump, Strauss, Hauer & Feld L.L.P., counsel for the Borrower, substantially in the form of Exhibit B, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Majority Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (d) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (e) All governmental and third party approvals necessary in connection with the Transactions and the continuing operations of the Borrower and its Subsidiaries shall have been obtained and be in full force and effect. (f) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.2. (g) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (h) All 364-Day Revolving Loans (as defined in the LTF Credit Agreement) and 364-Day Competitive Loans (as defined in the LTF Credit Agreement) shall have been repaid in full and the 364-Day Commitments (as defined in the LTF Credit Agreement) shall have been contemporaneously permanently terminated and the Administrative Agent shall have received satisfactory evidence of such repayment and termination on the Effective Date. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.2) at or prior to 3:00 p.m., New York City time, on December 15, 1997 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). 4.2 Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct on and as of the date of such Borrowing, except to the extent such representations and warranties expressly relate to an earlier date. (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: 5.1 Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 105 days after the end of each Fiscal Year, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all reported on by Coopers & Lybrand L.L.P. or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 60 days after the end of each of the first three fiscal quarters of each Fiscal Year, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the Fiscal Year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous Fiscal Year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations of the financial covenants set forth in Sections 6.6 and 6.7 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed (excluding exhibits) by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender through the Administrative Agent may reasonably request. 5.2 Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $20,000,000 subsequent to the date hereof; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. 5.3 Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of the business of the Borrower and its Subsidiaries taken as a whole except to that extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.2. 5.4 Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. 5.5 Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in adequate working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. 5.6 Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. 5.7 Compliance with Laws and Material Contractual Obligations. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property and all material Contractual Obligations, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; provided that the foregoing shall not be construed to prevent the Borrower or any such Subsidiary from contesting any of the same by appropriate proceedings. 5.8 Use of Proceeds. The proceeds of the Loans will be used only for general corporate purposes of the Borrower and its Subsidiaries, including as credit support for the Borrower's commercial paper programs. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that: 6.1 Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.1 or resulting from operating leases existing on the date hereof being reclassified as capital leases in accordance with GAAP; provided that (i) such Lien shall not apply to any other property or asset (other than accessions, modifications and proceeds thereof) of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets (other than accessions, modifications and proceeds thereof) of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (ii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (iii) such security interests shall not apply to any other property or assets (other than accessions, modifications and proceeds thereof) of the Borrower or any Subsidiary; and (e) Liens not otherwise permitted pursuant to this Section 6.1 securing Indebtedness of the Borrower or any Subsidiary in an aggregate principal amount not exceeding $20,000,000 at any time outstanding. 6.2 Fundamental Changes. (a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of the assets of the Borrower and its Subsidiaries taken as a whole (whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) the Borrower may merge into any other Person in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (iii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iv) any Subsidiary may merge into any other Person in a transaction in which the surviving entity is a Subsidiary or in a transaction permitted by Section 6.8 and in which the surviving Person is not a Subsidiary, (v) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary or in a transaction not constituting all or substantially all of the assets of the Borrower and its Subsidiaries taken as a whole and which is permitted by Section 6.8 and (vi) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.3. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related or incidental thereto. 6.3 Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements. (a) The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (i) Cash Equivalents; (ii) extensions of trade credit in the ordinary course of business; (iii) investments arising from the settlement of debts or as a result of bankruptcy or insolvency proceedings or as a result of enforcement proceedings; (iv) investments of the Borrower and the Subsidiaries existing on the date hereof; (v) investments by the Borrower existing on the date hereof in the capital stock of its Subsidiaries; (vi) loans, advances and other investments made by the Borrower to or in any Subsidiary and made by any Subsidiary to or in the Borrower or any other Subsidiary, provided that in each case such Subsidiary executes and delivers a guarantee of the Borrower's obligations hereunder in favor of the Administrative Agent in substantially the form of Exhibit C; (vii) Guarantees to the extent that the resulting Debt would be permitted by Section 6.7; (viii) acquisitions of a Person or the assets of a Person constituting a business unit in the same line of business conducted by the Borrower on the date hereof in an aggregate amount not to exceed $400,000,000 over the term of this Agreement; and (ix) investments not otherwise permitted pursuant to this Section 6.3 in an aggregate amount not to exceed $10,000,000 at any time outstanding. (b) The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. 6.4 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties and (b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate. 6.5 Restrictive Agreements. The Borrower will not permit any of its Subsidiaries that are not Guarantors to, directly or indirectly, enter into, incur or permit to exist any agreement or consensual arrangement that prohibits, restricts or imposes any condition upon (a) the ability of any such Subsidiary to create, incur or permit to exist any Liens in favor of the Borrower upon any of its property or assets, or (b) the ability of such Subsidiary to pay dividends or make distributions with respect to its capital stock or to make or repay loans or advances to the Borrower or to guarantee the Indebtedness of the Borrower outstanding under this Agreement; provided that the foregoing shall not apply to restrictions and conditions (i) imposed by law, this Agreement, the Subsidiary Guarantee, the other related loan documents, the LTF Credit Agreement and the loan documents related thereto; (ii) existing under agreements applying to Debt of such Subsidiary that limit its ability to pay dividends or make distributions or similar payments during the continuation of a default by such Subsidiary under such agreements; (iii) constituting customary provisions in leases, licenses and other contracts entered into in the ordinary course of business; (iv) binding upon any Person at the time at which such Person becomes a Subsidiary or binding upon an asset acquired by a Subsidiary, so long as such restrictions and conditions do not bind any other Subsidiary or asset and are not entered into or incurred in contemplation of such Person's becoming a Subsidiary or such asset's acquisition, (v) existing on the date hereof (but shall apply to any amendment or modification expanding in any material way the restrictions or conditions entered in any such agreement or arrangement taken as a whole); (vi) imposed pursuant to an agreement relating to the sale or disposition of assets or a Subsidiary (which may include capital stock), provided that such restrictions and conditions apply only to the assets or Subsidiary that is to be sold and such sale is permitted hereunder; (vii) insofar as clause (a) of the foregoing would otherwise be applicable, existing under agreements evidencing obligations permitted to be incurred after the date of this Agreement to the extent that such obligations under such agreements are or could have been secured with a Lien not prohibited by Section 6.1, provided that the terms and conditions of such restrictions and conditions taken as a whole are not materially more restrictive than those contained under agreements that would be permitted under clause (ii) above; (viii) on the transfer of assets that are subject to Liens not prohibited by Section 6.1 and (ix) under any agreement which replaces any of the agreements containing restrictions and conditions specified in clause (i) (insofar as it relates to the LTF Credit Agreement and the documents related thereto), (ii), (v), (vi) and (viii) above. 6.6 Fixed Charges Coverage. At the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending January 3, 1998, the ratio of (x) the sum of (i) Consolidated Net Income plus, in each case to the extent deducted in determining such Consolidated Net Income and without duplication, (ii) Consolidated Depreciation expenses of the Borrower, (iii) Consolidated Amortization expenses of the Borrower, (iv) all Federal, state, local and foreign income taxes of the Borrower and its Consolidated Subsidiaries and (v) Consolidated Fixed Charges for the period of four Fiscal Quarters then ended to (y) Consolidated Fixed Charges for such period, shall not have been less than 2.25 to 1.00. 6.7 Ratio of Consolidated Debt to Consolidated Total Capitalization. The ratio of Consolidated Debt to Consolidated Total Capitalization shall not at any time exceed 0.60 to 1.00. 6.8 Limitation on Sales of Assets. The Borrower will not, nor will it permit any Subsidiary to, convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets, whether now owned or hereafter acquired, or discontinue or eliminate any business line or segment, except: (a) the sale or other disposition of obsolete, surplus or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) as permitted by Section 6.2(a); (d) sales of assets in a single transaction or in a series of related transactions the aggregate book value of which is not greater than $25,000,000 in any one such transaction or series of related transactions; (e) dispositions and discontinuances of a business line or segment not otherwise permitted pursuant to this Section 6.8, provided that the aggregate assets to be so disposed of or the aggregate assets utilized in a business line or segment to be so discontinued (in a single transaction or in a series of related transactions), when combined with all other assets disposed of (including, without limitation, pursuant to a sale and leaseback transaction) and all other assets utilized in all other business lines or segments discontinued, during the period from the date of this Agreement through and including the date of any such disposition or discontinuation would not exceed 10% of Consolidated Total Assets as determined by reference to the Borrower's most recently audited financial statements provided to the Administrative Agent and the Lenders pursuant to Section 5.1(a) and provided, further that if, within 180 days of the sale of any assets, the Borrower or any Subsidiary acquires similar assets having a use similar to and a fair market value at least equal to the assets so sold, then the value of the assets sold shall not be included in calculating future assets permitted to be sold under this Section 6.8; and (f) conveyances, sales, leases, assignments, transfers or other dispositions of assets from the Borrower to a wholly owned Subsidiary, from a Subsidiary to the Borrower or from a Subsidiary to a wholly owned Subsidiary, provided that in each case any such wholly owned Subsidiary to whom such assets are being conveyed, sold, leased, assigned, transferred or otherwise disposed of executes and delivers a guarantee of the Borrower's obligations hereunder in favor of the Administrative Agent in substantially the form of Exhibit C. VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof, or in any report, certificate, financial statement or other document delivered pursuant to this Agreement or any amendment or modification hereof, shall prove to have been incorrect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.2, 5.3 (with respect to the Borrower's existence) or 5.8 or in Article VI; (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to the Borrower; (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, bonded or vacated or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Majority Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; (m) a Change in Control shall occur; or (n) any Subsidiary Guarantee shall cease, for any reason (other than any act on the part of the Administrative Agent or any Lender), to be binding and in effect (except in accordance with its terms or as permitted hereunder) or any Guarantor shall so assert; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Majority Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. VIII The Administrative Agent Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Majority Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Majority Lenders or in the absence of its own gross negligence or wilful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub- agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Majority Lenders shall have the right (so long as no Default has occurred and is continuing with consent of the Borrower which consent shall not be unreasonably withheld) to appoint a successor. If no successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.3 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. The Documentation Agent shall have no duties or responsibilities nor shall it incur any liabilities under this Agreement. IX Miscellaneous 9.1 Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at 2110 Executive Drive, Salisbury, North Carolina 28145-1330, Attention of Richard James, Treasurer/Director of Finance (Telecopy No. 704- 639-1353); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th floor, New York, New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017, Attention of Ellen Gertzog (Telecopy No. (212) 270-5646); and (c) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 9.2 Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement, the Subsidiary Guarantee nor any guarantee executed and delivered pursuant to Section 6.3(a)(vii) nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Majority Lenders or by the Borrower and the Administrative Agent with the consent of the Majority Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of "Majority Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. 9.3 Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof (other than any such expenses directly related to a court enforcement action in which the Borrower prevails on the merits in a final and nonappealable judgment). (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (ii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. 9.4 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 9.3). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.2(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. 9.5 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 9.3 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. 9.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.1, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. 9.7 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 9.8 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 9.9 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. 9.12 Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to a written agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower, its Subsidiaries or their businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 9.13 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FOOD LION, INC. By: Laura Kendall Name: Laura Kendall Title: VP of Finance, CFO THE CHASE MANHATTAN BANK, individually and as Administrative Agent By: Ellen L. Gertzog Name: Ellen L. Gertzog Title: Vice President WACHOVIA BANK, N.A., individually and as Documentation Agent By: Sarah T. Warren Name: Sarah T. Warren Title: Vice President ABN AMRO BANK N.V., Atlanta Agency By: Patrick A. Thom Name: Patrick A. Thom Title: Vice President & Director By: Larry Kelley Name: Larry Kelley Title: Group Vice President BANCA MONTE DEI PASCHI DI SIENA S.p.A. By: G. Natali Name: G. Natali Title: S.V.P. & General Manager By: Brian R. Landy Name: Brian R. Landy Title: Vice President THE BANK OF NEW YORK By: Paula Regan Name: Paula Regan Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LTD., Atlanta Agency By: William L. Otott Jr. Name: William L. Otott Jr. Title: Vice President BARNETT BANK, N.A. By: Scott M. Mesketh Name: Scott M. Mesketh Title: VP - US Banking CORESTATES BANK, N.A. By: Thomas J. McDonnell Name: Thomas J. McDonnell Title: Vice President CRESTAR BANK By: James P. Duval Jr. Name: James P. Duval Jr. Title: Vice President THE DAI-ICHI KANGYO BANK, LIMITED, Atlanta Agency By: Takao Mochizuki Name: Takao Mochizuki Title: General Manager FIRST AMERICAN NATIONAL BANK By: Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: Christina Zautoke Name: Christina Zautoke Title: Vice President THE FIRST NATIONAL BANK OF MARYLAND By: Robert M. Beaver Name: Robert M. Beaver Title: Vice President THE FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: J. Michael Blackwell Name: J. Michael Blackwell Title: Sr. Vice President FUJI BANK, LIMITED, Atlanta Agency By: Mr. Shinichiro Fujimoto Name: Mr. Shinichiro Fujimoto Title: Senior Vice President and Joint General Manager GENERALE BANK N.V., New York Branch By: _________________________ Name: Title: By: _________________________ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED By: Koichi Hasegawa Name: Koichi Hasegawa Title: Senior Vice President and Deputy General Manager KREDIETBANK N.V., Grand Cayman Branch By: Robert Snauffer Name: Robert Snauffer Title: Vice President By: Raymond F. Murray Name: Raymond F. Murray Title: Vice President NATIONSBANK, N.A. By: Mark D. Halmrast Name: Mark D. Halmrast Title: Vice President THE SAKURA BANK, LIMITED, Atlanta Agency By: Hiroyasu Imanishi Name: Hiroyasu Imanishi Title: V.P. & Senior Manager THE SUMITOMO BANK, LIMITED By: Masyuki Fukushima Name: Masayuki Fukushima Title: Joint General Manager SUNTRUST BANK, Atlanta By: Frank R. Callison Name: Frank R. Callison Title: Vice President By: Brian Willman Name: Brian Willman Title: Banking Officer SCHEDULE 2.1 LENDERS AND COMMITMENTS Lenders 364-Day Commitment The Chase Manhattan Bank $26,000,000 Wachovia Bank, N.A. $22,000,000 ABN AMRO Bank N.V., Atlanta Agency $17,000,000 Banca Monte dei Paschi di Siena S.p.A. $11,500,000 The Bank of New York $11,500,000 The Bank of Tokyo-Mitsubishi, Ltd., Atlanta Agency $17,000,000 Barnett Bank, N.A. $17,000,000 CoreStates Bank, N.A. $11,500,000 Crestar Bank $11,500,000 The Dai-Ichi Kangyo Bank, Limited, Atlanta Agency $17,000,000 First American National Bank $11,500,000 The First National Bank of Chicago $20,000,000 First National Bank of Maryland $11,500,000 The First Tennessee Bank National Association $11,500,000 The Fuji Bank, Limited, Atlanta Agency $17,000,000 Generale Bank N.V., New York Branch $20,000,000 The Industrial Bank of Japan, Limited, Atlanta Agency $11,500,000 Kredietbank N.V., Grand Cayman Branch $17,000,000 NationsBank, N.A. $17,000,000 The Sakura Bank, Limited, Atlanta Agency $17,000,000 The Sumitomo Bank, Limited $17,000,000 SunTrust Bank, Atlanta $17,000,000 TOTAL $350,000,000 Schedule 3.6 Incorporated herein by reference is Part I, Item 3 of the Form 10-K of the Borrower for the Fiscal Year ended December 28, 1996, and Part II,Item 1 of the Forms 10-Qs of the Borrower for the Fiscal Quarters ended March 22, 1997, June 14, 1997 and September 6, 1997. Schedule 3.14 SUBSIDIARIES OF BORROWER FLI Holding Corp., a Delaware corporation ("FLI"), and a wholly-owned subsidiary of the Borrower. Risk Management Service, Inc., a North Carolina corporation, and a wholly-owned subsidiary of the Borrower. Kash n' Karry Food Stores, Inc., a Delaware corporation, and a wholly-owned subsidiary of FLI. FL Food Lion, Inc., a Florida corporation, and a wholly-owned subsidiary of FLI. **Check status of business trust--i.e. are they still in existence and held by KnK: KNK 702 Delaware Business Trust, a Delaware business trust wholly owned by Target KNK 886 Delaware Business Trust, a Delaware business trust wholly owned by Target KNK 891 Delaware Business Trust, a Delaware business trust wholly owned by Target Schedule 6.1 Liens representing the interest of the Lessor under Capitalized Leases in existence on the date of this Agreement have an aggregate outstanding principal amount not exceeding $515,430,000. Kash N' Karry has Liens encumbering certain real property listed on Annex A hereto. ANNEX A TO SCHEDULE 6.1 List of Owned or Leased Real Property See Footnote Text and Status Code on Page 12 STATUS STORE ADDRESS COUNTY S/A 108 2 305 West Hillsborough Avenue Hillsborough Tampa 33604 (Assigned to Moran Foods, Inc., d/b/a Save-A-Lot, Ltd. on 1/22/90) A 113 2 128 South Westshore Boulevard Hillsborough Tampa 33609 (Food) A 129 2 925 Bartow Road Polk Lakeland 33801 (Food) (to be terminated on January 31, 1997) A 133 2 7625 Blind Pass Road Pinellas St. Petersburg Beach 33706 (Food) A 139 2 458 Venice By-Pass Sarasota Venice 33595 (Food) A 146 1 4101 North Florida Avenue Hillsborough Tampa 33603 (Food) C 201 2 9450 9th Street North Pinellas St. Petersburg 33702 (Food) Lease expires 12/31/96 (Notice to terminate given) S/A 202 2 7600 Starkey Road Pinellas Largo 33543 (Food) (Subleased to Consolidated Stores Corporation on 5/26/94) S/A 203 2 2900 North 34th Street Pinellas St. Petersburg 33713 (Food) (Subleased to Consolidated Stores Corporation on 5/26/94) A 284 2 3535 U.S. 19 Pasco New Port Richey 33552 (Food) S/A 205 2 9474 U.S. Highway 19 Pasco Port Richey 33568 (Food) (Assigned to Office Depot 8/29/94) STATUS STORE ADDRESS COUNTY S/A 206 2 1801 North Tamiami Trail Lee North Ft. Myers 33903 (Subleased to Discount Auto Parts) A 207 2 4200 S. Tamiami Trail Charlotte Charlotte Harbor 33952 (Food) A 209 2 8951 Bonita Beach Road Lee Bonita Springs 33923 (Food) A 211 2 5805 Manatee Avenue West Manatee Bradenton 33529 (Food) S/A 212 2 8199 South Tamiami Trail Sarasota Sarasota 33581 (Subleased to Staples) A 214 2 3535 Fruitville Road Sarasota Sarasota 33577 (Food) A 215 2 1325 South Tamiami Trail Sarasota Sarasota 33579 (Food) A 216 2 4404 Bee Ridge Road Sarasota Sarasota 33583 (Food) S/A 217 2 6257 McGregor Boulevard Lee Ft. Myers (Subleased to Wagan Enterprises, Inc.) A 301 2 2499 S. W. 27th Avenue Marion Ocala 32674 (Food) C 305 2 2111 South Tamiami Trail Sarasota Venice 34293 (Food) (See 306) Lease expires 02/29/04 L/C 306 2 2109 South Tamiami Trail Sarasota Venice 34293 (Liquor)(See 305) A 3092 8595-35 College Parkway,S. Lee Ft. Myers 33907 (Food) (See 310) L/A 310 2 8595-33 College Parkway, S. Lee Ft. Myers 33907 (Liquor) (See 309) A 311 2 15675 McGregor Blvd., Ste 4 Lee South Ft. Myers 33988 (Food) (See 312) STATUS STORE ADDRESS COUNTY L/A 312 2 15675 McGregor Blvd., Ste 4 Lee South Ft. Myers 33988 (Liquor) (See 311) A 313 2 5660 Bayshore Rd., NE, Lee Ste 21, Ft. Myers 33903 (Food) (See 314) L/A 314 2 5660 Bayshore Rd., NE, Lee Ste 21, Ft. Myers 33903 (Liquor) (See 313) A 315 2 1530 S. Del Prado Boulevard Lee Cape Coral 33904 (Food) (See 316) L/A 316 2 1535 S. Del Prado Boulevard Lee Cape Coral 33904 (Liquor) (See 315) S/A 319 2 15 Beneva Road South Sarasota Sarasota 33577 (Food)(See 320) (Subleased to Arthur Anderson) S/A 320 2 17 Beneva Road South Sarasota Sarasota 33577 (Liquor)(See 319) (Subleased to Arthur Anderson) SP/A 401 3 & 5 2525 North Dale Mabry Hillsborough Tampa 33607 (Food) SP/A 403 2 & 5 11612 North Nebraska Ave Hillsborough Tampa 33612 (Food) S/A 405 2 30535 U.S. Highway 19 N. Pinellas Palm Harbor 34684 (Food) (Assigned to Waccamaw on 6/1/94) L/A 507 2 1350 Tampa Street Pinellas Palm Harbor 33952 (Liquor) (See 707) L/A 512 2 1250 Jacaranda Boulevard Sarasota Sarasota 34292 (Liquor) (See 712) L/A 514 2 221 North Beneva Road Sarasota Sarasota (Liquor) (See 214) L/A 515 2 5205 33rd Street East Manatee Bradenton 34203 (Liquor) (See 715) L/A 518 2 7099 W. Waters Avenue Hillsborough Tampa 33634 (Liquor) (See 718) STATUS STORE ADDRESS COUNTY L/A 519 2 6148 N. Lockwood Ridge Road Sarasota Sarasota 34235 (Liquor) (See 719) L/A 520 2 2320 N.W. 13th Street Alachua Gainesville 32605 (Liquor) (See 720) UNDER 522 2150 Swann Avenue Hillsborough CONSTRUCTION Tampa, FL 33606 (Liquor) (See 722) L/A 523 2 123 Alexander Street Hillsborough Plant City (Liquor) (See 723) L/A 525 2 7129 North U.S. Highway 441 Marion Ocala (Liquor) (See 725) L/A 528 2 7321 Gall Boulevard Pasco Zephyrhills (Liquor) (See 728) L/A 529 2 1951 South McCall Road Charlotte Suite 300 Englewood 34223-4933 (Liquor) (See 729) L/A 533 2 604 Havendale Blvd. Polk Auburndale (Liquor) (See 733) L/A 552 2 7489 4th Street North Pinellas St. Petersburg (Liquor) (See 852) L/A 554 2 519 7th Street West Manatee Palmetto 34221 (Liquor) (See 854) L/A 584 2 2002 S. W. 34th Street Alachua Gainesville 32608 (Liquor) (See 884) L/A 587 2 2712 East Fowler Avenue Hillsborough Tampa 33612 (Liquor) (See 887) L/A 592 2 14738 West Village Drive Hillsborough Tampa 33624 (Liquor) (See 892) L/A 596 2 11308 S. E. Highway 301 Marion Belleview 32620 (Liquor) (See 896) C 601 2 3740 E. Silver Springs Blvd. Marion Ocala 32670 (Food) (See 602) STATUS STORE ADDRESS COUNTY L/C 602 2 3740 E. Silver Springs Blvd. Marion Ocala 32670 (Liquor) (See 601) A 603 2 9017 State Road 52 Pasco Hudson 33562 (Food) (See 604) L/A 604 2 9017 State Road 52 Pasco Hudson 33562 (Food) (See 603) A 605 2 7431 County Road 54 Pasco New Port Richey 33552 (Food) (See 606) L/A 606 2 7431 County Road 54 Pasco New Port Richey 33552 (Liquor) (See 605) S/A 607 2 2465 U. S. Highway 19 N. Pinellas Clearwater 33675 (See 608) (Subleased to Office Depot, Inc.) S/A 608 2 2461 U. S. Highway 19 N. Pinellas Clearwater 33675 (Liquor) (See 607) A 609 2 2270 113th Street, S. W. Pinellas Largo 33540 (Food) (See 610) L/A 610 2 2270 113th Street, S. W. Pinellas Largo 33540 (Liquor) (See 609) A 611 2 4665 66th Street North Pinellas Kenneth City 33709 (Food) (See 612) L/A 612 2 4665 66th Street North Pinellas Kenneth City 33709 (Liquor) (See 611) A 613 2 2134 34th Street North Pinellas St. Petersburg 33713 (Food) (See 614) L/A 614 2 2134 34th Street North Pinellas St. Petersburg 33713 (Liquor) (See 613) A 615 2 6851 Gulfport Blvd., South Pinellas South Pasadena 33707 (Food) (See 616) L/A 616 2 6851 Gulfport Blvd.,South Pinellas South Pasadena 33707 (Liquor) (See 615) A 617 2 15692 N. Dale Mabry Highway Hillsborough Tampa 33618 (Food) (See 618) STATUS STORE ADDRESS COUNTY L/A 618 2 15692 N. Dale Mabry Highway Hillsborough Tampa 33618 (Liquor) (See 617) A 619 2 13508 Florida Avenue Hillsborough Tampa 33612 (Food) (See 620) L/A 620 2 13508 Florida Avenue Hillsborough Tampa 33612 (Liquor) (See 619) A 621 2 2333 West Hillsborough Hillsborough Tampa 33603 (Food) (See 622) L/A 622 2 2333 West Hillsborough Hillsborough Tampa 33603 (Liquor) (See 621) A 623 2 4317 Gandy Boulevard Hillsborough Tampa 33611 (Food) (See 624) L/A 624 2 4317 Gandy Boulevard Hillsborough Tampa 33611 (Liquor) (See 623) A 627 2 2401 Cortez Road Manatee Bradenton 33507 (Food) (See 628) L/A 628 2 2401 Cortez Road Manatee Bradenton 33507 (Liquor) (See 627) A 629 2 13352 North Cleveland Avenue Lee North Ft. Myers 33903 (Food) L/A 630 2 13332 North Cleveland Avenue Lee North Ft. Myers 33903 (Liquor) (See 629) A 651 2&4 2720 E. Silver Springs Marion Ocala, 32670 (Food) A 701 2 3183 West Vine Street Osceola Kissimmee 32741 (Food) A 702 2 651 S. E. Highway 19 Citrus Crystal River 32629 (Food) (underlying fee property is owned by Subsidiary) A 703 2 8775 Temple Terrace Hwy Hillsborough Temple Terrace 33617 (Food) STATUS STORE ADDRESS COUNTY A 704 2 21605 Village Lakes Pasco Land O'Lakes 34639 (Food) A 705 2 3146 Tampa Road Pinellas Oldsmar 34677 (Food) A 707 2 1360 Tampa Road Pinellas Palm Harbor 33563 (Food) A 709 2 2050 Forrest Nelson Blvd. Charlotte Port Charlotte 33952 (Food) A 710 2 13817 Wallingham Road Pinellas Largo 34644 (Food) A 711 2 858 Saxon Boulevard Volusia Orange City 32763 (Food) Corporation MDFC A 712 2 1254 Jacaranda Blvd. Sarasota Venice 34292 (Food) (See 512) A 715 2 5201 33rd Street East Manatee Bradenton 34203 (Food) (See 515) A 716 2 11160 Spring Hill Drive Hernando Spring Hill (Food) A 717 2 6400 Massachusetts Avenue Pasco New Port Richey 34652 (Food) A 718 2 7095 W. Waters Avenue Hillsborough Tampa 33634 (Food) (See 518) A 719 2 6150 N. Lockwood Ridge Road Sarasota Sarasota 34235 (Food) (See 519) A 720 2 2320 N. W. 13th St. Alachua Gainesville 32605 (Food) (See 520) A 722 2 2100 Swann Avenue Hillsborough Tampa (Food) A 7232 Alexander Street Hillsborough Plant City (Food) (See 523) STATUS STORE ADDRESS COUNTY A 724 3 5050 10th Avenue Hillsborough Tampa 33619 (Food) A 725 2 7130 N. U.S. Hwy 441 Marion Ocala (Food) (See 525) NO PLANS 726 1 (Vacant Land) Citrus TO BUILD Beverly Hills 34465 A 728 2 Medical Arts Court Pasco Zephryhills (Food) (See 528) A 729 2 1951 S. McCall Road, Charlotte Suite 300 Englewood 34223-4933 (Food) (See 529) A 733 2 604 Ravendale Blvd. Polk Auburndale (Food) (See 533) UNDER 734 1 Dale Mabry & Lambright Hillsborough CONTRACT Tampa TO SELL (Vacant Land) UNDER 735 Bloomingdale & Bell Shoals Hillsborough CONSTRUCTION Brandon UNDER 736 1 Martin Luther King Hillsborough CONTRACT Tampa FOR (Vacant Land) SALE/LEASEBACK A 743 2 8837 N. 56th Street Hillsborough Terrace Plaza Temple Terrace 33617 (Food) A 765 1&3 3327 9th Street North Pinellas St. Petersburg 33704 (Food)(store site is ground leased) 825 32nd Avenue North; 815 32nd Avenue North; and 815 1/2 32nd Avenue North St. Petersburg 33704 (three adjacent residential properties are owned) STATUS STORE ADDRESS COUNTY A 826 2 507 Wheeler Street Hillsborough Plant City 33566 (Food) A 827 2 8320 North Florida Avenue Hillsborough Tampa 33604 (Food) A 831 2 6095 9th Avenue North Pinellas St. Petersburg 33710 A 842 2 3rd Street & Avenue O. SW Polk Winter Haven 33880 (Food) A 848 2 1023 North Tamiami Trail Hillsborough Ruskin 33570 (Food) A 849 2 21323 U.S. 19 North Pinellas Clearwater 34625-2830 (Food) A 851 2 1502 West Main Street Citrus Inverness 32650 (Food) Landlord: Joe Greco Family, Ltd. A 852 2 7491 4th Street North Pinellas St. Petersburg 33702 (Food) (See 552) A 854 2 515 7th Street Manatee Palmetto 33561 (Food) (See 554) A 855 2 7415 U. S. Highway 301 Hillsborough Riverview 33569 (Food) A 857 2 955 62nd Avenue South Pinellas St. Petersburg 33705 (Food) A 858 2 4056 North Armenia Hillsborough Tampa 33607 (Food) A 864 2 2200 Main Street Pinellas Dunedin 33528 (Food) S/A 866 2 14829 N. Dale Mabry Highway Hillsborough Tampa 33618 (Food) (Assigned to Michaels Stores) A 867 2 5802 14th Street West Manatee Bradenton 33507 (Food) A 868 2 20050 Cortez Blvd. Hernando Brooksville 34601 (Food) STATUS STORE ADDRESS COUNTY A 869 2 901 Lithia-Pinecrest Road Hillsborough Brandon 33511 (Food) A 870 2 6734 Memorial Highway Hillsborough Tampa 33615 (Food) A 871 2 4500 South Suncoast Blvd. Citrus Homosassa 32646 (Food) A 873 2 2519 McMullen Booth Road Pinellas Clearwater 33519 (Food) A 874 2 2930 South Boulevard Pasco New Port Richey 33552 (Food) A 875 3&6 2650 U. S. Highway 19 North Pinellas Palm Harbor 33563 (Food) A 876 3&6 4120 N. W. 16th Boulevard Alachua Gainesville 32602 (Food) A 877 3&6 750 State Road 574 Hillsborough Seffner 33584 (Food) A 878 2 4519 Gunn Highway Hillsborough Tampa 33624 (Food) A 879 2 13000 - 66th Street North Pinellas Largo 33543 (Food) A 880 3&6 4057 Cattlemen Road Sarasota Sarasota 33583 (Food) A 881 2 2460 East Bay Drive Pinellas Largo 33541 (Food) A 882 1 4820 Leonard Street Lee Cape Coral 33904 (Store is leased and adjacent property is owned) 882 2 4820 Leonard Street Lee Cape Coral 33904 (Food) (Store is leased and adjacent property is owned) A 883 2 1861 North Highland Pinellas Clearwater 33515 (Food) STATUS STORE ADDRESS COUNTY A 884 2 2002 S. W. 34th Street Alachua Gainesville 32608 (Food) (See 584) A 885 2 9101 Little Road Pasco New Port Richey 33553 (Food) A 886 2 2384 Commercial Way Hernando Spring Hill 33526 (Food) (underlying fee property is owned by Subsidiary) A 887 2 2770 Fowler Avenue Hillsborough Tampa 33612 (Food) (See 587) C 888 1068 Ulmerton Road Pinellas Largo 33544 Store lease expires 10/31/09 A 889 2 1340 State Road 60 East Polk Lake Wales 33853(Food) A 890 2 1133 U. S. Highway 17 South Hardee Wauchula 33873 (Food) A 891 2 3250 U. S. 27 South Highlands Sebring 33870 (Food) (underlying fee property is owned by Subsidiary) A 892 2 5320 Ehrlich Road Hillsborough Tampa 33624 (Food) (See 592) A 893 2 4233 South Florida Avenue Polk Lakeland 33803 (Food) A 894 2 833 U.S. 41 North Marion Dunnellon 32630 (Food) A 895 2 1176 U. S. Highway 27 North Polk Haines City 33844 (Food) A 896 2 11310 S. E. U.S. Hwy 301 Marion Belleview 32620 (Food) (See 596) A 897 2 1870 U. S. Highway 301 South Pasco Dade City 33525 (Food) C 898 2 3233 S. E. Maricamp Road Marion Ocala 32671 (Food) Store lease expires 10/31/05 STATUS STORE ADDRESS COUNTY A 899 2 6220 North Highway 98 Polk Lakeland 33805 (Food) 904 2 1432 Tampa East Boulevard Hillsborough Tampa 33619 "Returns Center" 988 1&7 6422 Harney Road Hillsborough Tampa 33610 (Office) 988 1&7 6422 Harney Road Hillsborough Tampa 33610 (Warehouse) AA2 610 South Armenia Avenue Hillsborough Tampa 33609 Lease Agreement and Contract to Purchase from Ernest J. Petros dated 09/15/92; expires on 12/31/96 CC2 6401-A Harney Road Hillsborough Tampa 33610 (Assigned to GSI Outsourcing, Inc.) Explanations: 1 = Fee Properties. 2 = Leased Properties. 3 = Ground Leased/Improvements Owned. 4 = Encumbered by lien in favor of Goodings Supermarkets, Inc. 5 = Encumbered by lien in favor of Save and Pack, Inc. 6 = Mortgage in favor of the CIT Group/Business Credit, Inc. covers "land only;" both lease interest and owned improvements are subject to superior lien in favor of California Public Employees' Retirement System, which obligation was assumed by the company from Lucky Stores, Inc., as of October 11, 1988. 7 = Encumbered by Sun Life Insurance company of America Mortgage. Bold = Encumbered by Mortgage held by The CIT Group/Business Credit, Inc., as Administrative Agent STATUS LEGEND: C = Store closed, Kash n' Karry still paying rent. A = Active open store L = Liquor Store S/A = Store subleased or lease assigned; Kash n' Karry no longer paying full rent. L/A = Active open liquor store. L/C = Closed liquor store. SP/A = Active open Save `n Pack warehouse store. ANNEX B DATE DEBTOR* SECURED PARTY* FILING LOCATION GENERAL CATEGORY OF COLLATERAL 10/13/89 Kash N' Karry Food Stores, Inc. Security Pacific National Bank Hillsborough County, FL First Mortgage, Security Agreement Financing Statement and Assignment of Rents 10/11/95 Kash N' Karry Food Stores, Inc. Bank of America National Trust and Savings Association Hillsborough County, FL Continuation and Amendment 10/15/91 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL equipment 02/04/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 06/09/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 07/02/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 07/07/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 07/27/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 08/31/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 10/26/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 11/23/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 01/11/93 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 06/03/93 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 04/19/94 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL Amendment -- equipment 05/29/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment -- continuation DATE DEBTOR* SECURED PARTY FILING LOCATION GENERAL CATEGORY OF COLLATERAL 11/13/91 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL equipment 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change 06/12/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Continuation 12/19/91 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL equipment 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change 07/16/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Continuation 01/17/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL equipment 08/16/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Continuation 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change 01/17/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL equipment 08/16/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Continuation 01/16/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL equipment 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change DATE DEBTOR* SECURED PARTY FILING LOCATION GENERAL CATEGORY OF COLLATERAL 08/16/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Continuation 12/22/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Hillsborough County, FL equipment 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change 01/04/93 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Hillsborough County, FL equipment 01/12/93 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Hillsborough County, FL equipment 03/04/93 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Hillsborough County, FL equipment 01/17/95 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Hillsborough County, FL real estate and fixtures 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change 05/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Hillsborough County, FL Amendment - name change 07/02/96 Kash N' Karry Food Stores, Inc. MDFC Equipment Leasing Corporation Hillsborough County, FL real estate, fixture & equipment 01/10/90 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Florida Sec. of State equipment 11/17/94 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 11/06/92 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Assignee: General Electric Capital Corporation Florida Sec. of State Full Assignment 01/19/90 Kash N' Karry Food Stores, Inc. Chrystler Capital Corporation Florida Sec. of State equipment 11/10/94 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 11/06/92 Kash N' Karry Food Stores, Inc. Chrystler Capital Corporation Assignee: General Electric Capital Corporation Florida Sec. of State Full Assignment 01/08/90 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Florida Sec. of State equipment 11/17/94 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 11/12/92 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Assignee: General Electric Capital Corporation Florida Sec. of State Full Assignment 01/09/91 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Florida Sec. of State equipment 7/13/95 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation DATE DEBTOR* SECURED PARTY FILING LOCATION GENERAL CATEGORY OF COLLATERAL 11/06/92 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Assignee: General Electric Capital Corporation Florida Sec. of State Full Assignment 01/09/91 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Florida Sec. of State equipment 07/13/95 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 11/06/95 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Assignee: General Electric Capital Corporation Florida Sec. of State Full Assignment 06/03/91 Kash N' Karry Food Stores, Inc. Ford Equipment Leasing Company Florida Sec. of State equipment 12/14/95 Kash N' Karry Food Stores, Inc. Ford Equipment Leasing Company Florida Sec. of State Continuation 06/03/91 Kash N' Karry Food Stores, Inc. Ford Equipment Leasing Company Florida Sec. of State equipment, furniture, fixtures & leashold improvements 12/14/95 Kash N' Karry Food Stores, Inc. Ford Equipment Leasing Company Florida Sec. of State Continuation 10/14/91 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State equipment 06/11/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Continuation 05/08/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Amendment - name change 04/20/94 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State equipment 06/04/93 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 01/14/93 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 11/23/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 10/26/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 08/31/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 07/27/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 07/08/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment DATE DEBTOR* SECURED PARTY FILING LOCATION GENERAL CATEGORY OF COLLATERAL 07/02/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 06/10/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 02/03/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 11/27/91 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 06/11/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Continuation 05/08/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Amendment - name change 12/20/91 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State equipment 07/16/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Continuation 05/07/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Amendment - name change 01/16/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State equipment 08/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Continuation 05/07/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Amendment - name change 01/09/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State equipment 08/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Continuation 05/08/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Amendment - name change DATE DEBTOR* SECURED PARTY FILING LOCATION GENERAL CATEGORY OF COLLATERAL 05/19/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Amendment - equipment 01/27/92 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State equipment 08/09/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, Incorporated Florida Sec. of State Continuation 05/08/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a division of Sanwa Business Credit Corporation Florida Sec. of State Amendment - name change 01/30/92 Kash N' Karry Food Stores, Inc. NCC Leasing, Inc. Florida Sec. of State equipment 12/30/92 Kash N' Karry Food Stores, Inc. NCC Leasing, Inc. Florida Sec. of State Release 11/13/90 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State equipment 05/15/95 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 04/03/96 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. Florida Sec. of State equipment 01/17/92 Kash N' Karry Food Stores, Inc. GTECC (Assignee: GTE Leasing) Florida Sec. of State equipment 06/25/92 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing) Florida Sec. of State equipment 08/05/92 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing Florida Sec. of State equipment 09/17/92 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing) Florida Sec. of State equipment 09/17/92 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing) Florida Sec. of State equipment 09/17/92 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing) Florida Sec. of State equipment 09/17/92 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing) Florida Sec. of State equipment 12/14/92 Kash N' Karry Food Stores, Inc. GTECC (Assignee: GTE Leasing) Florida Sec. of State equipment 12/14/92 Kash N' Karry Food Stores, Inc. GTECC (Assignee: GTE Leasing) Florida Sec. of State equipment 12/14/92 Kash N' Karry Food Stores, Inc. GTECC (Assignee: GTE Leasing) Florida Sec. of State equipment 01/07/93 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Florida Sec. of State equipment 01/12/93 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Florida Sec. of State equipment 02/23/94 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Florida Sec. of State equipment 12/24/91 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Florida Sec. of State equipment 03/27/92 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Florida Sec. of State equipment 06/25/92 Kash N' Karry Food Stores, Inc. IBM Credit Corporation Florida Sec. of State equipment 01/24/91 Kash N' Karry Food Stores, Inc. L'eggs Products, a division of Sara Lee Corporation Florida Sec. of State goods and inventory 11/02/95 Kash N' Karry Food Stores, Inc. L'eggs Products, a division of Sara Lee Corporation Florida Sec. of State goods and inventory 01/04/89 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State equipment 12/10/93 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 02/14/89 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Amendment - equipment 01/04/89 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State equipment 12/10/93 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 09/12/89 Kash N' Karry Food Stores, Inc. Sun Life Insurance Company of America, a Maryland corporation Florida Sec. of State tangible and intangible property re: real estate [BAD COPY] Kash N' Karry Food Stores, Inc. [BAD COPY] (94-183277) Florida Sec. of State real estate 12/19/94 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Continuation 11/06/92 Kash N' Karry Food Stores, Inc. Chrysler Capital Corporation Assignee: General Electric Capital Corporation Florida Sec. of State Full Assignment 01/08/90 Kash N' Karry Food Stores, Inc. MDFC Equipment Leasing Corporation Florida Sec. of State equipment 09/07/94 Kash N' Karry Food Stores, Inc. MDFC Equipment Leasing Corporation Florida Sec. of State Continuation 11/03/92 Kash N' Karry Food Stores, Inc. Save and Pack, Inc. Florida Sec. of State equipment 03/22/93 Kash N' Karry Food Stores, Inc. AT&T Capital Corporation Florida Sec. of State equipment 03/24/93 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State furniture, fixture and equipment and real property 03/24/93 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State equipment 09/20/93 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State Amendment - equipment 07/06/93 Kash N' Karry Food Stores, Inc. Sun Financial Group, Inc. Florida Sec. of State equipment 08/05/93 Kash N' Karry Food Stores, Inc. Sun Financial Group, Inc. Florida Sec. of State equipment 01/18/94 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing Corp.) Florida Sec. of State equipment 08/18/94 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. (Assignee: Continental Bank, N.A.) Florida Sec. of State equipment 08/18/94 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. (Assignee: Continental Bank, N.A.) Florida Sec. of State equipment 08/18/94 Kash N' Karry Food Stores, Inc. Sensormatic Electronics Corp. (Assignee: Continental Bank, N.A.) Florida Sec. of State equipment 01/13/95 Kash N' Karry Food Stores, Inc. General Electric Capital Corporation Florida Sec. of State equipment 01/04/96 Kash N' Karry Food Stores, Inc. Sanwa General Equipment Leasing, a Division of Sanwa Business Credit Corporation Florida Sec. of State equipment 04/01/96 Kash N' Karry Food Stores, Inc. Xerographies Corporation Florida Sec. of State equipment 04/26/93 Kash N' Karry Food Stores, Inc. Sun Financial Group, Inc. Florida Sec. of State equipment 03/07/94 Kash N' Karry Food Stores, Inc. Sun Financial Group, Inc. Florida Sec. of State equipment 07/02/94 Kash N' Karry Food Stores, Inc. MDFC Equipment Leasing Corporation Florida Sec. of State equipment 06/19/96 Kash N' Karry Food Stores, Inc. AT&T Capital Leasing Florida Sec. of State equipment 05/04/94 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing ) Florida Sec. of State equipment 01/20/93 Kash N' Karry Food Stores, Inc. GTECC (Assignee: GTE Leasing) Florida Sec. of State equipment 04/28/93 Kash N' Karry Food Stores, Inc. GTECC (Assignee: GTE Leasing) Florida Sec. of State equipment 04/28/93 Kash N' Karry Food Stores, Inc. GTECC (Assignee: GTE Leasing) Florida Sec. of State equipment 06/28/93 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing) Florida Sec. of State equipment 06/25/92 Kash N' Karry Food Stores, Inc. GTE Communications Corp. (Assignee: GTE Leasing) Florida Sec. of State equipment * As indicated on UCC filing. Exhibit A FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement, dated as of December 15, 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among FOOD LION, INC. (the "Borrower"), the Lenders named therein, THE CHASE MANHATTAN BANK, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), and WACHOVIA BANK, N.A., as Documentation Agent. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. The Assignor identified on Schedule l hereto (the "Assignor") and the Assignee identified on Schedule l hereto (the "Assignee") agree as follows: (a) The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the interest described in Schedule 1 hereto (the "Assigned Interest") in and to the Assignor's rights and obligations under the Credit Agreement with respect to those credit facilities contained in the Credit Agreement as are set forth on Schedule 1 hereto (individually, an "Assigned Facility"; collectively, the "Assigned Facilities"), in a principal amount for each Assigned Facility as set forth on Schedule 1 hereto. (b) The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any other instrument or document furnished pursuant thereto or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Subsidiaries or any other obligor or the performance or observance by the Borrower, any of its Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto; and (c) attaches any promissory notes held by it evidencing the Assigned Facilities and (i) requests that the Administrative Agent, upon request by the Assignee, exchange the attached promissory notes for a new promissory note or promissory notes payable to the Assignee and (ii) if the Assignor has retained any interest in the Assigned Facility, requests that the Administrative Agent exchange the attached promissory notes for a new promissory note or promissory notes payable to the Assignor, in each case in amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). (c) The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 3.4 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender including, if it is organized under the laws of a jurisdiction outside the United States, its obligation pursuant to Section 2.15(e) of the Credit Agreement. (d) The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and recording by the Administrative Agent pursuant to the Credit Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by the Administrative Agent). (e) Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued subsequent to the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. (f) From and after the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. (g) This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. Schedule 1 to Assignment and Acceptance Name of Assignor: Name of Assignee: Effective Date of Assignment: Credit Facility Assigned Principal Amount Assigned Commitment Percentage Assigned / $ . % [Name of Assignee] By: Title: [Name of Assignor] By: Title: Accepted: THE CHASE MANHATTAN BANK, as Administrative Agent By: Title: Consented To: FOOD LION, INC. By: Title: Exhibit B AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. ATTORNEYS AT LAW 1700 PACIFIC AVENUE SUITE 4100 DALLAS, TEXAS 75201-4675 (214) 969-2800 TELEX 732324 FAX (214) 969-4343 December 15, 1997 The Chase Manhattan Bank, as Administrative Agent 270 Park Avenue New York, New York 10017 Each of the Lenders named on Annex A Dear Sirs: We have acted as counsel for Food Lion, Inc., a North Carolina corporation (the "Borrower"), in connection with the Credit Agreement, dated as of December 15, 1997(the "Credit Agreement"), among the Borrower, the Lender party thereto(the "Lenders"), The Chase Manhattan Bank ("Chase"), as Administrative Agent, and Wachovia Bank of North Carolina, N.A. ("Wachovia"), as Documentation Agent, and as counsel for Kash n' Karry Food Stores, Inc., a Delaware Corporation (the "Guarantor"), in connection with the Subsidiary Guarantee, dated as of December 15, 1997 (the "Subsidiary Guarantee" made by the Guarantor in favor of the Administrative Agent. The opinions expressed here are furnished to you pursuant to Subsection 4.1(c) of the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given in the Credit Agreement. In connection with this opinion, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the Credit Agreement and the Subsidiary Guarantee, (the Credit Agreement and the Subsidiary Agreement being collectively called the "Loan Documents"), the certificate referred to in Subsection 4.1(f) of the Credit Agreement, the Credit Agreement dated as of December 15, 1996, among the Borrower, the lenders party thereto, Chase, as administrative agent thereunder, and Wachovia, as documentation agent thereunder,as amended by the First Amendment dates as of December 15, 1997 (as so amended, the "LTF Credit Agreement") and such corporate documents and records of the Borrower and the Guarantor as we have deemed necessary or appropriate. As to questions of fact relevant to this opinion, we have, without independent investigation, relied upon representations made to us by the Borrower and the Guarantor, including the representations contained in the Loan Documents, in the LTF Credit Agreement and in various certificates delivered by the Borrower, including, but not limited to, certificates presented to the Lenders, the Administrative Agent and the Documentation Agent, and certain representations of public officials, all of which we assume to be true. In our examination, we have assumed (i) the genuineness of all signatures of all parties other than signatures of the Borrower, and the Guarantor; (ii) the authenticity of all corporate records, agreements, documents, instruments and certificates submitted to us as originals, the conformity to original agreements, documents and instruments of all agreements and instuments submitted to us as conformed, certified or photostatic copies thereof and the authenticity of the originals of such conformed, certified or photostatic copies; (iii) the due authorization, execution and delivery of all agreements, documents and instruments by all parties other than the Borrower and the Guarantor; and (iv) the legal right and power of all such parties other than the Borrower and the Guarantor under all December 15, 1996 Page 2 applicable laws and regulations to enter into, execute and deliver such agreements, documents and instruments. We have further assumed that the Lenders, the Administrative Agent and the Documentation Agent have the requisite power and authority to enter into the Loan Documents and to consummate the transactions contemplated thereby and the absence of any requirement of consent, approval or authorization by any Person or by any governmental body, agency or official with respect to the Lenders, the Administrative Agent and the Documentation Agent and that the Loan Documents are legal, valid and binding obligations of the Lenders, the Administrative Agent and the Documentation Agent enforceable against such Persons in accordance with their respective terms. This law firm is registered limited liability partnership organized under the laws of the State of Texas. We express no opinion as to the laws of any jurisdiction other than the laws of the State of New York, the United States of America, the General Corporation Law of the State of Delaware and The North Carolina Business Corporation Act. As to matters governed by the laws of the State of North Carolina, we are relying upon an opinion of George R. Jurch III, Esq. of even date herewith, a copy of which is attached hereto. The opinions expressed in paragraphs 1(b) and 2(b) below are based solely upon our review of certain certificates of public officials of various jurisdictions and are not based upon any examination of the laws of any such jurisdiction. Upon the basis of the foregoing, we are of the opinion that: 1. The Borrower (a) is duly incorporated, validly existing and in good standing under the laws of North Carolina and has all requisite corporate power and authority, to carry on its business as now conducted and (b) is qualified to do business in, and is in good standing in each, jurisdiction listed on Schedule I attached hereto. 2. The Guarantor (a) is duly incorporated, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and (b) is qualified to do business in, and is in good standing in, each jurisdiction listed on Schedule II attached hereto. 3. The Transactions to be effected on the date hereof are each within the Borrower's corporate powers and have each been duly authorized by all necessary corporate and, if required, stockholder action. The Credit Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower. 4. The execution, delivery and performance of the Subsidiary Guarantee is within the Guarantor's corporate powers and has been duly authorized by all necessary corporate and, if required, stockholder action. The Subsidiary Guarantee has been duly executed and delivered by the Guarantor and constitutes a legal, valid and binding obligation of the Guarantor. 5. To our knowledge, neither the Transactions to be effected on the date hereof nor the execution, delivery and performance of the Subsidiary Guarantee (a) require any consent or approval of, registration or filing with, or any other action by, any Federal, New York, Delaware or North Carolina Governmental Authority, except for consents, approvals, registrations, filings or other actions as have been obtained, made or waived and are in full force and effect and which are not required to have been effected prior to the date hereof, (b) will violate any applicable Federal, New York, Delaware corporate or North Carolina corporate law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Federal or New York Governmental Authority, (c) will violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets other than defaults or violations for which consents or waivers have been obtained or which defaults or violations, individually or in the aggregate, could not have a Material Adverse Effect, or (d) give rise December 15, 1996 Page 3 under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries to any requirement for any payment be made by the Borrower or any of its Subsidiaries, or (e) will result sin the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 6. To our knowledge, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or threatened against the Borrower or any of its Subsidiaries (I) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve the Credit Agreement, the Subsidiary Guarantee or the Transactions to be effected on the date hereof. 7. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (by a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. The foregoing opinions are subject to the exceptions, limitations and qualifications contained herein, including the following: A. The enforceability of the Loan Documents may be (a) limited by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance or transfer and other similar laws affecting creditors' rights. (b) subject to general principles of equity (regardless of whether considered n a proceeding in equity or at law), commercial reasonableness and good faith, and (c) limited by the power of courts to award damages in lieu of equitable remedies. In addition, the right to indemnification contained in the Loan Documents may be limited by Federal or New York state laws or the policies of such laws. B. We express no opinion as to enforceability of any provisions (i) purporting to vest jurisdiction on any property of the Borrower or the Guarantor in the Supreme Court of the State of New York sitting in New York County or the United States District Court of the Southern District of New York to the extent that such property is not situated in New York, New York, (ii) purporting to waive or restrict access to legal or equitable remedies (including venue, forum non conveniens or the right to assert a setoff) or the right to collect damages (including venue, forum non conveniens or the right to assert a setoff) or the right to collect damages (including special, indirect, consequential or punitive damages.) (iii) preserving and maintaining a guarantor's liability despite the fact that the Lenders have willfully released the primary obligor's liability or the guaranteed indebtedness is unenforceable due to illegality, (iv) prohibiting oral amendments or waivers of provisions of the Loan Documents, (v) establishing evidentiary standards or (vi) permitting a Lender to set off against any debtor's accounts any amounts belonging to a third party or otherwise held in a fiduciary capacity. C. When used in this opinion, the phrase "to our knowledge" means known to attorneys in our firm who have rendered services to the Borrower or the Guarantor in connection with the Transactions December 15, 1996 Page 4 This opinion is as of the date hereof, and we undertake no, and hereby disclaim any, obligation to advise you of any change in any matter set forth herein, whether based on a change in the law, a change in any fact relating to the Borrower, the Guarantor or any other Person or any other circumstance. This opinion is delivered to you in connection with the transactions referenced above and may be relied upon only by you, any permitted assignee of an assigning Lender or Participant under the Credit Agreement, and Simpson Thacher & Bartlett in connection with such transaction any may not be relied upon in a manner or for any purpose by any other person without our prior written consent. Very truly yours, AKIN , GUMP, STRAUSS, HAUER & FELD, L.L.P. ANNEX A LENDERS The Chase Manhattan Bank Wachovia Bank of North Carolina, N.A. ABN AMRO Bank N.V., Atlanta Agency Banca Monte dei Paschi di Siena S.p.A. The Bank of New York The Bank of Tokyo-Mitsubishi, Ltd., Atlanta Agency Barnett Bank, N.A. CoreStates Bank, N.A. Crestar Bank, N.A. The Dai-Ichi Kangyo Bank, Limited, Atlanta Agency First American National Bank The First National Bank of Chicago Fuji Bank, Limited, Atlanta Agency Generale Bank N.V., New York Branch Hibernia National Bank The Industrial Bank of Japan, Limited Kredietbank N.V., Grand Cayman Branch NationsBank, N.A. The Sakura Bank, Limited, Atlanta Agency The Sumitomo Bank, Limited SunTrust Bank, Atlanta The Tokai Bank Ltd., Atlanta Agency The Yasuda Trust and Banking Company Limited, New York Branch SCHEDULE 1 Delaware Cerificate of Secretary of State of the State of Delaware dated December 5, 1997 Florida Certificate of Secretary of State of the State of Florida dated December 8, 1997 Georgia Certificate of Secretary of State of the State of Georgia dated December 8, 1997 Kentucky Certificate of Secretary of State of the Commonwealth of Kentucky dated December 8, 1997 Louisiana Certificate of Secretary of State of the State of Louisiana dated December 5, 1997 Maryland Cerificate of State Department of Assessments and Taxes of the State of Maryland dated December 9, 1997 North Carolina Certificate of Existence of Secretary of State of the State of North Carolina dated December 8, 1997 Oklahoma Certificate of Secretary of State of the State of Oklahoma dated December 9, 1997; Certificate of Oklahoma Tax Commission dated December 9, 1997 Pennsylvania Certificate of Department of State of the Commonwealth of Pennsylvania dated December 4, 1997 South Carolina Certificate of Secretary of State of the State of South Carolina dated December 8, 1997 Tennessee Cerificate of the Secretary of State of the State of Tennessee dated December 8, 1997 Texas Certificate of Secretary of State of the State of Texas dated December 4, 1997; Certificate of Comptroller of Public Accounts of the State of Texas on December 4, 1997 West Virginia Certificate of Secretary of State of the State of West Virginia dated December 8, 1997 SCHEDULE II Delaware Certificate of Secretary of State of the State of Delaware dated Decmeber 9, 1997 Florida Certificate of Secretary of State of the State of Florida dated December 5, 1997 December 15, 1997 The Chase Manhattan Bank Akin,Gump, Strauss, Hauer & Feld. L.L.P. as Administrative Agent 1333 New Hampshire Avenue, N.W. 270 Park Avenue Suite 400 New York, NY 10017 Washington, DC 20036 Each of the Lenders named on Annex A Dear Sirs: I have acted as North Carolina counsel for Food Lion, Inc., a North Carolina corporation (the "Borrower"), in connection with the Credit Agreement, dated as of December 15, 1997 (the "Credit Agreement), among the Borrower, the Lenders party thereto (the "Lenders"), The Chase Manhattan Bank ("Chase), as Administrative Agent, and Wachovia Bank, N.A. ("Wachovia"), as Documentation Agent, and to Kash n' Karry Food Stores, Inc., a Delaware Corporation (the "Guarantor"), in connection with the Subsidiary Guarantee, dated as of December 15, 1997 (the "Subsidiary Guarantee") made by the Guarantor in favor of the Administrative Agent. The opinions expressed here are furnished to Akin, Gump, Strauss, Hauer & Feld, L.L.P. in connection with its opinion required pursuant to Subsection 4.1(c) of the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meaning given in the Credit Agreement. In connection with this opinion, I have examined originals, or copies certified or otherwise identified to my satisfaction, of the Credit Agreement and the Subsidiary Guarantee, (the Credit Agreement and the Subsidiary Guarantee being collectively called the "Loan Documents"), the certificate referred to in Subsection 4.1(f) of the Credit Agreement, the Credit Agreement dated as of December 15, 1996, among the Borrower, the lenders party thereto, Chase as administrative agent thereunder, and Wachovia, as documentation agent thereunder, as amended by the First Amendment dated as of December 15, 1997 (as so amended, the "LTF Credit Agreement") and such corporate documents and records of the Borrower as I have deemed necessary or appropriate. As to questions of fact relevant to this opinion, I have, without independent investigation, relied upon representations made to me by the Borrower, including the representations contained in the Loan Documents, in the LTF Credit Agreement and in various certificates delivered by the Borrower, including, but not limited to, certificates presented to the Lenders, the Administrative Agent and the Documentation Agent, and certain representations of public officials, all of which I assume to be true. In my examination, I have assumed (I) the genuineness of all signatures of all parties other than signatures of the Borrower and the Guarantor, (ii) the authenticity of all corporate records, agreements, documents, instruments and certificates submitted to me as originals, the conformity to original agreements, documents and instruments of all agreements and instruments submitted to me as conformed, certified or photostatic copies thereof and the authenticity of the originals of such conformed, certified or photostatic copies; (iii) the due authorization, execution and delivery of all agreements, documents and instruments by all parties other than the Borrower and the Guarantor; and (iv)the legal right and power of all such parties other than the Borrower and the Guarantor under all applicable laws and regulations to enter into, execute and deliver such agreements, documents and instruments. I am a member of the bar of the State of North Carolina. I express no opinion as to any laws other than The North Carolina Business Corporation Act. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is duly incorporated, validly existing and in good standing under the laws of North Carolina and has all requisite corporate power and authority to carry on its business as now conducted. 2. The Transactions to be effected on the date hereof are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. The Credit Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower. 3. To my knowledge, neither the Transactions to be effected on the date hereof nor the execution, delivery and performance of Subsidiary Guarantee (a) requires any consent or approval of, registration or filing with, or any other action by, North Carolina Governmental Authority, except for consents, approvals, registrations, filings or other actions as have been obtained, made or waived and are in full force and effect or (b) will violate any applicable North Carolina corporate law or regulation or the charter, bylaws or other organizational documents of the Borrower. In rendering the opinion set forth in Paragraph 3, based on my knowledge, I have, with your permission, advised you only as to such knowledge as I have obtained from my investigation described above. This opinion is as of the date hereof, and I undertake no, and hereby disclaim any, obligation to advise you of any change n any matter set forth herein, whether based on a change in the law, a change in any fact relating to the Borrower or any other Person or any other circumstance. I understand that Akin, Gump, Strauss, Hauer & Feld, L.L.P. will rely on this opinion as to matters of North Carolina corporate law in connection with the opinion required to be delivered by such law firm pursuant to the Credit Agreement, and I consent to such reliance. This opinion is delivered to you in connection with the transactions referenced above and may be relied upon only by you, any permitted assignee of an assigning Lender or Participant under the Credit Agreement, and Simpson, Thacher & Bartlett in connection with such transaction and may not otherwise be relied upon in any manner or for any purpose by any other person without my prior written consent. Very truly yours, George R. Jurch III N.C. State Bar No. 20247 EXHIBIT C FORM OF SUBSIDIARY GUARANTEE SUBSIDIARY GUARANTEE, dated as of December 15, 1997, made by KASH N' KARRY FOOD STORES, INC., a Delaware corporation (the "Guarantor"), in favor of THE CHASE MANHATTAN BANK, as administrative agent (in such capacity, the "Administrative Agent") for the lenders (the "Lenders") parties to the Credit Agreement, dated as of December 15, 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among FOOD LION, INC. (the "Borrower"), the Lenders, the Administrative Agent and Wachovia Bank, N.A., as Documentation Agent. W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to the Borrower upon the terms and subject to the conditions set forth therein; WHEREAS, the Borrower owns indirectly all of the issued and outstanding stock of the Guarantor; WHEREAS, the proceeds of the Loans will be used in part to enable the Borrower to make valuable transfers (as determined as provided herein) to the Guarantor in connection with the acquisition and operation of its business; WHEREAS, the Borrower is, and the Guarantor will be, engaged in related businesses, and the Guarantor will derive substantial direct and indirect benefit from the making of the Loans; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective Loans to the Borrower under the Credit Agreement that the Guarantor shall have executed and delivered this Guarantee to the Administrative Agent for the ratable benefit of the Lenders; NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective Loans to the Borrower under the Credit Agreement, the Guarantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, as follows: 1 Defined Terms. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. (b) As used herein: Material Adverse Effect means a material adversal effect on (i) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (ii) the ability of the Guarantor to perform any of its obligations under this Guarantee or (iii) the rights of or benefits available to the Lenders under this Guarantee. "Obligations" means the collective reference to the unpaid principal of and interest on the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or the Lenders (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement or any other document made, delivered or given in connection therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by the Borrower or the Guarantor pursuant to the terms of the Credit Agreement or this Guarantee). (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. Guarantee. (a) Subject to the provisions of paragraph 2(b), the Guarantor hereby unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. (b) Anything herein to the contrary notwithstanding, the maximum liability of the Guarantor hereunder shall in no event exceed the amount which can be guaranteed by the Guarantor under applicable federal and state laws relating to the insolvency of debtors. (c) The Guarantor further agrees to pay all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Guarantee, including in connection with any workout, restructuring or negotiations in respect thereof (other than any such expenses directly related to a court enforcement action in which the Guarantor prevails on the merits in a final and nonappealable judgment). This Guarantee shall remain in full force and effect until the Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto the Borrower may be free from any Obligations. (d) The Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of the Guarantor hereunder without impairing this Guarantee or affecting the rights and remedies of the Administrative Agent or any Lender hereunder. (e) No payment or payments made by the Borrower, the Guarantor, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from the Borrower, the Guarantor, any other guarantor or any other Person by virtue of any action or proceeding or any setoff or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made by the Guarantor in respect of the Obligations or payments received or collected from the Guarantor in respect of the Obligations, remain liable for the Obligations up to the maximum liability of the Guarantor hereunder until the Obligations are paid in full and the Commitments are terminated. (f) The Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to the Administrative Agent or any Lender on account of its liability hereunder, it will notify the Administrative Agent in writing that such payment is made under this Guarantee for such purpose. 3 Right of Setoff. Upon the occurrence of any Default, the Guarantor hereby irrevocably authorizes each Lender at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Guarantor against any of and all the obligations of the Guarantor now or hereafter existing under this Guarantee held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Guarantee and although such obligations may be unmatured. The Administrative Agent and each Lender shall notify the Guarantor promptly of any such setoff and the application made by the Administrative Agent or such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Administrative Agent and each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which the Administrative Agent or such Lender may have. 4. No Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder or any setoff or application of funds of the Guarantor by any Lender, the Guarantor shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Borrower or any collateral security or guarantee or right of offset held by any Lender for the payment of the Obligations, nor shall the Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower in respect of payments made by the Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrower on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to the Administrative Agent in the exact form received by the Guarantor (duly indorsed by the Guarantor to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 5. Amendments, etc. with respect to the Obligations; Waiver of Rights. The Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Guarantor and without notice to or further assent by the Guarantor, any demand for payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded by such party and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and the Credit Agreement and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Majority Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. When making any demand hereunder against the Guarantor, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on the Borrower or any other guarantor, and any failure by the Administrative Agent or any Lender to make any such demand or to collect any payments from the Borrower or any other guarantor or any release of the Borrower or such other guarantor shall not relieve the Guarantor of its obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Administrative Agent or any Lender against the Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 6. Guarantee Absolute and Unconditional. The Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Guarantee or acceptance of this Guarantee, the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between the Borrower and the Guarantor, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guarantee. The Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or the Guarantor with respect to the Obligations. The Guarantor understands and agrees that this Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of the Credit Agreement, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender (b) any defense, setoff or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against the Guarantor, the Administrative Agent and any Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Borrower or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to pursue such other rights or remedies or to collect any payments from the Borrower or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower or any such other Person or any such collateral security, guarantee or right of offset, shall not relieve the Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent and the Lenders against the Guarantor. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantor and the successors and assigns thereof, and shall inure to the benefit of the Administrative Agent and the Lenders, and their respective successors, indorsees, transferees and assigns, until all the Obligations and the obligations of the Guarantor under this Guarantee shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrower may be free from any Obligations. 7. Reinstatement. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or the Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or the Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 8. Payments. The Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without setoff or counterclaim in Dollars at the office of the Administrative Agent located at 270 Park Avenue, New York, New York 10017. 9. Representations and Warranties. The Guarantor hereby represents and warrants that: (a) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required; (b) the execution, delivery and performance of this Guarantee is within the Guarantor's corporate powers and has been duly authorized by all necessary corporate and, if required, stockholder action. This Guarantee has been duly executed and delivered by the Guarantor and constitutes a legal, valid and binding obligation of the Guarantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law; (c) the execution, delivery and performance of this Guarantee (i) does not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Guarantor or any of its subsidiaries or any order of any Governmental Authority, (iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Guarantor or any of its subsidiaries or its assets other than defaults or violations for which consents or waivers have been obtained or which defaults or violations, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (iv) will not give rise to a right under any indenture, agreement or other instrument binding upon the Guarantor or any of its subsidiaries or its assets to require any payment to be made by the Guarantor or any of its subsidiaries other than the repayment of Indebtedness with the proceeds of the initial Loans under the Credit Agreement and any other payments contemplated to be made in connection with the Transactions, and (v) will not result in the creation or imposition of any Lien on any asset of the Guarantor or any of its subsidiaries; (d) the Guarantor has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes and except as may be permitted pursuant to Section 6.1 of the Credit Agreement; (e) the Guarantor owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Guarantor and its subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (f) there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Guarantor, threatened against or affecting the Guarantor or any of its subsidiaries or that involve the Credit Agreement, this Guarantee or the Transactions as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters); (g) the Guarantor is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; and (h) the Guarantor has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (i) Taxes that are being contested in good faith by appropriate proceedings and for which the Guarantor has set aside on its books reserves as and to the extent required by GAAP or (ii) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. The Guarantor agrees that the foregoing representations and warranties shall be deemed to have been made by the Guarantor on the date of each Borrowing by the Borrower under the Credit Agreement on and as of such date of borrowing as though made hereunder on and as of such date. 10 Authority of Administrative Agent. The Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guarantee with respect to any action taken by the Administrative Agent or the exercise or non- exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Guarantor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and the Guarantor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 11. Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Administrative Agent or any Lender, at its address or transmission number for notices provided in Section 9.1 of the Credit Agreement; and (b) if to the Guarantor, at its address or transmission number for notices set forth under its signature below. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Guarantee shall be deemed to have been given on the date of receipt. 12. Counterparts. This Guarantee may be executed by the Guarantor on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the counterparts of this Guarantee signed by the Guarantor shall be lodged with the Administrative Agent. 13. Severability. Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 14. Integration. This Guarantee represents the entire agreement of the Guarantor with respect to the subject matter hereof and there are no promises or representations by the Administrative Agent or any Lender relative to the subject matter hereof not reflected herein. 15. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Guarantor and the Administrative Agent, provided that any provision of this Guarantee may be waived by the Administrative Agent and the Lenders in a letter or agreement executed by the Administrative Agent or by facsimile transmission from the Administrative Agent. (b) Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to paragraph 15(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 16. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 17. Successors and Assigns. This Guarantee shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of the Administrative Agent and the Lenders and their successors and assigns. 18. Governing Law. This Guarantee shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 19. Jurisdiction; Consent to Service of Process. (a) The Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guarantee shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Guarantee against the Guarantor or its properties in the courts of any jurisdiction. (b) The Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guarantee in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Guarantee irrevocably consents to service of process in the manner provided for notices in Section 11. Nothing in this Guarantee will affect the right of any party to this Guarantee to serve process in any other manner permitted by law. 20. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS GUARANTEE BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. KASH N' KARRY FOOD STORES,INC. By: ____________ Title: Address for Notices: Attention: Fax: EX-10.AC 3 Deferral Agreement and Election The parties hereto desire to provide for the deferral of certain compensation payable to Tom E. Smith (the "Executive") by Food Lion, Inc. Pursuant to the terms of this agreement (the "Agreement"), the Executive hereby elects to defer a portion of his annual compensation in connection with the performance of the Executive's services as an employee of the Company for each calendar year, including 1997, in the amount (the "Annual Deferral Amount") that is necessary each calendar year to prevent the Executive from being compensated in excess of the $1,000,000 cap on non- performance-based compensation set forth in section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations thereunder. This election shall be irrevocable and shall last until the earliest of (i) the termination of Executive's employment with the Company, (ii) retirement (at either early or normal retirement age pursuant to the Company's pension plan), (iii) death or (iv) total disability (as defined in the Company's long term disability plan). The sum of all Annual Deferral Amounts plus earnings (collectively referred to as the "Benefits") shall be payable to the Executive at the earliest of: his retirement from the Company, his total disability, death, or termination of employment for any reason. The Annual Deferral Amount shall be recorded each year by the Company in a deferral compensation account (the "Account") maintained in the name of the Executive. The Account shall be credited on each date that any portion of the Annual Deferral Amount would be otherwise payable, in accordance with the Company's normal practices. The Company shall furnish the Executive with an annual statement of his Account. The Company shall also credit interest or other earnings on all amounts in the Account from the date received until final distribution of the Account to the Executive or his beneficiary or estate, as the case may be. All amounts credited to the Account shall be credited with interest at a rate equal to 10 percentage points per annum. Payment of the Benefits shall be in one lump-sum; provided, however, that the Executive may elect to receive his Benefits in annual installments over five, ten or fifteen years (the "Payment Election"). For a Payment Election to be effective, it must be made at least twelve months prior to the time when payment of Benefits is due. If the Executive makes a Payment Election revoking an earlier Payment Election, the earlier Payment Election will remain in effect until twelve months have passed since the Executive has made the later Payment Election. Once the Benefits are payable, no change in Payment Election may be made. In the event of the Executive's death prior to complete distribution to him of the entire balance of his Account, the balance of his Account on the date of his death, shall be payable to the Executive's designated beneficiary in one lump sum, and if no such designation is in existence, to the Executive's spouse and if the Executive does not have a spouse on the date of his death, to the Executive's estate. The right of the Executive or his designated beneficiary to receive a distribution shall be an unsecured claim against the general assets of the Company. All amounts credited to the Account shall constitute general assets of the Company and may be disposed of by the Company at such time and for such purposes as it may deem appropriate. An Account may not be encumbered or assigned by the Executive or any beneficiary. The Company may establish a grantor trust to fund amounts payable pursuant to this Agreement. The amounts in said trust will be held separate and apart from other Company funds and shall be used exclusively for the purposes set forth in this Agreement and the applicable trust agreement. The creation of said trust shall not cause this Agreement to be considered other than "unfunded" for purposes of the Employee Retirement Income Security Act of 1974, as amended. The Executive acknowledges that any payroll taxes (FICA and Medicare) due and owing with respect to any amounts deferred hereunder are the Executive's responsibility for payment. The Company's payroll department shall consult with the Executive regarding any applicable payroll taxes owed and procedures to be implemented to effectuate the above-described deferral. Food Lion, Inc. By: R.William McCanless Date:December 18, 1997 Agreed to: Tom E.Smith Date: December 18, 1997 EX-10.AD 4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 1st day of October, 1997, between FOOD LION, INC., a North Carolina corporation with its principal place of business in Salisbury, North Carolina (the "Company"), and PAMELA K. KOHN, an individual residing at 107 Tremont Drive, Salisbury, North Carolina 28144 ("Employee"), W I T N E S S E T H: WHEREAS, Employee is currently employed by the Company as its Senior Vice President of Merchandising; WHEREAS, the Board of Directors of the Company recognizes that it is in the best interests of the Company and its shareholders to retain capable and experienced executive officers such as Employee; WHEREAS, the Board of Directors recognizes that Employee has made substantial contributions to the growth and success of the Company and desires to provide for the continuing employment of Employee and to encourage the continued dedication and attention of Employee to the Company; WHEREAS, Employee is willing to continue to serve the Company; and WHEREAS, the Company and Employee desire to enter into this Employment Agreement. NOW, THEREFORE, in consideration of the premises, and the mutual agreements herein contained, the Company and Employee hereby agree as follows: 1. Continue to Employ. The Company hereby agrees to continue to employ Employee as Senior Vice President of Merchandising of the Company for the Term of Employment as herein set forth, and Employee hereby agrees to continue to serve the Company as Senior Vice President of Merchandising for such term. 2. Term of Employment. The "Term of Employment," as used herein, will commence on the date hereof and, unless sooner terminated as hereinafter provided, shall terminate on the fifth (5th) anniversary of such date; provided, however, that the Term of Employment shall automatically be extended for additional periods of one (1) year each on the terms and conditions provided herein unless either party shall give the other party no less than one hundred eighty (180) days' written notice prior to the expiration of the applicable Term of Employment. 3. Employment During the Term. During the Term of Employment, Employee shall devote her full professional time to the business of the Company, shall use her best efforts to promote the interests of the Company and shall serve as Senior Vice President of Merchandising of the Company and in such other senior executive capacities as the Board of Directors of the Company shall hereafter designate from time to time. 4. Vacation. Employee shall be entitled to annual vacations in accordance with the vacation policy and practices of the Company. 5. Compensation. (a) Base Salary. As compensation for Employee's services hereunder and for her covenants set forth in Sections 10, 11, and 12 below, the Company shall pay to Employee a base salary which shall not be less than Two Hundred Eight Thousand Five Hundred Fifty-Six Dollars ($208,556) per annum; provided, however, such amount shall be increased from time to time by the Board of Directors of the Company to assure that the compensation paid to Employee under this Employment Agreement remains competitive with amounts paid to other executive officers in similar positions in the large supermarket chain industry and reflects the performance of Employee and the financial performance of the Company. In no event shall such annual review result in any reduction in base salary provided in this Employment Agreement. Such compensation shall be payable in accordance with the Company's payroll practices for executive employees. (b) Bonus Plans. In addition, Employee shall be eligible to participate in the Company's annual incentive bonus plan, stock option plans and other compensation plans of the Company, as they shall be administered by the Board of Directors of the Company and the relevant committees thereof (referred to herein as the "Bonus Plans"). (c) Deferral Arrangement. (i) Right to Defer. Employee may elect to defer some or all of her bonus compensation and up to fifty percent (50%) of her base salary payable to her pursuant to this Employment Agreement. Any deferral of bonus compensation shall be irrevocable and must be requested by Employee in writing prior to the start of the fiscal year to which such bonus relates (except that any deferral election for the fiscal year 1997 may be made within thirty (30) days following the effective date of this Employment Agreement). Any deferral of base salary shall be irrevocable and must be requested by Employee in writing prior to the start of the fiscal year to which such salary relates (except that the deferral election for the 1997 fiscal year may be made within thirty (30) days following the Effective Date, but will relate only to amounts payable after the election is received by the Company). An election for a given fiscal year shall be deemed a continuing election for each subsequent fiscal year, unless a subsequent written election to defer (or not to defer) is provided to the Company by Employee prior to the start of such fiscal year. (ii) Bookkeeping Account and Grantor Trust. Any amounts deferred by Employee hereunder will be credited to a bookkeeping account established on the books and records of the Company for this purpose. In addition, the Company will maintain in a separate, irrevocable grantor trust established by the Company an amount in cash equal to the amounts deferred by Employee. In connection with the deferral election, Employee shall have the right to specify the investments in which her bookkeeping account shall be deemed invested; provided, however, the Company shall be under no obligation to purchase any such investments chosen by Employee. Employee's bookkeeping account shall be credited to reflect all income, gains and losses of such deemed investments. The parties hereto agree that, to the extent that any investment vehicle that Employee selects results in a loss to the bookkeeping account, the Company will have no obligation to compensate Employee for such loss or to make any compensatory adjustment to the bookkeeping account to make up for such loss. (iii) Distribution. The timing of the payment of all amounts deferred by Employee shall be specified in her initial deferral election and may not be subsequently changed by Employee without the prior written approval of the Board of Directors. The initial deferral may specify a lump sum payment of up to five (5) annual installment payments to be paid out in their entirety by no later than the sixth anniversary of the Date of Termination (as defined below); provided, however, that, notwithstanding Employee's deferral election, all amounts will be paid to Employee within thirty (30) days following a termination of this Employment Agreement for any reason specified in Sections 7(c) or 7(e). 6. Benefits. Employee shall be entitled to participate in all health, accident, disability, medical, life and other insurance programs and other benefit and compensation plans maintained by the Company for the benefit of Employee and/or other executive employees of the Company in accordance with the Company's policies. In addition, the Company shall maintain in full force and effect on the life of Employee a life insurance policy subject to a split dollar arrangement in the face amount of three and one-half (3.5) times Employee's base salary if her death occurs prior to her retirement (provided her retirement is on terms consistent with the terms of the life insurance policy and any split dollar arrangements between Employee and the Company relating thereto) and two (2) times Employee's last base salary if her death occurs after any such retirement. Employee shall be the owner of such policy with the authority to designate the beneficiary thereof. 7. Termination. Termination of Employee's employment under any of the following circumstances shall not constitute a breach of this Employment Agreement: (a) Death. Termination upon the death of Employee. (b) Cause. Termination by the Company for "Cause" as described in this Section 7(b). For purposes of this Employment Agreement, "Cause" shall mean (i) willful failure (other than by reason of incapacity due to physical or mental illness) to perform her material duties hereunder and her inability or unwillingness to correct such failure within thirty (30) days after receipt of such notice, (ii) conviction of Employee of a felony or plea of no contest to a felony, or (iii) perpetration of a material dishonest act or fraud against the Company or any affiliate thereof. The definition of "Cause" expressly excludes any mistake of fact or judgment made by Employee in good faith with respect to the Company's business. (c) Good Reason. Termination by Employee for "Good Reason" as described in this Section 7(c). For purposes of this Employment Agreement, "Good Reason" shall mean (i) a material diminution of the professional responsibilities of Employee, (ii) assignment of inappropriate duties to Employee, (iii) failure of the Company to comply with compensation and benefits obligations to Employee, (iv) transfer of Employee more than 50 miles from Salisbury, North Carolina, without good business reasons, as determined by the Company's Board of Directors, (v) a purported termination of this Employment Agreement by the Company other than in accordance with the terms hereof, (vi) the occurrence of a Change in Control of the Company (as defined below), or (vii) failure of the Company to require any successor to the Company to assume and comply with this Employment Agreement. For purposes of this Employment Agreement, a determination in good faith by Employee of "Good Reason" shall be conclusive. For purposes of this Employment Agreement, "a Change in Control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 as amended (the "Exchange Act"); provided that, without limitation, a Change in Control of the Company shall be deemed to have occurred if: (A) an acquisition (other than directly from the Company) by a Person (as defined below) (excluding the Company or an employee benefit plan of the Company or an entity controlled by the Company's shareholders) results in the aggregate number of shares of the Company's voting securities beneficially owned by any other Person to exceed the number of shares of the Company's voting securities beneficially owned by Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize") and Delhaize "Le Lion" America, Inc.; (B) at any time during the term of this Employment Agreement there is a change in the composition of the Board of Directors of the Company resulting in a majority of the directors of the Company who are in office on the date hereof ("Incumbent Company Directors") no longer constituting a majority of the directors of the Company; provided that, in making such determination, persons who are elected to serve as directors of the Company and who are approved by all of the directors in office on the date of such election (other than in connection with an actual or threatened proxy contest) shall be treated as Incumbent Company Directors; (C) consummation of a complete liquidation or dissolution of the Company or a merger, consolidation or sale of all or substantially all of the Company's assets (collectively, a "Business Combination") other than a Business Combination in which all or substantially all of the shareholders of the Company receive fifty percent (50%) or more of the stock of the Company resulting from the Business Combination, at least a majority of the board of directors of the resulting corporation were Incumbent Company Directors and after which no person or entity owns twenty percent (20%) or more of the stock of the resulting corporation, who did not own such stock immediately before the Business Combination; or (D) occurrence of any of the events described in Section 7(c)(B) or (C) to Delhaize or the acquisition by any Person of more than thirty percent (30%) of the stock of Delhaize. For the purpose of this paragraph, the term "beneficially owned" shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act, and the term "Person" shall have the meaning set forth in Sections 3(a)(2) and 13(d)(3) of the Exchange Act. An election by Employee to terminate her employment under this Section 7(c) hereof shall not be deemed a voluntary termination of employment by Employee for the purpose of this Employment Agreement or any plan, arrangement or program of the Company. (d) Disability. Termination by the Company or Employee upon Disability of Employee. For the termination by the Company to be valid, (i) the Company must first give forty- five (45) days' written Notice of Termination, as defined below (which may occur before or after the end of the 180-day period specified in the definition of Disability below), and (ii) Employee shall not have returned to the performance of her duties hereunder on a full-time basis during such 180-day period. For purposes of this Employment Agreement, "Disability" shall mean Employee's absence from continuous full-time employment with the Company for a period of at least 180 consecutive days by reason of a mental or physical illness. The Company shall have the right to have Employee examined at such reasonable times by such physicians satisfactory to Employee as the Company may designate, and Employee will make herself available for and submit to such examination as and when requested. Except as otherwise provided in this Section 7(d), the inability of Employee to perform her duties hereunder, whether by reason of injury, illness (physical or mental), or otherwise shall not result in the termination of Employee's employment hereunder, and she shall be entitled to continue to receive her base salary and other benefits as provided herein. (e) Without Cause. Termination by the Company without Cause. (f) Date and Notice of Termination. Any termination of Employee's employment by the Company or by Employee (other than termination pursuant to Section 7(a) above) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Employment Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Employment Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. "Date of Termination" shall mean (i) if Employee's employment is terminated by her death, the date of her death, and (ii) if Employee's employment is terminated pursuant to a Notice of Termination, the date specified in the Notice of Termination; provided that, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date which is finally determined to be the Date of Termination, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 8. Effect of Termination. In the event of termination of employment as described in Section 7 hereof, the Company shall compensate Employee as follows: (a) Death. If Employee's employment is terminated as a result of her death, as specified in Section 7(a), the Company shall pay Employee's beneficiary the benefit called for under her Salary Continuation Agreement with the Company. Employee's beneficiary shall accept the payment provided for in this Section 8(a) in full discharge and release of the Company of and from any further obligations under this Employment Agreement, except for any other benefits due under any applicable plan or policy of the Company (including life insurance policies and pension or similar plans), as determined under the provisions of such plans or policies. (b) Disability. If Employee's employment is terminated by the Company or Employee as a result of her disability as specified in Section 7(d), then the Company shall pay Employee her full compensation until the Date of Termination. Within thirty (30) days after the termination of her employment, the Company shall pay Employee a lump sum payment equal to fifty percent (50%) of the present value of the future base salary payable to Employee during the remainder of her Term of Employment under this Employment Agreement or for a period of two (2) years, whichever is longer. Such lump sum amount shall be calculated by using a discount rate equal to the applicable Federal rate that is in effect on the date of payment as determined under Section 1274(d) of the Internal Revenue Code of 1986 (the "Code") and the regulations thereunder, and by assuming that Employee's annual salary in effect on the Date of Termination would continue for the remainder of the Term of Employment, or for a period of two (2) years, whichever is longer. This payment shall be in addition to any payments Employee shall be entitled to receive under any applicable disability insurance policies maintained by the Company for Employee. (c) Cause. If Employee's employment is terminated for any reason specified in Section 7(b) hereof, the Company shall no longer be obligated to make any payments to Employee pursuant to this Employment Agreement, except for the full amount of her base salary and all compensation earned prior to the Date of Termination and payments pursuant to plans, programs, or arrangements, as determined under the provisions of such plans or policies. (d) Good Reason or Without Cause. If Employee's employment is terminated by Employee for Good Reason as specified in Section 7(c) hereof, or if her employment is terminated by the Company without Cause as specified in Section 7(e), the Company shall pay Employee the full amount of her base salary and other compensation earned prior to the Date of Termination. The Company shall also pay Employee, within thirty (30) days after her termination, a lump sum payment equal to three (3) (or the number of years left in the term of this Employment Agreement, whichever is greater) times her current base salary. Such lump sum amount shall be calculated by using a discount rate equal to the applicable Federal rate that is in effect on the date of payment as determined under Section 1274(d) of the Code and the regulations thereunder, and by assuming that Employee's annual salary in effect on the Date of Termination would continue for the remainder of the Term of Employment, or for a period of three (3) years, whichever is longer. (e) Benefits. From the Date of Termination of Employee's employment for Good Reason, as specified in Section 7(c) hereof, or without Cause as specified in Section 7(e), the Company shall pay Employee the full amount of her base salary and all compensation earned prior to the Date of Termination. The Company shall maintain in full force and effect for the continued benefit of Employee and her eligible dependents for the greater of three (3) years and the number of years (including partial years) remaining in the Term of Employment hereunder, all employee benefit plans and programs (such as medical, dental, health and life insurance) in which Employee was entitled to participate immediately prior to the Date of Termination, if Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that Employee's participation in any such plan or program is barred, the Company shall arrange to provide Employee with benefits substantially similar to those to which Employee would otherwise have been entitled to receive under such plans and programs. 9. Business Expenses. The Company agrees that during the Term of Employment, the Company will reimburse Employee for actual travel and other out-of-pocket expenses reasonably incurred by her in connection with the performance of her duties hereunder and accounted for in accordance with the policies and procedures currently established by the Company. 10. No Competing Employment. Employee agrees that, during the Term of Employment and for a period of two (2) years after the Date of Termination ("Restricted Period"), she will not, without the written consent of the Board of Directors, engage in any retail or wholesale grocery business which is directly competitive with the business of the Company or any affiliate thereof in any geographic area in which the Company or any affiliate operates on the Date of Termination. Employee understands and agrees that a portion of the amounts paid to her under Section 5(a) hereof is in consideration for her covenants set forth in Sections 10, 11, and 12. 11. No Solicitation. Employee agrees that, during the Restricted Period, she will not, without the prior written consent of the Board of Directors, directly or indirectly solicit or recruit any employee or independent contractor of the Company for the purpose of being employed by Employee, directly or indirectly, or any other person or entity on behalf of which Employee is acting as an agent, representative or employee. Notwithstanding the above, if Employee's employment is terminated for any reason specified in Section 7 hereof prior to the first anniversary of the date on which a Change in Control (as defined above) occurred, the covenants of Sections 10 and 11 shall not be applicable. 12. Confidentiality. Employee agrees that, during the Term of Employment and thereafter, she will not, without the written consent of the Company, disclose to anyone not entitled thereto, any confidential information relating to the business, sales, financial condition or products of the Company or any affiliate thereof. Employee also recognizes and acknowledges that she has a common law obligation not to disclose trade secrets and other proprietary information of the Company. Employee further agrees that, should she leave the active service of the Company, she will not take with her or retain, without the written authorization of the Board of Directors, any papers, files or other documents or copies thereof or other confidential information of any kind belonging to the Company pertaining to its business, sales, financial condition or products. Employee understands and agrees that the rights and obligations set forth in this Section 12 are perpetual and, in any case, shall extend beyond the Restricted Period. 13. Injunctive Relief. Without limiting the remedies available to the Company, Employee acknowledges that a breach of the covenants contained in Sections 10, 11 and 12 herein may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order or a preliminary injunction restraining Employee from engaging in activities prohibited by Sections 10, 11 and 12 or such other relief as may be required to specifically enforce any of the covenants in such Sections. 14. Indemnification. The Company shall indemnify and hold harmless Employee to the fullest extent permitted under North Carolina law, including, without limitation, the provisions of Part 5 (or any successor provision) of the North Carolina Business Corporation Act, from and against all losses, claims, damages, liabilities, costs and expenses (including, without limitation, attorneys' fees), which may, at any time, be suffered by Employee as a result of the fact that Employee is or was an officer of the Company, or is or was serving at the request of the Company as an officer, employee or agent of an affiliate of the Company. The expenses incurred by Employee in any proceeding shall be paid promptly by the Company in advance of the final disposition of any proceeding at the written request of Employee to the fullest extent permitted under North Carolina law. The indemnification provision of this Section 14 shall survive the termination or expiration of this Employment Agreement. 15. Gross-Up Payment. In the event that any payments to which Employee becomes entitled under this Employment Agreement (the "Agreement Payments") will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to Employee at the time specified below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Employee (taking into account the Total Payments (as hereinafter defined) and the Gross-Up Payment), after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the Gross-Up Payment provided for by this Section 15, but before deduction for any federal, state or local income tax on the Total Payments, shall be equal to the "Total Payments," as defined below. Except as otherwise provided below, the Gross-Up Payment or portion thereof provided for in this Section 15 shall be paid not later than the thirtieth (30th) day following payment of any amounts under the Employment Agreement that will be subject to the Excise Tax; provided, however, that if the amount of such Gross-Up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the forty-fifth (45th) day after payment of any amounts under the Employment Agreement that will be subject to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Employee, payable on the fifth (5th) day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). For purposes of determining whether any of the Agreement Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments, accruals, vestings or other compensatory benefits received or to be received by Employee in connection with a Change in Control of the Company or the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company), any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person (which, together with the Agreement Payments, shall constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by the Company's independent auditors, such other payments or benefits (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (a) the total amount of the Total Payments, or (b) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i) above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made and the applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-Up Payment is made, Employee shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid) if such repayment results in a reduction in Excise Tax and/or a federal, state and local income tax deduction, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-Up Payment is made (including, by reason of any payment, the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 16. Vesting. Upon a Change in Control of the Company or if Employee's employment is terminated for reasons specified in Sections 7(a), 7(c), 7(d) or 7(e) hereof, all of the rights granted to Employee by the Company to own or acquire stock of the Company (including, without limitation, stock options and restricted stock granted under the Company's Stock Option Plan) shall automatically vest upon the date of such Change in Control or Date of Termination, respectively, without the need for further action or consent by the Company; provided, however, that (assuming no occurrence of a Change of Control) such rights shall not vest if Employee's employment is terminated for Employee's failure to adequately perform her duties hereunder as determined by an affirmative vote of at least seventy percent (70%) of the Board of Directors of the Company. 17. Legal Expenses. The Company shall reimburse Employee for all reasonable legal fees incurred in an effort to establish entitlement to compensation and benefits under this Employment Agreement. 18. Mitigation. The Company recognizes that Employee has no duty to mitigate the amounts due to her upon termination of this Employment Agreement, and the obligations of the Company will not be diminished in the event Employee is employed by another employer after the termination of her employment with the Company. 19. Successors. This Employment Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and upon Employee and her legal representatives. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Employment Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 20. Amendments. This Employment Agreement, which contains the entire contractual understanding between the parties, may not be changed orally but only by a written instrument signed by the parties hereto. 21. Governing Law. This Employment Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina. 22. Waiver. The waiver of breach of any term or condition of this Employment Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. 23. Arbitration. Except as otherwise necessary to secure the remedy specified in Section 13 of this Employment Agreement, any dispute arising between the Company and Employee with respect to the performance or interpretation of this Employment Agreement shall be submitted to arbitration in Salisbury, North Carolina for resolution in accordance with the commercial arbitration rules of the American Arbitration Association, modified to provide that the decision by the arbitrators shall be binding on the parties, shall be furnished in writing, separately and specifically stating the findings of fact and conclusions of law on which the decision is based, and shall be rendered within ninety (90) days following impanelment of the arbitrators. The cost of arbitration shall initially be borne by the party requesting arbitration. Following a decision by the arbitrators, the costs of arbitration shall be divided as directed by the arbitrators. 24. Severability. In the event that any provision or portion of this Employment Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of this Employment Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent provided by law. 25. Notices. Any notices or other communications required or permitted hereunder shall be deemed sufficiently given if sent by registered mail, postage prepaid, as follows: (a) If to Employee: Pamela K. Kohn 107 Tremont Drive Salisbury, North Carolina 28144 (b) If to the Company: Food Lion,Inc. Post Office Box 1330 2110 Executive Drive Salisbury, North Carolina 28145-1330 Attention: Secretary with a copy to: Bruce S. Mendelsohn Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1333 New Hampshire Avenue, N.W. Suite 400 Washington, D.C. 20036 or to such other address as shall have been specified in writing by either party to the other. Any such notice or communication shall be deemed to have been given on the second day (excluding any days U.S. Post Offices are not open) after the date so mailed. IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be executed by its duly authorized representative, and Employee has hereunto set her hand as of the date first above written. FOOD LION, INC. By: Tom E.Smith Attest: R.William McCanless EMPLOYEE: Pamela K. Kohn Pamela K. Kohn EX-10.AE 5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made this 1st day of October, 1997, between FOOD LION, INC., a North Carolina corporation with its principal place of business in Salisbury, North Carolina (the "Company"), and A. EDWARD BENNER, JR., an individual residing at 7602 Bringle Ferry Road, Salisbury, North Carolina 28146 ("Employee"), W I T N E S S E T H: WHEREAS, Employee is currently employed by the Company as its Vice President of Information Technology/Chief Information Officer; WHEREAS, the Board of Directors of the Company recognizes that it is in the best interests of the Company and its shareholders to retain capable and experienced executive officers such as Employee; WHEREAS, the Board of Directors recognizes that Employee has made substantial contributions to the growth and success of the Company and desires to provide for the continuing employment of Employee and to encourage the continued dedication and attention of Employee to the Company; WHEREAS, Employee is willing to continue to serve the Company; and WHEREAS, the Company and Employee desire to enter into this Employment Agreement. NOW, THEREFORE, in consideration of the premises, and the mutual agreements herein contained, the Company and Employee hereby agree as follows: 1. Continue to Employ. The Company hereby agrees to continue to employ Employee as Vice President of Information Technology/Chief Information Officer of the Company for the Term of Employment as herein set forth, and Employee hereby agrees to continue to serve the Company as Vice President of Information Technology/Chief Information Officer for such term. 2. Term of Employment. The "Term of Employment," as used herein, will commence on the date hereof and, unless sooner terminated as hereinafter provided, shall terminate on the fifth (5th) anniversary of such date; provided, however, that the Term of Employment shall automatically be extended for additional periods of one (1) year each on the terms and conditions provided herein unless either party shall give the other party no less than one hundred eighty (180) days' written notice prior to the expiration of the applicable Term of Employment. 3. Employment During the Term. During the Term of Employment, Employee shall devote his full professional time to the business of the Company, shall use his best efforts to promote the interests of the Company and shall serve as Vice President of Information Technology/Chief Information Officer of the Company and in such other senior executive capacities as the Board of Directors of the Company shall hereafter designate from time to time. 4. Vacation. Employee shall be entitled to annual vacations in accordance with the vacation policy and practices of the Company. 5. Compensation. (a) Base Salary. As compensation for Employee's services hereunder and for his covenants set forth in Sections 10, 11, and 12 below, the Company shall pay to Employee a base salary which shall not be less than Two Hundred Thirty-Two Thousand Eight Hundred Thirty-Six Dollars ($232,836) per annum; provided, however, such amount shall be increased from time to time by the Board of Directors of the Company to assure that the compensation paid to Employee under this Employment Agreement remains competitive with amounts paid to other executive officers in similar positions in the large supermarket chain industry and reflects the performance of Employee and the financial performance of the Company. In no event shall such annual review result in any reduction in base salary provided in this Employment Agreement. Such compensation shall be payable in accordance with the Company's payroll practices for executive employees. (b) Bonus Plans. In addition, Employee shall be eligible to participate in the Company's annual incentive bonus plan, stock option plans and other compensation plans of the Company, as they shall be administered by the Board of Directors of the Company and the relevant committees thereof (referred to herein as the "Bonus Plans"). (c) Deferral Arrangement. (i) Right to Defer. Employee may elect to defer some or all of his bonus compensation and up to fifty percent (50%) of his base salary payable to him pursuant to this Employment Agreement. Any deferral of bonus compensation shall be irrevocable and must be requested by Employee in writing prior to the start of the fiscal year to which such bonus relates (except that any deferral election for the fiscal year 1997 may be made within thirty (30) days following the effective date of this Employment Agreement). Any deferral of base salary shall be irrevocable and must be requested by Employee in writing prior to the start of the fiscal year to which such salary relates (except that the deferral election for the 1997 fiscal year may be made within thirty (30) days following the Effective Date, but will relate only to amounts payable after the election is received by the Company). An election for a given fiscal year shall be deemed a continuing election for each subsequent fiscal year, unless a subsequent written election to defer (or not to defer) is provided to the Company by Employee prior to the start of such fiscal year. (ii) Bookkeeping Account and Grantor Trust. Any amounts deferred by Employee hereunder will be credited to a bookkeeping account established on the books and records of the Company for this purpose. In addition, the Company will maintain in a separate, irrevocable grantor trust established by the Company an amount in cash equal to the amounts deferred by Employee. In connection with the deferral election, Employee shall have the right to specify the investments in which his bookkeeping account shall be deemed invested; provided, however, the Company shall be under no obligation to purchase any such investments chosen by Employee. Employee's bookkeeping account shall be credited to reflect all income, gains and losses of such deemed investments. The parties hereto agree that, to the extent that any investment vehicle that Employee selects results in a loss to the bookkeeping account, the Company will have no obligation to compensate Employee for such loss or to make any compensatory adjustment to the bookkeeping account to make up for such loss. (iii) Distribution. The timing of the payment of all amounts deferred by Employee shall be specified in his initial deferral election and may not be subsequently changed by Employee without the prior written approval of the Board of Directors. The initial deferral may specify a lump sum payment of up to five (5) annual installment payments to be paid out in their entirety by no later than the sixth anniversary of the Date of Termination (as defined below); provided, however, that, notwithstanding Employee's deferral election, all amounts will be paid to Employee within thirty (30) days following a termination of this Employment Agreement for any reason specified in Sections 7(c) or 7(e). 6. Benefits. Employee shall be entitled to participate in all health, accident, disability, medical, life and other insurance programs and other benefit and compensation plans maintained by the Company for the benefit of Employee and/or other executive employees of the Company in accordance with the Company's policies. 7. Termination. Termination of Employee's employment under any of the following circumstances shall not constitute a breach of this Employment Agreement: (a) Death. Termination upon the death of Employee. (b) Cause. Termination by the Company for "Cause" as described in this Section 7(b). For purposes of this Employment Agreement, "Cause" shall mean (i) willful failure (other than by reason of incapacity due to physical or mental illness) to perform his material duties hereunder and his inability or unwillingness to correct such failure within thirty (30) days after receipt of such notice, (ii) conviction of Employee of a felony or plea of no contest to a felony, or (iii) perpetration of a material dishonest act or fraud against the Company or any affiliate thereof. The definition of "Cause" expressly excludes any mistake of fact or judgment made by Employee in good faith with respect to the Company's business. (c) Good Reason. Termination by Employee for "Good Reason" as described in this Section 7(c). For purposes of this Employment Agreement, "Good Reason" shall mean (i) a material diminution of the professional responsibilities of Employee, (ii) assignment of inappropriate duties to Employee, (iii) failure of the Company to comply with compensation and benefits obligations to Employee, (iv) transfer of Employee more than 50 miles from Salisbury, North Carolina, without good business reasons, as determined by the Company's Board of Directors, (v) a purported termination of this Employment Agreement by the Company other than in accordance with the terms hereof, (vi) the occurrence of a Change in Control of the Company (as defined below), or (vii) failure of the Company to require any successor to the Company to assume and comply with this Employment Agreement. For purposes of this Employment Agreement, a determination in good faith by Employee of "Good Reason" shall be conclusive. For purposes of this Employment Agreement, "a Change in Control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 as amended (the "Exchange Act"); provided that, without limitation, a Change in Control of the Company shall be deemed to have occurred if: (A) an acquisition (other than directly from the Company) by a Person (as defined below) (excluding the Company or an employee benefit plan of the Company or an entity controlled by the Company's shareholders) results in the aggregate number of shares of the Company's voting securities beneficially owned by any other Person to exceed the number of shares of the Company's voting securities beneficially owned by Etablissements Delhaize Freres et Cie "Le Lion" S.A. ("Delhaize") and Delhaize "Le Lion" America, Inc.; (B) at any time during the term of this Employment Agreement there is a change in the composition of the Board of Directors of the Company resulting in a majority of the directors of the Company who are in office on the date hereof ("Incumbent Company Directors") no longer constituting a majority of the directors of the Company; provided that, in making such determination, persons who are elected to serve as directors of the Company and who are approved by all of the directors in office on the date of such election (other than in connection with an actual or threatened proxy contest) shall be treated as Incumbent Company Directors; (C) consummation of a complete liquidation or dissolution of the Company or a merger, consolidation or sale of all or substantially all of the Company's assets (collectively, a "Business Combination") other than a Business Combination in which all or substantially all of the shareholders of the Company receive fifty percent (50%) or more of the stock of the Company resulting from the Business Combination, at least a majority of the board of directors of the resulting corporation were Incumbent Company Directors and after which no person or entity owns twenty percent (20%) or more of the stock of the resulting corporation, who did not own such stock immediately before the Business Combination; or (D) occurrence of any of the events described in Section 7(c)(B) or (C) to Delhaize or the acquisition by any Person of more than thirty percent (30%) of the stock of Delhaize. For the purpose of this paragraph, the term "beneficially owned" shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act, and the term "Person" shall have the meaning set forth in Sections 3(a)(2) and 13(d)(3) of the Exchange Act. An election by Employee to terminate his employment under this Section 7(c) hereof shall not be deemed a voluntary termination of employment by Employee for the purpose of this Employment Agreement or any plan, arrangement or program of the Company. (d) Disability. Termination by the Company or Employee upon Disability of Employee. For the termination by the Company to be valid, (i) the Company must first give forty- five (45) days' written Notice of Termination, as defined below (which may occur before or after the end of the 180-day period specified in the definition of Disability below), and (ii) Employee shall not have returned to the performance of his duties hereunder on a full-time basis during such 180-day period. For purposes of this Employment Agreement, "Disability" shall mean Employee's absence from continuous full-time employment with the Company for a period of at least 180 consecutive days by reason of a mental or physical illness. The Company shall have the right to have Employee examined at such reasonable times by such physicians satisfactory to Employee as the Company may designate, and Employee will make himself available for and submit to such examination as and when requested. Except as otherwise provided in this Section 7(d), the inability of Employee to perform his duties hereunder, whether by reason of injury, illness (physical or mental), or otherwise shall not result in the termination of Employee's employment hereunder, and he shall be entitled to continue to receive his base salary and other benefits as provided herein. (e) Without Cause. Termination by the Company without Cause. (f) Date and Notice of Termination. Any termination of Employee's employment by the Company or by Employee (other than termination pursuant to Section 7(a) above) shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Employment Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Employment Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. "Date of Termination" shall mean (i) if Employee's employment is terminated by his death, the date of his death, and (ii) if Employee's employment is terminated pursuant to a Notice of Termination, the date specified in the Notice of Termination; provided that, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date which is finally determined to be the Date of Termination, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 8. Effect of Termination. In the event of termination of employment as described in Section 7 hereof, the Company shall compensate Employee as follows: (a) Death. If Employee's employment is terminated as a result of his death, as specified in Section 7(a), the Company shall pay Employee's beneficiary the benefit called for under his Salary Continuation Agreement with the Company. Employee's beneficiary shall accept the payment provided for in this Section 8(a) in full discharge and release of the Company of and from any further obligations under this Employment Agreement, except for any other benefits due under any applicable plan or policy of the Company (including life insurance policies and pension or similar plans), as determined under the provisions of such plans or policies. (b) Disability. If Employee's employment is terminated by the Company or Employee as a result of his disability as specified in Section 7(d), then the Company shall pay Employee his full compensation until the Date of Termination. Within thirty (30) days after the termination of his employment, the Company shall pay Employee a lump sum payment equal to fifty percent (50%) of the present value of the future base salary payable to Employee during the remainder of his Term of Employment under this Employment Agreement or for a period of two (2) years, whichever is longer. Such lump sum amount shall be calculated by using a discount rate equal to the applicable Federal rate that is in effect on the date of payment as determined under Section 1274(d) of the Internal Revenue Code of 1986 (the "Code") and the regulations thereunder, and by assuming that Employee's annual salary in effect on the Date of Termination would continue for the remainder of the Term of Employment, or for a period of two (2) years, whichever is longer. This payment shall be in addition to any payments Employee shall be entitled to receive under any applicable disability insurance policies maintained by the Company for Employee. (c) Cause. If Employee's employment is terminated for any reason specified in Section 7(b) hereof, the Company shall no longer be obligated to make any payments to Employee pursuant to this Employment Agreement, except for the full amount of his base salary and all compensation earned prior to the Date of Termination and payments pursuant to plans, programs, or arrangements, as determined under the provisions of such plans or policies. (d) Good Reason or Without Cause. If Employee's employment is terminated by Employee for Good Reason as specified in Section 7(c) hereof, or if his employment is terminated by the Company without Cause as specified in Section 7(e), the Company shall pay Employee the full amount of his base salary and other compensation earned prior to the Date of Termination. The Company shall also pay Employee, within thirty (30) days after his termination, a lump sum payment equal to three (3) (or the number of years left in the term of this Employment Agreement, whichever is greater) times his current base salary. Such lump sum amount shall be calculated by using a discount rate equal to the applicable Federal rate that is in effect on the date of payment as determined under Section 1274(d) of the Code and the regulations thereunder, and by assuming that Employee's annual salary in effect on the Date of Termination would continue for the remainder of the Term of Employment, or for a period of three (3) years, whichever is longer. (e) Benefits. From the Date of Termination of Employee's employment for Good Reason, as specified in Section 7(c) hereof, or without Cause as specified in Section 7(e), the Company shall pay Employee the full amount of his base salary and all compensation earned prior to the Date of Termination. The Company shall maintain in full force and effect for the continued benefit of Employee and his eligible dependents for the greater of three (3) years and the number of years (including partial years) remaining in the Term of Employment hereunder, all employee benefit plans and programs (such as medical, dental, health and life insurance) in which Employee was entitled to participate immediately prior to the Date of Termination, if Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event that Employee's participation in any such plan or program is barred, the Company shall arrange to provide Employee with benefits substantially similar to those to which Employee would otherwise have been entitled to receive under such plans and programs. 9. Business Expenses. The Company agrees that during the Term of Employment, the Company will reimburse Employee for actual travel and other out-of-pocket expenses reasonably incurred by him in connection with the performance of his duties hereunder and accounted for in accordance with the policies and procedures currently established by the Company. 10. No Competing Employment. Employee agrees that, during the Term of Employment and for a period of two (2) years after the Date of Termination ("Restricted Period"), he will not, without the written consent of the Board of Directors, engage in any retail or wholesale grocery business which is directly competitive with the business of the Company or any affiliate thereof in any geographic area in which the Company or any affiliate operates on the Date of Termination. Employee understands and agrees that a portion of the amounts paid to him under Section 5(a) hereof is in consideration for his covenants set forth in Sections 10, 11, and 12. 11. No Solicitation. Employee agrees that, during the Restricted Period, he will not, without the prior written consent of the Board of Directors, directly or indirectly solicit or recruit any employee or independent contractor of the Company for the purpose of being employed by Employee, directly or indirectly, or any other person or entity on behalf of which Employee is acting as an agent, representative or employee. Notwithstanding the above, if Employee's employment is terminated for any reason specified in Section 7 hereof prior to the first anniversary of the date on which a Change in Control (as defined above) occurred, the covenants of Sections 10 and 11 shall not be applicable. 12. Confidentiality. Employee agrees that, during the Term of Employment and thereafter, he will not, without the written consent of the Company, disclose to anyone not entitled thereto, any confidential information relating to the business, sales, financial condition or products of the Company or any affiliate thereof. Employee also recognizes and acknowledges that he has a common law obligation not to disclose trade secrets and other proprietary information of the Company. Employee further agrees that, should he leave the active service of the Company, he will not take with him or retain, without the written authorization of the Board of Directors, any papers, files or other documents or copies thereof or other confidential information of any kind belonging to the Company pertaining to its business, sales, financial condition or products. Employee understands and agrees that the rights and obligations set forth in this Section 12 are perpetual and, in any case, shall extend beyond the Restricted Period. 13. Injunctive Relief. Without limiting the remedies available to the Company, Employee acknowledges that a breach of the covenants contained in Sections 10, 11 and 12 herein may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order or a preliminary injunction restraining Employee from engaging in activities prohibited by Sections 10, 11 and 12 or such other relief as may be required to specifically enforce any of the covenants in such Sections. 14. Indemnification. The Company shall indemnify and hold harmless Employee to the fullest extent permitted under North Carolina law, including, without limitation, the provisions of Part 5 (or any successor provision) of the North Carolina Business Corporation Act, from and against all losses, claims, damages, liabilities, costs and expenses (including, without limitation, attorneys' fees), which may, at any time, be suffered by Employee as a result of the fact that Employee is or was an officer of the Company, or is or was serving at the request of the Company as an officer, employee or agent of an affiliate of the Company. The expenses incurred by Employee in any proceeding shall be paid promptly by the Company in advance of the final disposition of any proceeding at the written request of Employee to the fullest extent permitted under North Carolina law. The indemnification provision of this Section 14 shall survive the termination or expiration of this Employment Agreement. 15. Gross-Up Payment. In the event that any payments to which Employee becomes entitled under this Employment Agreement (the "Agreement Payments") will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to Employee at the time specified below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Employee (taking into account the Total Payments (as hereinafter defined) and the Gross-Up Payment), after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the Gross-Up Payment provided for by this Section 15, but before deduction for any federal, state or local income tax on the Total Payments, shall be equal to the "Total Payments," as defined below. Except as otherwise provided below, the Gross-Up Payment or portion thereof provided for in this Section 15 shall be paid not later than the thirtieth (30th) day following payment of any amounts under the Employment Agreement that will be subject to the Excise Tax; provided, however, that if the amount of such Gross-Up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the forty-fifth (45th) day after payment of any amounts under the Employment Agreement that will be subject to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Employee, payable on the fifth (5th) day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). For purposes of determining whether any of the Agreement Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments, accruals, vestings or other compensatory benefits received or to be received by Employee in connection with a Change in Control of the Company or the termination of Employee's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company), any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person (which, together with the Agreement Payments, shall constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by the Company's independent auditors, such other payments or benefits (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (a) the total amount of the Total Payments, or (b) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i) above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made and the applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-Up Payment is made, Employee shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the portion of the Gross-Up Payment being repaid) if such repayment results in a reduction in Excise Tax and/or a federal, state and local income tax deduction, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-Up Payment is made (including, by reason of any payment, the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 16. Vesting. Upon a Change in Control of the Company or if Employee's employment is terminated for reasons specified in Sections 7(a), 7(c), 7(d) or 7(e) hereof, all of the rights granted to Employee by the Company to own or acquire stock of the Company (including, without limitation, stock options and restricted stock granted under the Company's Stock Option Plan) shall automatically vest upon the date of such Change in Control or Date of Termination, respectively, without the need for further action or consent by the Company; provided, however, that (assuming no occurrence of a Change of Control) such rights shall not vest if Employee's employment is terminated for Employee's failure to adequately perform his duties hereunder as determined by an affirmative vote of at least seventy percent (70%) of the Board of Directors of the Company. 17. Legal Expenses. The Company shall reimburse Employee for all reasonable legal fees incurred in an effort to establish entitlement to compensation and benefits under this Employment Agreement. 18. Mitigation. The Company recognizes that Employee has no duty to mitigate the amounts due to him upon termination of this Employment Agreement, and the obligations of the Company will not be diminished in the event Employee is employed by another employer after the termination of his employment with the Company. 19. Successors. This Employment Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns and upon Employee and his legal representatives. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this Employment Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 20. Amendments. This Employment Agreement, which contains the entire contractual understanding between the parties, may not be changed orally but only by a written instrument signed by the parties hereto. 21. Governing Law. This Employment Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina. 22. Waiver. The waiver of breach of any term or condition of this Employment Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition. 23. Arbitration. Except as otherwise necessary to secure the remedy specified in Section 13 of this Employment Agreement, any dispute arising between the Company and Employee with respect to the performance or interpretation of this Employment Agreement shall be submitted to arbitration in Salisbury, North Carolina for resolution in accordance with the commercial arbitration rules of the American Arbitration Association, modified to provide that the decision by the arbitrators shall be binding on the parties, shall be furnished in writing, separately and specifically stating the findings of fact and conclusions of law on which the decision is based, and shall be rendered within ninety (90) days following impanelment of the arbitrators. The cost of arbitration shall initially be borne by the party requesting arbitration. Following a decision by the arbitrators, the costs of arbitration shall be divided as directed by the arbitrators. 24. Severability. In the event that any provision or portion of this Employment Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of this Employment Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent provided by law. 25. Notices. Any notices or other communications required or permitted hereunder shall be deemed sufficiently given if sent by registered mail, postage prepaid, as follows: (a) If to Employee: A. Edward Benner, Jr. 7602 Bringle Ferry Road Salisbury, North Carolina 28146 (b) If to the Company: Food Lion, Inc. Post Office Box 1330 2110 Executive Drive Salisbury, North Carolina 28145-1330 Attention: Secretary with a copy to: Bruce S. Mendelsohn Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1333 New Hampshire Avenue, N.W. Suite 400 Washington, D.C. 20036 or to such other address as shall have been specified in writing by either party to the other. Any such notice or communication shall be deemed to have been given on the second day (excluding any days U.S. Post Offices are not open) after the date so mailed. IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be executed by its duly authorized representative, and Employee has hereunto set his hand as of the date first above written. FOOD LION, INC. By:Tom E.Smith Attest: R.William McCanless EMPLOYEE: A.Edward Benner, Jr. A. Edward Benner, Jr. EX-10.AF 6 AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of January 4, 1998, by and between FOOD LION, INC., a corporation organized and existing under the laws of the State of North Carolina, United States of America, having its principle offices at 2110 Executive Drive, Salisbury, North Carolina ("Food Lion") and ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" S.A., a corporation organized under the laws of Belgium, having its principle office at rue Osseghem 53, 1080 Brussels, Belgium (hereinafter referred to as Delhaize). RECITALS WHEREAS, Food Lion is engaged primarily in the operation of supermarkets in the United States of America; WHEREAS, Delhaize through itself and its subsidiaries, is engaged primarily in the operation of supermarkets throughout the world; WHEREAS, Food Lion and Delhaize entered into that certain License Agreement dated as of January 1, 1983 hereinafter referred to as the "1983 License Agreement" by which Delhaize granted Food Lion a license under a trademark comprised of the name Delhaize and a lion logo, registered in Belgium, the Netherlands and Luxembourg, Benelux Trade Mark No. 086048 and registered in the United States of America, No. 1132312, together with the goodwill associated therewith, said trademark and lion logo being referred to in the 1983 License Agreement and herein as the "Trademark"; WHEREAS, Pursuant to the 1983 License Agreement, Delhaize also granted to Food Lion the exclusive right to use the lion logo in conjunction with Food Lion's trademarks and service marks "Food Town," "Save-Rite" and "Food Lion," said combination of the lion logo and the trademarks and service marks "Food Town," "Save-Rite" and "Food Lion" being referred to in the 1983 License Agreement and herein as the "New Trademarks"; WHEREAS, Food Lion and Delhaize entered into that certain License Agreement dated as of June 19, 1997 hereinafter referred to as the "1997 License Agreement" by which Delhaize agreed to allow Food Lion to assign its rights under the 1983 License Agreement to an indirect wholly-owned subsidiary; WHEREAS, Food Lion desires to assign its rights under the 1983 License Agreement to FL Food Lion, Inc. (hereinafter referred to as "FL Food Lion"), an indirect wholly owned subsidiary of Food Lion, and to obtain a sublicense from FL Food Lion of said rights under the 1983 License Agreement; NOW, THEREFORE, in consideration of and subject to the premises and the mutual agreements, terms and conditions herein contained, the benefits to be derived therefrom, the mutual cooperation and assistance between the parties, and other good and valuable consideration, the receipt and the sufficiency of which are hereby acknowledged, Food Lion and Delhaize agree as follows; 1. Pursuant to paragraph 21 of the 1983 License Agreement, Delhaize hereby agrees that: A. Food Lion is permitted to assign its rights under the 1983 License Agreement to FL Food Lion; and B. Following consummation of the assignment of Food Lion's rights under the 1983 License Agreement to FL Food Lion, FL Food Lion is permitted to sublicense its rights under the 1983 License Agreement to Food Lion. 2. Pursuant to paragraph 21 of the 1983 License Agreement, this Agreement shall constitute Delhaize's prior written consent to the transactions noted in paragraph 1. 3. The remaining provisions of the 1983 License Agreement shall remain in full force and effect as written. 4. Delhaize shall be entitled, in its sole discretion and without liability, to withdraw its consent as granted herein, upon a change in control of FL Food Lion. In the event of a change in control of FL Food Lion, and upon Delhaize's election to withdraw its consent hereunder, Food Lion's rights under the 1983 License Agreement shall revert back to Food Lion and the assignment and sublicense shall be void. Food Lion's rights under the 1983 License Agreement shall not be affected by such withdrawal of consent. 5. This Agreement constitutes Delhaize's consent to FL Food Lion's sublicensure of Food Lion's rights under the 1983 License Agreement to Food Lion alone. FL Food Lion shall not grant any further sublicenses of Food Lion's rights under the 1983 License Agreement without Delhaize's prior written consent. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. FOOD LION, INC. By: G.de Vaucleroy ETABLISSEMENTS DELHAIZE FRERES ET CIE "LE LION" S.A. By: P.O. Beckers EX-11 7 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (Amounts in thousands except Years Ended per share amounts) January 3, December 28, December 30, 1998 1996 1995 BASIC NET INCOME $172,250 $215,220 $172,361 WEIGHTED AVERAGE COMMON STOCK OUTSTANDING 468,916 470,216 481,154 BASIC EARNINGS PER SHARE $ .3673 $ .4577 $.3582 DILUTED NET INCOME $172,250 $215,220 $172,361 ELIMINATION OF INTEREST EXPENSE, NET OF RELATED TAX EFFECT, APPLICABLE TO 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 3,479 3,499 3,508 ADJUSTED INCOME APPLICABLE TO COMMON STOCK $175,729 $218,719 $175,869 WEIGHTED AVERAGE COMMON SHARES AND OTHER COMMON STOCK EQUIVALENTS: COMMON STOCK OUTSTANDING 468,916 470,216 481,154 STOCK OPTIONS 737 573 - SHARES ISSUABLE UPON CONVERSION OF 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 14,440 14,440 14,557 484,093 485,229 495,711 DILUTED EARNINGS PER SHARE $ .3630 $ .4508 $.3548 EX-21 8 Exhibit 21 Subsidiaries of Registrant Entity State of incorporation Food Lion, Inc NC Kash n' Karry DE Food Stores, Inc. FLI Holding Corp. DE Risk Management NC Services, Inc. FL Food Lion,Inc. FL EX-23 9 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Food Lion, Inc. on Form S-8 (File Nos. 33-18796 ,33-18797 and 333-03669) and Form S-3 (File Nos. 33-40457,33-50037 and 33-49620) of our report dated February 10, 1998, on our audits of the consolidated financial statements of Food Lion, Inc. and subsidiaries as of January 3, 1998, and December 28,1996, and for the fiscal years ended January 3, 1998, December 28, 1996, and December 30, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND, L.L.P. Charlotte, North Carolina April 7, 1998 EX-27 10
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 referernce to such financial statements. 1,000 Year JAN-03-1998 JAN-03-1998 56,147 0 166,790 0 982,744 1,297,038 2,894,274 1,052,005 3,458,943 923,595 586,355 0 0 235,270 1,097,915 3,458,943 10,194,385 10,194,385 7,975,659 7,975,659 0 0 115,389 282,376 110,126 172,250 0 0 0 172,250 0.37 0.36
EX-99 11 Exhibit 99 UNDERTAKING TO FILE EXHIBITS PURSUANT TO ITEM 601(b)(4)(iii)(A) OF REGULATIONS S-K The undersigned registrant acknowledges that it has not filed with the Securities and Exchange Commission (the "Commission") copies of certain instruments with respect to long-term debt of the registrant representing obligations not exceeding 10% of the registrant's total assets as of January 3, 1998, pursuant to the provisions of Item 601(b)(4)(iii)(A) of Regulation S-K of the Commission (the "Regulation"). Pursuant to the Regulation, the undersigned registrant hereby undertakes to furnish to the Commission upon its request a copy of any such instrument, including convertible subordinated debentures dated June 15, 1993 totaling $115 million. This is the 8th day of April, 1998. FOOD LION, INC. Laura Kendall EX-13 12 Consolidated Statements of Income Year Ended Year Ended Year Ended January 3, December 28, December 30, (Dollars in thousands 1998 1996 1995 except per share amounts) Restated Net sales $ 10,194,385 $9,005,932 $8,210,884 Cost of goods sold 7,975,659 7,087,177 6,516,637 Gross profit 2,218,726 1,918,755 1,694,247 Selling and administrative expenses 1,516,726 1,325,592 1,191,532 Depreciation and amortization 219,833 165,286 146,170 Asset impairment reserve - 22,187 - Store closing charge/(income) 84,40 (27,600) - Operating income 397,765 433,290 356,545 Interest expense 115,389 80,520 73,484 Income before income taxes 282,376 352,770 283,061 Provision for income taxes 110,126 137,550 110,700 Net income $ 172,250 $ 215,220 $ 172,361 Basic earnings per common share $ .37 $ .46 $ .36 (Results as a percentage of sales) Net sales 100.00% 100.00% 100.00% Cost of goods sold 78.24 78.69 79.37 Gross profit 21.76 21.31 20.63 Selling and administrative expenses 14.88 14.72 14.51 Depreciation and amortization 2.16 1.84 1.78 Asset impairment reserve - .25 - Store closing charge/(income) .82 (.31) - Operating income 3.90 4.81 4.34 Interest expense 1.13 .89 .89 Income before income taxes 2.77 3.92 3.45 Provision for income taxes 1.08 1.53 1.35 Net income 1.69% 2.39% 2.10% The accompanying notes are an integral part of the consolidated financial statements. Consolidated Balance Sheets January 3, December 28, (Dollars in thousands 1998 1996 except per share amounts) Restated Assets Current assets: Cash and cash equivalents $ 56,147 $ 102,371 Receivables 166,790 151,163 Inventories 982,744 1,065,743 Prepaid expenses and other 28,234 33,660 Deferred tax asset 63,123 75,807 Total current assets 1,297,038 1,428,744 Property, at cost, less accumulated depreciation 1,842,269 1,768,232 Deferred tax asset 51,980 2,769 Intangible assets less accumulated amortization 267,656 278,726 Total assets $3,458,943 $3,478,471 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $ 80,000 $ 250,010 Accounts payable, trade 460,714 470,994 Accrued expenses 351,173 378,160 Capital lease obligations - current 20,427 21,970 Long term debt - current 2,525 973 Other liabilities - current 8,756 7,279 Income taxes payable 0 5,578 Total current liabilities 923,595 1,134,964 Long-term debt 586,355 495,111 Capital lease obligations 489,928 469,035 Other liabilities 125,880 154,273 Total liabilities 2,125,758 2,253,383 Shareholders' equity: Class A non-voting common stock, $.50 par value; authorized 1,500,000,000 shares; issued and outstanding 236,224,000 shares at January 3, 1998 and 236,166,000 shares at December 28, 1996 118,112 118,083 Class B voting common stock, $.50 par value; authorized 1,500,000,000 shares; issued and outstanding 232,727,000 shares at January 3, 1998 and 232,902,000 shares at December 28, 1996 116,364 116,451 Additional capital 794 1,708 Retained earnings 1,097,915 988,846 Total shareholders' equity 1,333,185 1,225,088 Total liabilities and shareholders' equity $ 3,458,943 $3,478,471 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Cash Flows January 3, December 28, 1998 1996 (Dollars in thousands) Restated Cash flows from operating activities Net income $172,250 $215,220 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 219,833 165,286 Loss(gain) on disposals of property 964 466 Store closing charge/(income) 84,402 (27,600) Asset impairment reserve - 22,187 Deferred income taxes ( 36,527) ( 23,450) Changes in operating assets and liabilities net of effect of acquisition of subsidiary: Receivables ( 15,627) ( 50,845) Inventories 82,999 ( 90,484) Prepaid expenses and other 5,426 ( 6,531) Accounts payable and accrued expenses ( 40,945) 71,351 Income taxes payable ( 5,578) 5,578 Other liabilities ( 36,416) 34,099 Total adjustments 258,531 100,057 Net cash provided by operating activities 430,781 315,277 Cash flows from investing activities Capital expenditures ( 346,134) ( 283,564) Proceeds from sale of property 32,572 27,464 Investment in subsidiary, net of cash received - ( 99,852) Net cash used in investing activities ( 313,562) ( 355,952) Cash flows from financing activities Net (payments) proceeds under short-term borrowings ( 170,010) 250,000 Principal payments on long-term debt ( 212,027) ( 65,656) Proceeds from issuance of long-term debt 304,823 - Principal payments under capital lease obligations ( 22,076) ( 17,764) Dividends paid ( 62,748) ( 52,310) Repurchase of common stock ( 2,960) ( 44,345) Proceeds from issuance of common stock 1,555 3,086 Net cash (used in) provided by financing activities ( 163,443) 73,011 Net (decrease) increase in cash and cash equivalents ( 46,224) 32,336 Cash and cash equivalents at beginning of year 102,371 70,035 Cash and cash equivalents at end of year $ 56,147 $102,371 The accompanying notes are an integral part of the consolidated financial statements Consolidated Statements of Cash Flows December 30, 1995 (Dollars in thousands) Cash flows from operating activities Net income $172,361 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 146,170 (Gain) loss on disposals of property ( 1,995) Asset impairment reserve - Deferred income taxes 2,000 Changes in operating assets and liabilities: Receivables 12,633 Inventories ( 27,737) Prepaid expenses and other ( 9,527) Accounts payable and accrued expenses 44,687 Income taxes payable ( 22,169) Other liabilities 14,152 Total adjustments 158,214 Net cash provided by operating activities 330,575 Cash flows from investing activities Capital expenditures (219,905) Proceeds from sale of property 20,806 Net cash used in investing activities (199,099) Cash flows from financing activities Net (payments) proceeds under short-term borrowings ( 20,000) Principal payments on long-term debt ( 25) Principal payments under capital lease obligations ( 11,081) Dividends paid ( 46,293) Repurchase of common stock ( 50,950) Proceeds from issuance of common stock 39 Net cash used in financing activities (128,310) Net increase in cash and cash equivalents 3,166 Cash and cash equivalents at beginning of year 66,869 Cash and cash equivalents at end of year $ 70,035 The accompanying notes are an integral part of the consolidated financial statements Consolidated Statements of Shareholders' Equity Class A Class B (Dollars and shares in thousands Common Stock Common Stock except per share amounts) Shares Amount Shares Amount Balances December 31, 1994 244,142 $122,071 239,571 $119,786 Cash dividends declared: Class A - $.0972 per share Class B - $.0948 per share Sale of stock 8 4 - - Repurchase of common stock (5,641) (2,820) (2,946) (1,473) Net income Balances December 30, 1995 238,509 119,255 236,625 118,313 Cash dividends declared: Class A - $.1120 per share Class B - $.1104 per share Sale of stock 587 293 - - Repurchase of common stock ( 3,047) ( 1,524) ( 3,723) ( 1,862) Converted debt 117 59 - - Net income Balances December 28, 1996, restated 236,166 118,083 232,902 116,451 Cash dividends declared: Class A - $.1348 per share Class B - $.1328 per share Sale of stock 293 147 - - Repurchase of common stock ( 235) ( 118) ( 175) ( 87) Net income Balances January 3, 1998 236,224 $118,112 232,727 $116,364 The accompanying notes are an integral part of the consolidated financial statements Additional Retained Capital Earnings Total Balances December 31, 1994 $ 337 $785,159 $1,027,353 Cash dividends declared: Class A - $.0972 per share - ( 23,621) ( 23,621) Class B - $.0948 per share - ( 22,672) ( 22,672) Sale of Stock 35 - 39 Repurchase of common stock (372) ( 46,285) ( 50,950) Net income _ 172,361 172,361 Balances December 30, 1995 - 864,942 1,102,510 Cash dividends declared: Class A - $.1120 per share - ( 26,436) ( 26,436) Class B - $.1104 per share - ( 25,874) ( 25,874) Sale of stock 2,793 - 3,086 Repurchase of common stock ( 1,953) ( 39,006) ( 44,345) Converted debt 868 - 927 Net income - 215,220 215,220 Balances December 28, 1996, restated 1,708 988,846 1,225,088 Cash dividends declared: Class A - $.1348 per share - ( 31,825) ( 31,825) Class B - $.1328 per share - ( 30,923) ( 30,923) Sale of stock 1,408 - 1,555 Repurchase of common stock ( 2,322) ( 433) ( 2,960) Net income - 172,250 172,250 Balances January 3, 1998 $ 794 $1,097,915 $1,333,185 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Nature of Operations As of January 3, 1998, the Company operated 1,157 retail food supermarkets and eight distribution centers in 11 states in the Southeast United States. The Company's stores, which are operated under the names of "Food Lion" and "Kash n' Karry," sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen foods, deli/bakery and non-food items, such as health and beauty aids and other household and personal products. Principles of Consolidation The consolidated financial statements include the accounts of Food Lion, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Operating Segment The Company engages in one line of business, the operation of general food supermarkets. Fiscal Year The Company's fiscal year ends on the Saturday nearest to December 31. The year ended January 3, 1998 included 53 weeks. The years ended December 28, 1996 and December 30, 1995 each included 52 weeks. The 1997 disclosed amounts represent the year ended January 3, 1998. Use of Estimates in Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first out (LIFO) method comprised approximately 86% and 83% of inventories, in 1997 and 1996, respectively. Meat, produce and deli inventories are valued on the first-in, first-out (FIFO) method. If the FIFO method were used entirely, inventories would have been $114.4 million and $104.4 million greater in 1997 and 1996, respectively. Application of the LIFO method resulted in increases in the cost of goods sold of $10.0, $10.2 and $15.0 million for 1997, 1996 and 1995, respectively. Statements of Cash Flows Selected cash payments and noncash activities were as follows: (Dollars in thousands) 1997 1996 1995 Cash payments for income taxes $158,543 $154,791 $130,907 Cash payments for interest, net of amounts capitalized 108,743 76,631 70,095 Non-cash investing and financing activities: Capitalized lease obligations incurred for store properties 80,207 130,899 91,219 Capitalized lease obligations terminated for store properties 31,633 25,710 9,615 Capitalized lease obligations for store equipment purchases - - 3,069 Capitalized lease obligations terminated for store equipment 7,148 - - Conversion of long term debt to stock - 927 - Property Property is stated at historical cost and depreciated on a straight-line basis over the estimated service lives of assets, generally as follows: Buildings 40 years Furniture, fixtures and equipment 3 - 10 years Leasehold improvements 8 years Vehicles 7 years Property under capital leases Lease term Intangible Assets Intangible assets primarily include goodwill, tradenames and favorable leasehold interests, all of which have been acquired in conjunction with purchase business combinations. Intangible assets are amortized on a straight-line basis over the estimated useful lives. The Company evaluates, on an on-going basis, the carrying value of intangible assets based on projections of undiscounted cash flows. If impairment is identified, the Company compares the assets future discounted cash flows to its current carrying value and records specific provisions as appropriate. Deferred Income Taxes Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. Cost of Goods Sold Purchases are recorded net of cash discounts. Advertising Costs Advertising costs are expensed as incurred. Store Opening Costs Costs associated with the opening of new stores are expensed as incurred. Store Closing Costs When a decision is made to close a store, the Company records a charge to cover the estimated costs of the planned store closing including (1)the unrecoverable portion of the present value of the remaining lease payments on leased stores (recorded in Other Liabilities on the Company's Consolidated Balance Sheet), (2) the write down of store assets (building, equipment, etc.) to reflect estimated realizable values (recorded as a reduction of the recorded asset cost on the Company's Consolidated Balance Sheet), and (3) other costs associated with the store closing recorded in Accrued Expenses on the Company's Consolidated Balance Sheet). The Company intends to close stores within a year after the decision to close is made. Recoverable and realizable values are determined based on historical disposition of similar assets and current economic conditions, and are reviewed as new information becomes available or economic conditions change. The Company makes adjustments to the valuation reserves as needed. At the closing date the Company discontinues depreciation on all assets related to closed store properties. Disposition efforts on these assets begin immediately following the store closing. Significant cash outflows associated with store closings relate to on-going rent payments on leased stores. The principal portion of the rent payments is charged against the lease liability established for closed stores (discussed above), while the interest portion of the rent payments is recorded against current year earnings and is recorded in Interest Expense. Self Insurance The Company is self-insured for workers' compensation, general liability and vehicle accident claims. The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported, with a maximum per occurrence of $500,000 for workers' compensation, $600,000 for general liability and $750,000 for vehicle liability. The Company is insured for covered costs in excess of these limits. Self insurance expense related to the above totaled $32.9 million in 1997, $30.4 million in 1996, and $35.3 million in 1995. Total claim payments related to the above were $30.3 million in 1997,$25.8 million in 1996, and $26.2 million in 1995. Earnings Per Share The Company adopted Financial Accounting Standards Board Statement No.128, "Earnings per Share", which requires entities to present basic earnings per share computed by dividing income available to common stockholders by the weighted average number of common shares outstanding (468.9 million shares in 1997 and 470.2 million shares in 1996). The effect of stock options and convertible subordinated debentures does not result in a material dilution of earnings per share. Reclassification Certain financial statement items have been reclassified to conform to the current year's format. Year 2000 Disclosure The Company has and will continue to make certain investments in software systems and applications to ensure the Company is year 2000 compliant. The financial impact to the Company has not been and is not anticipated to be material to its financial position or results of operations in any given year. 2. Acquisitions On December 18, 1996, the Company acquired all of the outstanding shares of Kash n' Karry Food Stores, Inc. ("Kash n' Karry"), a Florida-based supermarket retailer which operated 100 stores, for $121.6 million. The Company began reporting consolidated results of operations, including Kash n' Karry, in the first quarter of 1997. The Kash n' Karry acquisition was accounted for using the purchase method of accounting, and, accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based upon their respective fair values at the date of acquisition. In accordance with Accounting Principles Board Opinion No. 17, the Company determined that the balance of the purchase price (goodwill, including tradenames) had an unlimited useful life, and as a result, established a 40-year straight-line amortization period for these intangible assets. The acquisition strategy included plans to close a number of Kash n' Karry stores in conjunction with the Company's store relocation program and as a result of identifying underperforming units that do not meet operating expectations. Eleven of these stores were closed in 1997. During the fourth quarter of 1997, the Company finalized plans to close an additional 11 stores during the next eighteen months. The net purchase price was initially allocated as follows: (Dollars in thousands) Property, plant and equipment $103,078 Other assets 49,229 Intangible assets 269,348 Long-term debt (230,836) Other liabilities, net ( 90,967) Purchase price less cash received $ 99,852 3. Property Property consists of the following: (Dollars in thousands) 1997 1996 Land and improvements $160,543 $202,490 Buildings 397,496 401,717 Furniture, fixtures and equipment 1,265,085 1,163,099 Vehicles 98,529 99,745 Leasehold improvements 361,278 258,354 Construction in progress (estimated costs to complete and equip at January 3, 1998 are $64.8 million) 41,488 32,945 2,324,419 2,158,350 Less accumulated depreciation 941,298 824,560 1,383,121 1,333,790 Property under capital leases 569,855 526,954 Less accumulated depreciation 110,707 92,512 459,148 434,442 $1,842,269 $1,768,232 At January 3, 1998 the Company had $99.4 million (book value) in property held for sale. 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" (FASB No. 121). This statement requires companies to record impairments to long-lived assets, certain identifiable intangibles and related goodwill when events or changing circumstances make it probable that an asset's carrying amount cannot be fully recovered. In adopting this statement, management considered the expected operating cash flows along with an estimate of the fair value of the assets if they were sold. The implementation of FASB No. 121 created a non-cash charge against 1996 earnings of $22.2 million (see Note 17). 4. Intangible Assets Intangible Assets is comprised of the following: 1997 1996 Goodwill $205,809 $207,068 Tradenames 58,000 58,000 Leasehold interest 15,312 15,445 279,121 280,513 Accumulated amortization 11,465 1,787 $267,656 $278,726 During 1997, changes in Goodwill arose primarily from the acquisition of individual store locations from competitors and purchase price allocation adjustments for Kash n' Karry to finalize the acquisition accounting for the opening balance sheet and to reduce store closing reserves, originally established at the acquisition date, to reflect updated estimated recoverable values and costs related to closed store properties. 5. Accrued Expenses Accrued expenses consist of the following: (Dollars in thousands) 1997 1996 Employee profit sharing $100,634 $ 99,581 Self insurance 75,735 89,249 Payroll 37,410 55,200 Reserves for store closings 7,436 1,000 Other 129,958 133,130 $351,173 $378,160 6. Employee Benefit Plan The Company has a non-contributory retirement plan covering all Food Lion employees. The plan provides benefits to participants upon death, retirement or termination of employment with the Company. Contributions to the retirement plan are determined by the Company's Board of Directors. Expense related to the plan totaled $97.8 million in 1997, $94.9 million in 1996 and $85.3 million in 1995. 7. Long-Term Debt Long-term debt consists of the following: (Dollars in thousands) 1997 1996 Medium-term notes, due from 1999 to 2006. Interest ranges from 8.32% to 8.73%. $150,300 $150,300 Debt Securities, due 2007. Interest is at 7.55% 150,000 - Debt Securities, due 2027. Interest is at 8.05% 150,000 - Note purchase agreements, due 1998. Interest is at 10.21%. - 50,000 Convertible subordinated debentures, due 2003. Interest is at 5%. 114,073 114,073 Senior fixed-rate notes, due 2003. Interest is at 11.5%. - 136,803 Senior floating-rate notes, due 2003. Interest is at a rate equal to six month LIBOR plus 200 basis points. - 23,942 Mortgage payables due from 1999 through 2003. Interest ranges from 7.5% to 10.35%. 20,043 20,925 Other 4,464 41 588,880 496,084 Less current portion 2,525 973 $586,355 $495,111 The Company exercised its right to call all of the senior fixed-rate notes and the senior floating-rate notes at par in January, 1997 using the revolving credit facility discussed in Note 8. Issuance of debt securities in April, 1997 were used to replace the borrowings made under the revolving credit facility. During the fourth quarter of 1997, the note purchase agreement due in 1998 totaling $50.0 million was paid in full with no prepayment penalty. The convertible subordinated debentures are convertible at any time into shares of the Company's Class A non-voting common stock at a conversion price of $7.90 per share, subject to adjustment under certain circumstances. As of January 3, 1998, 117,341 shares had been converted. At January 3, 1998, $22.8 million (book value) in property was pledged as collateral for mortgage payables. At January 3, 1998 and December 28, 1996, the Company estimated that the fair value of its long-term debt was approximately $641.3 million and $535.7 million, respectively. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of the same remaining maturities. Approximate maturities of long-term debt in the years 1998 through 2002 are $2.5, $42.5, $2.8, $106.3 and $1.6 million, respectively. 8. Credit Arrangements The Company maintains a revolving credit facility with a syndicate of commercial banks providing $700.0 million in committed lines of credit, of which $350.0 million will expire on December 15, 1998 and the remaining $350.0 million on December 16, 2001. There were no borrowings outstanding at January 3, 1998 and $250.0 million was outstanding at December 28, 1996. Additionally, the Company had other committed short-term lines of credit with banks totaling $35.0 million, of which no borrowings were outstanding at January 3, 1998. The Company has a $250.0 million commercial paper program, of which no borrowings were outstanding during the years ended January 3, 1998 and December 28, 1996. In addition, the Company has periodic short-term borrowings under other informal arrangements. Outstanding borrowings under these arrangements were $80.0 million at January 3, 1998 at an average interest rate of 6.09% with no borrowings outstanding at December 28, 1996. 9. Leases The Company's stores operate principally in leased premises. Lease terms generally range from ten to thirty years with renewal options ranging from five to twenty years. The following schedule shows future minimum lease payments under capital leases, together with the present value of net minimum lease payments, and operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of January 3, 1998. Capital Operating Leases (Dollars in thousands) Leases Open Stores Closed Stores 1998 $ 83,666 $ 129,118 $19,253 1999 83,283 129,093 18,861 2000 82,243 128,068 18,445 2001 81,397 126,990 18,145 2002 81,348 125,271 17,990 Thereafter 893,848 1,059,351 137,589 Total minimum payments 1,305,785 $1,697,891 $230,283 Less estimated executory costs 71,163 Net minimum lease payments 1,234,622 Less amount representing interest 724,267 Present value of net minimum lease payments $ 510,355 Minimum payments have not been reduced by minimum sublease rentals of $18.4 million due in the future under non-cancelable subleases. Total rent expense for operating leases, excluding those with terms of one year or less, is as follows: (Dollars in thousands) 1997 1996 1995 Minimum rents $133,786 $137,157 $108,457 Contingent rents, based on sales 371 680 457 $134,157 $137,837 $108,914 In addition, the Company has signed lease agreements for additional store facilities, the construction of which were not complete at January 3, 1998. The leases expire on various dates extending to 2022 with renewal options generally ranging from ten to twenty years. Total future minimum rents under these agreements are approximately $639 million. 10. Income Taxes Provisions for income taxes for 1997, 1996 and 1995 consist of the following: (Dollars in thousands) Current Deferred Total 1997 Federal $119,553 $(30,327) $ 89,226 State 27,100 ( 6,200) 20,900 $146,653 $(36,527) $110,126 1996 Federal $134,000 $(19,550) $114,450 State 27,000 ( 3,900) 23,100 $161,000 $(23,450) $137,550 1995 Federal $ 90,500 $ 1,600 $ 92,100 State 18,200 400 18,600 $108,700 $ 2,000 $110,700 The Company's effective tax rate varied from the federal statutory rate as follows: 1997 1996 1995 Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 4.8 4.3 4.3 Other ( 0.8) (0.3) (0.2) 39.0% 39.0% 39.1% Deferred income tax expense relates to the following: (Dollars in thousands) 1997 1996 1995 Excess tax depreciation $ 8,892 $ 2,774 $ 2,852 Provision for store closings (43,041) 7,793 5,399 Excess interest and amortization over rent paid on capital leases ( 4,604) ( 3,003) ( 3,258) Excess tax gain/loss ( 4,372) ( 9,277) ( 4,882) Accrued expenses ( 2,258) ( 3,251) ( 2,635) Tax loss carryforwards ( 1,959) - - Asset impairment reserve 4,892 ( 8,713) - Other 5,923 ( 9,773) 4,524 $ (36,527) $( 23,450) $ 2,000 The components of deferred income tax assets and liabilities at January 3, 1998 and December 28, 1996 are as follows: (Dollars in thousands) 1997 1996 Current assets: Inventories $ 10,436 $ 16,312 Accrued expenses 52,692 53,166 Provision for store closings ( 5) 6,329 Total current assets 63,123 75,807 Noncurrent assets/(liability): Depreciation (105,483) (100,112) Leases 50,937 40,435 Provision for store closings 76,970 35,270 Tax loss carryforwards 22,737 20,777 Other deferred charges 6,819 6,399 Total noncurrent assets 51,980 2,769 Net deferred taxes $ 115,103 $ 78,576 As of January 3, 1998, the Company had net operating loss carryforwards for tax purposes of approximately $56 million related to Kash n' Karry. Due to certain change of ownership requirements of Section 382 of the Internal Revenue Code, utilization of the Kash n' Karry operating losses is expected to be limited to approximately $3.6 million per year. If the full amount of that limitation is not used in any year, the amount not used increases the allowable limit in the subsequent year. Loss carryovers will expire during the years 2004 through 2012. 11. Other Liabilities Other liabilities consist of the following: (Dollars in thousands) 1997 1996 Remaining lease liability - Closed Stores $123,105 $150,093 Other 11,531 11,459 134,636 161,552 Less current portion 8,756 7,279 $125,880 $154,273 12. Stock Options and Restricted Stock Plans The Company has a stock option plan under which options to purchase up to 10 million shares of Class A common stock may be granted to officers and key employees at prices equal to fair market value on the date of the grant. Options become exercisable as determined by the Stock Option Committee of the Board of Directors of the Company on the date of grant, provided that no option may be exercised more than ten years after the date of grant. In addition, the Company established a restricted stock plan in 1996 for executive employees pursuant to the 1996 Stock Incentive Plan. Under this stock plan, the Company issued 133,393 shares in 1996 (1,803 shares forfeited) and 196,003 shares in 1997 (10,524 shares forfeited). Currently, the Company has 317,069 shares of restricted Class A Common Stock outstanding under the plan. These shares of stock will vest over five years from grant date. The weighted average grant date fair value for these shares is $7.03. At January 3, 1998 none of these restricted shares had been issued. A summary of shares reserved for outstanding options and restricted stock as of January 3, 1998, changes during the year and related weighted average exercise price is presented below: 1997 1997 1996 1996 1995 1995 Shares Weighted Shares Weighted Shares Weighted Average Average Average Exercise Exercise Exercise Price Price Price Outstanding 2,553,835 $6.08 2,658,069 $5.97 3,008,930 $5.55 at beginning of year Granted 1,401,509 8.13 931,715 7.38 146,650 5.81 Exercised (289,833) 5.27 (587,795) 6.19 (7,531) 5.25 Forfeited/ expired (342,719) 11.35 (448,154) 11.35 (489,980) 9.90 Outstanding at end of year 3,322,792 6.63 2,553,835 6.08 2,658,069 5.97 Options exercisable at end of year 958,595 5.71 1,367,820 5.75 2,250,261 5.69 As of January 3, 1998, there were 5,814,153 shares of Class A common stock available for future grants. The following table summarizes options outstanding and options exercisable as of January 3, 1998, and the related weighted average remaining contractual life (years) and weighted average exercise price (excluding restricted stock). Options Options Outstanding Exercisable Range of Number Weighted Weighted Number Weighted exercise outstand- Average Average Exercisable Average prices ing Remaining Exercise Exercise Contractual Price Price Life $5.12 - $7.70 2,759,222 5.8 $6.35 903,745 $5.31 $7.71 - $11.55 171,501 8.8 8.64 2,350 7.86 $11.56 -$12.42 75,000 3.8 12.42 52,500 12.42 $ 5.12 -$12.42 3,005,723 6.0 $6.63 958,595 $5.71 The weighted average fair value at date of grant for options granted during 1997, 1996, and 1995 was $2.143, $2.350, and $1.606 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions: 1997 1996 1995 Expected dividend yield (%) 1.50 1.50 1.50 Expected volatility (%) 25.00 25.00 25.00 Risk-free interest rate (%) 6.50 6.60 6.35 Expected term (years) 5.5 5.5 4.5 The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock options granted in 1997, 1996 or 1995. Had compensation cost been determined based on the fair value at the grant date consistent with the provisions of this statement, the Company's pro forma net earnings and earnings per share would have been as follows (in thousands, except per share data): 1997 1996 1995 Net earnings - as reported $172,250 $215,220 $172,361 Net earnings - pro forma 171,656 214,986 172,337 Basic earnings per share - as reported 0.37 0.46 0.36 Basic earnings per share - pro forma 0.37 0.46 0.36 13. Common Stock On January 3, 1998, approximately 24.3% and 15.2% of the issued and outstanding Class A non-voting common stock and 24.5% and 27.2% of the issued and outstanding Class B voting common stock was held, respectively, by Etablissements Delhaize Freres et Cie "Le Lion" S.A. (Delhaize) and Delhaize The Lion America, Inc., a wholly owned subsidiary of Delhaize (Detla). In the aggregate, Delhaize and Detla owned approximately 51.7% of the Class B voting common stock and 39.5% of Class A non-voting common stock. Holders of Class B common stock are entitled to one vote for each share of Class B common stock held, while holders of Class A common stock are not entitled to vote except as required by law. The Board of Directors of the Company may declare dividends with respect to Class A common stock in excess of dividends declared and paid with respect to the Class B common stock or without declaring and paying any dividends with respect to the Class B common stock. When dividends are declared with respect to the Class B common stock, the Board of Directors of the Company must declare a greater per share dividend to the holders of Class A common stock. 14. Interest Expense Interest expense consists of the following: (Dollars in thousands) 1997 1996 1995 Interest on capital leases $56,809 $46,767 $38,995 Other interest (net of $2.0, $1.5 and $1.9 million capitalized in 1997, 1996, and 1995, respectively) 58,580 33,753 34,489 $115,389 $80,520 $73,484 15. Store Closing Costs (Dollars in millions) Reduction Lease Accrued of Asset Liabilities Expenses Total Values Balance at December 31,1994 $ 80.2 $ 50.0 $ 27.3 $ 157.5 Additions 0.0 20.1 0.0 20.1 Reductions (24.7) (3.6) (2.1) (30.4) Reclassifications (1.9) 6.6 (4.7) 0.0 Gain/(Loss) on Disposal of Closed Properties 4.6 (6.1) 0.0 (1.5) Balance at December 30,1995 58.2 67.0 20.5 145.7 Additions 20.9 89.3 3.0 113.2 Reductions (31.2) (4.6) (1.8) (37.6) Reclassifications (0.8) 3.0 (2.2) 0.0 Gain/(Loss) on Disposal of Closed Properties 0.1 (4.6) 0.6 (3.9) Recognition of unused (8.5) 0.0 (19.1) (27.6) reserves Balance at December 38.7 150.1 1.0 189.8 28,1996 Additions 91.0 25.6 14.9 131.5 Reductions (12.9) (8.3) (3.6) (24.8) Reclassifications 7.3 (3.0) (4.3) 0.0 Gain/(Loss) on Disposal of 0.5 (11.7) 3.1 (8.1) Closed Properties Recognition of unused (20.8) (29.6) (3.7) (54.1) reserves Balance at January 3,1998 $103.8 $123.1 $ 7.4 $234.3 The Company closed 119, 25, 13 and 87 stores during 1997, 1996 ,1995 and 1994, respectively, and two distribution centers in 1997. The balances at the end of each year, listed above, include the remaining closing costs related to these stores, and 23 stores that the Company plans to close within the next year. 1997 Activity: In September of 1997, the Company finalized its plan to exit the Southwest market by closing its 61 stores located in Louisiana, Oklahoma, and Texas and its distribution center in Roanoke, Texas. In previous periods, the Southwest market negatively impacted the Company's operating results by approximately $0.01 per share annually. After an extensive review of operations in the Southwest market and an evaluation of alternative operating strategies, the Company determined in the third quarter of 1997 that it was in its best interest to exit the market. During 1997 the Company recorded a pre-tax charge of $116.5 million related to the divestiture of its Southwest market. This charge included the write-down of store and distribution center assets to reflect estimated realizable values ($92.1 million), the present value (calculated by applying an 8% discount rate) of remaining rent payments on leased stores ($17.1 million) included in Other Liabilities above, and other costs associated with the store closings such as legal fees, commissions, severance costs, and certain other costs that represent incremental direct costs to sell the related assets and/or expenses arising from contractual obligations ($7.3 million) included in Accrued Expenses above. As of January 3, 1998 all 61 stores and the distribution center in the Southwest market were closed and related disposition efforts were underway. During 1997, the Company reduced store closing costs by $54.1 million in unused reserves which arose primarily from changes in estimated liabilities on remaining lease obligations and in estimated recoverable values of owned properties. Of this amount, $14.4 million related to stores closed in previous years and $17.7 million related to the 1997 store closings in the Southwest market. These unused reserves were recorded into income. The remaining $22.0 million related to Kash n' Karry store closings and was reflected as an adjustment to Goodwill. The remaining 1997 activity represents store closing costs incurred, the disposition of properties held for sale, and payments made on remaining lease obligations, related to store closings in the normal course of business. 1996 Activity: Significant additions to the reserve represent store closing reserves for Kash n' Karry established at the date of acquisition. The acquisition strategy included plans to close a number of Kash n' Karry stores in conjunction with the Company's store relocation program and as a result of identifying underperforming units. See Note 2 for related information. During 1996, the Company recognized $27.6 million in unused reserves related to a $170.5 million pre-tax store closing charge against 1993 earnings. The remaining 1996 activity represents store closing costs incurred, the disposition of properties held for sale, and payments made on remaining lease obligations, related to store closings in the normal course of business. 1995 Activity: Significant additions relate to store closing costs incurred for closings in the normal course of business. The 1995 reductions primarily include the diposition of owned assets related to stores closed in conjunction with the Company's 1994 store closing plan. 16. Commitments and Contingencies The Company is involved in various claims and lawsuits arising out of the normal conduct of its business. Although the ultimate outcome of these legal proceedings cannot be predicted with certainty, the management of the Company believes that the resulting liability, if any, will not have a material effect upon the Company's consolidated financial statements or liquidity. 17. Restatement of 1996 Financial Statements The Company has determined that its financial statements for the fiscal year ended December 28, 1996 should be restated to reflect an adjustment of charges originally recorded in 1997 related to store closing reserves. As a result, the Company is restating its 1996 financial statements to reflect a $12.6 million charge for an asset impairment reserve for certain stores in the Company's Southwest market, and a $27.6 million reversal of unused reserves related to the 1993 store closing reserve. The impact of the restatement on the consolidated balance sheet as of December 28, 1996, and on the consolidated statement of income for the year then ended is as follows: 1996 1996 Amounts Restated Previously Reported Amounts (Dollars in thousands) Operating income $418,290 $433,290 Net income 206,070 215,220 Basic earnings per common share .44 .46 Property at cost, less accumulated depreciation 1,772,503 1,768,232 Deferred tax asset,non-current 8,619 2,769 Accrued expenses 397,431 378,160 Report of Independent Accountants To the Shareholders of Food Lion, Inc.: We have audited the accompanying consolidated balance sheets of Food Lion, Inc. and subsidiaries as of January 3, 1998 and December 28, 1996 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 3, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Food Lion, Inc. and subsidiaries as of January 3, 1998 and December 28, 1996 and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 3, 1998 in conformity with generally accepted accounting principles. As discussed in Note 17, the 1996 financial statements have been revised to reflect adjustments related to store closing reserves. Coopers & Lybrand L.L.P. Charlotte, North Carolina February 10, 1998 Results by Quarter (unaudited) (Dollars in thousands except per share amounts) 1997 First First Second Second Quarter Quarter Quarter Quarter As Restated As Restated Reported (12 Weeks) Reported (12 Weeks) (12 Weeks) (12 Weeks) Net sales $2,276,746 $2,276,746 $2,324,719 $2,324,719 Gross profit 496,861 493,683 506,847 503,670 Selling and 346,841 346,841 345,413 345,413 administrative expenses Depreciation and 48,697 48,697 52,150 52,150 amortization Store closing 0 0 0 0 charge Operating income 101,323 98,145 109,284 106,107 Net income(loss) $45,529 $43,591 $ 49,729 $ 47,791 Basic earnings $0.10 $0.09 $0.11 $0.10 per common share 1997 Third Third Fourth Quarter Quarter Quarter As Restated Reported Reported (12 Weeks) (17 (12 Weeks) Weeks)* Net sales $2,366,905 $2,366,905 $3,226,015 Gross profit 516,609 513,432 707,941 Selling and 346,059 346,059 478,413 administrative expenses Depreciation and 52,153 52,153 66,833 amortization Store closing 87,114 96,414 (12,012) charge Operating income 31,283 18,806 174,707 Net income(loss) $ 1,229 $ (6,382) $87,250 Basic earnings $0.00 $ (0.01) $0.19 per common share *Note: The 1997 fourth quarter comprised 17 weeks; the 1996 fourth quarter comprised 16 weeks. 1996 First First Second Second Quarter Quarter Quarter Quarter As Restated As Restated Reported (12 Weeks) Reported (12 Weeks) (12 Weeks) (12 Weeks) Net sales $2,024,453 $2,024,453 $2,084,414 $2,084,414 Gross profit 411,623 411,623 443,646 443,646 Selling and 279,269 279,269 306,410 306,410 administrative expenses Depreciation and 37,019 37,019 37,951 37,951 amortization Asset impairment 9,359 13,259 0 0 reserve Store closing 0 0 0 (5,800) charge Operating income 85,976 82,076 99,285 105,085 Net income $ 40,853 $ 38,474 $ 48,584 $ 52,122 Basic earnings $0.09 $0.08 $0.10 $0.11 per common share 1996 Third Third Fourth Fourth Quarter Quarter Quarter Quarter As Restated As Restated Reported (12 Weeks) Reported (12 Weeks) (12 Weeks) (12 Weeks) Net sales $2,124,390 $2,124,390 $2,772,675 $2,772,675 Gross profit 462,061 462,061 601,425 601,425 Selling and 322,498 322,498 417,415 417,415 administrative expenses Depreciation and 38,370 38,370 51,946 51,946 amortization Asset impairment 0 0 228 8,928 reserve Store closing 0 (5,700) 0 (16,100) charge Operating income 101,193 106,893 131,836 139,236 Net income $ 50,018 $ 53,495 $ 66,615 $ 71,129 Basic earnings $0.11 $0.12 $0.14 $0.15 per common share Market Price of Common Stock Year Ended January 3, 1998 Year Ended December 28, 1996 Class A Class B Class A Class B Quarter High Low High Low High Low High Low First 9.78 7.63 10.13 8.00 5.81 5.38 5.81 5.38 Second 8.25 6.47 8.38 6.56 8.31 5.50 8.06 5.50 Third 7.50 6.94 7.56 6.91 9.06 7.75 8.56 7.31 Fourth 8.75 7.44 8.53 7.44 9.69 8.38 9.69 8.13 The Company's Class A and the Class B common stock trades on the Nasdaq stock market under the symbol: FDLNA and FDLNB, respectively. Price quotations are reported on the Nasdaq national market system. The closing market prices per share for both Class A and Class B common stock at January 3, 1998 were $8.50 and $8.31, respectively compared with $9.69 for both Class A and Class B common stock at December 28, 1996. The over-the-counter quotations reflect inter- dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. On March 31, 1998, there were 28,649 holders of record of Class A common stock and 19,571 holders of record of Class B common stock. The closing market prices per share for the Class A and the Class B common stock at March 31, 1998 were $10.69 and $10.97, respectively. Dividends Declared Per Share of Common Stock Year Ended January 3, 1998 Year Ended December 28, 1996 Quarter Class A Class B Class A Class B First $.0337 $.0332 $.0280 $.0276 Second .0337 .0332 .0280 .0276 Third .0337 .0332 .0280 .0276 Fourth .0337 .0332 .0280 .0276 Total $.1348 $.1328 $.1120 $.1104 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations During 1997, the Company had record sales of $10.2 billion and net earnings (giving effect to a charge against earnings related to the Company's divestiture of its Southwest market) of $172.3 million, compared with sales of $9.0 billion and net earnings of $215.2 million in fiscal 1996. The 13.2% increase in sales in the 53-week fiscal 1997 resulted from the acquisition of 100 Kash n' Karry stores in December of 1996 and the opening of 64 new stores, offset by the relocation of 25 older stores and the closing of 94 stores (including 61 store closings in the Southwest market). At the end of 1997, the Company operated 1,157 stores compared with 1,112 stores in operation at the end of 1996. The Company renovated 99 existing stores in 1997, which included expanding square footage and adding deli/bakery departments in most of the stores. In September of 1997, the Company finalized its plan to exit the Southwest market by closing its 61 stores located in Louisiana, Oklahoma, and Texas and its distribution center in Roanoke, Texas. In previous periods, the Southwest market negatively impacted the Company's operating results by approximately $0.01 per share annually. After extensive review of operations in the Southwest market and an evaluation of alternative operating strategies, the Company determined in the third quarter of 1997 that it was in the best interests of the Company and its shareholders to exit the market and deploy the related capital in its growth markets in the Southeast and Mid-Atlantic states. The Company recorded a pre-tax charge of $96.4 million against third quarter 1997 earnings, representing $110.8 million related to the divestiture of the Southwest, less $14.4 million in unused reserves related to store closings that have occurred since 1993. During the fourth quarter of 1997, the Company reduced the store closing costs for the Southwest divestiture by $17.7 million to reflect changes in estimated recoverable values of owned assets based on contract and offer prices received on the related properties. Net cash proceeds from the sale of assets are expected to approximate $100 million. Net income for 1997, exclusive of the store closing charge, reached a record level of $223.7 million, or basic earnings per common share of $0.48. Sales Sales reached a record level of $10.2 billion for the 53 weeks ended January 3, 1998 compared with $9.0 billion and $8.2 billion for the 52 week periods in 1996 and 1995, resulting in annual increases of 13.2%, 9.7% and 3.5%, respectively. In 1997, same store sales, or sales for stores open in comparable periods, increased 0.2% as compared with increases of 5.7% for 1996 and 2.3% for 1995. Excluding the Southwest market, same store sales increased 0.6% for the year 1997. During 1997, the Company's sales increase resulted primarily from the acquisition of 100 Kash n' Karry stores in late 1996. The Company operates West Central Florida-based Kash n' Karry as a wholly owned subsidiary. In addition 1997 included an extra week of sales, 53 weeks compared with 52 weeks in 1996. Excluding this extra week, sales would have increased 11.0% for 1997. Store renovations also continued to boost sales, as 99 existing stores were renovated to update equipment and properties, and in most locations, to add square footage and deli/bakery departments. The Company continued to enhance the MVP Customer card program, which rewards Food Lion shoppers with discounts on Food Lion's everyday Extra Low Prices on a monthly selection of items featured by the program. In 1997, the MVP Customer program was expanded to offer customers weekly bonus buys on individual products regardless of the total transaction size. The number of items highlighted on the program currently totals approximately 1,200. In 1998 the Company plans to increase usage of the expansive MVP customer database to support targeted marketing and promotional activity. Same Store Sales performance during 1997 was impacted by several additional factors: - Continued minimum level of food price inflation. The Company experienced a 1.0% inflation rate in 1997. - Increased level of promotional activity and unusual marketing strategies by supermarket operators in the highly competitive Southeast market. The Company made a decision in early 1997 not to react to such competitive activities with unplanned promotional and marketing events. Instead, the Company reiterated its promise of everyday Extra Low Prices, delivering a consistent message to customers throughout the year. As a result, the Company was able to preserve and increase its operating profits in spite of the soft sales environment during 1997 without costly unplanned marketing efforts. - During 1997 the Company cycled many of the initiatives that boosted sales in 1996, including the conversion to 24-hour operations and the implementation of debit/credit card processing. The 1998 business plan currently includes opening 75 new stores (approximately 17 of these replacing older stores) and renovating approximately 133 existing stores. The Company is committed to a growth strategy which includes plans to open new stores and strengthen existing stores through renovations in order to maintain a competitive edge in the Company's current markets. In addition, the Company will continue to evaluate its store base and may close stores to take advantage of relocation opportunities or to eliminate operating losses in underperforming stores. Expansion by acquisition is likely to continue to be a part of the Company's growth strategy and will be evaluated as appropriate. Acquisition activity can range from individual location takeovers to large transactions like the Kash n' Karry purchase. The Company's growth strategy is flexible, and the Company will listen to its consumers and revise its strategy accordingly in an effort to meet the needs of current and future customers. Gross Profit In fiscal 1997, gross profit was 21.76% of sales compared with 21.31% and 20.63% in 1996 and 1995, respectively. The gross profit increase of 0.45% of sales in 1997 is attributable to the continued implementation of category management (merchandising stores for maximum performance). Product analysis, selection and strategic pricing all contributed to gross profit increases in the grocery, perishable and meat departments in 1997. In addition, gross profits were positively impacted by the Company's private label sales, which currently represent 16.5% of total sales. The Company continues to focus on providing customers with quality, freshness and convenience through Extra Low Prices and More at Food Lion and Fresh, Fast, n' Friendly operations at Kash n' Karry. The LIFO charge, as a percent of sales, decreased gross profit by 0.10% in 1997, 0.11% in 1996 and 0.18% in 1995. The Company experienced a 1.0% inflation rate in 1997. FIFO gross profits were 21.86%, 21.42% and 20.81%, respectively in 1997, 1996 and 1995. Selling and Administrative Expenses Selling and administrative expenses as a percentage of sales were 14.88%, 14.72% and 14.51% in 1997, 1996, and 1995, respectively. Selling and administrative expenses increased 0.16% of sales in 1997 as a result of expenses related to technology improvements for stores, and the acquisition of Kash n' Karry (the Kash n' Karry format commands a higher expense structure). In addition, advertising costs increased during 1997 primarily due to planned print and broadcast media advertising targeted to certain market areas. Using the themes Extra Low Prices and More and Fresh, Fast, n' Friendly, and the MVP Customer Card program, the Company continued its marketing strategies focused on a commitment to its customers through value, convenience, quality, freshness, service and friendliness. In addition, the Company also had two successful promotional campaigns associated with NASCAR ("National Association for Stock Car Auto Racing") race events and participated in other advertising opportunities as the "Official Supermarket of NASCAR," a relationship the Company began in 1996. Food Lion's 1997 business plan reflected the Company's commitment to maintaining its existing store base as 99 store renovations were completed in 1997 compared with 124 in 1996 and 121 in 1995. The Company anticipates completing approximately 133 renovations to existing stores in 1998. Store renovations add value to customers as demonstrated by an average sales increase of 10% - 20% in the year following the renovation. Deli/bakery departments command a higher gross margin, but also create additional expenses related to rent, supplies, salaries and maintenance. The Company plans to continue an aggressive renovation program to maintain a modern and convenient shopping environment for customers in all Food Lion and Kash n' Karry stores. Store Closing Costs As discussed previously, 119 stores were closed during 1997 (including the 61 store closings related to the divestiture of the Company's Southwest market). With over 1,100 retail outlets, the Company must constantly evaluate its store base, and make decisions about store openings and closings that are in the best interest of shareholders. These store closings consist of both relocations, where a new store is opened to replace an older location in the same neighborhood, and the closing of stores due to poor performance. In September of 1997, the Company finalized its plan to exit the Southwest market by closing its 61 stores located in Louisiana, Oklahoma, and Texas and its distribution center in Roanoke, Texas. In previous periods, the Southwest market negatively impacted the Company's operating results by approximately $0.01 per share annually. After an extensive review of operations in the Southwest market and an evaluation of alternative operating strategies, the Company determined in the third quarter of 1997 that it was in its best interest to exit the market. During 1997 the Company recorded a pre-tax charge of $116.5 million related to the divestiture of its Southwest market. This charge included the write-down of store and distribution center assets to reflect estimated realizable values ($92.1 million), the present value (calculated by applying an 8% discount rate) of remaining rent payments on leased stores ($17.1 million), and other costs associated with the store closings such as legal fees, commissions, severance costs, and certain other costs that represent incremental direct costs to sell the related assets and/or expenses arising from contractual obligations ($7.3 million). As of January 3, 1998 all 61 stores and the distribution center in the Southwest market were closed and related disposition efforts were underway. During 1997, the Company reduced store closing costs by $54.1 million in unused reserves which arose primarily from changes in estimated liabilities on remaining lease obligations and in estimated recoverable values of owned properties. Of this amount, $14.4 million related to stores closed in previous years and $17.7 million related to the 1997 store closings in the Southwest market. These unused reserves were recorded into income. The remaining $22.0 million related to Kash n' Karry store closings and was reflected as an adjustment to Goodwill. The remaining 1997 activity represents store closing costs incurred, the disposition of properties held for sale, and payments made on remaining lease obligations, related to store closings in the normal course of business. The average cost to close a store as part of the Company's normal business strategy is approximately $500,000 to $900,000. Store closing costs in the Southwest market have generally exceeded this level. The Southwest is a non- contiguous market which makes employee relocation and product and equipment transfers more difficult to effectuate. Significant cash outflows associated with store closings relate to on- going rent payments on leased stores. These rent payments are funded by income from operations. The projected rental payments on closed stores are included in Note 9 to the financial statements included herein. At the end of each year, the value of all owned assets related to store properties remaining to be disposed is reviewed in conjunction with the Company's compliance with Financial Accounting Standards Board Statement no. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FASB no. 121"). Interest Expense Interest Expense as a percent of sales was 1.13% in 1997 and 0.89% in 1996 and 1995. The 1997 increase in Interest Expense relates to the second quarter 1997 issuance of $300 million in debt securities ($150 million at 7.55% due in 2007, and $150 million at 8.05% due in 2027). These funds replaced the short- term borrowings (at 6.22%) made in earlier periods to fund the Kash n' Karry transaction. Depreciation Expense Depreciation expense as a percent of sales was 2.16% in 1997 compared with 1.84% in 1996 and 1.78% in 1995. Depreciation increased in 1997 due to the acquisition of Kash n' Karry as well as an extensive capital expenditure program totaling $346 million. During 1997, the Company constructed and equipped 61 leased stores and 3 owned stores, and renovated 99 existing stores. During 1996, the Company equipped 55 leased stores and renovated 124 existing stores. During 1995, the Company constructed and equipped 38 leased stores and nine owned stores, and renovated 121 stores. In addition, the Company completed an expansion of its Greencastle, Pennsylvania distribution center in 1995. LIFO The LIFO reserve increased $10.0 million in 1997 as compared with increases of $10.3 million in 1996 and $15.0 million in 1995. The 1997 increase was primarily due to increased coffee, paper, and cigarette prices. In 1996, increased costs of grocery, frozen food and dairy items were the primary contributors to the LIFO increase while in 1995, paper, plastic products and packaging were the primary contributors to the LIFO increase. Income Taxes The provision for income taxes was $110.1 million in 1997, $137.6 million in 1996 and $110.7 million in 1995. The Company's effective tax rate was 39.0% in 1997 and 1996, and 39.1% in 1995. Liquidity and Capital Resources Cash provided by operating activities was $430.8 million in 1997 compared with $315.3 million in 1996 and $330.6 million in 1995. The increase in 1997 over the prior years was due primarily to a decrease in inventory levels resulting from continued inventory management efforts, the consolidation of the Kash n' Karry warehouse operation into Food Lion's Plant City, Florida distribution center, and closing the Southwest distribution center. The decrease in 1996 was primarily due to increased inventory levels resulting from the Kash n' Karry acquisition and increased receivables. The decrease in 1995 from 1994, was primarily due to an increase in inventory as a result of more store openings, an increase in prepaid expenses and a decrease in taxes payable, offset by a decrease in receivables and an increase in payables. Cash flows used in investing activities decreased to $313.6 million in 1997 compared with $356.0 million in 1996 and $199.1 million in 1995. The decrease in investing activities in 1997 compared to 1996 reflects the investment in Kash n' Karry during 1996 partially offset by an increase in capital expenditures in 1997 (see discussion below). In December of 1996, Food Lion purchased the stock of Kash n' Karry for $121.6 million. Capital expenditures increased to $346.1 million in 1997, compared with $283.6 million in 1996 and $219.9 million in 1995. During 1997, the Company equipped a total of 64 new stores and renovated 99 existing stores (including expanding square footage and adding deli/bakeries in most of these stores). During 1996, the Company equipped a total of 55 new stores and renovated 124 existing stores (including expansions in the majority of these stores) and implemented debit/credit and on-line communication technology in its Food Lion stores. During 1995, the Company equipped a total of 47 new stores, constructed nine Company-owned stores, completed 121 store renovations and completed construction on an expansion of the Greencastle, Pennsylvania distribution center. As a result of 64 new store openings, the acquisition of 100 Kash n' Karry stores at the end of 1996, and the closing of 119 stores in 1997, total stores increased from 1,112 at the end of 1996 to 1,157 at the end of 1997. Total store square footage increased 10.7% from 32.6 million in 1996 to 36.1 million in 1997. The total distribution space operated by the Company was 8.7 million square feet in 1997 compared with 10.7 million and 9.9 million in 1996 and 1995, respectively. The decrease in distribution space of 2 million square feet from 1996 to 1997 was the result of closing the distribution center in the Company's Southwest market, and the consolidation of the Kash n' Karry warehouse operation into Food Lion's Plant City, Florida distribution center. In 1998 the Company plans to continue its three-fold growth plan, which focuses on a combination of new store openings and renovations, as well as growth through acquisitions, if and when appropriate. The Company anticipates opening 75 new stores (17 of these will replace older stores) and renovating approximately 133 stores in 1998. The Company anticipates that the majority of the new stores will be opened under conventional leasing arrangements and, as a result, the impact on liquidity of owning stores will be insignificant in 1998. Capital expenditures for 1998 are expected to total $360 million which includes approximately $150 million for store expansion and new store construction and $150 million to equip new and renovated stores. The Company plans to finance capital expenditures for 1998 through funds generated from operations and existing bank and credit lines. The Company will consider the possibility of sale-leaseback transactions on certain free- standing, Company-owned stores in the future if advantageous opportunities are presented by potential lessors. Under the Company's current share repurchase program, which expires in April, 1998, the Company can repurchase up to $100 million in outstanding securities. The share repurchase program allows the Company the flexibility to repurchase securities as it deems appropriate in the best interests of its shareholders and in consideration of all other possible uses of funds generated by operations. Due to the acquisition of Kash n' Karry which was finalized in December, 1996, there has been minimal repurchase activity during the past eighteen months. During 1997, the Company expended $3.0 million for the purchase of Class A and Class B shares, as part of its repurchase program compared to $44.3 million in 1996 and $50.9 million in 1995. See table below. Class A Class B 1997 Shares purchased 235,000 175,000 Average purchase price $7.34 $7.06 Total purchased $1,724,900 $1,235,500 1996 Shares purchased 3,047,000 3,722,250 Average purchase price $5.89 $7.09 Total purchased $17,946,830 $26,390,753 1995 Shares purchased 5,640,615 2,946,500 Average purchase price $5.94 $5.92 Total purchased $33,505,253 $17,443,280 Additional purchases may be made in the open market under the current program as deemed in the best interest of shareholders. Debt The Company maintains a revolving credit facility with a syndicate of commercial banks providing $700.0 million in committed lines of credit. Of this amount, $350.0 million will expire on December 15, 1998 and $350.0 million will expire on December 16, 2001. As of January 3, 1998, the Company had no outstanding borrowings. During 1997, the Company had average borrowings of $97.5 million at a daily weighted average interest rate of 5.71% with a maximum amount outstanding of $410 million. As of December 28, 1996, the Company had outstanding borrowings of $250 million related to this credit facility. The Company also maintains additional committed lines of credit totaling $35.0 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. The Company had no borrowings outstanding under these lines at January 3, 1998. During 1997, the Company had average borrowings of $5.40 million at a daily weighted average interest rate of 5.68% with a maximum amount outstanding of $35 million. The Company has a $250.0 million commercial paper program, of which no borrowings were outstanding at January 3, 1998, December 28, 1996 and December 30, 1995, nor used during these years. Finally, the Company has periodic short-term borrowings under informal credit arrangements which are available to the Company at the discretion of the lender (see table below): Informal Credit Arrangements (Dollars in millions) 1997 1996 1995 Outstanding borrowings at year end $ 80 $ 0 $0 Average borrowings 8.2 3.0 .4 Maximum amount outstanding 80.0 55.0 20.0 Daily weighted average interest rate 5.76% 5.48% 6.04% In 1997, the Company repurchased privately issued notes totaling $50 million, which were due on July 1, 1998. The Company has outstanding $114.1 million of 5% convertible subordinated debentures due 2003. The debentures are convertible into shares of the Company's Class A non-voting stock at $7.90 per share. As of January 3, 1998, 117,341 shares had been converted. The Company also currently has outstanding medium- term notes of $150.3 million. The Company assumed $230.8 million in debt related to the acquisition of Kash n' Karry. Kash n' Karry's Senior Fixed-Rate Notes bearing interest at 11.5% accounted for the majority ($136.8 million) of this debt. The Senior Fixed Rate Notes, and the majority of the remaining debt securities were repaid during the first quarter of 1997. The Company funded this repayment of debt, along with additional acquisition-related short-term borrowings, with the April 1997 issuance of $300 million in debt securities (discussed in the Interest Expense section above). Impact of Inflation During 1997, the impact of inflation on the Company's operating results was moderate as the Company posted an inflation rate of 1.0%. Inventory and labor, the Company's primary costs, increase with inflation and, where possible, will be recovered through operating efficiencies and gross profits. Year 2000 The Company has evaluated its internal systems and is implementing a software conversion program to address Year 2000 issues that the Company believes could significantly impact the business. The software conversion process is expected to be completed and tested during 1999. Based on current estimates, the Company does not anticipate that the costs of this remediation will be material to the Company's financial results. The Company is in the process of evaluating the risks associated with embedded software in equipment and potential problems affecting the information processing systems of vendors and others with whom the Company does business. Self Insurance The Company is self-insured for its workers' compensation, general liability and vehicle accident claims. The Company establishes reserves based on an independent actuary's valuation of open claims reported and an estimate of claims incurred but not yet reported. It is possible that the final resolution of some of these claims may require significant expenditures by the Company in excess of its existing reserves, over an extended period of time and in a range of amounts that cannot be reasonably estimated. New Accounting Standard During 1997, the Financial Accounting Standards Board issued Statement no. 131 "Disclosures about Segments of an Enterprise and Related Information" ("FASB no. 131"). This statement is effective for fiscal years beginning after December 15, 1997, or fiscal 1998 for Food Lion, Inc. The implementation of this standard will not have a material impact on the Company's financial statements. In accordance with FASB no. 131, the Company will continue to report one operating segment which will include all stores (Food Lion and Kash n' Karry). Other: 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 statements. This forward-looking information is based on various factors and was derived utilizing numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company, including filings with the Securities and Exchange Commission of Forms 10-Q, 10-K and 8-K. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking statements include: changes in the general economy or in the Company's primary markets, changes in consumer spending, competitive factors, the nature and extent of continued consolidation in the industry, 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 - supply or quality control problems with the Company's vendors, and uncertainties detailed from time-to-time in the Company's filings with the Securities and Exchange Commission. In addition, with respect to the anticipated proceeds from the disposition of assets in the Southwest, additional factors that could cause results to differ materially include conditions in the real estate market and general economic conditions in the local communities where the assets are located. EX-27 13
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 YEAR 3-MOS 6-MOS 9-MOS DEC-30-1995 DEC-28-1996 DEC-28-1996 DEC-28-1996 JAN-01-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-30-1995 MAR-23-1996 JUN-15-1996 SEP-7-1996 70,035 135,119 75,690 149,448 0 0 0 0 127,995 130,483 123,494 137,869 0 0 0 0 881,021 875,719 871,203 886,842 1,152,413 1,211,834 1,172,349 1,250,538 2,333,744 2,373,896 2,417,108 2,470,952 840,892 864,785 882,070 906,631 2,645,265 2,720,945 2,707,387 2,814,859 698,695 795,078 741,599 785,052 355,300 315,300 315,300 314,689 0 0 0 0 0 0 0 0 237,568 235,704 234,581 234,366 864,942 871,197 894,229 930,751 2,645,265 2,720,945 2,707,387 2,814,859 8,210,884 2,024,453 4,108,867 6,233,257 8,210,884 2,024,453 4,108,867 6,233,257 6,516,637 1,612,830 3,253,598 4,915,927 6,516,637 1,612,830 3,253,598 4,915,927 0 0 0 0 0 0 0 0 73,484 19,004 38,643 57,840 283,061 63,072 148,518 236,214 110,700 24,598 57,922 92,123 172,361 38,474 90,596 144,091 0 0 0 0 0 0 0 0 0 0 0 0 172,361 38,474 90,596 144,091 .36 .08 .19 .31 .35 .08 .19 .30
EX-27 14
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 YEAR 3-MOS 6-MOS 9-MOS DEC-28-1996 JAN-03-1998 JAN-03-1998 JAN-03-1998 DEC-31-1995 DEC-29-1996 DEC-29-1996 DEC-29-1996 DEC-28-1996 MAR-22-1997 JUN-14-1997 SEP-6-1997 102,371 101,205 26,638 106,088 0 0 0 0 151,163 142,509 142,006 149,951 0 0 0 0 1,065,743 974,861 974,953 984,482 1,428,744 1,324,845 1,287,198 1,387,204 2,965,817 2,734,422 2,828,536 2,834,939 918,859 955,141 997,349 1,027,005 3,478,471 3,389,499 3,401,121 3,476,961 1,134,964 1,179,276 861,849 996,469 495,111 334,085 633,905 583,802 0 0 0 0 0 0 0 0 236,242 235,957 234,421 234,640 988,846 1,016,744 1,048,406 1,026,328 3,478,471 3,389,499 3,401,121 3,476,961 9,005,932 2,276,746 4,601,466 6,968,371 9,005,932 2,276,746 4,601,466 6,968,371 7,087,177 1,783,062 3,604,111 5,457,584 7,087,177 1,783,062 3,604,111 5,457,584 0 0 0 0 0 0 0 0 80,520 26,685 54,446 83,714 352,770 71,461 149,807 139,345 137,550 27,870 58,425 54,345 215,220 43,591 91,382 85,000 0 0 0 0 0 0 0 0 0 0 0 0 215,220 43,591 91,382 85,000 .46 .09 .19 .18 .45 .09 .19 .18
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